William Moore's market views are centered around his many relationships with Agricultural producers. His weekly newsletter, AGMASTER, provides a blend of fundamental & technical information used to make prudent hedging decisions. Contact Mr. Moore at (312) 264-4337
In a week where the second round of US/China trade talks went well & South American weather remains problematical, Mar Beans still lost ground – down a dime! Once
Again BUY THE RUMOR – SELL THE FACT became an issue as the mkt reasoned that the original 5MMT goal of Chinese buying was met –the govt hiatus further muddied the water!
FACTORS IMPACTING THE MKT
- EXPORTS – Mon Inspections were 673,000 (500-850) & various reports had
China reaching their 5MMT goal set out in early talks
- USDA 1-11-19 SUPPLY & DEMAND REPORT – didn’t happen due to the gov’t
Shutdown but the following were average estimates
Yield – 51.7 (52.1)
US Ending Stocks – 922 mb (965)
Global 113.4 mp (115.3)
Qtly Stocks 3.743 bb (3.161)
- TRADE PROGRESS – was significant but you wouldn’t know by looking at the mkts – which had a down week! However, the mkt had already built that in to its price last week –and the good news reported didn’t
exceed expectations so a pull back was in order – at the end of January, China is coming to Washington DC for a third round of talks!
- SOUTH AMERICA – continues to be hot & dry in Brazil & too wet in Argentina. Some estimates have Brazil Beans at 115 MMT (early est – 125) – the top end is definitely off the crop
- GOVERNMENT SHUT DOWN – has traders & analysts flying blind with no monthly report Friday, no export sales on Thur & no 8am daily flash sales – the volume is down and there is more back-and-forth chop due to the mkt uncertainty
- OUTSIDE MKTS – Hope is the operative word as it appears the US Dollar has topped out – reaching 10-week lows on Thur – while Crude Oil has rallied 25% since late December – of course, a cheaper dollar enhances exports & a higher crude is beneficial to ethanol demand
- SPEC MONEY – has to be taking a serious look at owning historically cheap grains versus record high stocks!
No one thought that a resolution of our US/China tariffs would be an “easy road” and indeed it hasn’t been! But we’re a lot farther along than a few months ago when “nothing was happening”! A key point to keep in mind is that both the US & China’s economies are scuffling now & the tariffs are one big reason for that! So an ultimate solution is mutually beneficial – and will happen! That coupled with S/A weather issues & supportive macro mkts will infuse an upward bias into the grain complex!
Since late Nov, Mar Corn has been caught in a 20 cent range (368-388) with the prevailing fundamentals contributing to its ebb-and-flow within the range! Those include the ongoing US/China trade talks, S/A weather woes, the gov’t shutdown, index fund rebalancing & promising outside mkts! When all the smoke clears, the export potential of US Corn – as the cheapest anywhere in the world – promises to attract substantial purchases from Mexico & China! Its domestic & global stocks aren’t nearly as burdensome as are beans – so any reduction of these stocks due to robust exports and/or weather issues in S/A is key.
Mar wht was the star of the grain complex this week posting a small gain while Mar Corn & Mar Beans lost ground. The reason was very simple – US Wheat is very cheap on the world mkt – a whopping $1.50/bu cheaper than its Black Sea Equivalent! This accounted for Algeria’s purchase of US Wheat – also Egypt’s tender for all-Egyptian wht was positive for the mkt! Also, certainly a trade deal with China will certainly have residual benefits for wht! But mostly, our trading partners are looking for the best price – and mostly we have it! Hey, who doesn’t like a deal!!
Last week’s “key reversal down” was very convincing & had producers & analysts alike pretty convinced that a short-term top had been scored – that is – until Mon & Tues of this week when Feb Cat rocketed back up $4.00 in just 2 days – regaining last weeks loss in just half the time!! This speaks to a couple of solid fundamentals that are underpinning the mkt – first unwavering demand – even in the face of adequate supplies & second – an impending winter storm spreading across the Midwest – promising some death loss & lower weight gains! It all adds up to an impressive $3.00 weekly gain!!
Trading Feb Hogs is a very daunting task – like waiting “for the other shoe to drop”! Long term, how can you not like the upside –what with the Asian Swine Fever & an elimination of tariffs on pork pending a trade resolution – both “shouting out” robust exports! Yet, the issue is WHEN WILL THEY KICK IN! So far the answer is NOT YET – as evidenced by this week’s anemic performance by Feb Hogs scratching out a 65 cent gain while Feb Cat powered to a $3.00 advance! But we wouldn’t bet against the potential “explosive bullishness” that might come out of the ASF epidemic in China & elsewhere!!
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