Weekly Market Update – October 18, 2019

Trade Update
Trump’s tweets over the weekend had many expecting a huge move higher Sunday night and Monday. He announced a “phase 1” trade deal and said that China had agreed to buy so many ag commodities that he doubted we would even be able to produce enough. He said farmers should go buy all the land and equipment they could. Sunday night the market opened stronger but settled back and closed the session close to unchanged on corn and just up a few on beans. The reason for the skepticism was lack of confirmation from the Chinese side. Very little was announced from them. It was not until Tuesday that we got even a quiet confirmation that significant progress was made toward a “phase 1” deal. There have also been questions about whether the 40-50 billion dollars of ag purchases would be per year (almost double what they were buying before the trade war started) or over two years (which would be about equal to what they were buying before the trade war). Regardless of the details, we can say it is very positive to even be talking about being close to a deal. I had become skeptical that there was enough incentive on both sides to make a deal happen before next summer. Two things that changed that are the increasingly concerning economic indicators out of China putting pressure on their side and the political trouble Trump finds himself in. He is going to need a big boost close to election, but he now also needs one very soon. These factors have helped get us back to the brink of a deal.  

Corn was able to recover from USDAs bearish numbers due to rumors of trade progress but mainly due to the blizzard forecast for the western corn belt. Only 73% of the corn in the US was mature which is even slower than 2009. There are some estimates of 250 million bushel corn loss in the Dakotas due to the blizzard. The growing season has been stopped now almost everywhere. We got a longer than normal season, but not long enough for the latest planted crops. USDA has done a good job at estimating the shrinking demand, now we have to continue trying to estimate what the supply is going to be. We have used up most of the buffer in the balance sheet. We usually have a much better handle on how big the crop is by the October report. We still do not have a clue. Early yields are ok, but the only corn harvested is the corn that was planted on time. I do not see a run to new highs on just uncertainty, but the market should remain very well supported. We need to know more about the actual size of the crop to really feed the rally.

It feels like we have been a while since we have had this much positive news. I just painted a very positive picture full of potential but I do not want to let us fall asleep on our marketing. We are back at $4 on the board. If you have not sold any in a while, that is $0.50 off the lows. Basis is historically very strong. Cover a few costs. Manage risk. And get orders working for 2020 crop corn!!

In the last month, soybeans have done a complete 180. Earlier this year we thought it would take years to work through the excess inventory without China. The weather has changed all that. Slowest maturity pace ever with only 85% dropping leaves. Average harvest pace for this week is 49% and we are only a 26% which is only a point ahead of 2009. Estimates of losses in the Dakotas are as high as 18 million bushels. Domestic demand has been up. Supply keeps shrinking. It is a bit too early to be a big deal yet, but it is still dry in South America. Early yields out of the Midwest are starting off disappointing and only expected to go lower. Domestic basis is actually getting stronger in the Midwest even though they are in the middle of harvest. That is a very good sign. I have not even talked about China yet. The potential there is explosive with how much we have trimmed the balance sheet without them. The most exciting thing about soybeans right now is that they will no longer have to roll over and give up all the Midwest acres to corn next year. They are going to have to compete for some acres and that helps both corn and bean prices. The answer to how much they are going to have to fight for will be answered over the next few months. For right now, that uncertainty is our friend.

I paint a similarly rosey picture of soybeans finally but just like corn we cannot afford to fall asleep. You need to have orders working in beans!! There is a lot that can go our way and push these beans higher, but there is risk on the downside as well. South America could get rain. The deal with China could start going the other way. New crop beans are at $9.70. Historically $10 is not a bad place to start. Old crop beans are getting within striking distance of $9.50. Get some bean orders in!!

Wheat has managed to stand on its own as it makes new highs despite corn trading flat. The cold weather and blizzard has wiped out any spring wheat left in the field. Australia and South America remain dry. Wheat acres do not look to be up significantly in the Southeast so basis should remain strong for next year. New crop wheat futures are $5.36. We need to get orders working and have objectives for acres that you are thinking about planting this fall. There has been a lot of talk about farmers wanting to plant wheat to help manage cash flow and it will be very important to have a marketing plan and home lined up for the wheat.

Cotton has finally seen some life as we trade at levels not seen since early June. Cotton needs a deal with China to continue the uptrend. We have not been able to trim the domestic balance sheet dramatically like soybeans. The funds are still very short cotton which is why it saw such a wider range than soybeans on Sunday night. We need to keep seeing progress on trade. We need to think hard about scaling in sales above $0.65.