Commodities Report

 

 

Prices retreated further over the past week. Important support areas were breached, causing heavy speculative selling. Fundamentals took another bad turn, as the trade war between the US and China escalated.

 

$4.20 on Dec corn and $. 8.90 on Nov. soybeans were violated. Prices immediately fell another 20 cents and 36 cents respectively. At the recent low, corn is 70 cents from its June high, while soybeans have dropped 93 cents.

 

It’s not that the US crops are improving that is causing the drops if you believe the weekly crops ratings reports. In the latest week, US corn that is good or excellent fell 1 percent to 57 percent. Last year it was 71 at this time.

 

Crop progress continues to lag, and the 2-week forecast is for below normal temperatures. This will slow development, especially in corn. Only 23 percent is in the dough stage; last year it was 54 percent.

 

Soybean ratings held steady at 54 percent good/excellent. Last year it was 67 percent. 72 percent of US soybeans are flowering. Usually, it is around 90 percent at this time of year.

 

Trump upped the ante in the trade war when he tweeted he would put a 10 percent tariff on another $300 billion of Chinese exports. Apparently, this was because China was not buying as many US ag products as he thought they should.

On the weekend, China responded by saying they would buy no more ag products from the US. One would have thought this would have dropped grain prices drastically, but they took it in stride. Perhaps there is some light at the end of the tunnel?

 

It now takes over 7 Chinese yuan to buy 1 US dollar. This is the lowest yuan/US dollar rate since 2008. Trump immediately accused China of manipulating their currency. This is a further irritant in the escalating trade war.

 

The US Federal Reserve cut their base lending rate 25 basis points last week. That is the first drop since the economic meltdown in 2008. Inflation remains subdued and the ongoing trade friction will have a negative impact on growth worldwide.

There is now $15 trillion of investment grade bonds that have a negative interest rate. German bonds have joined the club for the first time. This is more proof that the world economy isn’t operating on all cylinders.

 

What it also means is that central bankers have limited ability to counter slowing economies with monetary policy should a recession develop. Meanwhile, fiscal policy may be limited also, as most governments are already running huge deficits.

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