We have had another flat wasted week in corn, wheat and cotton. Beans have been the lone bright spot although not by much. Soybeans saw 9 higher closes in a row and trade 24 cents off the lows. They have not been able to break through the $9 level despite reaching it this week. The USDA report this week did not give us anything to boost the markets, but not anything really negative either. The trade deal goes into effect tomorrow, 30 days after signing. If China is to have any hope to reach the purchases they guaranteed in the agreement, they need to start buying now in a much bigger way than they have been. The lack of movement so far has given the market lots of doubt in their desire to fulfill their commitments. We are fast approaching the time of year when South America will be cheaper than us and we will soon see how committed China is to meeting their targets. There have been rumors this week of China asking for relief from the commitments due to the coronavirus but nothing confirmed. The market may be reading the lack of purchases as confirmation.
Last week the stats of containing coronavirus looked positive. This week, China changed how they report the cases and now complete containment does not look quite as near at hand. However, areas outside the main affected area have started going back to work to try to keep the economy from going off a cliff. The Chinese are printing more money to try to support growth. World stocks have just about completely recovered and do not seem to be worried. However, all commodities are unable to see such optimism. Not just our ag commodities, but crude, metals, and all of them have stayed down. Analysts are puzzled as to why. To me it looks like the commodities have kept a very negative scenario priced in so if we get some improvement, we should see some positive movement.
South American weather has not changed significantly this week. They still have big crops coming, but it is not in the bin yet. There is still excess moisture in several areas of Brazil where they are unable to get beans out and corn in behind it, but those areas are not as big as they had been. Parts of Argentina are too dry, but those areas are getting smaller too. We are running out of time for a weather problem to help us.
New crop acreage prospects in the US are not going to be friendly for corn. We can argue with USDA’s 2019 crop estimates until our last breath, but the market is starting to turn focus to new crop acreage instead of old crop stocks. Smaller stocks will help basis, but new crop weather will be the driver of futures prices. You can see this focus shift by looking at the daily ranges in Dec corn. It is trading a lot closer to the same ranges that the March and May old crop contracts are trading.
We still need to be planning to clean up March corn and bean basis contracts before the end of the month. We may need to lower our targets from $3.90 if we do not make some progress next week. We need to be selling on any positive move up into $3.80’s now. Old crop soybeans need to be sold around $9. Cotton rode the markets down with the equities and commodities, but could not find the strength to rally back with the equities. I would still be patient with cotton. New crop acres look to be more friendly for cotton so we can afford to be more patient. We still have a chance to get wheat back above $5.50. Be patient on wheat.