Charts tell farmers that now is not the time to be pessimistic, analyst says

Trade deals show that a sure thing is never a sure thing in commodities.

Last week we had our China-U.S. trade deal signing ceremony.

Under the agreement, China is expected to buy $200 billion more U.S. product than it did in 2017. This buying pattern is supposed to last for the next two years, in return for $32 billion dollar of tariffs to come off Chinese imports. 

Of that $200 billion total, $32 billion was for ag products, which would mean an increase of about 50% for the next two years from that 2017 base (when China was a 25-million-acre customer for U.S. soybeans).  

But the market reacted negatively Wednesday and Thursday, which scared recent longs and provided margin call moments for recent longs. The old buy the rumor, sell the fact trade is something longtime traders truly enjoy, and is a teachable moment for first-time traders to learn that a sure thing is never a sure thing in commodities! But, now that we’ve cleared out the weak longs in the market, we also are free to push higher.  So, it might be ready, set, go for grain bulls now.  

There are a lot of interesting points to make about the current state of the market, but here are a few observations: 1) Prices ended 2019 at levels 1% below beginning-of-year prices in soybeans, and 5% lower in corn. 2) We had a 5% below trend yield of corn and soybeans in 2019 – a bad crop and the worst since 2013.  3) We lost at least 14 million acres of land to prevent plant more than normal – the worst PP ever in the U.S. by far. 4) We just signed/finalized trade deals with the four biggest U.S. customers, ending a trade war with the largest customer (China). 5) Corn futures broke out of a five-year bottom last June, projecting a run to $5.50 or higher in the next three years. In the next five years, we could go back near our recent corn high. (Look it up – it’s a lot higher than most remember!)  

It is becoming more and more likely that corn futures will hit $4.50 to $4.75 or higher by August 1, and soybeans $10.75 to $11. All other ag commodities will follow. The last six years of horrible prices might finally be in our rearview mirror – and thank God because most farmers can’t take much more of this! Actually, it should continue to get better after 2020, as chart-wise, this is not the time to be pessimistic.  

Friday grain markets bounced back with a vengeance in corn, gaining all of Thursday’s losses back and more.  Soybeans, however, didn’t get all of last week’s losses back. So, it was the weaker market after the China-U.S. trade deal signing ceremony. We note the DOW and stock market indexes had a sharply higher rally, last week, in which we set new records at over 29,200 in the Dow (the first time over 29,000 last week). So, equities are liking the China-U.S. trade agreement more than ag commodities – at least for now.

Pro Ag is in Watertown, South Dakota, at the Winter Show February 11-15. We’ll present seminars at the Fieldhouse Friday and Saturday from 10:00 a.m to noon, including “2020 Vision Ag Outlook” in which we highlight 6 reasons why corn should hit $4.65 and soybeans $10.85 by August 1 this year.  

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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