Market Update – December 7, 2018

We have had a wild ride in the aftermath of the G-20, but not quite as wild as some had expected. There has been a lack of substantiated information as to exactly what was agreed to at the dinner with the US and Chinese delegation in Argentina this weekend. Part of the lack of news is a result of the period of mourning for George H.W. Bush. Trump will not hold a press conference until after the memorial service today. Part of the confusion is due to Trump’s behavior. It seems that tweets are allowed during a period of mourning, just not press conferences. Trump tweeted early this week (see all tweets below) that the tariff increases were on hold while a deal was being worked out and China was going to start purchasing US agricultural products IMMEDIATELY as well as eliminate tariffs on US automobiles and the market was elated. Stocks and commodities rallied but then there was silence from the Chinese side. They did not make any announcements nor did we see them in the market buying US commodities. Trump’s own administration officials seemed to quietly walk back progress. Yesterday, Trump continued to tweet but this time he himself backed off the inevitability of a sweeping trade deal. He basically said we are doing our best and if it is possible we will get it done. The market did not react well to the change in tone from a deal is all but done to if it is possible we will get it done as well as lack of confirmation from the Chinese side. Commodities managed to hang on quite well but the Dow lost almost 800 points yesterday as a result. Several news sources have reported the Chinese are confused by Trump’s changing language which does not bode well for the negotiations.

Despite all the noise from Trump’s tweets, it seems we are making significant progress. We did not come back from Argentina with a deal in hand as some had expected, but we are moving the right direction. I think we can expect a 50 cent move in soybeans when a final deal is announced by both sides but I think the bigger question is where that move starts from. The soybean market has been able to shrug off the negativity this week much better than the stock market which is encouraging but I would not rule out setbacks before we see a final deal announced. If you have not sold any beans this fall, i would encourage you to scale in small sales here to reward the market. I would encourage everyone to be ready to protect all beans in storage if we get a deal struck!! New crop beans are currently trading at around 9.50, I would also start thinking about protecting new crop beans on a rally. We were building bean stocks before the trade war and we are still building stocks. I think the trade rally, when we see it, will be short lived and you need to be ready to take advantage.

Corn has moved back into the Pre-Thanksgiving range. I do not see as much downside risk in a trade setback as we see in soybeans. There probably is not as much upside on a deal either as we do not export much corn to China. However, it could certainly propel corn into the $4 March and $4.10 new crop range. World balance sheet on corn is very friendly as we have been trimming stocks the last few years. Basis in the Southeast continues to firm. Winter weather is coming so stay tuned for any train delay opportunities. A threat looming for corn is new crop acres in the US. With prices where they are we have the potential to shift a significant amount of acres to corn which may pressure price. Plan to have old crop and new crop sales made before late Jan/Feb. I think we can remain patient until then, as we get closer i will feel more pressure to get priced. US has had very good exports and remains the cheapest corn in the Western Hemisphere. Market is looking for USDA to trim yields a little more next week on the latest Supply and Demand.

We have had very little new wheat news but the world cash markets stay very strong. In the last two years Russian wheat offers got higher from now until Spring. Offers from Russia are already higher this year than the highs the last two. US is much closer to being competitive than in previous years. We have been talking about possible tightness in Russia for months with seemingly no reaction by the market. We see a big rally coming but have not been able to figure the timing. There is basically no wheat planted in SC and GA and very little in North Carolina. If you have wheat hedged, plan to buy it back here. If you have wheat planted and want to rehedge on the rally great, if not keep the profits. That is the easiest money made in wheat… 

Cotton stands to gain significantly from a deal with China and also is more sensitive to world economic indicators. However, cotton showed a lot of strength yesterday by not getting swept up in the volatility that hit the stock market. Cotton filled the gap and was able to bounce back. Cotton has some upside from here along with beans on progress announcement toward a deal. Look for USDA to drop yield again next week and give cotton another boost. If we see a big bounce in exports when China starts buying again, that will add plenty of fuel to the fire.


The tweets relating to the meeting with China are below.