Waiting on China While the Markets Mark Time

The long weekend was full of world events as the US celebrated Mardi Gras and President’s Day, Brazil celebrated Carnival and China started their Chinese New Year celebration. While it was a big party weekend, it was not a particularly eventful weekend for ag news as markets have limited news with China closed for the week and the world waiting on China’s intentions on buying additional US beans. The markets were mixed with beans higher on speculative interest from the funds on hope that China does follow through on purchases, while the grains were lower on Argentine corn harvest starting well and a glut of lower priced grain supply around the world. The USDA Ag Outlook Forum will start later this week with forecasts of US planted acreage developed through farmer surveys and predictive computer modeling. The bulls need to see Chinese bean purchase announcements every morning and the US farmer contracting US planted acreage in corn, wheat cotton with just a modest increase in bean acres to propel this rally further this week.

News and Notes:

• Neither Brazil nor Argentina have any weather concerns moving forward as the crops that need good weather to finish strong are getting it while harvest is not being slowed by excessive rain. Safrinha corn crop planting is going well. The US will see a run of more spring like temperatures into the end of the month for most of the Midwest, Plains and Delta.
• The daily chart for December corn is on Page 2 and shows the rejection at Friday’s overhead trendline resistance and fall into major moving average support of the 50 (green line) and 200 (black) DMAs with just a 5-cent price drop. The trendline and the moving averages are becoming more tightly bunched, with the moving averages only separated by 3-cents, which is historically tight and highlights the grinding range bound trade. Even with the break after the January report and February rally, prices are comfortably chopping around in a 10-cent range from $4.54 to $4.64. It will take significant bullish news for an overhead breakout, but it will also take a big bearish surprises to retest the January lows before we know planted acres. If we plant 94 MA or less, the winter/spring lows could have been scored in January until more is known about pollination weather.
• April cattle posted their highest daily close since October 21^st on a strong cash trade last week and the prospect for at least steady prices this week. Feeder cattle also had big gains and are attempting to fill an open chart gap from mid-October when President Trump said he wants lower beef prices. To fill the gap feeders would need to rally another $7 back to the all-time high of $378.60. Without the Mexican border re-opening or Washington getting involved, there is little to stop the slow the rally unless the US consumer sharply changes their meat buying habits. The downside could be massive while upside potential is present, so decide if option hedge floors are a good strategy for your cattle that will be delivered this year. We can help you find a strategy that makes sense with your budget.
• There were no flash sales announcements this morning and cash sources from SE Asia and the west coast are not indicating any large-scale world interest.
• Despite the industry chatter that China is already overstocked with beans, spending $12 billion on something that can be stored is not a big deal considering China sells about $400 billion of other goods to the US. Re-investing only 3% of US’s business is not a big number and would probably pay for itself within a few years.

Will they or won’t they is the waiting game question everyone is asking about China’s true intentions in buying beans. As shown above, it is not really a price problem as much as a negotiation ploy as China still wants several key tariff reversals and other items that the US has not yet agreed to. If their scheduled meeting in early April bears fruit and trade progress, the attitudes and spring price structure could see positive developments. Patience in the big potential or seizing sales opportunities on unexpected rallies? The marketing decisions never get easier. Put your sales orders in with your buyers if you want to sell grain, because the recent calmness of the daily trade could explode into solid short-lived rallies on any positive news. Be ready.