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US cotton market moves lower after Trump’s tariff threats on Mexico

President Donald Trump has threatened to increase tariffs on Mexico, hurting the cotton market.

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Wheat

Wheat markets were mixed last week, with Minneapolis prices higher and Chicago SRW prices a little higher. Chicago HRW prices closed lower. Spring Wheat values are starting to move higher due to reports of dry weather for planting in the western Canadian Prairies and reports of hot and dry weather in Russia and into eastern Ukraine. Production estimates for Russia have started to drop and world prices have started to firm. The situation in Canada is having more to do with the recent strength in Minneapolis as much of the Canadian Spring Wheat is hedged in that market. The dry weather in Canada has made for easier planting but poor emergence. Questions about yield potential are starting to increase. HRW markets were the big loser on the week. The weather in the

Great Plains seems to be a little better now and ideas are that a high yielding crop is coming. However, there have also been reports that some of the Wheat is not good and will be used as feed for dairy interests in the region. No one has said how much of the crop could be affected, but the market does not seem real concerned at this time as USDA crop condition ratings have been stronger than trade estimates over the last couple of weeks. SRW areas of the Midwest, Delta, and Southeast saw significant rains over the weekend from the storm that formed in the Gulf last week. The precipitation is very welcome in the Southeast but not in the Delta or the Midwest. Export demand for US Wheat has been stronger than trade expectations over the last few weeks. The weekly charts show that the Chicago Winter Wheat markets faded from some strong resistance areas last week. Minneapolis is churning its way through about nine months of price action as it tries to move higher and back to about $5.90 per bushel.

Weekly Chicago Soft Red Winter Wheat Futures ©Jack Scoville
Weekly Chicago Hard Red Winter Wheat Futures ©Jack Scoville
Weekly Minneapolis Hard Red Spring Wheat Futures ©Jack Scoville

Corn

Corn and Oats both closed flower last week. Corn basically held inside the trading range of the previous week. There was a lot of long liquidation and some new selling seen in the market. At least some of the new selling came from producers who used the rally to price levels not seen in the last three years to unload crops in storage. A big reason for the selling were threats of a new trade war with Mexico over the immigration problems on the border. The president tweeted that a deal was reached on Friday evening and that no new tariffs would be imposed. The threat of tariffs had threatened to hurt trade in agricultural products between the two countries and also the new free trade agreement with Mexico and Canada. The trade agreement still needs to be ratified by Congress, where it faces some strong opposition, but at least it is still on the table. The weather is the other big market mover these days, and the weather turned drier last week. The trade expects the Corn planting progress to be very active and that Corn could be over 80 percent planted in the reports this afternoon. Rains returned to the Midwest over the weekend, so it is doubtful that much progress was made. More rain is expected over the second half of the week. It is still very likely that a significant area will not get planted to Corn and will be planted instead to Soybeans of will not be planted this year. Lower than trend line yields are also likely given the late planting dates in most of the Midwest. USDA will begin to reflect the planting problems and what it could mean to production, demand, and prices in the monthly supply and demand updates that will be released on Tuesday.

Weekly Corn Futures ©Jack Scoville
Weekly Oats Futures ©Jack Scoville

Soybeans and soybean meal

Soybeans and Soybean Meal were lower last week and the weekly charts show that futures could not overcome strong resistance near $9.00 per bushel and have now fallen back to test support. The price action has been disappointing given the Midwest weather and slow planting pace for both Corn and Soybeans. The trade thinks that there will be more Soybeans planted in the US this year because some of the Corn can’t be planted and this could be true. The potential for more Soybeans planted area is especially good in the eastern Midwest where yield potential is higher. The trade is also worried about a permanent loss of demand from China due in part to the Swine Flu there and in other parts of Southeast Asia and the trade war with China. This is also happening and the Brazilian producer has been the beneficiary.

The US has been selling Soybeans almost everywhere else as US prices have been competitive, but the biggest buyer in the world will not buy from the US due to the increased trade tensions. Neither side seems ready to make a deal right now and in fact, the tensions seem to be escalating. China has continued to buy US pork meat as it needs meat in a big way due to the Swine Flu. It is also making deals to buy from just about everyone else as the demand is going to be big enough to demand imports from all corners of the globe. The Brazilian Real has firmed in the last few weeks and is now less than 4:1 against the US Dollar. This will increase Brazil prices and will help the US remain competitive in world markets for everyone besides China. USDA will show its crop progress reports on Monday night and the monthly supply and demand updates on Tuesday during the trading session.

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Weekly Chicago Soybeans Futures ©Jack Scoville
Weekly Chicago Soybean Meal Futures ©Jack Scoville

Rice

Rice was higher last week as the weather remained difficult for producers. Some excessive rains were reported late in the week around Houston and there is some potential for damage to crops. The big rains then moved east into Louisiana to possibly damage crops there and then over the weekend into Mississippi and north into Arkansas to further delay plantings. Some of the producers in Mississippi, Arkansas, and southern Missouri will stop trying to plant Rice and will try to plant Soybeans instead. There can be little doubt now that the total planted area will be somewhat reduced, especially in Mississippi and Arkansas. Just how much the planted area will be reduced seems to be a guess at this point.

California is also having some weather problems from too much rain. The crop was planted a little late and the crop condition ratings have not been as strong as is normally seen in the state. Demand for US Rice in the world market has not been all that strong lately, but sales in the western hemisphere are continuing. USDA did show a big sale to Iraq, but this was already known to the trade and did not move prices. World prices have been firming lately so this should help the US. Trends on the weekly charts remain strong as futures closed near the highs for the week. Prices could continue to work higher as the market tries to factor in the potential for lost planted area and production for this year.

Weekly Chicago Rice Futures ©Jack Scoville

Palm oil and vegetable oils

World vegetable oils markets were softer last week but mostly held to recent trading ranges. Palm Oil was a little lower in very limited trading. It was the end of Ramadan and futures were closed for a couple of days. The market opened on Friday but will not get going again in a big way until this week. Traders face a moment of decision once they come back to work. A triangle formation can be seen in the weekly charts so futures could start a new trend in either direction now. The demand for Palm Oil has held well over the last couple of months, but the market also talks about big supplies. It will get monthly data from MPOB this week and that data will help decide on the next direction for prices.

That direction could be up if the Chinese buy more Palm Oil. They are buying less Soybeans and will need to buy additional vegetable oils in the world market to make up for the lost domestic production of Soybean Oil. They could and will also buy Soybean Oil in Argentina but will try to avoid buying from the US. Canola retrenched even though drought is developing in the Canadian Prairies. It has been very dry there and the crops in the region really need a drink. There were chances for some precipitation over the weekend, especially in northern areas. There are hopes that Chinese demand can return as well. China bought a lot of Canadian Wheat last month and much more than its normal purchases. That is good news for Canada as it has had its own trade problems due to the incident with the Huawei executive arrested in Canada a couple of months ago. The big Wheat purchases could mean that Canola demand will improve as well. Soybean Oil was soft as world petroleum prices worked lower. The move lower in Crude Oil and products implies less demand for biofuels.

Weekly Malaysian Palm Oil Futures ©Jack Scoville
Weekly Chicago Soybean Oil Futures ©Jack Scoville
Weekly Canola Futures ©Jack Scoville

Cotton

Cotton was lower for the week as futures moved sharply lower on Friday. Trends have turned down on the daily and weekly charts with the price action of late last week. The market was hurt by the threats President Trump made to increase tariffs on Mexico due to the immigration problems along the southern border. It is another demand threat for Cotton that is already experiencing lost business potential with China and Turkey and could get hurt if Vietnam is targeted for tariffs later on. Cotton planting progress has been on par with the five-year average and ideas of big crops are keeping prices weaker.

There are some concerns that the cold May weather from Texas to the Delta might cause lower yields this Fall. It has been hot and dry for the last few weeks in the Southeast, and crops of all kinds in the region need water and cooler weather. Precipitation moved into the region over the weekend. Also pressuring the market are forecasts for big production around the world. USDA sees no shortage of Cotton anywhere in the coming year. However, it could be that the Indian monsoon gets off to a slow start and production potential gets hurt there and in Pakistan. It has been dry so far and is turning hotter, but this is considered pre monsoonal weather. Below normal rains are now in the forecast for both countries in June.

Weekly US Cotton Futures ©Jack Scoville

Frozen concentrated orange juice and citrus

FCOJ was a little lower after an early week push to higher values ran out of steam. Speculators have been buying in anticipation of the hurricane season. The season started on June 1, and a tropical system formed in the Gulf of Mexico that brought some significant rains to the Houston area. This is away from any big citrus production, but the storm means that the season has started right on time. Trends are sideways to down on the daily charts and sideways weekly charts as the market looks at a big orange crop and weak demand for FCOJ. USDA production estimates are above 70 million boxes and represent a remarkable recovery from the greening disease and the small crops of just a couple of years ago.

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Inventories in Florida are still 17 percent above a year ago. That means that there should be no shortage of oranges available to the market to make FCOJ. The increase is coming from less demand along with the increased domestic production. Fruit for the next crop is developing and are as big as golf balls. Crop conditions are called good. Irrigation is being used a few times a week to help protect crop condition. Mostly good conditions are reported in Brazil as the harvest there is active.

Weekly FCOJ Futures ©Jack Scoville

Coffee

Futures were lower for the week despite a firm Real. The market saw a dramatic move lower at the middle of the week that ended the current rally attempt for both markets. There are reasons to think that the long term down move is coming to an end. The Brazil harvest is moving along at a slow pace. Reports indicate that the yields are not really strong and that the quality of the crop is poor due to extreme weather seen early in the growing season. Forecasts for cold air were made for southern Coffee areas of Brazil, but the temperature outlook was not cold enough to cause any concerns about damage to Coffee. It is at least a reminder of what time of year it is in Brazil and the potential for damage due to cold and freezing temperatures.

Vietnam is also reporting lower yields for the current crop as the weather was not good for flowering earlier in the year. There have been some hot and dry spells that have hurt yield and quality for these crops as well. Buyers are now more actively pursuing other origins, especially for certified or higher end coffees. Roasters were scaling down buyers on the extended down move and now have more than ample supplies in-house or on the way. Brazil had a big production year for the current crop, but the next crop should be less as it is an off-year for production. The charts show that both markets could trade in a sideways to an up pattern for now as the market looks at weather and production potential of the next crop.

Weekly New York Arabica Coffee Futures ©Jack Scoville
Weekly London Robusta Coffee Futures ©Jack Scoville

Sugar

Futures closed higher as the Real remained stronger. The move higher in the Real increased world prices, as did more reports that Brazilian processors prefer to make Ethanol for the domestic market rather than Sugar for the export market. Processing of Sugarcane in Brazil has been off to a slow start and there are some ideas that Sugarcane production was not all that strong this year due to uneven weather. Chart patterns on the weekly charts are sideways in both markets. The fundamentals still suggest big supplies, and the weather in Brazil has improved to support some of the big production ideas. Demand seems to be average and routine.

There are concerns that the Indian monsoon will not be strong this year and that Sugarcane production could be hurt. It is hot and dry there so far, but there are signs that the monsoon is ready to develop. Even so, there are now a lot of private forecasts that June rains in both India and Pakistan will b3e below average. The government weather services there are looking for a normal monsoon, but many private forecasters expect less rain and warmer temperatures than normal. Very good conditions are reported in Thailand. Demand for Sugar has been average, and demand for ethanol is reported to be increasing.

Weekly New York World Raw Sugar Futures ©Jack Scoville
Weekly London White Sugar Futures ©Jack Scoville

Cocoa

Futures closed at or near the highs of the week as buying returned to the market. The ICCO released its latest estimates a week ago and called for a slight increase in world production. It cited strong production in West Africa that would more than offset reduced production from Asia and Latin America. However, the Ghana Cocoa authorities noted disease problems in its crop and said that mid-crop production could be hurt. The disease could hurt the mid-crop and probably will affect the next main crop that will be harvested at the end of the year. The mid-crop harvest is winding down in West Africa and reports are generally positive, although some Nigerian producers have complained that the weather is not giving them the best conditions for top yields. Ivory Coast arrivals are strong as are the exports.

The weekly arrivals pace is about 15 percent higher than a year ago and is holding this level. Demand appears strong and the market saw stronger than expected grind data when the quarterly grind is released in the EU, North America, and Asia in the last month. Growing conditions are generally good in West Africa. Periods of showers and cooler temperatures were beneficial, and most in West Africa expect a very good mid-crop harvest. Cameroon and Nigeria are reporting less production and prices there are reported strong. Conditions appear good in East Africa and Asia, but East Africa has been a little dry as has Malaysia.

Weekly New York Cocoa Futures ©Jack Scoville
Weekly London Cocoa Futures ©Jack Scoville

(Featured image by DepositPhotos)

DISCLAIMER: This article expresses my own ideas and opinions. Any information I have shared are from sources that I believe to be reliable and accurate. I did not receive any financial compensation for writing this post, nor do I own any shares in any company I’ve mentioned. I encourage any reader to do their own diligent research first before making any investment decisions.

Jack Scoville is a futures market analyst specializing in grains, softs, rice, oilseeds, and tropical products such as coffee and sugar. In addition to writing daily market commentaries in both English and Spanish, he offers brokerage services to an international clientele of agricultural producers, processors, exporters, and other professional traders. He is regularly quoted by major wire services including Dow Jones, AP, and Reuters. His comments are sourced by newspapers around the world and on various radio and television programs.

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