Evening Grain Commentary | January 23, 2019
March 2020 Corn was strong on Thursday, finishing at $3.9375, the highest price since early November. There haven’t been any signs of major stop action above $3.92… despite an extended period of reaching highs and a net short fund position of 80,000+ as of last week. We want to keep targets for getting March hedges in place between $3.95 and $4.05. And perhaps use low volatility bean calls for upside against corn if desired.
Meanwhile, March beans continue to adjust lower, probably catching up to the Brazilian currency weakness – which has lead to steeper discounts in Brazilian new crop offerings. Traders are taking the “market based purchases” comment by the Chinese trade delegation at true face value. If we do start to see purchases of US beans within the window that Brazil is more competitive – that would be a viewed as a compelling reason to be long. China is heading into their Lunar Holiday and not having sale confirmations ahead of an extended break is cited as negative headlines.
Weekly export sales will be reported tomorrow. Analysts are calling for 700k to 1.3 million MTs of soybeans between, and 700k-1.1 million MTs of corn.
Informa released their 2020 acreage estimates. They believe corn acres will be 93.4 million vs 89.7 in 2019. They have yield pegged at 178, suggesting a crop size of 15.3 billion bushels – the previous record was 15.14 in 2016. They estimate soybean acres at 86.5 million, vs 76.1 last year with yield at 51. This suggests a soybean crop size of 4.368 billion bushels, vs previous record of 4.43 billion in 2018.
Those are some large production estimates for demand to overcome supply excess again. There could be too much of an incentive toward corn with the ratio of 2020 beans/corn back down to 2.35.
Why are commodity markets asking the US grower to plant more corn, could it be a miscalculation of the Phase 1 trade deal? Is it because South America can grow soybeans cheaper due to their currency devaluation? If anything beans look too cheap as when China comes back from ASF their demand trajectory suggests they will need to source from both. Also, at any point in this cycle we start to see a slowdown in the Brazilian economy their weak currency is likely to cause massive local inflation – as they have had a 15%+ decline in over two years against the dollar.That could lead to an opposite currency impact as what has been going on in Argentina with their reluctance to sell grain. For now we continue to believe selling in 2020 and buying it back in 2021 (bearspread) is a good approach to hedging both corn and soybeans. It is a true hedge against abundance, and gets us out of some of the flat price risks that are lurking, forcing a hedge against pure market abundance. Bearspreading can sometimes be a difficult concept to wrap ones mind around, but we would be happy to explain it in further detail with typical advantages/disadvantages if you would like to talk more about it please give us a call. For now we continue to watch morning sales announcements for direction. Have a great rest of the week!