A The-Sky-Is-Falling Market Mentality Sets In, Analyst Says
A the-sky-is-falling mentality is in full swing in the grain markets, with every bearish entry, no matter how slight, now getting full play in the grain pits.
We’ve already gone nearly a year with Chinese tariffs on U.S. soybeans, and of course it has led to an increase in carryout just like USDA projected way back last summer. From the USDA Ag Outlook session last week, every sigh by the chief economist has been cited as another reason to be bearish by some wannabe analyst.
Sensible talk by USDA of needing multiple years to get rid of our mountain of U.S. soybeans was met by “bearish, bearish, bearish” chants from even more analysts.
They cited that essentially, even USDA was bearish in saying that. As if we didn’t know already that nearly 1 billion bushels of soybean stocks wouldn’t disappear overnight. We could go on and on about what a terrible problem there is – but don’t prices already reflect that for the most part? That is especially true in corn and wheat, where stocks have actually dropped the past two years.
For soybeans, if we have a 910-million-bushel carryout we probably are overpriced, but that also assumes no change in the U.S./China trade situation. Clearly, based on last week’s news on trade negotiations, that is highly likely to change.
Two President Trump tweets on Feb. 25, before leaving for his North Korea summit, were positive about U.S.-China trade negotiations: "If a deal is made with China, our great American Farmers will be treated better than they have ever been treated before!" Also, Trump tweeted: "China Trade Deal (and more) in advanced stages. Relationship between our two countries is very strong. I have therefore agreed to delay U.S. tariff hikes. Let’s see what happens?"
Pres. Trump made a number of other statements about agriculture and the benefits we will have over a trade agreement. To be quite honest, it sounds like Trump is in some respects making the trade agreement so it will benefit agriculture – even though the U.S. won’t get all it asked for in the agreement. It does sound like increased purchases of ag commodities will be a part of the trade agreement.
The grain markets reacted with a thud over the recent cooperation between China and the U.S. on solving trade issues. While Trump’s announcement of delayed tariff hikes/deadline for making an agreement was met with a 2% hike in China stocks, the U.S. grain market reacted negatively. Wheat prices led the way down after penetrating support levels earlier, with 20¢ losses in winter wheat Monday, Feb. 25. Soybeans followed them down, with corn also experiencing 5¢ losses – and followed with more losses Tuesday. Overall, a very disappointing reaction to positive news.
The meeting between Presidents Trump and Xi will be in March, and that meeting is likely to result in a trade agreement between the U.S. and China that will include increased agricultural purchases by China. It almost seems as if the market has already built that into soybean prices, where we are so far only fractionally (6%) lower than last year for insurance prices set in February ($9.55 vs. $10.16 last year) in spite of carryout up over 100%.
South American weather forecasts call for the next seven days to be above-normal precip in all of Brazil (45% harvested), and below normal for Argentina. The eight- to 14-day forecast calls for above-normal precip in both Brazil and Argentina, preventing any crop stress in either area. Temps will be normal in Brazil, and above normal in Argentina the next 14 days. There could be slight crop stress in Argentina with the next seven days of dry weather, but it should be alleviated in the eight- to 14-day forecast if the forecast wet weather arrives. However, the damage has probably already been done in Brazil, and private and public estimates continue to drop 2 to 3 mmt recently.
U.S. weather is calling for bitter cold in the Midwest the next week, followed by still cold weather (but not as bitter cold) in the eight- to 14-day forecast. Precip will be below normal in the Midwest the next week (too cold to snow?), but then return to above-normal precip in the eight- to 14-day forecast. Most upper Midwestern residents are, frankly, getting quite tired of shoveling/blowing snow now in late February. Since mid-December, the winter of 2019 has become a bitterly cold, wet, snow-filled and stormy affair for most – one we’d like to get over as quickly as possible.
Ray can be reached at email@example.com.
Ray is president of Progressive Ag Marketing, Inc., a top-ranked marketing firm in the country.
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