GRAIN MARKETS
Global
updates
Continuation of trade war impacting prices
I
By Paul Dubravec
Advance Trading
n the fall edition that came out in late
October we discussed the October crop
report and were wrapping harvest up
across the major corn belt. Since then
we’ve had multiple USDA reports,
watched as China purchased mass amounts
of U.S. milo while recently imposing an-
ti-dumping tariffs cutting off that demand,
and are now in the midst of a market led
primarily by concerns over South Amer-
ican weather. Interesting looking back at
the fall write up and comments back then
about how the market was at that time
beginning to talk up South American
weather concerns.
Since the fall edition at the end of Oc-
tober 2017, we’ve gone through the final
parts of the 2017-18 crop year harvest,
finished up planting and growth cycle of
the South American crop, and felt the start
and now continuation of a trade conflict
with China. In addition to these major
events, let’s not forget weather changes and
challenges across the globe. Since that last
edition, commodity prices have had some
healthy price volatility — late October of
2017 December 2018 corn futures closed at
$3.94 ½/bu, has since hit a high of $4.28 ¾
at the end of May and has since seen a low
of $3.68 ¾ in late June. 2018 December
Cotton futures were trading at $0.6798/lb.
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If recent price volatility is any indication of what
the rest of this year and going into next might
look like, we may be in for some real challenges
ahead.
when the last edition was put together, hit
a low of $0.6776 soon after and saw a high
of $0.9482 in the beginning of June. For
corn, there has been a roughly 60 cent per
bushel range in six months while cotton
has seen an almost 27 cent trading range
in that same time frame. Beans have seen a
$2.16 /bu range over the same earlier men-
tioned time frame — since the end of May
have dropped almost $1.90 in price.
Like many years, fundamentals have
been a major contributing factor to price
movement. But, from time to time, in
comes the left hook that throws the trade
into an either bullish or bearish move. We
all know price is unpredictable — there
is no crystal ball nor does anyone know
whether prices will rise or fall. Throw a
trade war in the mix with China, one of
our biggest buyers of U.S. commodities,
and the uncertainty along with the unex-
pected becomes magnified.
Last fall when the trade war was start-
ing, the commodity that got hit the most
was sorghum — China was implementing
some high import tariffs on U.S. milo and
then moved to an even higher import tariff
deposit. Vessels traveling to China were
diverted to other countries; large trading
firms lost tens of millions, and the cash bid
dropped significantly. This was partially in
retaliation for various tariff threats that the
Trump administration had talked about
for steel and aluminum imports among
other things. Fast-forward to today and
the threat of more tariffs imposed by both
sides is out there and neither side seems in
a hurry to sit down and make a deal. The
largest sticking point for the U.S. today is
for China to admit and then cease from
stealing valuable intellectual assets gener-
ated here in the U.S.
Since late last year into the first part
of this year, no one knew nor could have
known how this trade war was going to
impact prices. Many in the trade assumed
both parties would work through this and
there would be little if any impact short or