Market advisor: Happy New Year
12/26/17 — This is the last column of 2017, and then we are onto the new year, 2018, with high hopes for the coming year as we have just come off of two record yield years in a row for corn and soybeans (the best of the 2 was 2016 in soybeans, but 2017 in corn). We therefore have relatively large stocks of both corn and soybeans on hand (and wheat as well as most minor crops), and prices certainly reflect the large stocks are we are at relatively low levels for corn, soybeans, and wheat (and most other minor crops as well).
But hope springs eternal in Ag Country, and with a new year around the corner (and a new set of possibilities besides another record crop) brings with it the possibility of an improvement in the stocks situation, as acreage adjustments along with spending patterns will dictate that costs come down in the production of grains, and a new weather pattern could emerge. Already, Argentine production doesn’t look quite as rosy in 2018 as it was last year, as dry and warm weather has hit them at different times this past few weeks, and their production outlook isn’t quite as optimistic as it was last year.
South American weather forecasts today have turned drier again for the next 7 days in Argentina, now calling for below normal precip there and above normal temps in the 7 day forecast. This drying out of the Argentine forecast should be friendly to soybeans, along with the still above average temp forecast there as well. The 8-14 day forecast is similar, with mostly normal precip to below normal, and above normal temps. Brazil will see a more favorable forecast (as they have had all year thus far), with mostly above normal precip and normal temps forecast for the entire 14 day period. This forecast will likely support the soybean and corn prices as long as it lingers.
It was a quiet news weekend as most Americans (and many other world countries) observed the Christmas Holiday yesterday. There is a great deal of anticipation for 2018, and we’ll see what kind of year that brings for America and for agriculture. We have a very optimistic picture setup for the equities and stock market, but agriculture starts 2018 with plentiful supplies and therefore relatively low prices for most commodities. But every production season is different, and 2018 could change that in a big way.
To review 2017, the stock market has soared about 30 percent as the DOW has risen over 5000 points in 2017. President Donald Trump took over in January, and there is no doubt that this President is much more friendly to business than the previous one, and the stock market seems to reaffirm that every day. The stock market and equities could go up for some time, and of course there will be corrections as well, but there is no doubt that America is open for business again.
The commodities haven’t fared as well yet, and for 2018 it appears we start the year with soybeans in a bit of a downtrend (especially the end of December), losing about 70c in the past few weeks. In contrast, wheat prices have started an upward trend, and they may have already bottomed for the year (and the price is low enough to have done so). Winter wheat trends look the strongest. Corn also appears to have bottomed in futures, as prices don’t seem able to go any lower now that harvest is complete. Basis in corn (which was horrible for the past 18 months) has also started to improve, and that might be the biggest bright spot in the corn market. So things are starting to look up in the corn and wheat markets, and with the right weather in 2018 things could get downright bullish by late spring.
Soybeans have a bit of a problem, though, with U.S. exports on the slow side, and in need to improve considerably or USDA may need to hike the carryout projection again in future reports. Instead of the current projected carryover, it could balloon over 500 mb under the worst of circumstances (a large South American crop and no improvement in the pace of U.S. exports). That could spell additional trouble for the soybean market.
But Hope springs eternal, with the start of a new year and the new possibilities it creates. It will likely take some production problem in a major production area of the world to bail us out of this large stocks situation. But with a new year, comes the chance that something like that will happen.
Happy New Year!