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Trade and Weather Remain Market Drivers

Rallies to be kept in check.

Markets wasted little time on Monday moving higher on renewed optimism that the most recent round of communication between China and U.S. will lead to resolution of (what is now being termed) trade disputes.

According to the U.S. Treasury Secretary, Steven Mnuchin, at least trade issues with China have been disputes and not wars. If, in fact, the most recent round of talks/rumors centered on ideas of a positive outcome are accurate, this suggests China will be back to buying U.S. agriculture products, perhaps aggressively. If this is the case, the markets are poised to consolidate, if not move higher.

There are a few variables keeping rally potential in check: the U.S. dollar, farmers holding inventory, and weather. The dollar has gained over 4% the last two months, and farmers are still holding inventory from last year’s big crops. Yet, we feel farmer selling has been more aggressive this year than last.

As summer unfolds, the likelihood of farmers being caught with large amounts of inventory is less than it was a year ago. When farmers are light holders of inventory, it usually increases the chance for price recovery. Planting progress is in line with the five-year average, suggesting that year-to-date weather has had little impact from a big-picture perspective.

While this week is celebrating renewed optimism from the export front, weather will quickly grab attention, and weather developments will become the most dominant and important factor for price direction. The next 60 days are critical, and the next 90 days will tell the story for this year’s crop production. On one hand, if recent trade disputes are behind the market and this positive news becomes old news, prices will be vulnerable to a drop if good weather develops for the Northern Hemisphere.

Yet, with world economies growing, energy prices doubling from two years ago, and inflationary concerns mounting, business may not be as usual. It is possible that export business could be robust. China has a growing economy, and if attention focuses on increasing imports from the U.S., any weather developments will be magnified. Last week’s USDA projected 2018-19 drawdown on world carryout is a very stark and sobering reminder of the old economic adage that low prices cure low prices. Any crops less than ideal (domestic and worldwide) could send prices skyrocketing.

As a farmer, you wear two hats. One is production, and one is business manager (or marketer). You obviously will do everything in your power to maximize your production. From a business perspective, however, many fall short in creating a balanced approach when it comes to marketing. Selling enough projected inventory to make a difference, yet not too much, is challenging. At current prices, we suggest you sell the amount you are comfortable with and retain ownership with call options in case prices skyrocket. Buying puts can protect the downside on bushels you don’t intend to sell. Take time now, before summer weather, and prepare for volatility. It is possible that business will be anything but usual.


If you have questions or comments, contact Top Farmer at 1-800-TOP-FARM, ext 129.

Futures trading is not for everyone. The risk of loss in trading is substantial. Therefore, carefully consider whether such trading is suitable for you in light of your financial condition. Past performance is not necessarily indicative of future results.

Carol Tillmann 
Front Desk Administrative Assistant | Stewart-Peterson
Office: 800.334.9779 | Fax: 262.334.6225

Futures and options trading involve significant risk of loss and may not be suitable for everyone. Therefore, carefully consider whether such trading is suitable for you in light of your financial condition. Hypothetical performance results have many inherent limitations. No representation is being made that any account will or is likely to achieve profits or losses similar to those shown. No representation is being made that scenario planning, strategy or discipline will guarantee success or profits. The data contained herein is believed to be drawn from reliable sources but cannot be guaranteed. Reproduction of this information without prior written permission is prohibited. This material has been prepared by a sales or trading employee or agent of Stewart-Peterson and is, or is in the nature of, a solicitation. Any decisions you may make to buy, sell or hold a futures or options position on such research are entirely your own and not in any way deemed to be endorsed by or attributed to Stewart-Peterson. Stewart-Peterson refers to Stewart-Peterson Group Inc. and Stewart-Peterson Inc. Stewart-Peterson Group Inc. is registered with the Commodity Futures Trading Commission (CFTC) as an introducing broker and is a member of National Futures Association. Stewart-Peterson Inc. is a publishing company. A customer may have relationships with both companies. Accordingly this email is sent on behalf of the company or companies providing the services discussed in the email.


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