Raelynn's Comments 02/12/19 12:03:13 PM
February 12, 2019
The USDA report has come and gone with little fanfare. We expected fireworks but received a dwindling sparkler instead. So, what could give us a reason to trade out of this range now?
This week’s headlines will be focusing on the China/US trade meetings and another possible government shutdown. It’s been reported that a trade deal has to be made by the March deadline or new tariffs will be added to the remaining China imports not already on the long list. That gives us a couple weeks to finalize an agreement that we’ve been discussing for almost a year now. Some outlets have been speculating good progress and others make it sound like an immovable mountain. Either way, this will be our next opportunity to move the market.
As an opposite force to market movement, our three weeks are up this Friday if we can’t get a new spending bill and the government will be partially shutdown. Luckily, we have some information to work with from the Friday USDA reports, but we would continue to see a delay on exports. The last shutdown only tightened the trading range with low volume trade.
If we don’t get a deal, I think we’ll trade quite a bit below the previous support of $9.00 on beans. Corn shouldn’t be hit as hard since it’s not dependent on China for demand, but expect it to follow to a degree. If we do get a deal, we should get a spike, but in the end, it will depend on what the deal entails. Corn and ethanol have been included on the list of goods, but no idea on the volume of beans. You can’t help but wonder how much it will favor agricultural products after it’s been proven that China can get the majority of their needs met with South America’s crop. And if for some reason they extend the discussions, you’ll see the trade ranges hold strong.
If we get to see some volatility in the market surrounding the negotiations, I would be watching opportunities to hedge beans. I know John is more supportive beans, but with our carryout still high at 910 million, I’m not convinced yet that this market should stay at these levels. We’re currently setting our spring insurance price, and the higher it goes, the more likely we’ll see a smaller decrease in acres. You take our 910 million, plus a good South America crop, plus just a small drop in acres for next year, and I wonder where all of the beans are going to go? How long will it take to get through this supply? Last year the November futures hit it’s high at 1060’4 on May 29th. Our projected carryout at that time was 415 million. Unless we see a significant weather issue with the US crop, or a large increase in China buying, there’s no reason to see the market go up to the 2018 levels. Plus, expect farmer selling pressure anytime we see some rallies. At the time of this writing, the Nov futures are at 952’0. The current trade hasn’t been able to break past $9.70. If we see some support past $9.70, I would target $9.80 to $9.90 to sell.
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