Grain Spreads: Reality TV

Sean Lusk July 25, 2018General Commentary

I was charting up new crop beans basis November this afternoon and in the background on TV was the President of the EU and President Trump both announcing that the trade war is over. Although some details need to be ironed out among them steel and aluminum tariffs, Trump announced that the EU among its concessions will buy more US soybeans. Not US grain or pork, but soybeans only. No doubt a script here in my view with the emphasis on soybeans from the President but nevertheless could be seen as demand friendly. The targets were the Presidents recent critics of his announcement of $12 billion in aid to producers who will suffer from the trade war and secondly China. Whether the avoidance of a trade war with the EU gives thoughts to something similar later occurring with China is anyone’s guess, I believe when the noise stops, the market will go back to trading weather and demand.

Speaking of weather, lets look at wheat. We talked Friday at looking at Chicago basis September at the 518 level. While we traded over this level, we haven’t closed over it until today with our upside target at 5.38 being surpassed with another level at 551. Wheat was limit up at one point today in all classes KC, Minneapolis, and Chicago. We settled off of limit, but there is still room to the upside technically in my view. Basis levels have soared in Russia, as their crop is reported down 30 percent year on year. Drought plagues Europe and Australia. The US Spring Wheat Tour is surprising the trade with below normal yields which predicated the rally in Minneapolis. The 1^st day of the tour reported an HRS yield of 38.9 BPA, which is above last year’s meager 37.9 BPA, but well below the 5-average of 44.7 BPA. June heat is being blamed with weekly HRS crop conditions historically high. Wheat is the upside leader amid falling world production, corn will follow in my opinion.

Technical’s come in as follows. For Nov beans, support is 867.2. A close under and 856 and then 841. Resistance is 894 and then 918. For Sep wheat. Support is 538 and then 518, A close below here at 495 is next. Resistance is at 551 and then 570. Dec corn support is 363. A close under and it 354.4 and then 348. Resistance is 378 and then 383. A close over and 399.2 could be seen.

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