It has been another long week for the grains. The market still lacks strong directional conviction, but has been drifting lower on low volumes. Trump and the Chinese President were supposed to have signed a trade deal November 16-17th in Chile but instead the headlines have been very quiet. At least there has not been an escalation of tensions which can be taken as a positive. However the market was trying to price in a completed “phase 1” deal so the lack of progress has been a negative. The market is trapped in the middle with delivery coming up on December contracts. Today, there have been announcements from both Trump and the Chinese President that a deal is very close, but we need more! We need a date for signing or details of the deal or something we have not already seen or heard many times before. The market has been fooled too many times being told we are “close.” One thing that is decidedly positive is that both sides have said that they are not going to let Hong Kong derail trade talks.
Corn has had some positive fundamental news as harvest progress remains slow and is falling further behind. The weather forecast going forward is not conducive to harvest which should be very friendly to the market. It is very concerning when the market does not react to bullish news like the recent weather forecasts. Part of what is holding the market back is delivery looming on the December contracts. Once we get delivery behind us after Friday of next week, that will be one less major thing putting weight on the corn market. Ethanol stocks are at multi year lows and Trump has made promises is to fix the loophole that his EPA has been exploiting to reduce the mandate so we should not lose any additional ethanol demand. Exports have been near expectations each week, but are falling behind the pace needed to achieve USDA’s estimate. All the uncertainty is supply and the visible loss of demand has given the funds comfort in their short positions and we see them adding to their shorts. Once delivery passes, we will be trading a weather market as we try to get the last of the crop out of the field.
Yields are disappointing in the east which is reflected in the strong basis levels. We have seen basis improve in almost all of our markets. There is a big carry to the March now and some mills are bidding vs the March already to try to draw some bushels out. In most cases they have paid the full carry, giving us a better basis vs the March than they had on the December. If you have plans to haul Dec/Jan bushels there are good opportunities, DO NOT SELL POSTED BIDS! We also need to be selling 2020 corn above $4!
Soybeans have been hit harder than corn this week. Similar to last week, the two main features of soybeans have been lack of progress on trade and more moisture coming to South America. Demand in the US remains strong and basis is getting much stronger. Basis levels in the Eastern belt have traded at highs not seen in several years, certainly not indicative of the record carryout we are facing. Even without a record carryout, we will still have an adequate carryout if we have no problems in South America or make progress on trade with China. We need one of those two things to happen to get any sustained rally in futures.
It has been a very long time since basis in the Southeast got stronger during the middle of harvest. We are used to a rush to the bottom at harvest and truck lines hours long. Basis levels are stronger than we have seen in several years and processors are wondering where all the trucks are. Export markets have also strengthened. Talk to us before moving any beans as there may be some smaller homes in a different direction than you are used to hauling that will be the best place to go this year!
Cotton seems to have finally found some support to stop the slide lower on positive trade rumors. The seasonals turn more positive now in a normal year, but this is far from a normal year. National yield may still have a little room to move lower, but we are still facing carryout at an 11 year high. Exports are running about a million bales above last year even without a deal with China, but it is not enough right now to offset the higher carryout. Cotton will also trade based on the US/Chinese currency exchange and if the exchange weakens, prices in the deferred contracts may follow lower.
Wheat finds itself in a battle of the classes. Winter wheat has some bullish news with crops so late in the eastern belt, acres will be down again this year after record lows last year. However, we still have adequate stocks as demand has been falling almost as fast as acres. There are no major changes or weather threats in the world crops anywhere to give us a spark. When we get the December delivery behind us, Chicago wheat may be able to shake off some of the bearishness. We need to be selling any rallies into mid $5’s.
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