Are Grain Markets Looking for a Bottom?
Grain prices have been grinding away at or near the bottom, as we harvest another very large crop.
USDA says both corn and soybeans are record-large yields, and so far many areas are indeed harvesting very large crops. Whether or not we shatter the previous record is yet to be seen.
Meanwhile, corn and soybeans have pushed to new lows this fall on September 18, dropping down to $8.12 November soybeans and $3.42 December corn. We rallied from there to 9/28 highs of $8.59 soys and $3.67 corn, but formed a downside reversal that day as the market decided it might be a little ahead of itself. After all, harvest was just under way, and so far yield reports are outstanding.
Then Monday morning we wake and find that the U.S. and Canada agreed to a new trade deal (even though U.S. officials told Congress four days earlier it wasn’t going to happen). Markets rallied, nicely, back up near the highs of last Friday, and actually a bit higher in corn’s case.
It was nice to see the positive response of the grain market to the news Canada and the U.S. reached a trade agreement by the deadline of September 30. Not only is the agreement supportive (not that we sell a lot of grain to Canada), but it also indicates a willingness to compromise in the U.S. negotiating team to get a deal done.
The major compromise that occurred was that the U.S. agreed to leave the Court system for regulating disputes/violations in place as Canada wanted, while Canada agreed to allow more U.S. dairy into Canada at a lower tariff. That means that with U.S. willing to compromise with Canada, maybe that same willingness to compromise may mean that agreements with other countries (even China) may be more possible than many traders previously had envisioned. Plus, it helps to assure that the Mexico agreement (a country that buys a lot of corn and other commodities) will be approved by the U.S. Congress, as many legislators stated they may not vote for a Mexico-only agreement.
Crop progress yesterday had few surprises, with both corn and soybean conditions unchanged from the previous week (corn at 69% G/E, soybeans 68%). Yield models actually dropped slightly to 49.6 bushel soybeans (down 0.33 bushel) and 179.33 corn (down 0.37 bushel). Both are below USDA September numbers of 181.3-bushel corn and 52.8 soybeans.
Corn is 26% harvested (up 10% from last week), about 9% ahead of last year or about one week.
Soybeans are 23% harvested (up 9% for the week), and now only 3% ahead of normal.
Recent wet weather might be slowing harvest progress, especially in the northern Corn Belt where not only is it wet (raining every few days), but also very few sunny days to allow rapid drying. So harvest is actually falling a bit from the early start, and with adverse weather forecast the next two weeks, could fall back to near normal.
Other grains are also mostly ahead of normal progress, with cotton 19% harvested (6% ahead), and sorghum 34% harvested (2% behind). Sugar beets are 22% harvested (2% ahead), with winter wheat 43% planted (3% ahead).
Topsoil moisture now is 77% adequate/surplus, up 3% from last week and well above last year’s 59% rating. Subsoil moisture is 72% rated adequate/surplus, up 2% and also well above last year’s 57%. So soils are wet, with more rain basically the greatest danger to harvesting this year’s big crop.
Weather forecasts are wet for the next 14 days in the Corn Belt, and very wet the next seven days. Temps are mostly above normal the next seven days except the northern tier states (Idaho, Montana, North Dakota, Minnesota). Thereafter, temps are forecast above normal in the eastern half of the U.S., but very cold in the western half as they cool seasonally in the fall. With soil moisture already quite wet, additional rainfall and cold temps (in the north and west) are a bad combination and could lead to harvest delays there.
On the demand front, a positive from last month’s stocks report was news that fourth-quarter demand for soybeans was record large, as other countries (besides China) are taking advantage of the firesale prices offered on U.S. soybeans. Many believe this is only a temporary phenomenon, but this will need to be monitored the rest of the marketing year.
USDA forecasts a huge hike in ending stocks of soybeans, based on the initial tariff implementation by China. Surely the exports to China will drop, but perhaps other countries will respond to the U.S. firesale of soybeans more than USDA expected? This remains to be seen. We have noted that Canadian soybeans have been gobbled up by Chinese buyers in the past few weeks, boosting Canadian soybean prices to a $1.50 to $2 premium to U.S. soybeans. (They were the same price essentially into September). So, Canada will likely import U.S. soybeans for its own needs, and sell its soybeans at a $1 to $2 premium to Chinese buyers.
The world is getting to be a more and more interesting place! We note that the WSJ has the past week published reports from U.S. businesses that had intellectual property essentially seized by the Chinese government/private industry over periods of decades or more. These stories highlight the U.S. stance that China must change this policy, as the U.S. estimates it costs the US $50 billion a year.
Essentially, $50 billion is more than the value of the entire U.S. soybean crop.
So, it will be interesting if an agreement can be made to solve this issue.
Ray Grabanski can be reached at email@example.com.
Ray Grabanski is President of Progressive Ag Marketing, Inc., the top Ranked marketing firm in the country the past 8 years.
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