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Turner's Take Ag Markets | Rains and Chinese Rate Cut Sends CBOT Lower

By: Craig Turner, Senior Risk Management Consultant

Turner's Take Ag Markets
 
Craig Turner
Senior Risk Management Consultant
Turner's Take Podcast

OILSEEDS | China announced a surprise interest rate cut yesterday due to low GDP growth and a real estate market that has been down monthly for eleven consecutive months.  It is difficult to get hard date for China's real estate market but the internal numbers must be bad enough warrant a rate increase.  China is dealing with the same inflation as everyone else, as well as an increasing national debt and price pressures on their currency.

Oilseeds and crude took the brunt of the selling on the China rate cut news.  Soybeans were down nearly 70 cents yesterday and dragged palm, sunflower, and canola lower.  GD/EX ratings for US soybeans declined 1% in yesterday's USDA crop progress report but soybeans opened lower again last night.  US weather is improving and tightness in old crop will soon subside to new crop harvest.  

N. American weather models turned a bit warmer for September and for the moment there is less concern for frost risk to the canola crop.  A combination of a weaker Chinese economy, better weather for soybeans, less front risk for canola, and a looming N. American harvest point to range bound prices at best.  For now the path of least resistance is lower prices into harvest, which would follow a typical seasonal pattern.

 

GRAINS | Corn followed soybeans and crude lower yesterday and should be down again today.   Chinese demand is now in question after the rate cut. IA and MO received much needed rains and should put an end to further yield declines.  I still have trouble justifying $6 new crop corn just because we have tight stocks but no real demand rationing in exports or feed.  Back in 2012 the US had to price ration about 2 billion bushels of corn demand.  Exports were nearly cut in half, feed was down 15%, and even ethanol took a hit during a time when government policy was pushing for more corn for ethanol use.  That is the scenario that took corn to $6, $7 and $8 in 2012.  I don't see that need for demand rationing UNLESS the USDA is wrong about how much grain can get out of the Black Sea this fall.  If the grain corridor falls apart then we will need aggressive demand rationing.  The point is I think there is more uncertainty premium built into corn and wheat due to the Black Sea than weather/yield concerns.

The Spring Wheat crop rating came in yesterday at 64 % GD/EX, unchanged from last week.  Wheat was a follower yesterday as soybeans led the oilseeds and grain markets lower.  The coming spring wheat harvest in Russia, Canada, and the US will most likely pressure all wheat prices over the next two months.  The big question for wheat comes later in September when the world seasonally turns to the Black Sea grain exports.  It is a race against time in the Black Sea and the two great unknowns are 1) the amount of Black Sea export capacity out of Ukraine and Russia and 2) the quantity of demand that can't be shifted to substitutes like rice.  

 

 Craig Turner
800.958.9470 Toll-Free
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craig.turner@stonex.com
@Turners_Take
 
 
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