Weekly Market Update – November 1, 2019

The current pattern in the market has been demoralizing. We get a bounce on some news and get very excited as the market rallies, then we have to endure a couple weeks of low volume trade slowly drifting lower. We want to scream why isn’t the market looking at the same pictures we are of blizzard conditions covering so many acres of soybeans and corn and combines sunk up to the axles in mud? If it was not clear to everyone before now, it should be crystal clear now: it is going to be a very long harvest. USDA has been behind all year and it does not look hopeful that they are going to catch up anytime soon. They had to make significant adjustments to the 2018 crop in September of this year! We have spent all year wondering if the crop could make it with the late planting. The demand side has not had near as many unknowns. We KNOW demand is hurt. That is adding to the doward pressure when the market drifts. Demand destruction is confirmed and in front of us and supply loss is still unknown. We have lost export demand and ethanol demand. We have seen Mexico import corn from Brazil and ethanol plants shut down. We get USDA’s latest and greatest estimates next Friday Nov 8th at 12pm. We are not looking for major adjustments but any adjustment lower in yield should be supportive after the increase last report. Informa and FC Stone release their estimates today after the close.  

Trade Update
Once again we find ourselves adrift. We are supposed to be very close to a deal, but have not gotten any more firm updates. There has been a little negative banter from both sides, but not enough to make the market believe phase 1 is in serious jeopardy. China news reports there are some sticking points that may prevent a long term deal from being reached, but they still seem willing to go along with a “phase 1” deal. The world summit in Chile has been cancelled where it was expected Trump and the Chinese president would sign. We have not seen cotton exports jump higher and bean purchases seem to have leveled off. The longer it is so quiet, the more nervous I become but hopefully it is just the trade representatives hammering out the details. Quiet does not have to be negative as it means neither side is bellowing threats anymore…  

Corn has managed to hold support but just barely. It has been pushed down several days but managed to recover and close near unchanged. The crop is behind, USDA is behind, and we still know very little about this crop. We know when it stopped growing, we just don’t know how small it was when it stopped. Trump promised a fix for the damage his EPA has done to ethanol demand, but we have seen very little concrete evidence. The fear is that after the election he will have even less of an incentive to make good on those promises. He has shown with his Ethanol policy so far that he is a much better friend to big oil than he is to the farmer. He needs the farm vote for the election but will not need votes after that. The crop will get smaller, the question is by how much. USDAs report next Friday will give our next data point. Yields in the Midwest have been decent in the Eastern belt, below expectations in the west but we are still harvesting the corn that was planted on time. We do not have a feel for the late planted corn yet. Even with the price break in beans, they remain close to the point where if they rally anymore, they will have to take corn with them or risk losing acres.

If you need cash, sell rallies mid 390’s vs Dec. Local basis is starting to strengthen and there will be train delays as more corn than normal will have to come from the western corn belt. If you can hold, pick up the carry to March. When you sell old crop, get some new crop on!

Corn has managed to hold on but the bean market is trading the poor export demand and not looking at basis. After projecting over a billion bushel carryout earlier in the year and minimal purchases so far by China, we no longer have much of a cushion in beans. USDA dropped yield on the last report and will be expected to do so on this one as well. Soybeans do not hold up in blizzards as well as corn so whatever damage the corn has in the Midwest will be even greater in soybeans. Some of the dry areas of South America have been forecast to get rain so the drought areas are shrinking. Argentina elections are bearish short term as everyone tries to export all they can before new export controls are put into effect by the new ruling party which will be bullish longer term.

Basis in the Southeast has started off weaker than last year but has strengthened which is counter seasonal. Usually it continues dropping. I expect shorter harvest glut pressure and better basis very early into Jan. Nov contract is in delivery now so we need to move orders to the Jan. Scale in more sales at 9.60 vs Jan. New crop is at $9.72, have orders working at $10.

Cotton could not hold the 65 cent level. The lack of developments in the trade deal is hurting cotton as the Chinese have made very few ‘goodwill’ purchases of cotton like they have soybeans. The uptrend is still intact, but the spreads are not looking very bullish. Cotton has as much going for it now as it has in months, weaker US dollar and strength in the grain markets but cotton cannot seem to shake 65 cents. Exports have been strong, but USDA is projecting the highest in 14 years. We still have the second half of harvest to get through. I have been recommending scaling in sales at 67-68 cents but we have not been able to get there yet. We need some help from China to get there. With adequate global stocks, I do not think we can afford to wait for 70.

Wheat’s time as the leader seems to have come to an end. The US is projecting the least amount of wheat acres in over 100 years. Every year it seems we plant less and less yet carryouts remain stable. Egypt tendered for wheat and the US did not get any of the market, but the price it traded was significantly better than the last tender. Weaker US dollar has supported wheat. New crop seed is hard to come by but that reflects as much a lack of good stocks to start with, rather than a huge increase in acres. We may see an increase in the Southeast from last year but it’s hard to go down from where we were last year with the wet fall. Midwest is not going to get their fall crops out much less spring crops planted so they will be down on acres. That will help our basis. Hedge new crop wheat about $5.50 futures!


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