Good morning, Lots going on-
Today’s non-farm payroll report will underscore the IMF’s message. Consensus says it will be the worst on record, with 22 million layoffs in April wiping out two decades of job creation in one month. The unemployment rate is seen soaring to 16% from 4.4%. This after the latest batch of initial jobless claims pushed the seven-week total to 33.5 million.
China corn and bean market remain at contract highs while US remain at contract lows. China entered in US markets yesterday with a huge 686 kmt purchase US corn. A meeting overnight between Liu and Lighthizer/Mnuchin was very constructive with both countries agreeing that in spite of health crisis, both countries fully expect to meet obligations.
This should help everything from equities to commodities and is expected to calm the rhetoric from Pres Trump about placing Tariffs on China. All eyes will however remain on Pres Trump and comments regarding origin of virus.
Chinese July corn futures
July Chinese bean futures
Freezes are still expected in portions of the Corn Belt Friday through Tuesday. The market believes it is still early enough that replanting will dispel any real concerns.
We have been wanting to wait to buy until the USDA report because we think the most bearish report of the year will be released. USDA will have corn end stocks using 87 mil acres and a resulting end stocks that could be near 3.3 bil bu corn. Contrasting that is soybeans where stocks will decline due to increased demand and 83.51 mil acres.
Corn however may not wait for USDA. The July corn chart is signaling a potential double bottom low. Today it is breaking out through the previous down trend. As Brian pointed out Monday, we really need that close above 322’2 to confirm.
July corn futures
We have been and continue to recommend an option position that we think you should have on between now and Tuesday report for a hold into a summer rally (June-July). If you do not want any margin exposure, then consider the vertical call spread of this position or an outright September call. Everyone is different but everything is very cheap right now so we should be able to find a position that works
Continuous Dec corn chart with option position overlay
July Soybean chart is still in a down trend but is also on the verge of turning. In our weekly video meeting, Brian mentioned a close over 856 would be a buy signal. Although we would expect USDA to raise production in futures reports as acres are likely too low, we expect strong demand from China to offset most of the supply increase. With only 340 mil bu end stock potential and China buying, we expect good buying on any break.
For more information – watch this weeks video
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