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Grains finish lower, with eyes on China

Phase one trade agreement with China goes into effect tomorrow.

Missed some market news this week? We've got you covered. Here's the market news of the week from Farm Futures.

Ag Marketing IQ 

The agriculture sector has had its shares of struggles and success over the decades. I think we would all agree we are on the struggle side of the pendulum with weak prices, high inputs costs, and uncertainty for both domestic and global commodity production and demand. American agriculture has been through this before. Hard work, grit, faith and family were key ingredients then and will be now in helping battle through this cycle. It’s important to work on the many facets of your operation to insure you preserve your net worth. But just as important is the work you do to manage your self-worth. 

USDA put out a positive report on agricultural finances Feb. 5. The agency’s first forecast for 2020 said net farm income could rise $3.1 billion, or 3.3%, its fourth straight annual increase. But a closer look at the data behind the outlook suggests that prediction comes mainly from accounting judgements that could raise questions about agriculture’s balance sheet, especially farmland prices.

Tuesday’s USDA reports were largely statistically insignificant—with one very important exception. U.S. soybean carryout declined 10.7% from last month, despite rising global supplies and no recent Chinese purchases and no apparent adjustment by USDA for Phase One.

With the February USDA report now out of the way, the next potential market-moving event stems around the important Feb. 15, 2020, Phase One trade deal date. It is on that date that any agricultural commodities purchased by China will “count” toward the country’s agreed purchase goals as stated in the Phase One document verbiage.

Earlier this year, we expected USDA to revise 2019 numbers that reflected tight stocks justifying strong basis and narrow spreads. We also expected to sell any rally associated with that adjustment to the lock in 2020’s production and neutralize any potential negative impact larger acres might have. USDA never made that revision, and now with Coronavirus, we may be looking at the opposite pattern.

WASDE

The World Agricultural Supply and Demand Estimates report released Tuesday shows soybean exports rose 50 million bushels from January's estimates on favorable trade prospects with China, although it's also worth noting that Brazilian soybean production increased substantially from January's estimate. Corn seed and ethanol production each rose 50 million bushels while exports dropped 50 million bushels after a recent uptick in export demand at the U.S. Gulf.

Exports 

USDA again offered up a mixed bag of grain inspection data for the week ending February 6, with different crops taking the spotlight versus the prior week. Corn was the No. 1 performer, firming moderately week-over-week and beating most trade estimates. Wheat also showed modest improvements from a week ago, while soybeans tumbled to less than half of the prior week’s tally. 

USDA’s latest grain export sales data, covering the week ending Feb. 6, once again showed corn sales at the head of the pack, although volume came in 22% below the prior week’s tally. Soybean sales also slid 8% lower than a week ago, with wheat exports up noticeably week-over-week.

Market recaps

March corn futures were slightly higher to unchanged in early morning trading. March soybean futures grabbed gains this morning. Wheat futures recovered strength overnight as technical buying following coronavirus fears gave the grain a nice boost. Warmer temperatures will thaw the Midwest this afternoon, leading to a mostly clear weekend across the Corn Belt according to NOAA's short-range forecast. Global stocks recovered from news of a higher death toll in China due to the coronavirus outbreak on Thursday.

Grains were mixed but mostly lower this Valentine’s Day, as corn, soybeans and most wheat contracts couldn’t hold onto small overnight gains after a round of technical selling. Losses were mostly limited by uneven optimism for exports moving forward, but traders will be watching for Chinese purchases to materialize next week after the phase-one trade agreement is enacted tomorrow. Corn and soybeans ended the session down 0.4% to 0.5%, with most wheat contracts absorbing more modest losses.

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