This is the week we have been waiting for in grain markets. On Jan. 10 we get the USDA 2019/2020 final crop production numbers, Dec. 1 Grain Stocks Report, and winter wheat seedings report. On Jan. 15, we are supposed to get the signing of the Phase One China trade agreement.
We thought we knew what kind of effect each might have on the markets. Now we have uncertainty, mixed with outside complications from reactions to military action in Iraq. Ya gotta love it when the U.S. drops a bomb on the head of a terrorist and grain prices decline.
Soleimani killed
Futures markets saw big drops in the afternoon as a reaction to the killing of Qasem Soleimani, a top Iranian General. He was traveling on a commercial airplane to Iraq, in violation of UN sanctions, and was a widely recognized bad guy. The knee jerk reaction was that this could lead to further military reaction, and even war.
This could disrupt grain exporting (even though only wheat is normally sent to that region), and could even effect the Chinese trade deal.
Trade deal signing
On Jan. 6, there was news that The Chinese delegation is still coming for a signing on Jan. 15. The markets greeting this positively, although anything involving the Chinese is treated these days by the market as suspect. It will be believed after the fact.
We have long said that the market was reserving judgment with low prices, waiting for confirmation of the fact and the details of the trade agreement to take prices higher. Still, the irrational idea that the Mid-East military action would affect the trade agreement took prices lower. So, it must be assumed that some enthusiasm for the trade is in the market already.
Bullish market?
With that said, we have uncertainty about what happens after the signing. Is bullish enthusiasm in the market already or not? The answer is, probably yes and no. So, we wait for the market to react and have trouble predicting prices.
My gut is that we have started a bullish move already, as corn and soybean prices spent the month of December trading higher. March corn futures spent the three weeks between the Dec. 11 low of 3.71 and the Dec. 30 high of 3.92-1/4 gaining a significant 21-4/4 cents. Jan. 3 the market gave a nickel back, and we are now trading just over 3.84.
Meanwhile, March soybean futures spent December and the first days of the new year trading from the Dec. 2 low of 8.82-1/2 to the Jan. 3 high of 9.61. That is a 78-1/2 cent gain, followed by a big break Jan. 3. On Jan. 7 we were trading the March soybean futures at 9.43-1/2.
Final numbers
Jan. 10 at noon we find out the government’s supposed final crop production numbers. This was supposed to be a big market mover, but now the traders act like it could be negative to prices. That is, the market has traded higher in recent weeks, so the guessing is as to how much of this is China news and how much is anticipation of lower production numbers from Uncle Sugar?
Estimates too high?
It is no surprise to regular readers that I think the current USDA production estimates to be much too high for the disaster that was this summer’s agricultural weather. I have always warned, however, that the market considers USDA to be right in the way they trade.
Yes, USDA is likely to lower yields a little. Be aware that most analysts have one number for what the USDA will report and one for what they think the crop really is. Now those analysts believe that the “final” crop production numbers will not be final. There will be further revisions for the market to react to.
In addition, there is much disagreement on what the actual harvested acres will be, especially for corn. With that, also, is the reality of two estimates given by each analyst.
Australian fires
Also prominently in the news currently is the horrific fire situation in Australia. The attention is on homes destroyed, and on the maybe half a billion animals killed. I have heard nothing about the effect on agricultural production, so I checked wheat planting dates.
Turns out the wheat is not planted until April to July, as rains fill the ground after the dry summer. Harvest is late in the calendar year, so the wheat is not now at direct risk as it is not growing.
