Market Update – November 16, 2018

Corn has traded a very narrow boring range this week as there has been very little new to trade on. We saw some weakness in corn from the crash in crude as it traded back to lows not seen since last November. Corn was able to rally back into the 370s as crude recovered a little and beans found strength on reported progress with China on trade. Harvest progress was reported at 84% this week which was below expectations and puts corn harvest back on par with average after spending all year well ahead of average for maturity. The market now expects further cuts to yield on subsequent USDA reports. Even after China revised their production data higher for the last 10 years (which was the only surprise on last week’s crop report), we still have a significant drawdown of world stocks in corn. USDA could lower their Brazilian estimate closer to the Brazilian government estimate on the next report. There is also room for USDA to lower Argentinian production and early yield reports from China seem to suggest a possible reduction in Chinese production estimates as well. The world balance sheet on corn continues to tighten from all angles. As Chinese demand goes up, their revisions higher for production the last 10 years seems desperate.

Corn seems destined to stay in the same range for now until we get more data from USDA in early December. If you need cash now, we would recommend working orders in the mid 370’s for a good chance to get them filled before the end of the month. If you can be a little more patient, work them close to 380 understanding you may have to roll to the March before we get to see USDA’s December estimates. Rail values are getting stronger and we are already starting to see intermittent rail service issues. We look for plenty of rail delay opportunities this winter.  

This time, the 30 cent rally we got from a Trump tweet has held, so far. We have held at these levels because the tweet was quickly followed up by confirmation from the Chinese and also we have seen continued progress in the form of meaningful back and forth by US and Chinese trade representatives. There is a decent chance of having some of the trade points ironed out by the time Trump meets with the Chinese president at the G-20 summit. Harvest progress is lagging behind the average as it was reported at 88% compared to the 5 year average of 93%. USDA lowered yield as expected but also cut exports which more than offset. Trade is looking for further cuts to yield. Even if a deal is ironed out by the summit at the end of the month, we have missed the best window to export beans. It will not signal a return to the pre-tariff normal. We were in a period of building soybean stocks before the tariffs and the trade war as only served to exacerbate that.

The euphoric rally that will come from a trade resolution needs to be sold aggressively!! Look for sales in the lower to mid $9. There are still many beans in the field in the Southeast. The lack of harvest progress has helped keep the processors from pressing the basis any lower. The lack of truck traffic has kept our processors way closer to empty than they would like this time of year. They seem willing to do anything to try to encourage trucks EXCEPT pay more. Basis is not as cheap as it would have been with a normal harvest, but it is still below historical levels. If you HAVE to move beans before the end of the year, use this opportunity to get all the basis you can. If you can wait, there is good carry to the March soybean contract. Be ready to sell beans on a trade resolution rally!

The US is at a standstill on wheat planting, it is not just a problem for the Southeast. The world balance sheet is not building, but Russia’s export pace has kept up longer than many suspected earlier in the marketing year which has kept wheat from gaining too much traction. If we see signs of Russian exports slowing, the market will react quickly. There is rain in Argentina which is damaging the wheat crop and now Brazil’s wheat producing region is also experiencing rains that could become damaging. US wheat is now competitive in the world market. Wheat is ripe for a spark! I acknowledge I have been printing that for months now and we have not gotten the spark yet. All it takes is one! Lack of planting progress in the Southeast will not help wheat gain any acres as we are only a week from Thanksgiving. Basis is going to be strong IF we have any wheat to sell next summer.  

Cotton has seen a fairly bullish USDA report and the same progress on trade that has helped beans but has been unable to get any traction. The crop in the US is not getting any better and the market is looking for further cuts in yield and quality. The reason cotton cannot get as much traction as beans from progress on trade is most likely that cotton is more sensitive to economic indicators. There is still a great deal of uncertainty about the Chinese economy.

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