You are here

Keeping Track of China’s Stock Reporting Remains Difficult, Analyst Says

This time, doubt hovered in the corn market.

Is our old trade friend/foe, China, up to it again?

In the USDA’s World Agricultural Supply/Demand Report last week, China revised its corn (and wheat) stocks numbers to the point that world corn stocks essentially doubled on their slight of hand with their stocks numbers. That took an otherwise bullish report into what many considered a bearish event.

USDA Data Has Long Tail

The USDA report on November 8, 2018, was basically bullish, lowering both U.S. corn and soybean yields (as we expected), after pushing them much too high earlier this year. 

This is becoming a pattern – USDA aggressively raising yields early in summer, only to back off considerably on some or all of the yields late in the year. This year it was both corn and soybeans that needed to be lowered after early, aggressive hikes, while last year it was soybeans that were way too high. 

Even USDA has something to learn about accurate data reporting!  And it is among the world’s best.  

Most of the investors focused their attention on the China revisions to corn and wheat, which was ridiculous in that it doubled world corn carryout projections based on a 10-year revision. This sounds familiar, as China has done it before, with USDA following suit over a decade ago. 

While many were alarmed over the huge hike, it is meaningless. Just as it was a decade or more ago, these 10-year revisions are essentially China admitting they either lie about their stocks continuously, or are just incompetent in measuring them. 

So how do we know they are competent?  What changed to make China any better about properly reporting its numbers? I would argue the answer is nothing.

Essentially, every real analyst knows that world numbers from most third world countries (including and especially China) are worthless and should be ignored for the most part. 

In the wheat market, real analysts have been doing that for decades, instead focusing on the major exporters (and Russia and Ukraine now) as they are the only ones who really have decent numbers anyway, and they represent virtually all the competition. 

In coarse grains, that is also becoming more the case, mainly due to China’s horrible reporting system. World numbers in coarse grains have always been difficult to use to forecast prices, too, but they were better than wheat. Now that is becoming a world exporter pricing tool, as well.

Investors focusing on soybean world numbers know that the only world producers worth following are the U.S., Brazil, and Argentina. Those countries make up almost all the world’s production. All three of these countries do a good job for the most part measuring and reporting numbers.

So, essentially we are saying that the USDA November report was bullish corn (yield down 1.8 bushels per acre, ending stocks down 75 mb), as the U.S. and major exporter numbers were all bullish except the Chinese (mis)information.  China’s numbers should be ignored. Based on that, the corn market has probably bottomed, and puts can be sold now on a spec trade.

The soybean data was a different matter, with yields cut a large 1 bushel per acre, but exports cut more for a net increase in ending stocks of 70 mb (China exports cut). How low can soybeans go?

U.S. Weather

The forecast is for below-normal precip in almost all the U.S. for the next seven days. Below-normal temps are expected, with the exception of the western 40% of the U.S. (mountain and coastal states). The eight- to 14-day forecast calls for below-normal precip in the northern half, but normal to above-normal precip in the southern half of the U.S. Temps will return closer to normal, as we typically cool this time of year around Thanksgiving.

South America’s Weather

South American weather is more dynamic this time of year, with mostly normal precip and temps forecast the next seven days (typically quite wet in Brazil this time of year). The eight- to 14-day forecast turns a bit wetter in Brazil, with above-normal precip forecast while Argentina turns a bit on the dry side. Temps will be about normal during the eight- to 14-day period for both important countries.  

China, U.S. Trade Talks

News reports indicate Treasury Sec. Mnuchin has resumed discussions with China about a deal that would ease trade tensions. Let’s hope he is more successful this time in moving the U.S. and China toward an actual trade agreement that would be mutually beneficial to both countries. The U.S. is taking a different tact recently on the intellectual property dispute, trying to increase the punishment of violating companies in a number of ways rather than tariff the whole country. Note additional tariffs are still not imposed, or even discussed to being imposed, on the last $250 billion-plus in Chinese imports. 

At least, not yet! There is some progress being made, although it’s not fast enough for U.S. agriculture.

-----------------------------------
Ray Grabanski can be reached at raygrabanski@progressiveag.com.  
+++++++++++++++++++++++++++++++++++++++++++++++++++
Ray Grabanski is President of Progressive Ag Marketing, Inc., the top Ranked marketing firm in the country the past 8 years. 

This material has been prepared by a sales or trading employee or agent of Progressive Ag Marketing, Inc. and is, or is in the nature of, a solicitation. This material is not a research report prepared by
Progressive Ag Marketing's Research Department. By accepting this communication, you agree that you are an experienced user of the futures markets, capable of making independent trading decisions, and agree that you are not, and will not, rely solely on this communication in making trading decisions.

DISTRIBUTION IN SOME JURISDICTIONS MAY BE PROHIBITED OR RESTRICTED BY LAW. PERSONS IN POSSESSION OF THIS COMMUNICATION INDIRECTLY SHOULD INFORM THEMSELVES ABOUT AND OBSERVE ANY SUCH PROHIBITION OR RESTRICTIONS. TO THE EXTENT THAT YOU HAVE RECEIVED THIS COMMUNICATION INDIRECTLY AND SOLICITATIONS ARE PROHIBITED IN YOUR JURISDICTION WITHOUT REGISTRATION, THE MARKET COMMENTARY IN THIS COMMUNICATION SHOULD NOT BE CONSIDERED A SOLICITATION.

The risk of loss in trading futures and/or options is substantial and each investor and/or trader must consider whether this is a suitable investment. Past performance, whether actual or indicated by
simulated historical tests of strategies, is not indicative of future results. Trading advice is based on information taken from trades and statistical services and other sources that Progressive Ag Marketing
believes are reliable. We do not guarantee that such information is accurate or complete and it should not be relied upon as such. Trading advice reflects our good faith judgment at a specific time and is
subject to change without notice. There is no guarantee that advice we give will result in profitable trades.

Read more about

Talk in Marketing

Most Recent Poll

How many 2019 inputs did you buy in 2018?