Market analyst: Export taxes and market resistance

Ray Grabanski
Special to the Farm Forum

Changes are occurring in our world, as trade shifts are starting to have an impact on grain prices. Weather also is an issue.

Precipitation forecasts have been scaled back for the next seven days, resulting in below normal precipitation forecast for both Brazil and Argentina. Temperatures are above normal in Argentina, but below normal in Brazil. This will stress crops more in Argentina, especially.

However, offsetting some of that bullish change over the weekend is an improving precipitation forecast for the 8-14 day in Brazil, with above normal precipitation and normal temperatures forecast for that time period. But, will it materialize?

Often this year, the 8-14 day forecast was better, but it never seemed to materialize. Argentina’s seven day and 8-14 day forecasts are similar, in that both are set to be warm and dry. The forecast is actually somewhat supportive to grains.

Soybean prices were lower the past few days due to concern over Chinese demand, as a severe virus outbreak in Hebei province triggered a lockdown. China hog production was down 3% last year along with hog slaughter, although the December hog herd was up 10% from September at 406 million.

There is talk that disease in Matto Grasso, Brazil will drop soybean production in the country, with many expecting South America soy production to be down 6-8 million metric tons (mmt) from USDA’s 181 mmt guess.

Russia put a $1.65 export tax on wheat exports that will start Mar. 1, giving wheat prices a solid boost in overnight trade. Traders say that a shift of up to 6 mmt of Russian wheat export demand shifted to other origins, including the United States. This could push Chicago Board of Trade futures to $7.50.

Corn demand might be 450 million bushel higher than the U.S Department of Agriculture’s last guess, dropping carryout to 1.1 billion instead of the 1.552 billion that the USDA put out in January.

Many traders think corn could test $5.70-$6 as South America might not be able to meet 9 mmt (give or take 1 mmt) of its current demand. Argentina is talking about a corn export tax, as are the Ukraine and Russia. Socialists can think of all kinds of ways to raise money for the government, but not the farmers who produce the product in demand. So, when prices could be good and give farmers a profit, the socialist government taxes it away.

However, the bullishness overall of this market for U.S. producers is certainly alive and well.

Technically, there really isn’t much resistance above the current market. When the market is rising at this level, it usually doesn’t stop until it is near the all time highs. Going up, corn has resistance at $7.65, $8, and $8.44 and going down and also includes down rates of $5.51 and $5.70. Its notable we’ve only stopped at these levels stated above on weekly charts once all years , so we can hardly call them “significant” resistance points.

The same goes for soybeans, with resistance (in uptrends) at $16.63 and $17.95; going down, we have support for rebounds at $14.50 (hit twice in history), $15.28, and $16.20. Every soybean resistance going up has only been hit once; only $14.50 has been hit twice going down (the others only once). So essentially up in these stratospheric levels, we don’t have any significant support OR resistance. This makes for an extremely unstable and even less predictable market.

But, one thing is certain: Selling when prices are in the stratosphere under great uncertainty is exactly what Pro Ag wants to do, as it means you are selling at hugely profitable levels. We would also encourage at least some grain be held for the upside targets mentioned above ($16.63+ soybeans, $7.65+ corn). Note that old crop has arrived at great price levels, but new crop is far from these levels. More patience is urged on the new crop at this time.

While the rest of the exporting world is practicing what I believe are ridiculous socialist policies of limiting or taxing exports on the year their farmers can make a little money, as least that hasn’t happened in the United States (yet). With a new Democratic government coming in, perhaps they will join the socialist crowd of governments restricting exports? That hasn’t happened in the U.S. since Jimmy Carter’s ill-advised Russian Grain Embargo in 1980, which started an exodus of U.S. farmers into Brazil to produce soybeans. Brazil since has become a soybean exporting giant, the largest in the world. Yes, government decisions do have world impacts!