Corn undid the damage to the charts, but has been unable to gain a lot of traction throughout the week. Funds remain short corn even though a lot got covered last Friday. There were rumors last Friday of Chinese buying, but turned out to be South Korea and India not China. We have to wait until next USDA update on Feb 11th to see how they will incorporate Phase 1 in the supply and demand. We are also hoping to get some more information on how it will be incorporated into the demand at the USDA outlook conference on Feb 20-21st.
Every day that goes by shifts more of the market’s attention to new crop. The issues of 2019 are incrementally less important. Yes there is still a lot of corn in the field. Yes there are still quality issues of the crop in the bin. Yes there are still a lot of questions to be answered. However, we need to have reasonable objectives and unless we get help from a weather problem in South America or something else unexpected, I no longer see a sustained rally above $4. New crop corn is still over $4. Old crop corn is close to $3.90. Do not wait on some vague number to catch up on sales of old crop. We need to be aggressively pricing in the $3.90’s up to $4. We need to have some new crop hedged above $4!
Early harvest is already starting in South America. The beans that are coming out now have had near perfect weather all year. We have a deal with China that looks great by the words that were printed, but the market demands to see action. With a South America new crop starting to come out of the field we have missed the part of the year we have a price advantage. Now we will see how committed China is to buying from us under this deal. Absent any changes by China, beans will probably trade mostly on South American weather. Right now they have optimal weather for growing beans with plenty of moisture just about everywhere. The longer term models show some drying in big production areas but need to see that happen or at least get closer before the market will take much notice.
I want to reiterate, the language of the phase 1 deal looks very bullish, but the market is unsure how to price it in based on China’s comments after the signing and no action since then. It has only been a week but after how many times US officials have exaggerated progress for the past year and a half (and China’s history of sticking to deals they have made), the market will remain very skeptical.
We were looking for beans to leg higher above $9.50. Now with estimates growing larger of South American production and no purchases, we need to lower our objectives. We need to be sellers of beans back near $9.50 March. We still have 40 days before first notice day and basis has continued to improve, but in light of current conditions, we do need to lower our objectives.
Wheat has been the lone bright spot for the past week. Russian wheat prices hit new highs due to strong Egyptian demand and the rumors of export quotas. Wheat is the one commodity that is actually hopeful that China may make some purchases as there is nowhere else in the world to find cheaper wheat. Temps seem to be moderating in Australia but they still have significant crop losses.
If you have wheat planted, hedge some now! Scale orders in up to $6. A $6 hedge vs july should be $7.50+ fall or winter delivered milling wheat. You can sell basis if you know you need to move some in June/July but a hedge offers the best options if you can be flexible with shipment.
Cotton has had more volatility than the rest of the commodities both up and down. After selling off three days last week, cotton got it all back Friday then to turn around and sell back off today. Foreign equity markets are selling off today in response to fears about the coronavirus originating in China. This has sparked selling in economically sensitive commodities like cotton. The progress on trade with Mexico and China now, long term cotton looks very positive. Talk of less acres next year and better exports give cotton a bullish outlook. Be patient on cotton.