Market Update – November 2, 2018

University of Illinois estimates corn acreage at 91.1 for next year as new crop corn hovers around $4 on the board. Granted it is very early and (hopefully) a great deal can change between now and when final planting decisions will be made. This year we had 89.13 acres planted and even if (when) we get something worked out on trade, with the world stocks of soybeans getting higher, we think soybean prices could be capped in the mid to upper $9 range. Soybeans, nor any other major crop seems to be in a position to steal corn acres. Most estimates of corn acres have run from 90 million to 94 million acres. At 91 million acres and a 180 bushel yield, assuming similar demand, we will see another year of sub 2 billion bushel carryout (estimated around 1.7 billion). This does not leave any room for error for the domestic balance sheet. As we approach planting, corn will be likely adding acres if we are trading much above $4 on the board and likely losing below that level. We have plenty of time, so there is no rush but sales need to be made when the board gives us opportunities for new crop above $4. With our historical basis, $4 hedge can very easily be $5 corn with basis and/or carries.

For old crop corn, we spent the month of October range bound. We get USDA’s updated supply and demand next Thursday and they are widely expected to trim yield again. Exports were disappointing again this week but there was a huge unexpected draw down of ethanol inventory. Unexpected disappearance is positive for the ethanol market and should help improve margins. 

Soybeans have little news to trade on as we await elections and USDA supply and demand next week. Brazilian election was last week and a very anti-establishment “Brazil-first” populist candidate was elected by high margins. If he makes good on campaign promises of strengthening Brazilian currency, it will make Brazilian exports more expensive for other countries and help our prices as a result. We have already seen some strengthening in their currency (and a weakening of the US dollar). Market also anxiously awaits results of the US election to see if it results in any change in rhetoric toward China. We are desperately looking for any sign of warming talks between US and China. Today Trump tweeted he had a phone call with the Chinese president and the markets rallied 30 cents. Market is still hopeful that something positive can come from G-20 talks at the end of November. Soybeans continue to trade more on political winds rather than supply and demand. Calming of equity markets is very welcome in the commodity markets. Exports were very weak this week (as expected) and there are continuing reports of African swine fever spreading in China. After all the rain in the Midwest, quality concerns are spreading and the forecast points to more rain in the 10 day window. Harvest has been very slow to get rolling in the Southeast and our yields and quality are variable. Basis is very weak but seems to be holding here. 

Wheat has had the widest range recently with a surprising amount of news. Exports were above expectations this week and the US was competitive on tenders from Egypt and other wheat importing nations. The weaker US dollar makes our wheat even more competitive. After the recovery yesterday, wheat is putting in some bullish technical signals including bull spreads tightening up. Chicago deliverable stocks continue to tighten up. With a lot of small things finally going its way, wheat just needs anything small to get headlines and spark some covering rally. With the building fund position, it will not take much to get wheat to $6. Wheat is going in the ground in the Southeast very slowly and with forecast rains this week, that trend will not change. Basis should be as strong or stronger than last year. Be patient and look for opportunities to hedge, not cash sell new crop wheat. $6 hedge (if we get there) is easily a $7 cash wheat with quality. 

Cotton has traded some very tight ranges this week until today. Lack of progress on trade and concerns about world economies manifested in the volatility in the equity markets offset catastrophic weather events in Georgia and very adverse weather in Texas. Very cold weather is forecast to hit the Chinese growing regions into the weekend. We should see all the weather damage reflected in the USDA report next week which could give cotton a spark. Exports were net negative as cancellations more than offset new commitments. Stabilization of the equity markets and any progress on trade would give a big boost to cotton. Today we got a hint of what the market will do when there is perceived progress on trade. Trump tweeted he had a phone conversation with the Chinese president about trade and the board rallied 255 points.