Weekly Market Update – December 29, 2018

The markets have continued sluggish with low volume holiday trade. Equity complex has posted several record moves including the Dow’s first ever four digit daily rally. I have bemoaned sideways trade, but I am not envious of the volatility in the equities as we finish out the year. Crude seems to be matching the volatility of the equities, despite the lack of fundamental news to explain the swings. I am glad the grains are not following suit. With the government shut down, there will be a lack of USDA reports until a resolution is reached (some think it may be a while). We are still getting reports of progress with China, as tariffs will be dropped on over 700 US goods starting Jan 1 in China. Cotton is included in that list, but soybeans are not. China has imported US rice for the first time ever which we hope is a preview of more things to come. China will drastically change the balance sheet (US and world) in corn and wheat if they start importing as has been rumored. On soybeans, and to a lesser degree cotton, a significant degree of China demand is still priced into the balance sheet that we are counting on. Progress with China will still be bullish on soybeans and cotton, but the window is still closing on getting beans exported before the South American crop is mature and we have a lot to get exported to meet USDAs estimate.

Progress with China and imports by China have the potential to dramatically change the US and world balance sheet. Even without new demand from China, the balance sheets are tightening up with strong demand and a smaller crop. Corn has significant upside potential, until focus turns to new crop acres. We leave our objectives in place for $4 March and $4.15 new crop Dec corn.

We are starting to see a weather market build as the growing season in South America progresses. Production estimates are currently being trimmed as the crop in Argentina is currently rated 31% good/excellent (compared to last year at 61% this week). We need progress with China! The weather market in South America has helped the market remain surprisingly patient waiting for progress on trade. We need to be a seller of soybeans between $9 and $9.50 on old crop beans. Work wish orders on new crop at $10 or higher.

Wheat could benefit greatly from the USDA’s weekly export estimates as US wheat continues to be competitive in the world market once again. However, we will have to do without until the government reopens. China can provide a huge boost for wheat if they start buying US wheat in volume. If Russia slows exports we will get a huge boost in wheat as well. If you have any new crop hedges, we should be lifting them!

Cotton has been hit from all sides. It seems to be the only commodity that does not have at least some confirmed Chinese purchases. Cotton is more sensitive to macroeconomic factors and therefore has not done well with the volatility in the stock market. Cotton is also sensitive to the price of crude since synthetic fibers are oil based. Stocks are not increasing in the US despite how much cotton has been ginned which speaks well for demand. Cotton has significant upside potential if China buys some US cotton and if the economies do not go off a cliff. Cotton also has upside potential until focus turns to new crop acres. We have time to be patient with cotton.