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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 - March 29, 2019

Prospective planting report, China buys 30 million bushels of soybeans and corn prices fall 4.5% Friday.

Missed some market news this week? Check out what Bryce Knorr and Ben Potter have been following this week.

Audio

Grain markets are mixed this morning, trying to hold on to momentum from last week’s rally. While floods and wet fields remain a top concern for farmers ahead of Friday’s USDA reports, financial investors are watching inversions in global credit markets that could be a symptom of a weakening world economy just as trade talks with China resume.

Big speculators were bearish on commodities over the winter thanks to large supplies and the trade war with China. Farmers aren’t back in the field yet due to wet conditions but signs of spring are emerging, as those hedge funds buy back some of their short positions ahead of big reports on stocks and acreage from USDA on Friday. Outside markets are also trying to turn the corner on anxiety caused by Brexit and fears of slowing global growth.

Uncertainty again is the watchword this morning, with many markets drifting lower including grain futures. While farmers wonder when they’ll get into the fields this spring, more storms are headed to the Missouri River Valley this weekend. Negotiators from the U.S. and China renew talks later this week in Beijing, trying to hammer out a trade deal and Parliament in Britain holds yet more votes on Brexit today that could lead to the resignation of Prime Minister Theresa May.

It’s been a bumpy ride for grain markets this week as traders get ready for one of the major data dumps of the year on Friday, when USDA releases grain stocks and prospective plantings estimates. Soybeans took the brunt of pre-report jitters Wednesday because bullish news from the government for either old or new crop is looking unlikely. Concerns about trade talks with China getting started again in Beijing today are also in play, and ideas tariffs may not disappear immediately with a deal have some farm groups nervous about the outcome of the discussions.

Talk about the calm before the storm! Grain markets were extremely quiet overnight, keeping to small ranges in low volume trade. That torpor likely will stop at 11 a.m. CDT time, when USDA releases grain stocks and prospective plantings reports. Plenty of questions could add to the mix, from trade talks with China to weather and another vote on Brexit in the British Parliament.

USDA data

Grain export inspections ticked mostly higher last week, with China fueling the pace for U.S. soybeans. As negotiators between the U.S. and China hold another round of talks this week, the uphill climb faced by U.S. soybean growers is taking shape.

U.S. soybean growers are once again caught in the crossfire of the trade war with China, even as truce talks are underway again. Resumption of the negotiations in December brought an initial burst of buying with promises for more. But with officials from the two sides meeting in Beijing, with another round likely in Washington soon, China’s buying has mysteriously dried up.

There were four reported export sales this week. There were three wheat sales, with Iraq and Egypt taking 15.4 million bushels of wheat, and one soybean sale, with China taking 30 million bushels of soybeans.

Grain futures are lower this morning, paced by selling in corn after USDA reported much larger than expected March 1 inventories and prospective plantings. USDA is calling for smaller corn stocks, moving from 8.892 billion bushels down to 8.605 billion bushels. But this estimate is much more aggressive than analysts anticipated after offering an average guess of 8.309 billion bushels. For soybeans, USDA is expecting an even bigger drop in acreage this year than analysts had previously anticipated, moving from last year’s total of 89.2 million acres all the way down to 84.617 million acres. Analysts predicted a smaller drop with an average trade guess of 86.2 million acres, which included a Farm Futures estimate of 85.9 million acres.

Recaps

Grain futures are narrowly mixed this morning as a quiet overnight session belies what could be a chaotic day of trading from LaSalle Street to Wall Street. In addition to key USDA reports due at 11 a.m. CDT, the British Parliament is set to hold yet another Brexit vote today, and failure could mean a hard exit from the EU in just two weeks.

USDA’s latest round of acreage and grain stocks data held plenty of bearish news for corn prices, which plummeted about 4.5% lower in Friday’s session. USDA’s numbers for soybean and wheat weren’t so bad, but those grains also suffered moderate losses on spillover weakness today.

Outlook

Basis outlook - While weather continues to roil cash grain markets this spring, basis last week also showed signs of influence from demand factors, for better or worse, as trade talks with China enter what could be a crucial home stretch. Floodwaters are expected to slowly start receding this week on the lower Mississippi River. Northern stretches likely will remain closed into April while snow and ice melt in the Upper Midwest. Lake Pepin south of the Twin Cities still had 22 inches of ice last week, and much of Minnesota, Northern Wisconsin and the central to eastern Dakotas are still snow covered.

Corn outlook - I’ve been bullish on corn for a while, believing tightening supplies over the next year would eventually spur higher prices. I still favor that scenario but growers need to balance risk and reward headed into one of the most crucial weeks of the season.

Soybean outlook - Farmers will plant fewer soybeans this year, that much is clear. Don’t expect USDA’s March 29 estimate to be the last word on the subject, thanks to weather, economics and history that could leave the final accounting in doubt for months.

Energy/ethanol outlook - Houston has a problem, and it could bring at least a little good news for farmers struggling with low profit margins on 2019 crops. The big petrochemical fire at the energy hub of the Gulf added to shipping woes that built over the winter due to fog. Ships stayed at anchor, unable to load crude oil from a burgeoning U.S. supply. That caused stocks to increase last week, apparently halting, at least for now, the attempt by crude oil futures to top $60 a barrel. Futures flirted with that level this week again but were unable to manage a close above the target, which is also close to the 50% retracement of crude oil’s selloff over the fall and winter.

Fertilizer outlook - The only thing certain about weather this spring is uncertainty. While farmer plans remain up in the air following release of Friday’s prospective plantings estimates from USDA, there’s still potential for a significant gap between intentions and what actually goes in the ground. The uncertainty is just one factor in a fertilizer market where supplies appear to be building – just not in the places farmers need them.

Wheat outlook - It was high time for the wheat market to move and it finally did on Tuesday. But bearish logic remains unchanged for this market unless fundamentals of supply and demand change radically in coming weeks. Make no mistake: The turnaround from contract lows is driven by short covering from funds that are bearish wheat.

Financial outlook - Anxieties are growing in financial markets as well, and not only on Wall Street. Nonetheless, stock prices are rallying, getting close to a breakout that could trigger a test of last fall’s all-time highs. So what do investors know that the rest of the world is missing?

Energy/ethanol outlook - Houston has a problem, and it could bring at least a little good news for farmers struggling with low profit margins on 2019 crops. The big petrochemical fire at the energy hub of the Gulf added to shipping woes that built over the winter due to fog. Ships stayed at anchor, unable to load crude oil from a burgeoning U.S. supply. That caused stocks to increase last week, apparently halting, at least for now, the attempt by crude oil futures to top $60 a barrel. Futures flirted with that level this week again but were unable to manage a close above the target, which is also close to the 50% retracement of crude oil’s selloff over the fall and winter.

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