Image of grain bins with words Grain market week in review with Bryce Knorr and Ben Potter in white. Entire image has red tint.

Grain market week in review - Nov. 30, 2018

G20 summit influences markets this week, Chinese buyers not buying and basis strengthens.

Missed some market news this week? Check out our grain market week in review to catch up. 

Morning audio

Grain markets headed in different directions overnight. Wheat advanced on renewed export hopes, despite disappointing sales last week. Soybeans slipped, pressured by prospects for a huge crop coming out of Brazil as traders mull this week’s meeting between President Trump and President Xi of China. Corn fought to hold steady after ticking below Friday’s lows overnight after snow blanketed fields from Kansas to Wisconsin. 

Soybeans were hammered Monday by fears China won’t end its tariffs on U.S. soybean imports any time soon. President Trump says he’ll boost penalties on Chinese imports if talks at the G-20 summit at the end of the week don’t produce a breakthrough, ratcheting up tensions. 

Battered markets showed signs of life again overnight, helping firm everything from stocks to soybeans. Hopes trade tensions between the U.S. and China could ease following this week’s meeting between Presidents Trump and Xi appear to be rising, though it’s unclear what any type of breakthrough might look like. Still, charts are trying to hold bullish moves that could attract more short covering.

Grain markets rallied Wednesday on short covering ahead of the G20 summit but pulled back today after hitting chart resistance. Much of the attention to the gathering of world leaders in Argentina focuses on one-on-one meetings between the U.S., China, Russia and Saudi Arabia. While President Trump talks trade with China’s President Xi, the Saudis and Russians will discuss curbing oil production. Russia is resisting calls to cut output, which took crude oil below $50 a barrel overnight.

No news may be good news, or likely the best soybean growers can hope for out of the G20 summit getting underway today in Argentina. President Trump sits down with President Xi of China to talk trade. While there’s little hope for a complete resolution of the dispute, the two sides could agree to a cease-fire to continuing talking that keeps the U.S. from ramping up tariffs on Chinese imports as President Trump has threatened.

Exports

Grain export inspections didn’t deliver a lot of positive news for wheat, with a tally of less than half of the prior week’s volume for the week ending Nov. 22. Corn and soybeans moved moderately higher week-over-week, meantime, but aren’t turning in numbers to consistently stay ahead of the weekly rate needed to match USDA forecasts.

Corn export sales last week nearly topped 50 million bushels, and wheat sales also came in ahead of analyst expectations. Soybean sales were lackluster, meantime, as China buyers continue to be conspicuously silent.

There were three reported export sales this week, with unknown destinations taking nearly 15 million bushels of soybeans and Egypt buying 4.4 million bushels of soft red winter wheat. 

Crop progress

As another week passes, the U.S. corn and soybean harvests inch toward completion, with southern row crops also making some inroads, according to the latest USDA Crop Progress report, which covers progress through Nov. 25. The 2018/19 winter wheat crop is nearly planted, meantime, with the pace of emergence not far behind. 

Friday’s market news

Grain futures are quietly mixed this morning as the G20 summit begins in Argentina, a meeting likely to be highlighted by what happens on the sidelines. President Trump and President Xi of China will talk trade over dinner Saturday. While an end to China’s tariffs on U.S. farm goods is unlikely, the two sides may agree to keep talking, avoiding an increase in tariffs threatened by Trump. 

As world leaders descend on Argentina for the next two days to attend the G20 summit, traders reacted to the event with some fresh trade optimism and completed another round of short-covering. The result was a moderate boost to corn and soybean prices, with some winter wheat contracts booming nearly 4% in today’s session.

Outlooks

Basis Outlook- Basis in the grain cash market didn’t firm everywhere during Thanksgiving week, but overall the trend is for strengthening as growers resist selling for low prices. That has end users boosting bids obtain supplies. 

Fertilizer Outlook: Farmers have heard mostly bearish news about China in the second half of 2018. But the latest news emanating from the world’s largest country could offset the pain of tariffs a little. After retreating from the fertilizer market this year China is again selling urea, helping pressure prices lower last week. 

Soybean Outlook- Forecasting grain prices is relatively easy in normal times. Most models assume the future will be like the past. When it isn’t, weather usually is the blame. Bad weather cuts production, increasing prices. More recently, benign conditions six years in a row caused inevitable building of supplies, crushing prices lower. But predictions are hard, if not nearly impossible when assumptions about the future turn out to be anybody’s guess.

Corn Outlook- News in the corn market hasn’t been all bad lately. If anything, fundamentals of supply and demand look more promising. But that attitude is hardly reflected on price charts, which are on the verge of breaking down after nearly breaking out to the upside only last week. 

Energy/Ethanol Outlook- Catching a falling knife in any commodity market isn’t easy. But that’s a worry for speculators. Farmers are hedgers and they’ll need plenty of fuel to run machinery and dry crops in 2019. It’s time to take advantage of a steep drop in energy prices to start booking diesel and propane for the coming year. 

Wheat Outlook- I advised growers holding 2018 winter wheat inventory to store much of it hedged as far out as possible, to take advantage of strong carries created by the variable storage rate system used at the CME Group. The VSR increases storage costs if carries on deliverable wheat widen enough to encourage the type of hedging I recommended when December-May spreads rose to seven and eight cents a bushel a month. The idea behind the VSR is to get that wheat into strong hands, forcing end users to bid up the basis, and in theory getting cash and futures closer to convergence at delivery.

Financial Outlook– Interest rates are rising, that much is clear. But how far and how fast the cost of money goes up is a bit more uncertain headed into the next policy meeting at the Federal Reserve.

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