Market analyst: February is outlook time
02/05/19 — We turn the clock over to February this week, and that means it’s outlook time, with USDA in late February typically providing their Ag Outlook for the coming year for crops and livestock. We’ve basically had five good crops in a row, with above trend yields now going on some kind of record. With good crops comes a buildup of stocks, and that means lower prices. This might be the third year in a row of low prices for grains.
That also means from a technical standpoint, that we’ve built a base upon which to rally grain prices. Corn monthly charts basically show a 3-4 year base low, and prices with the right spark can rally nicely given that technical base. But something needs to provide that spark. U.S.-Chinese negotiations could provide that spark, but so far it has been agonizingly slow to come to fruition. China basically says they’d like to buy more soybeans, corn, and wheat to help balance the trade deficit (a U.S. demand) in almost every negotiation. It’s coming to some type of agreement on the intellectual property and state sponsored capitalism issues in China that stands in the way. And that seems to continue to be the case today. So until there is a confirmation of a positive resolution to the trade deficit, agriculture continues to be held hostage to the trade negotiations on other items.
Also on Feb. 8, USDA will provide the first supply/demand update in 2 months due to the 35 day government shutdown. They will provide the information normally released in the January report — final corn/soy yield numbers from 2018 as well as winter wheat planted acreage. Most expect the corn/soy yields to be trimmed further due to the difficult harvest, and winter wheat planted acreage also to be down from last year and expectations. World numbers also will be updated 2 months, with South American production likely to be adjusted down for Brazil due to the recent 6-week drought. Argentine production might be hiked, though, as they’ve had good weather so far this season. The changes could be larger than expected because it will be a 2-month update on South America production/yields, not just one.
Also, in early Dec. the U.S. started selling soybeans again to China, with expectations that 5 MMT (about 185 mb) were sold to them in the past 2 months. That could impact demand projections on the export side, which in turn could impact projected ending stocks. However, the U.S. is well behind the normal exporting pace in soybeans (and well ahead in corn), so the next projected exports for both crops will be interesting. (A hike in corn exports and cut in soy?)
Today there is very little news affecting markets. The U.S. government, after a 35 day shutdown, has a little less than 3 weeks to make another agreement to fund government. While some services are missed, as a whole U.S. citizens can thank God that government doesn’t run our country — private business clearly does. They can’t say they same in Venezuela, a communist government that controls everything, where the country has stalled in providing even the most basic necessities the past few years. But in the U.S., government does provide a few necessary services, so a shutdown is still a nuisance.
South American weather forecasts the next 14 days still have a below normal precip forecast for the southern half of Brazil where crops are under stress that will reduce yields. The next seven days look a bit wetter in some areas, but the 8-14 day forecast has dried out. Temps are still normal to above normal, so the stress will continue on crops, reducing yield potential there. That will support soybeans as long as the forecast is for continued stress in Brazil.
So markets continue a slow, awkward climb higher until we get more news on the China-U.S. trade talks, which is a huge fundamental for grain markets. After all, China is a 25 million acre customer who is considering buying more ag products if we can reach an understanding. But if not, they intend to buy almost nothing from the U.S. Thus they continue to leverage their purchasing power on soybean products worldwide (even affecting Brazil/Argentine prices). So that’s a big, important fundamental factor.