Another week and plenty more good news in the markets! We need to take a minute and soak this all in. Not that long ago we could not seem to get one thing to go our way. A quick recap of what has changed this week:
USDA gave us another really bullish surprise dropping 2020 crop and they also seemed to have dropped 2019 crop as well. They still have not increased exports as much as we anticipate so there may still be room to tighten up the balance sheets even further. USDA also did not reduce South American crops much, but there is still a lot left to be determined down there.
Argentina has seen some decent rains just as Brazil is trending dryer. The longer term models also show drying for Argentina too. February in Brazil is similar to our August. It is the most critical month for bean yields. They have been getting decent rains but they cannot store as much water in the soils as we can in the grain belt so they need constant rains to keep the crop growing. On top of all the other things we are trading, this is still very much a weather market.
China has made some big announcements that the market has not reacted to in the short term, but may be pointing of big things to come. China is quietly approving more GMO varieties for domestic usage. In the 2014/2015 marketing year, China banned many GMOs and due to this, they stopped importing hardly any corn from the US. This put downward pressure on US prices. Around 3 years ago they adjusted their domestic stocks going back about 10 years and saying they had nearly twice the stocks they had previously reported. The market seemed to take this as fact and dropped significantly on that announcement. Fast forward to today, while they keep saying they have plenty of corn domestic prices of corn are well over $10 now. They are blaming the high prices on speculators, not a shortage. However approving many more GMO varieties all of a sudden which really only benefits US imports because other countries do not use those GMO varieties seems to indicate an increasingly desperate attempt to secure corn stocks. It does not seem to indicate things are fine domestically. These are things to be looking for in the long term that will further tighten the world balance sheet and make the US 2021 crop that much more important. At the beginning of the summer, I said I was not sure we would be able to replace the 40% of corn demand that went to ethanol, but we have sure come a long way quickly to doing that.
What To Do
Same instructions as report day. Sell small, cover costs. We do not need to be in a hurry once you cover your costs. There is nothing wrong with making sales here, no matter where prices go from here. Fundamentally it looks like higher prices are still very possible even likely but there are no guarantees of that. New crop beans are $12 and corn is at $4.60, you are not wrong to get started on a little bit, but I would only be selling small.
Wheat
Wheat has taken the lead, at least temporarily. Russia has been unable to keep domestic prices at the target levels so this week has announced a doubling of the export tax and extending it through the next crop year. They did the same thing for corn and barley, but they are not as big of a player in those markets to world price like they are in wheat. This move is to try to push domestic prices lower and limit food inflation. It also pushes the price of Russian wheat higher to other countries. It has made Russian wheat go from the cheapest in the world to nearly the most expensive. US wheat is now competitive in the world market. This will benefit Minneapolis and Kansas city wheat more than Chicago. It will also help support corn. I still encourage sales of new crop above $6.
Cotton
Cotton is still the ugly stepchild, but when market starts focusing on new crop acres it is going to have a lot of work to do. USDA did not make any crazy adjustments on the Jan report. As long as macro factors are still going the right direction, cotton will continue to have some support. I would be scaling in old crop above $0.80 and be patient on new crop. Either cotton makes a move to compete or we do not plant it. Either way we do not need to be selling it now.
