Corn managed to hold on early week compared to soybeans, but last week the roles were reversed when corn took the beating. Corn has more fundamental support than soybeans as the world balance sheet continues to tighten and corn crop gets smaller as left in the field continues to deteriorate with snow falling in the Midwest. Corn seemed to fall victim to outside market volatility and thin holiday markets as we approach first notice day on the December contracts. The Dow finished erasing all 2018 gains last week on fears of another rate hike, only to rebound this week spectacularly on Fed comments walking back that sentiment. Fed is caught between a US economy that seems to be heating up relative to the rest of the world which cannot seem to get their feet under them. Ethanol margins are not looking to improve as crude hovers around $50/barrel, levels we have not seen in more than a year.
Basis continues to strengthen and we have seen some rail service issues in a couple markets. Look for that to continue this winter. Corn has put in good support this week and could use a soybean rally to get spillover strength back into the 380 range that we lost last week after we get the December contract into delivery. On a rally next week, look to be scaling sales in 380’s old crop and 410+ new crop. Corn fundamentals are bullish now, but US acreage talk is going to include a lot more corn acres and will weigh on it through the winter.
The G-20 Summit is being held in Argentina tomorrow through Sunday. The G-20 is made up of 19 individual countries plus the European Union which collectively account for 85% of the gross world product. Typically this meeting does not have enough bearing on our ag markets to be worth writing about, but this year is different due to the ongoing trade tensions between the US and China. We can also recently add tensions between Russia and Ukraine to our list of concerns in the world ag markets. Ever since Trump’s tweet several weeks ago about making progress with the Chinese then confirmed by the Chinese, the market is putting a lot of weight on significant progress being made culminating with Trump sitting down with the Chinese president this weekend in Argentina. There have been lots of lower level officials negotiating back and forth leading up to this event but it is clear the market expects real progress to occur. On Monday, Trump made comments that seemed to walk back some of the progress that had been made and that was cited as one of the major reasons for Monday’s selloff. The market has since recovered, but this weekend will most likely set the direction in the near term. I do not think we have to have an actual agreement in place for this weekend to be considered successful, but the market needs to see continued progress. If talks are seen breaking down, there will be major downside.
If we get a positive move in beans and break into $9+, sales need to be made. We have already missed the most valuable months to export beans and even a full agreement on trade with China will not get that back. The South American crop was planted early and is progressing along with no major hiccup so far so we will have competition soon. If you need to move beans for cash in December, I suggest getting some protected before the weekend to hedge your risk. We have had a nice recovery from the lows this week and if you cannot be patient on the cashflow you may not be able to wait it out if there is a negative move after this weekend. EVERYONE needs to be aggressive sellers if a deal is made!! The euphoria of a deal is going to push the market higher than the fundamental value would suggest.
Wheat caught a spark earlier in the week on tensions between Russia and Ukraine. Russia built a bridge over a strategically important strait between the Sea of Azov and Black Sea after annexing the land from Ukraine. Tensions have been increasing since the annexation and last week Russia boarded several ships and also blocked the strait. The strait is used for a significant portion of Ukrainian wheat exports. The effects of these tensions and the international response on the wheat market is still unknown. On one hand, if the violence escalates it may disrupt supply chains and put a risk premium in the wheat market. On the other hand if an international response to Russia’s actions serves to devalue their currency, it could make their wheat cheaper to the world if there are not also trade restrictions added as punishment. The market will be closely watching how Russia is treated at the G-20 summit this weekend.
There is very little wheat planted in the southeast and the window to plant is rapidly closing. That will help old crop and new crop basis. We are still preaching patience on wheat.
Cotton has the misfortune of being beholden to outside markets like corn AND desperately needing a trade deal to be worked out with China like soybeans. Cotton got a boost this week as the rhetoric has gotten more positive later this week going into the G-20. Exports were a little below last week but still stronger than earlier this fall. Market widely expects USDA to further reduce US production on the next supply and demand update. Cotton is also more subject to economic winds than the other grains and would greatly benefit if the economic indicators trend better. Cotton desperately needs a deal this weekend!
In a normal year, precip maps are not much value this late in the season, but this has been anything but a normal year….This is the 7 day forecast. More delays in the Southeast as well as Midwest.