Weekly Market Update – January 4, 2019

Markets are trading blind with no USDA reports and no end in sight to the government shut down. The Dow has continued its slide into the new year and we continue to see worrying economic indicators out of China. The volatility in the US equity market and the possible slowing of the Chinese economy has put a huge amount of pressure on both the US and Chinese to find a resolution to the trade war. We need a resolution to the trade war to keep beans where they are. If corn is included as part of a trade deal, it could significantly reduce the US balance sheet and push the trading range higher.

The lack of USDA export reports has hampered corn as we have the cheapest corn in the world. In addition, basis improvement at the Gulf indicate that exports seem to be building steam as well. Corn has managed to hang on to the 375-385 range for now. We have seen a couple years of declining balance sheets in corn as opposed to soybeans and we have no room for error or adjustment. If China shows up purchasing much US corn it will change the balance sheet quickly and push the range higher. If you can be patient, work orders around $4 March. Basis continues to strengthen in our markets. Train delays have been fewer than anticipated but be ready as they could come at any time. If you have upcoming cash flow needs, work orders upper 380’s. Get some new crop orders working at $4.15 Dec!! That should easily be $5 corn delivered in Jan!

In addition to trading on progress with China, soybeans are also trading South American weather. The season started off without a hitch but has turned off in a couple key areas. There is too little rain in big production areas of Brazil due to a high pressure ridge which is also contributing to too much rain in some production areas of Argentina. The market would probably have lost patience with the perceived lack of progress on trade by now had we not had the weather market to support. With no USDA export reports, information is harder to trust but there are indications that the Chinese have stepped in and made some additional large purchases of US beans. Basis in the Southeast continues to improve as crushers transition from the Jan to the March contract. Have orders working on old crop mid $9’s! New crop needs a lot of help to get to $10, but with costs where they are we do not see a reason to have anything working below that. Wherever your objectives are, have orders working as we could get up quick and not stay long.

Wheat may have the most to lose from lack of USDA reports. The story in wheat for the past two months has been all about weakening demand overseas. The US seems to have significantly less new crop wheat acres of all classes, but we cannot see confirmation from USDA until the government gets back going. US wheat is also competitive in the world market and we cannot see the exports without USDA’s weekly reporting. If you have wheat hedged, take profits! Plan to rehedge on a run back above $6 July. 

We have seen Chinese purchases of US beans and corn, small as they may have been, but not cotton. Cotton desperately needs a deal to make the balance sheet work out. Lack of Chinese demand soon will see US carryouts revised higher. On top of that, economic concerns hit cotton harder than the other commodities as well. Seasonally cotton generally starts working higher from here, but it is going to need some progress on trade or something to spark it.