For 10 days my spiel to anyone who would listen was simple: good times are ahead.
First, we have the January USDA Inventory reports of Jan. 10, which will surely finally give us the real numbers. Then, we would get the Jan. 15 signing of the Phase One China Trade Agreement, which would finally give the market reason to rally.
If only it were so easy.
USDA doesn’t help
The USDA disappointed, and even infuriated, market analysts with numbers that are seen to be anything but “final.” Against the strong feelings of those in the field, USDA actually increased the corn yield by one bushel, to 168 bpa. If believable, that would mean that we were only down eight and a half bpa from last year, after a spring and summer country-wide disaster of late planting and late harvest.
The USDA even increased beginning stocks for corn by 107 million bushels, and came up with a 13.692 billion- bushel crop, an increase of 31 million bushels. This came even with a drop of 300,000 acres in harvested area.
On the soybean side, the USDA increased yields from 46.9 bpa to 47.4 bpa, and then dropped harvested acres by 600,000 acres. The result was a crop of 3.558 billion bushels, and increase of eight million. The yield is only 3.6 bpa from last year’s.
What’s ahead?
A close look at other aspects of the report are both illuminating and confusing. It is widely believed that USDA will give us revisions of the report, maybe for months. The first big whole is actually knowing what harvested acres are, when 8% of the crop was still recently estimated to be in the fields.
Then there is the fact that the agreement with China must surely include a lot of corn, maybe even if some is shipped as DDGs and ethanol. Corn has previously not sold to them in any quantity. It is hoped the soybean volume would see a huge increase. Yet, none of this business is in the report.
It is argued that it is proper to leave these potential exports out of the balance sheet, since they are just potential. That is probably right. This means we need to maintain a mental calculation that the Chinese will do what they have signed to do, and the market remains unconvinced.
Crazy corn market
The result of the report was predictable in the beginning, and then it got confusing. As soon as the USDA yield was announced, the trade knee-jerked to a dime loss. Then, reason came in, and March corn futures closed the day at 3.87-1⁄2, up two and a half cents for the day. We had traded lower into the report and it looked like we had shrugged off the higher yield.
Then the surprise hit. On Jan. 16 March corn futures lost 12 cents, to 3.751⁄2. Analysts struggled to rationalize this. Then, Jan. 17, March corn futures came back 13-3⁄4 cents. The market looked brighter. There is not trend, however.
So far on Jan. 21 we are down three cents, at 3.861⁄4, virtually the same as the high before the report was released on Jan. 10. There was no trading for Martin Luther King Jr. Day.
Soybeans down
Soybeans, however, have not been erratic. They have mostly been lower. On Jan. 10 we traded a March futures high of 9.47, and gained two and a half cents. On Jan. 13 we lost almost four cents. On Jan. 14 we were unchanged, but on a dime range of prices. On Jan. 15, we closed down 131⁄2 cents after the China signing. The losses continued.
On Jan. 16 we lost almost five cents. Ditto for Jan. 17. We had no market Jan. 20, and on Jan. 21, we are down over seven cents, trading 9.221⁄2. That is 241⁄2 cents lost since the crop report on Jan. 10.
Time will tell. So, where is this market going? We have shrugged off negative numbers from USDA in the corn market, but not in the soybeans.
The trade is not convinced China will import as much as they committed to, so they seem to be waiting for exports to actually be reported.
China has every reason to buy cheaper beans from Brazil, since their harvest is started. However, they may not be able to meet contractual trade agreement volumes with harvest beans, only.
At the same time, the Brazilian crop is suspect. The harvest is just started, late because of the late planting. The crop is said to be large, but that is at odds with recent satellite photos of vegetation that show that the wet-planted, dry grown crop is not as good as last year. Time will tell.
