Weekly Update – January 10, 2019

The government shutdown stretches to the second longest on record with still no end in sight. We were supposed to get a USDA on Friday but that has already been cancelled. The market was interested in USDA’s updated South American production estimates and we were also supposed to get quarterly stocks which would have updated us on domestic demand. We were not anticipating big changes but this will probably add to the risk of the next report being very volatile. We will see some closely watched private estimates of the South American crop this week. The market will be looking closer at these private estimates in the absence of USDA’s “official” reports.

We keep seeing headlines of progress in talks with China. We have also been seeing enough actual signs of progress to keep the market satisfied. Chinese approval of several GMO varieties of soybeans, canola and corn for import is significant progress. We are hoping that any deal with China includes grain, cotton, pork and dairy and this offers further evidence of that. The market is being patient, but we have to have a deal to keep the momentum in soybeans and cotton. Any deal that includes corn and wheat could be a surprise higher, beans need the deal to stay close to where we are. The weather pattern in Brazil is also supporting corn and soybeans. There have been no major changes to the current weather pattern in major growing areas (too dry in parts of Brazil and flooding rains in parts of Argentina).

Not much has changed on corn in the last two months. Market has been very well supported on breaks and is slowly trying to work higher. Balance sheet looks very friendly but with no USDA reports, we need to look elsewhere for a spark to get a leg higher. I think March corn will make a run at $4 before delivery. A deal with China or South American weather seem the most likely sources for said spark. Have objectives in mind and orders working for old and new crop!! We recommend working orders close to $4 on old crop March and $4.12+ on new crop Dec.

Soybeans have recovered nicely as weather in South America has helped to support the market during the lull between new developments on trade. We have seen China buy additional cargos of US soybeans but does not seem to be the pace we need so far. A trade deal that gets China back in the market will have limited long term impact since the balance sheet we are currently using already counts on them buying some portion of our beans. We could see a short term spike but feel that this will be limited to near mid $9 level on the old crop beans. Old crop beans need to be hedged on these rallies. There is a lot of downside due to the building balance sheets. With expanded acres in South America they can afford some weather problems. It will take major weather to push the market in the long term. Work orders on new crop at $10. We cannot see now what would push us there, but we have two growing seasons for something unexpected to go wrong. Time is on our side on the new crop.

US wheat is competitive in the world market but we are really missing the USDA export reports to help push that narrative. We also will not get the wheat seedings report that was supposed to come out Friday from USDA. That could have given wheat a significant spark. We are still being patient on wheat. Buy back hedges and wait to rehedge.

Cotton is more subject the whims of the outside markets than the grains and oilseeds so it has had a rough time over the last several weeks. It finally seems to have stabilized and found support. A deal with China will spark a recovery since it has been pushed so much lower. Be patient on cotton.