This is the SFN Market Report with Brooks Schaffer of Palmetto Grain. Reach him at [email protected] or 843-540-4540.

The selloff in the grains started with a shift in the weather in South America a couple weeks ago. Areas that were too dry in Argentina started getting rain and the areas of Brazil that were too wet got a break in the rain. Brazilian harvest was falling behind historic pace and the second crop corn was not able to be planted. When the weather turned, it allowed them to catch up and exceed the historic pace for both soybean harvest and corn planting. The funds had been buyers in the grain market but started selling and taking profits. The USDA Outlook conference pegging corn acres at 94 million was not bullish and the selloff continued. We hit some technical levels and the selling accelerated.

I have mentioned tariffs almost in passing as it was hard to know whether to take them seriously. Trump had originally threatened 25% tariffs on both Mexico and Canada in early Feb. Then after they both made concessions, he gave a 30-day reprieve. That 30-day reprieve is up tomorrow and the looming threat of the tariffs started to put a lot of pressure on the grains. It is difficult to say how much of an effect it would have had if the markets had not already begun to slide lower but when you add in the bearish momentum it has really punished the grain markets. In addition to the 25% tariffs announced on Mexico and Canada, Trump also said he was going to add another 10% to all imports from China. That is in addition to the 10% increase he put on China at the beginning of February. When that round of tariffs went into effect, China responded in very specific ways that were designed to save face without inflicting pain to us. Even their language seemed designed to de-escalate rather than strike back. That tone has changed quite a bit this time around. China and Mexico have denounced the moves with much stronger language and promised to retaliate in kind and against our agricultural exports. Based on comments by Trump Monday afternoon, it seems increasingly unlikely there will be an 11th hour deal to delay this round of tariffs. His comments were made after the grain close, but stocks came under a lot more pressure after the headline. 

Corn remains very tight in the world. As long as full blown trade war does not cause a global recession, that should help support corn and help it recover. Basis is strengthening in the US as users still need to originate bushels which is showing strong demand. Beans have held up well despite the South American crop on the way until now. Seasonally, it is not uncommon to see weakness this time of year in the grains. Let’s hope we get this noise behind us quickly and can go back to trading fundamentals which are more bullish than the recent market action would suggest.