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A Bullish Market Factor Breakout Coming?

Will a trade settlement happen within weeks?

The market is on the verge of discovering some bullish market factors, with prices teetering near the yearly lows right now.  

But the changing winds they are a blowin’!  

For one, the market has yet to pay any attention (or offer premium) for the planting delays that we currently are experiencing. Typically, that is the most important market factor in spring since we have lost up to 10 million acres to prevent-plant in bad planting years. 

Records were made to be broken, right? 

According to our treasury secretary, we may be just a few weeks from a final agreement with China on trade that might be the most bullish market factor we could get all year. Then, Sec. Mnuchin says, the U.S. will focus on opening up Japan’s market, especially to U.S. agriculture. So, that would all be good news indeed.  

Weather forecasts remain at above normal precipitation for the next 14 days, with temps at below normal for the northern two thirds of the Corn Belt, and normal to above normal for the southern third. But the wettest portion of the Corn Belt will also be the southern Corn Belt. That might make it difficult for much planting to get done. Temps cool in the eight- to 14-day forecast, too, which will slow planting as well.  

Crop progress numbers released yesterday afternoon 4/30 were anemic, with corn planting only 15% complete (12% behind normal), with soybean planting 3% complete (3% behind). 

Cotton was 11% planted (2% behind), with sorghum 20% (5% behind) as Southern areas aren’t as delayed as Northern areas – although rice is only 38% planted (19% behind normal).  

Sugar beets are 25% planted (23% behind normal), while oats are 43% planted (18% behind). 

HRS wheat in the northern Plains and Pacific Northwest is only 13% planted (20% behind), with barley 28% planted (13% behind). Most of that progress is in the Pacific Northwest as the northern Plains have just started scratching soils. 

Topsoil moisture, nationally, is 92% adequate/surplus (-2% this week) while subsoil moisture is steady at 93% adequate/surplus. These are still very high levels for this time of year, and the wet soils are causing the planting delays along with cool temps.    

While cool/wet weather is a hindrance to planting progress (and thus final yields) in corn, soybeans, and HRS wheat, it is favorable for winter wheat development. 

The Pro Ag yield model for winter wheat continues to rise, as crop ratings improved 2% to 64% rated G/E, well above last year’s 33% rating. We now sit at a yield estimate of 51.9 bushels per acre, which would be the second highest yield on record (behind only the 55.3 in 2016). That explains why winter wheat is lower in recent trade while spring wheat, corn, and soybeans are more stable or higher.  

We should start to get some news out of China on the trade negotiations going on there this week between the U.S. and China. This is the market factor that continues to hold down prices as long as the U.S. and China have heavy tariffs in place. 

U.S. Treasury Secretary Mnuchin said recently that he expected to finish the negotiations by the end of next week, as both sides are anxious to have a trade deal done.  

The U.S. has also started negotiations with Japan, and one of the aims according to Mnuchin was to increase access to Japan’s ag markets. So, maybe some positive developments will come on the trade front side in the next few weeks. 

The China deal, unlike the USMCA free trade deal that is still waiting to be ratified by a Democratically controlled House, does not need Congressional approval since it arose from a trade complaint filed by the U.S.  So, once negotiated and signed by the Trump Administration, it becomes law. Too bad we couldn’t do all our trade deals in a Congress bypass – something might actually have a chance to get done in reasonable time then.

So, the positive news on trade and the planting delays throughout the U.S. are starting to become positive factors in the market. And all know that agriculture needs it, as at these prices eventually everyone would go broke. You can’t lose money year after year, no matter how much you have. Reminds me of a joke: A farmer won the $30 million lottery, and was asked what he would do with the money. He replied, “Farm until it’s all gone!”  In today’s environment, unfortunately, that joke isn’t as funny.  

Ray can be reached at raygrabanski@progressiveag.com.  
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Ray is President of Progressive Ag Marketing, Inc., a top-ranked marketing firm in the country. 

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