March 5, 2025 – By John S. Simpson Jr.
The grain markets remain under pressure following China’s tariffs on U.S. agricultural imports, driving managed money out of the market and forcing key technical levels lower. However, a potential easing of U.S. tariffs, as indicated today by the U.S. Commerce Secretary, could shift sentiment.
This report breaks down the latest market action, key price levels, near-term fundamentals, COT positioning, and fund flows.
Corn (ZCK25) – Managed Money Trims Shorts, Watching for Support
- Short initiated at $500 amid China’s 15% tariff on U.S. corn.
- Tested support at $495 on 2/25 and broke through.
- Reached support at $442 on 3/4, potential bottom formation.
- Technical Reaction: Holding $442 is crucial for any rebound attempt; a break below could target $430.
Near-Term Fundamentals:
🔹 U.S. Planting Expectations:
- USDA projects 94 million acres of corn in 2025, up from 90.6 million last year.
- A larger planted area could pressure prices further unless demand improves.
🔹 Ethanol Demand:
- Weekly ethanol production remains steady, but margins are tightening due to recent oil price fluctuations.
- Crude oil’s direction will influence ethanol’s strength.
🔹 South American Weather:
- Brazil’s second-crop (safrinha) corn planting is ahead of schedule.
- Dry conditions in Argentina could support prices, but global supply remains ample.
🔹 COT Report – Fund Positioning:
- Managed money is still net short corn but trimmed some of its position last week.
- This could indicate a potential bottoming process at $442.
🔹 Tariff Update:
- Commerce Secretary hints at potential easing of tariffs on imports from Mexico & Canada.
- While corn tariffs were imposed by China, any trade relief could improve sentiment.
🔹 Outlook:
- If $442 holds, we could see a corrective bounce.
- If support fails, next downside target is $430.
Soybeans (ZSK25) – Funds Continue Liquidation as Brazil Undercuts U.S. Exports
- China imposed a 10% tariff on U.S. soybeans.
- Broke below critical support at $1041.
- Next key support levels:
- $995 – First major level to hold.
- $955 – Next major downside target.
- Technical Breakdown: No sign of bottoming yet.
Near-Term Fundamentals:
🔹 China’s Demand Shifts:
- China is prioritizing Brazilian soybeans over U.S. imports.
- The U.S. remains at a price disadvantage due to Brazil’s record harvest.
🔹 Record Brazilian Harvest:
- Brazil is expected to produce over 154 MMT of soybeans, a record high.
- Ample supply is creating heavy export competition and keeping U.S. prices under pressure.
🔹 Crush Margins & Biofuel Demand:
- Soybean crush margins are tightening, reducing domestic processor demand.
- Weak biodiesel demand is pressuring soybean oil, adding to the bearish case.
🔹 COT Report – Fund Positioning:
- Managed money aggressively reduced long positions in soybeans.
- The market remains in liquidation mode as funds rotate away from grains.
🔹 Tariff Update:
- Soybeans are not directly impacted by today’s U.S. tariff relief discussions.
- However, a broader improvement in trade relations could help stabilize market sentiment.
🔹 Outlook:
- If $995 fails, soybean prices could test $955.
- Further liquidation by funds could accelerate downside momentum.
Wheat (ZWK25) – Record Russian Exports Keep Pressure On U.S. Prices
- Short initiated at $590 on 2/25.
- China imposed a 15% tariff on U.S. wheat imports.
- Weekly chart confirms a continued downtrend.
- Key Support Levels:
- $550 – Minor support
- $525 – Stronger support area to watch for a possible rebound
Near-Term Fundamentals:
🔹 Aggressive Russian Exports:
- Russia continues to sell wheat aggressively into global markets at a discount.
- U.S. wheat is struggling to compete due to high prices and export costs.
🔹 Drought in U.S. Hard Red Winter (HRW) Wheat Areas:
- Dry conditions in the Southern Plains remain a key factor to watch.
- So far, the market has not priced in a weather premium.
🔹 Indian Imports:
- India’s wheat stocks are shrinking, and millers are pushing for the removal of a 40% import tariff.
- If India starts importing wheat, this could provide bullish momentum.
🔹 COT Report – Fund Positioning:
- Funds remain net short wheat, increasing their bearish bets last week.
- This indicates continued pressure unless a catalyst emerges.
🔹 Outlook:
- If wheat remains uncompetitive in exports, downside pressure will continue.
- Support at $525 will be key to watch if funds keep liquidating.
Final Thoughts
In my opinion, fund liquidation continues to drive grain markets lower, and tariff uncertainty remains a major factor. Today’s hint at easing U.S. tariffs could improve overall sentiment, but China’s tariffs on U.S. grain remain in place.
Risk Disclosure
As always, this is just my opinion and should not be considered as financial advice. Market conditions can change rapidly, and it’s essential to stay informed and manage risk accordingly.
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John S. Simpson Jr.
Senior Market Strategist
Walsh Trading
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