Special Market Update

The biggest story in the grain market has been the terrible performance of soybeans since the Phase 1 Trade Deal was signed on January 15^th. Since that date, the market has dropped about 75c. Per the agreement, China is not required to buy specific amounts of specific US ag products. There is also a stipulation that they would only buy if it made economic sense. This wording may have been viewed by the market as a bit negative but there are plenty of other factors at play with the poor price performance.

South American weather continues to be nearly ideal and the current soybean crop is on pace to be a record size. Some harvest activity has already started in northern Brazil and US soybeans are not competitive. More importantly, the Brazilian currency is working against US competitiveness with the Real at all-time lows against the US dollar. ASF is still an issue for overall demand and now we are dealing with the potential impact on economic growth with Coronavirus. It was announced today that China is already asking for flexibility with Phase 1 purchases as a result of the unknown economic impact it may cause long term. The only slightly positive news for soybeans is that we are probably incenting more corn acres in the US this spring. Managed money is estimated to short about 50k contracts at this time which is modest.

There is not much fresh news in corn and the market has remained basically rangebound. US export demand remains poor and ethanol stocks are at a near record high for this time of year. There is also a feeling that corn acres with be up this spring given the break in soybean prices. On the flip side, there are some analysts who think that US corn would be favored for purchases by China based on current economics. This should keep things from breaking out of the bottom of the range for now. Managed money reflects these dynamics with funds only short about 30k contracts at this time which is basically neutral.

Wheat had a big price run to the upside with large fund buying since early September. The market rallied $1.35 with physical wheat leaving some of the major delivery houses along with a corresponding reduction in domestic stocks to use ratios on the last couple of crop reports. Since the high two weeks ago, the market has given up about 45c with funds taking profits. The bigger issue may be a rally in the US dollar which has made US wheat less competitive in the world markets. Funds are still long 50k contracts which could provide further weakness if they decide to even up at some point.