Weekly Review; Friday, February 8th, 2019
MaxYield Cooperative - SETZ - Fri Feb 08, 2:04PM CST

Trade Negotiations Pushed Back on the Calendar

Two Chinese grain companies issued statements Saturday that confirmed each purchasing 36 million bushels of soybeans on Friday for spring 2019 shipment. Many in the trade think this could total five times that, up to 180 million bushels. This would be a potential additional 180 million bushels on top of what has already been booked but sales not committed to by the Chinese. While this is very good news for an overly burdensome soybean supply situation, a trade deal has not been accomplished. The two Presidents will meet later this month. Little if any news on trade negotiations would be expected this week as the Chinese began their weeklong New Year celebration on Saturday.

Soybeans were relatively quiet compared to Friday as some confirmation of new Chinese sales were made. Fresh news from China on trade or export sales will be minimal this week as they celebrate the Chinese New Year. The wait and see game continues as traders wait to see if the two countries can work out a trade deal before March 1st. That is when tariff rates are expected to increase from 10% to 25% on more than $200 billion of Chinese goods.

As we get closer to March 31st, the acreage debate continues to become more of a talking point in the markets. Many felt going into winter, we would see a sizable shift, possibly 4 to 5 million acres away from soybeans to other crops. The latest private estimates have not shown that, but closer to a 1 to 2 million acre shift. Soybeans prices have a tough hill to climb with carry out figures potentially getting larger than the current 955 million. Prior to recent sales to China, soybean exports lagged USDA projections by over 400 million. The pace will need to dramatically pick up to come anywhere near that. If export projections fall short, and we see a smaller shift in acres away from soybeans for 2019, the potential for next year’s soybean carryout to get larger becomes greater.

As the crop insurance discovery period is underway for the month of February, many argue that the February 8th reports could set the tone for price direction for the remainder of the month. Price volatility is expected and those with unpriced grain should be getting orders in with buyers in anticipation. A backlog of information is now available and should be sifted through to make better decisions.

The reports on the docket include the Crop production annual survey, Jan WASDE, and grain stocks. All were originally scheduled for release on January 11th, but due to the shutdown, release dates were delayed. The Crop Reduction Annual Summary will include production estimates for the 2018. Earlier in the week, there was a growing consensus that we would see a reduction in both corn and soybeans for total production. Data going back to early 2000s show we typically see a heightened amount of volatility during the report releases, but this report simply did not generate the amount seen in past reports. Next week’s review will contain a summary of the released reports.

Corn continues to grind sideways ahead of the combined Jan/Feb supply and demand report due out on Friday. Export loadings for corn are 294 million bushels ahead of this time a year ago and almost 120 million bushels ahead of the USDA estimates. Ethanol grind could cut into that extra usage in exports, as margins have been at breakeven or negative since November. Some in the trade expect ethanol usage will be lowered by 25-50 million bushels in Friday’s S&D report. There will be a lot of information in Friday’s report for the trade to digest.

Soybeans were relatively quiet compared to Friday as some confirmation of new Chinese sales were made. Fresh news from China on trade or export sales will be minimal this week as they celebrate the Chinese New Year. The wait and see game continues as traders wait to see if the two countries can work out a trade deal before March 1st. That is when tariff rates are expected to increase from 10% to 25% on more than $200 billion of Chinese goods.




 

Market Commentary provided by:

Karl Setzer Grain Commentary