Wile the majority of the United States was distracted by Sunday's Super Bowl, the US president stated new tariffs on steel and aluminum would be announced Monday.
In other words, the game remains the same, reflected by continued strong buying in precious metals.
Meanwhile, the Grains sector was quietly lower to start a week that includes the next round of USDA's monthly WASDE nonsense.
Morning Summary: Now that the National Football League’s Super Bowl has been played – with congratulations to the Philadelphia Eagles – the United States can start to focus its attention on things that matter. But before that can happen there is one more piece of business likely to take place: An Executive Order from the US president making the New Jersey Generals world champions. (I’m sure there are some in the audience too young to know who the New Jersey Generals are and why it matters. Have fun Googling it.) As expected, the US president used the distraction of the Super Bowl to say a new 25% tariff on “all steel and aluminum imports into the United State” would be announced Monday. In response, China’s promised 15% tariffs on US products including “LNG, coal, and agricultural equipment” are set to be imposed Monday as well. It’s going to be a fun week[i]. Markets are not showing much reaction early Monday morning with the US dollar index ($DXY) posting a small gain and US stock index futures in the green. However, we can see the ripple effect of continued trade troubles in precious metals where gold (GCJ25) rallied as much as $42.10 while silver (SIH25) gained as much as 32.7 cents, with both markets near session highs at this writing.
Corn: The corn market is in the red to start the day and week, though contracts didn’t take out lows posted shortly after Sunday night’s open. Both the March (ZCH25) and May issues dropped as much as 5.25 cents before stabilizing with neither making it back above unchanged through early Monday morning. At least not yet. March registered trade volume of nearly 26,000 contracts while May was showing fewer than 10,000 contracts changing hands. Both were sitting 3.0 cents lower at this writing. I don’t see much significance in overnight trade, with only the fact May dipped back below $5.00 standing out to me. Last Friday’s CFTC Commitments of Traders report (legacy, futures only) showed funds added 18,500 contracts to their net-long futures position, putting it at 462,380 contracts as of Tuesday, February 4. The long futures position of 626,000 contracts was within sight of its all-time high at 678,400 contracts from the week of June 19, 2018. Also Friday evening, the National Corn Index came in near $4.5475, down 8.0 cents from Thursday and put national average basis calculations at 32.75 cents under March and 45.75 cents under May. The previous Friday had basis at 32.25 cents under and 43.25 cents under respectively.
Soybeans: The soybean market was also quietly lower pre-dawn with March (ZSH25) slipping as much as 6.5 cents and May 6.75 cents overnight. It’s easy to imagine the muted response has to do with the market already knowing China was going to retaliate with Watson now waiting to see what comes next. Because while we can’t be certain about much these days, we can be sure this isn’t the end of tariffs and retaliatory moves. Speaking of funds, last Friday’s Commitments of Traders report showed an increase in the noncommercial net-long futures position of 5,815 contracts. This included a decrease in both long and short futures, with the bottom line an increase in the net position created by decreasing holdings is not as bullish as one driven by new buying interest. Fundamentally, there wasn’t much reason for Watson to grow more bullish with the National Soybean Index coming in Friday evening at $9.85 putting national average basis calculations at 64.5 cents under March and 80.5 cents under May futures. The previous Friday showed 64.5 cents under and 80.0 cents under respectively with the previous 5-year lows at 54.0 cents under March last week and 81.5 cents under May the first weekly close of March.
Wheat: The wheat sub-sector was mostly lower pre-dawn with both winter markets in the red while spring wheat showed a fractional gain. As for the latter, the March issue (MWH25) was up 0.25 cent and the May issue 0.75 cent on light trade volume of 400 contracts and 350 contracts respectively. The HRS market started the week with March slipping as much as 6.0 cents and May 5.75 cents before stabilizing. The latest Commitments of Traders report showed Watson decreased its net-short futures position by 6,740 contracts, putting it at 12,040 contracts. Recall the March issue closed 24.0 cents higher from Tuesday-to-Tuesday. The March HRW issue was down 1.75 cents after sliding as much as 6.0 cents while May dipped 5.5 cents on trade volume of 2,300 contracts and 1,400 contracts respectively. Watson reportedly decreased its net-short futures position by nearly 10,200 contracts coinciding with the March issue adding 33.75 cents from Tuesday-to-Tuesday. Over in SRW we see the March issue with a loss of 3.25 cents to start the day after falling as much as 6.0 cents overnight on trade volume of less than 10,000 contracts. The May issue also lost as much as 6.0 cents while registering 5,800 contracts changing hands and was sitting 2.75 cents lower at this writing.
[i] The Tariff versus Free Trade debate is nothing new. I was rereading Sir Arthur Conan Doyle’s “The Hound of the Baskervilles” again Sunday. In it, Sherlock Holmes is reading a piece from the London Times that includes this from a lead article, “You may be cajoled into imagining that your own industry will be encouraged by a protective tariff, but it stands to reason that such legislation must in the long run keep away wealth from the country, dimmish the value of our imports, and lower the general conditions of life in this island.” This novel was serialized in The Strand Magazine from August 1901 to April 1902.
