All our markets have struggled to find traction in the week since the USDA report and exports have done little to help. Anecdotally, all reports of trade negotiations are upbeat and positive but most had expected (or hoped for) a final deal by now not just continued progress. It seems to be growing more and more likely that the March 1st deadline will be extended to continue the negotiations. One positive takeaway is that there does seem to be continued progress toward a solution rather than escalating threats and new tarrifs. The US is pushing for a meeting between Trump and the Chinese president in March but I have grown skeptical that we will have a deal by then.
With the prospect of a comprehensive trade deal soon dimming and the February USDA report behind us without providing enough fodder to shift the trading range higher, we need to lower our objectives on old crop corn and beans. We were hoping March corn could give us a shot up close to $4 before delivery, but that window seems to be behind us now. We only have two weeks before first notice day on the March contract. Corn still has all the bullish potential we have been writing about for months. The balance sheets are still shrinking both domestically and globally despite large yields. However, without getting the boost from USDA on old crop or a Chinese trade deal, the catalyst may have to come from weather concerns and we are still a few months out from that. I would continue to work new crop orders in the 407 to 412 range. Corn can still be explosive this spring on any weather hiccup, but we have to adjust old crop objectives. Move orders to lower 380’s vs the March contract.
Old crop soybeans have been able to wait patiently for a trade deal in part because threatening weather in South America. That weather has abated some and is following a more normal pattern recently. USDA did not lower South American production estimates quite as much as some analysts had expected. We also have to keep in mind that when planting decisions were made in South America, our beans were around $8, but their beans were priced much higher because China was buying exclusively from them, therefore they saw an acreage increase. The crop is not made down there but it is not lost at this point either. March sometimes gives us a rally as we see pictures of trucks sunk in mud on dirt roads trying to haul beans 1500 miles to the port but at the end of the day the balance sheets are building on beans. Similarly to corn, we do not have time on our side anymore and unlike corn we are building stocks not losing. We need to lower objectives and get old crop beans priced. A move back to 920’s on the march would be a gift. On new crop we do have time on our side even if we do not have the balance sheet. I see no reason to be in a hurry as we have the rest of the South American growing season and the entire North America growing season to get through before we have to do anything. That is a lot of time for something we do not see right now. I would still have new crop orders close to $10.
Wheat led the charge lower a few days this week as exports were very poor. The spreads continue to tighten up but flat price cannot gain any traction. US got some Egyptian export business which shows we are finally competitive again, but we are going to need to see confirmation in the weekly export reports before the market can get too excited about it. Wheat seemingly has more going for it with acres down significantly and finally being competitive in the export market but just cannot find a spark to rally from.
Cotton is falling victim to delivery pressure on the March contract with a washout this week. A lot of cotton was held unpriced vs March as we hoped to have a deal on trade by now. Cotton has not shown many signs of life and now has a lot of people trapped in the March who are making hard decisions. I feel like a broken record saying it but cotton has fallen victim to the macroeconomic uncertainties in the US at the end of the year and continuing now in China, China has not bought any cotton during the trade talks and the collapse in crude making synthetic fibers cheaper. All those things have more than offset the yield reduction in the US due to the storms. Cotton has a lot of upside potential IF we get a deal on trade. Be patient on new crop close to 80 cents. Look for any positive move on old crop to get out of the trap.
A Final Note on Soybeans
I have had several people ask me this or a similar question so i know more people are probably wondering. Since China stopped buying US beans and switched almost all their purchases to South America, won’t the people/countries who were buying from South America start buying from the US? The simple answer is yes and in the long run everything will work out but there were a few factors this year that made it more painful for the US in the short run. I have mentioned many times how we have been in a period of building domestic and global stocks for a few years now. We were going to have too many beans in the world this year whether or not we had a trade war with China. However, if we did not have a trade war the extra soybeans would have been spread more or less equally between the US and South America. Due to the timing of the trade war, China quit buying from the US and bought only from South America so they have almost no extra beans and we have basically all the extra beans in the world. If this trade war was started a couple years ago, there would most likely not have been enough excess stocks in South America to sustain China but alas the timing of a trade war cannot be perfect for everyone. Agriculture bore the brunt of the Chinese retaliation because they had no other place to exert leverage.
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