Grain Futures Mixed Friday With Weather And Trade In Focus

Investment Thesis

With weather and trade being the two major themes in 2019, look for agriculture prices to remain rangebound.

Grain markets head in two different directions with weather and trade leading corn and soybeans higher and lower, respectively

The U.S. July corn futures finished Friday’s trading session up 1.02% to $3.8288, with the U.S. July soybean futures down 2.15% to $8.2100 and the U.S. wheat futures lower 0.83% to $4.6312. For the less-volatile, unleveraged Teucrium ETF grain products, the Teucrium Corn ETF (CORN) finished up 0.13% ($0.02) to $15.46, the Teucrium Soybean Fund (SOYB) finished down 2.55% ($0.38) to $14.52 and the Teucrium Wheat Fund (WEAT) also finished down 0.95% ($0.05) to $5.23. Figure 1 below is a price trend chart of the front-month July futures contract for corn over the past 24 hours.

Source: Investing.com

Grain Futures Mixed Friday With Weather And Trade In FocusSource: Investing.com

Grain Futures Mixed Friday With Weather And Trade In FocusSource: Investing.com

July Chicago Soft Red Winter Wheat (SRW) futures were seen down 4 cents to $4.630, with July Kansas City Hard Red Winter Wheat (HRW) futures up 1 cent to $4.176, resulting in a bearish 45-cent premium of CBOT wheat to KCBT wheat. MGEX’s Hard Red Spring Wheat (HRSW) July contract was up $0.01 to $5.276. Figure 4 below is a price trend chart of the front-month July futures contract for spring wheat.

With broad, upper cyclonic flow (upper level troughing) driven by a -PNA over the western U.S. and downstream upper anticyclonic flow (upper level ridging) developing over the southeastern U.S., an active (stormy) weather pattern is set to take shape across the western and central U.S. Wet, unsettled weather over the western U.S. will be associated with the anomalous upper level troughing. A jet stream sandwich in between these two large scale features will drive energy out of the southwest U.S. into the central U.S. This energy will tap into rich moist air from the Gulf of Mexico and will play as a key ingredient in enhancing rainfall production and the severity of thunderstorms that track along this jet stream. Over the next week, numerous impulses will track along this jet stream/baroclinic zone/surface semi-stationary boundary in the form of showers and thunderstorms.

In the 5-11 day time frame, upper level ridging will strengthen over the southeast U.S. resulting in record-breaking heat with daytime highs in the 90s and a few 100s. Storms associated with the surface frontal boundary and upper level jet stream will ride along the periphery of this massive upper level southeast U.S. ridge. The Plains and Midwest will be in the crosshairs of several rounds of these showers and thunderstorms. For corn and soybean farmers, this will only complicate matters even more further disrupting the already slow planting season.

Grain Futures Mixed Friday With Weather And Trade In FocusSource: NOAA

On the trade front, the U.S.-China trade war escalation took to another level after ruling Communist Party’s People’s Daily wrote in a front-page commentary that: “The trade war can’t bring China down. It will only harden us to grow stronger.” “What kind of storms have not been seen, what bumps have not experienced for China, with its more than 5,000 years of civilization? In the face of hurricanes, the nearly 1.4 billion Chinese people have confidence and stamina.” This rhetoric from the Chinese media evoked the patriotic spirit of past wars. Furthermore, China has accused the U.S. of not being sincere in the trade talks and seemingly is not interested in further talks at least for now stating: “The United States is not sincere about wanting to resume trade talks with China and has damaged the atmosphere for negotiations with its recent moves”. “Without sincerity there was no point in coming for talks and nothing to talk about”.

The increased tensions have led to global growth fears which have rattled the global markets. Agriculture markets are also feeling the effects with soybeans bearing the brunt. Soybeans are imported into China from the U.S. more than corn and wheat.

Final Trading Thoughts

A stormier weather pattern and a slow planting season give support to the upside. Other variables such as strong crop supply and concerns surrounding the U.S.-China trade war bring downside risk. That said, expect prices to remain rangebound.

Stay Tuned For More Updates!

Disclosure: I/we have no positions in any stocks mentioned, and no plans to initiate any positions within the next 72 hours. I wrote this article myself, and it expresses my own opinions. I am not receiving compensation for it (other than from Seeking Alpha). I have no business relationship with any company whose stock is mentioned in this article.