Tariffs and Market Response for CZ2018 Futures

***This commentary is provided for descriptive and entertainment purposes only and is not intended to be used for specific trading strategies or interpreted to be investment advice. ***** 

Take a look at the CZ2018 futures contract for the last few weeks and you'll feel you stomach drop.

WASDE June 12 / Planted Acres Report June 29 (summary)

Supply:
Planted Acreage (million acres):  88/89.1
Harvested Acreage: 80.7/81.7
Yield (Bushels/Acre): 174/174

Ending Stocks (million bushels): 1,577/1753
Ending Stocks/Total Consumption (%): 10.79%/11.99%

*Model Projected Prices: $4.41/$4.14

*Corn Price = a + b (1/Stocks-Use Ratio)

On Friday June 29 USDA released its planted acres report and increased planted and harvested acres. According to the updated balance sheets, that could have been slightly bearish (see below). This makes you ask a couple questions. 1) how much of this was already priced in and already reflected on the chart 2) how much of the price drop we have seen is due to trade and tariffs?

This is an ongoing question. It looks like whatever the impact, we're beginning to see sideways trading until something major in terms of weather upsets the above normal crop conditions ratings. How exceptional does this have to be to push back against the price headwinds we are getting from talk about tariffs? That is a hard question. Sonny Perdue and folks at USDA are working on it according to this story:

 "Our economists are using formulas and algorithms to determine the elasticity of what that trade disruption is, versus [other] market factors" - Sonny Perdue

from: https://www.morningstar.com/news/dow-jones/TDJNDN_201806269373/grain-highlights-top-stories-of-the-day.print.html 

That would be good to know from a marketing standpoint (how much can we expect weather to impact price vs. a change in the policy environment and how do we hedge against that) and a need to know if they are going to develop a scheme to compensate financial and economic losers in what many think to be an impending trade war. It is just perplexing to me that we are talking about completely changing the market environment for our food supply...including tariffs and to 'correct' those distortions with possible payments, supports, purchases etc. by government. While far from being a truly 'free' market to begin with, this seems like a clumsy step backwards.

***This commentary is provided for descriptive and entertainment purposes only and is not intended to be used for specific trading strategies or interpreted to be investment advice. *****