Weekly Market Update – December 21, 2018

Markets continue sideways with no major announcements on progress with China. We have seen some soybean purchases and rumors of corn purchases but not enough yet to change the balance sheet. Biggest stories have been in the outside markets as the Dow is on pace for its worst December since the 1930s. Traders really started pushing equities lower yesterday afternoon, but luckily the worst carnage was after the grains had closed so we did not have to face those headwinds. Grains have held on very well compared to the equities. The Fed raised rates yesterday a quarter point as expected and signaled only two rate hikes for next year. Unless we suddenly see macro economic indicators getting way more bearish the world economy, the market should be able to shake off most of the volatility in the equities. Corn and wheat should remain well supported on dips as the balance sheet continues to tighten on corn. We will see that theory tested after today as the market is trading down today. If we do see confirmation of Chinese purchases of corn and wheat, we should see a quick reaction by the market and any progress on trade will jolt all our commodities.

We are still looking for a run to $4 on the march contract which would put new crop Dec corn $4.12+. I would encourage everyone to have something working out there. Thin holiday markets can see surprise rallies as well as dips. We can be patient for this rally until we start getting toward the end of Jan and start looking to new crop acres. If we have not gotten there by then, we may need to revise lower. Market should find buyers after the dip today as exports were exceptional this week.

Soybeans have remained very patient waiting on progress on trade. China has made some purchases, but we have a big hole we still have to dig out of. There are some trouble areas in South America and some people are already revising production estimates lower. Weather has probably helped the market remain so patient for progress on trade and we will be watching weather closely from here. We still think old beans have a shot of hitting $9.50 and would have an order working at $10 for new crop. The new crop order may look out of reach right now, but would not want to have anything sold much below that with cost of production where it is.

Wheat has been battered around by comments from Russia and US dollar rallies pushing it lower and US dollar weakness helping it rally. US dollar has seen as much volatility as the equities. US was competitive last week as we saw good exports, but seem to be taking a breather this week as exports came in below expectations. Wheat just needs a spark from anywhere in the world. If you have new crop hedges, now would be a great time to lift them and take profit. We can rehedge later if your crop looks good or just keep the equity.

Cotton is the most susceptible to macro factors and it has not been able to be as patient waiting for progress on trade as beans. The US balance sheet is building, even with the storm damage. The Chinese stocks have dropped significantly so WE NEED progress on trade. We have not seen Chinese purchases of cotton yet. The 2 cent drop we have seen in cotton should stoke some domestic demand to support, but we need progress on trade.