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The Market Beat Goes On With Trade, Weather, and Harvest

All fundamentals have been hanging around for a while.

It's been another disappointing week in commodities, with mostly lower prices dragging the market back down near the Aug/Sept. lows. 

However, a bright spot last week was Friday’s 7¢ gain in corn, which effectively helped form an upside weekly reversal in corn. The only problem is that almost no other commodity participated in that upside reversal. We will need some life in soybeans and wheat prices to turn the grains to the upside.

Weather is uneventful today, with very little precip anywhere in the U.S. Brazil is also a bit on the dry side today, with the U.S. extended forecast warm and dry for the most part the next two weeks. There will be a bout of cold weather in the north starting next week, but it is winter now, so cold weather is actually normal. A bit more precip is forecast to fall in the eight- to 14-day forecast, but for the most part, last weekend’s storm ended the harvest season for many northern states like North Dakota, South Dakota, Minnesota, and Wisconsin anyway.  

Australian wheat production forecasts dropped to 15.85 mmt from 19.25 mmt in Sept, which represents a disaster production year for Australia. It typically exports about half or more of its production, so it might be mostly out of the wheat export business this year with such low production.  

Harvest drags on in the U.S., with corn 89% harvested (up 5% this week), vs. 98% normally.  South Dakota is only 80% done, North Dakota 36%, Wisconsin 66%, and Minnesota 91% and with last week’s storm, it’s likely very little more will be accomplished until snowmelt next spring. 

Soy harvest nationally is 96% (up 2%) vs. 99% normally, cotton harvest is 83% (up 5%) vs. 81% normally, and sunflowers are 65% done (up 9% this week) vs. 94% normally.  It’s likely most remaining sunflowers in North Dakota and South Dakota will not be harvested until spring.

The harvest of 2019 was about like the growing season – a struggle, to say the least, full of highs and lows (mostly lows). There were times when things improved, but it was an adverse season pretty much from start (planting) to finish (harvest).    

The stock market didn’t like the Trump administration’s new tariffs this week on steel and aluminum for Brazil and Argentina, as it dropped significantly yesterday (12/2) and overnight.  Neither did commodities for the most part, as futures prices also sagged. 

Weekly U.S. exports continue to be strong soybeans, OK for wheat, but poor corn. Prices are poor for almost every grain, with the exception of CBOT wheat, which has rallied to new recent highs. But the other wheats (KC and MNPLS) might just as well be oranges lately as they are going the other way from the Chicago wheat – down.  

The trade negotiations with China are still going on, with good news one week followed by bad news another. Both sides are still jockeying for an advantage in the negotiations, but the reality is that the Trump administration needs a victory given impeachment proceedings, and the Chinese need to get access to the U.S. market without paying 25% access fees via a tariff. 

Essentially, the Chinese could save around $86 billion dollars a year with an agreement vs. all proposed tariffs being imposed. Another deadline comes up Dec. 15, as additional U.S. tariffs were scheduled to go on at that time if an agreement is not reached.  

China is buying soybeans aggressively the past few months, which it needs to do with South America virtually out of exportable beans. But once Brazil starts harvesting, it will switch back to its reliable supplier with no tariff. So the U.S. also has some pressure to get a deal done with China as well. 

But doesn’t China badly need U.S. soybeans now to meet its current needs until the Brazilian harvest begins? They are getting goodwill from buying U.S. soybeans now during negotiations.  

A Chinese trade deal would effectively end any relevance of further Chinese trade negotiations to agriculture as this first phase of negotiations should address all of ag’s concerns. It’s likely other issues will drag on for years – and who knows if an agreement will ever be reached on intellectual property and Chinese state-sponsored business? The same could be said for ag the past year and a half during negotiations – who knows if a trade agreement will ever be reached on agriculture?  This has dragged on longer than anyone expected already.  

All of ag would breathe a sigh of relief if it finally gets done. And then, maybe ag prices can finally start going up.


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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