Weekly Market Update – February 22, 2019

Markets have suffered another bloody week with wheat and beans the leaders to the downside. Beans were able to hold $9 showing some very good technical support. The weather in South America continues to be non-threatening in both Brazil and Argentina which is a major bearish force but the market does not know what to make of the continued trade talks. One minute it feels like there is a deal coming imminently, the next they are kicking the can down the road. We have seen many administration officials, including Trump, emphasizing the amount of agriculture purchases China has pledged to make but it is all contingent on a grand bargain being struck and it has become increasingly impossible to determine a timeline on that. With such large bean carryouts in the US and such a big crop in South America the market is having a hard time being patient. Threatening weather in South America has helped give it some patience, but with that abating it remains to be seen how much support we can hold. There is also a lot of beans that need to be priced in the US which may limit the trade deal rally, when we get it. USDA outlook conference did not show anything surprising on beans. Get orders working on old crop beans!

Washout in wheat has weighed on corn but it has managed to battle back into its old range. USDA outlook conference shows continued tightening to the balance sheet even with increased acres and trend yield. Any threat to acres or yield will quickly threaten corn and call for rationing. If an upcoming Chinese trade deal includes corn and/or ethanol that will add even more fuel to the fire. This is the same story we have been singing for several months now but corn has stayed in the same range. We still have the upside potential in corn, but the timeline may push into spring if we do not get a trade deal soon. That is why we need to lower old crop objectives into the 380 range if you need to get cash and contracts cleaned up on the March. New crop orders should stay at 410-412 to cover some costs and take some risk off the table. Hopefully those are the cheapest levels we sell!

Wheat caused most of the weakness in corn as the US missed an Egyptian tender and hit some technical levels which just added fuel to the fire. Open interest jumped sharply indicating traders taking short positions. USDA outlook conference put US carryout under a billion bushels for the first time in recent memory. We need to stay competitive in the world market and see an uptick in exports. A Chinese deal that includes wheat would cause some significant short covering. We still recommend buying back wheat hedges as the world balance sheet continues to tighten. 

Cotton has been the only bright spot this week after being the dog last week. We seemed to have worked through delivery pressure and now trading on hope for progress toward a trade deal. Outlook conference did not show a large increase in acres but a big bump in carry out due to less abandonment and better yield. We believe the fundamental value of cotton is quite a bit higher than where we currently trade, but we have to get a deal with China to get any excitement in the market.