CBOT weekly outlook: Commodities hold up while waiting on China

The Chicago Board of Trade building on May 28, 2018. (Harmantasdc/iStock Editorial/Getty Images)

MarketsFarm — There’s no doubt commodities on the Chicago Board of Trade have struggled since the coronavirus outbreak in China, but the situation could be worse, a trader said.

“I personally think the markets… are holding up pretty well with all of the negative news,” said Scott Capinegro of Barrington Commodities in Barrington, Ill.

Some progress was made in U.S./China trade, he said, as the two countries’ Phase One trade deal officially came into effect Saturday. Three days later, China announced tariff exemptions for almost 700 U.S. imports that included soybeans, corn and wheat. China said it will begin accepting applications for one-year exemptions beginning March 2.

“It’s good, positive news coming out of China that they’re not going to sit on their hands,” Capinegro said, but noted China recently purchased corn from Ukraine and continues to buy soybeans from Brazil.

He stressed that China has yet to begin massive purchases of U.S. agricultural products as outlined in Phase One, but the tariff exemptions were a good step.

China’s COVID-19 outbreak certainly “screwed things up,” he added.

“They’re trying to show their commitment to the Phase One deal, but yet they haven’t stepped into buying as much as people thought they would be already. But it’s early yet.”

The U.S. is facing the additional dilemma of the Brazilian real (23 U.S. cents) hitting new lows as the U.S. dollar (4.36 reais) gains strength.

“That always makes Brazil’s products look cheaper,” the trader said.

Domestically, record amounts with the soybean crush have put pressure on soyoil. For soyoil to turn around, it needs to see gains in soymeal, Capinegro said.

Despite all of these issues, he noted the corn basis has remained firm and the soybean basis is regaining strength.

“There is something underneath this market that’s happening.”

Until then, the U.S. Department of Agriculture holds its Agricultural Outlook Forum on Thursday and Friday in Arlington, Va., and he believes the crop outlooks to be released there will put pressure on the markets.

Also, options for the March contract expire on Friday.

— Glen Hallick reports for MarketsFarm from Winnipeg.

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