Market analyst: USDA 'two-for-one' report

02/12/19 — This week top U.S. trade negotiators will be in China, negotiating a trade agreement with China that seems more important than any other fundamental in the marketplace. After all, Friday we had a ‘two-for-one’ USDA report that cut world production of grain a lot (5 mmt soybeans in Brazil, 2 bu/acre yield corn in the U.S., 0.5 bu/acre U.S. soybeans, and winter wheat planted acreage was down 1.2 million acres as well). The only production estimate that went up was Argentine corn, up 3.5 mmt. So this report was bullish, but there was no market reaction as it doesn’t matter if you have no place to sell what you already have. And that seems to be the approach the market takes — without China, we need to produce a whole lot less than what we currently produce. So, the question remains, will we have China purchasing grain, and how much in the next few years?

The demand side is still a wild guess and subject to change with every Chinese trade delegation that could result in a trade agreement of some kind with the U.S. But WASDE made a few guesses, with U.S. corn ending stocks down 46 mb to 1.735 (trade expectations were 1.714), soybeans down 45 mb to 910 mb (trade guess 920 mb), and wheat +36 mb at 1010 mb (vs. 993 trade guess). World stocks were cut the most in soybeans, with -8.8 mmt to 106.7 mmt (trade guess 113.9 mmt). Corn was up 1 mmt to 309.8 mmt (vs. trade guess of 307.5), and wheat -.6 mmt at 267.5 mmt vs. trade guess of 268 mmt. So overall, the corn and wheat changes were small, but world soybean numbers were quite bullish actually. But once again, little price movement.

The stock market is responding positively to optimism about the upcoming U.S.-China trade negotiations coming this week between top negotiators in China. The Beijing meetings will include more discussions about avoiding a trade war and may be the last meetings prior to the March 1 deadline imposed by the U.S. to get things resolved. If not, tariffs will increase from 10 to 25 percent on $200 billion in Chinese imports. Most of the world’s stock markets do not want to see this happen, but in reality China has more at stake here than any other world market. On the other hand, no one in China can object or protest disagreement with their government, as that usually just means persecution.

U.S. ag markets also (like the stock market) seem exclusively glued to the U.S.-China trade negotiations for price direction. Even a USDA report that was mostly bullish Friday (big cuts in U.S. and Brazil production) barely moved the market. So we seem to be in limbo, waiting to see the outcome of U.S.-China negotiations on trade.

South American weather forecasts the next 14 days continue to suggest about normal precip for Brazil. However, Argentina will be dry the next seven days (almost no rain at all) before returning to more normal like precip conditions. Temps are forecast above normal for Argentina the next 14 days, and below normal for Brazil in what is actually a favorable growing season forecast. That seems to suggest that the adverse weather in South America may be ending. That is good news for South American producers, but bad news for the U.S. producer looking for an additional rally in the soybean market.

But regardless of the Brazil production problems, the market seems more intent on knowing every detail of U.S.-China trade negotiations, as if this is resolved favorably, the sector likely to benefit the greatest is the U.S. ag sector — probably the only major sector that has net exports to China. After all, we import four times what we export to China collectively. That means a lot of U.S. sectors might not benefit from an agreement with China. This week’s U.S./China trade negotiations will probably give the market a lot more direction, and so far little has been leaked about the nature of these discussions.