The trade dispute between the United States and China has been a great benefit for Brazilian corn exports. In the month of July Brazil exported a record 6.3 million metric tons of corn to China. Given this pace and the size of this year’s Brazilian corn crop, it is believed China may import a large 40 million tons of Brazilian corn this year.

At the same time, Brazil saw its soybean exports to China decrease 23 percent in July as China continues to see feeding losses from African swine fever (ASF). The underlying factor behind these numbers is how the U.S. will get the export business back once China is comfortable with Brazilian imports.

The U.S. economy is starting to suffer from the trade war, however; the 10-year note recently crossed over and is now under the two-year rate. This shows there is limited confidence in the market, and has caused recession talk to build.

In seven of the past nine times this shift has been made a recession followed, usually within 22 months. While this can be negative for the financial market, it can generate safe-haven buying in the commodities as investors search for physical products to own.

Demand has been becoming more of a factor for trade over the past several weeks. Buyers have been passing over the U.S. as a source for needs, as the country remains one of the highest-priced sources for commodities in the global market. This has prevented the market from reacting to concerns over production losses, as some of the decreased output is being offset.

The biggest question when it comes to demand is on soybeans to China. There are thoughts it will import between 75 million-80 million tons of soybeans in the 2019/20 marketing year. This is down from initial estimates for upwards of 100 million tons.

The loss of demand in China from ASF is the primary cause of this decrease. There are now thoughts South America will be able to cover all this demand, especially with a projected 2.3 percent increase in Brazilian production for the coming year.

Not only is this an issue for old-crop soybean sales, but new-crop as well. New-crop soybean commitments only total 124 million bushels. This is the lowest booking total for this date since 2005. The real concern with this is that the U.S. is competitive with Brazil for next fall, and buyers are still passing the U.S. as a soybean source.

Weather remains one of the top stories in today’s trade. National Oceanic and Atmospheric Administration data show the last 12 months in the U.S. have been the wettest on record. Average precipitation from August 2018-July 2019 was 37.73 inches.

At the same time, soils have started to dry, especially in the Eastern Corn Belt, where topsoil is now the driest since the drought year of 2012. That does not mean we are as dry as 2012, but that moisture content is being lost.

Trade is starting to look at long-range weather outlooks for this winter. Models point toward a shift in patterns away from the current El Nino system to one that is more neutral.

At present there is a 50 percent chance of having neither an El Nino nor a La Nina event this winter. If correct, this should bring favorable growing conditions to the global market, with most interest on South America and Australia.

We have seen a shift on market attitude that is keeping a lid on all futures. We have transitioned into a buyer’s market, meaning buyers now have the upper hand in price negotiations. This comes when there is more supply of a commodity than demand.

Buyers tend to limit their purchases in such times, as there is little fear of not finding product when needed. While this can create a flat market, it does open windows of opportunity for rallies – they just tend to be more limited, and led by the cash market rather than futures.

A considerable amount of interest has been placed on the domestic balance sheets, but not much on the global side. World corn stocks are forecast to decrease from 328.6 million metric tons for this year to 307.7 million next year. The global soybean supply is forecast to shrink from 114.5 for this year to just 101.7 million tons for 2019/20.

Data are not as supportive for wheat, where world stocks are expected to rise from 275.5 million tons to 285.4 million.

Political unrest in Argentina has been a benefit for the U.S., but for how long is questionable. Primary elections indicate that President Mauricio Macri may be replaced in the official election this fall. This caused the Argentine peso to devalue considerably.

Normally when this happens we see elevated commodity selling, as commodities are based off the U.S. dollar and a decline in the peso or any other currency makes them more valuable. Argentine farmers believe the peso will make further declines, though, and are unwilling to liquidate at today’s values.

Karl Setzer is Commodity Market Analyst for AgriVisor. His market commentary can be found on Twitter via @ksetzergrains

The opinions and views in this commentary are solely those of Karl Setzer. Data used for this commentary obtained from various sources are believed to be accurate.