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Markets Now: Ethanol, Corn and Wheat Markets

14:17PM Dec 21, 2018
Ethanol plant

FJM( FJM )

While agriculture still tries to digest the roller-coaster news out of Washington D.C. from 2018, analysts are already focused on the dynamics of the new year. Clinton Griffiths sat down with Tommy Grisafi of Advance Trading and John Payne, publisher of "This Week in Grain" to discuss 2019 market movers.

According to Grisafi, sputtering ethanol margins remain a red flag for an otherwise potentially dynamic corn market.

"We work with ethanol companies and no one's bragging about profits," says Grisafi. "I think if I'm seeing it right, it's who can lose the least until times get better."

Several ethanol plants have announced plans to slow down or shut down for now until margins improve. Payne says ultimately it could impact demand for corn.

"Demand rationing on rallies should happen if these ethanol plants struggle," says Payne. "[They] would be much more willing to shut down if the futures price gets over $4." 

Payne says depending on how negotiations with China go, corn demand is poised for a spike.

"DDGS and ethanol are all the products related to corn and energies that are available," says Payne. "If you're trying to decrease the trade deficit those will be for sale." 

Payne says if that happens, it's bullish corn in 2019 and it could create a problem for ethanol producers.

"I wouldn't be bullish above four bucks on the old crop," says Payne.

However, South American production is currently favoring soybean production given the recent demand from China. 

"Short-term here I think corn is the way to go if you're going to pick one of the two row crops to buy," says Payne.  "The January report will be tremendously important for all of the crops we cover. "

That includes wheat says Grisafi. As he covers the northern plains farmers are beginning to discuss the challenges of planting so many soybeans.

"Up north they planted so many beans that they had a hard time getting them in," says Grisafi. "Some guys planted all beans and sure enough bad weather hit right as they're trying to harvest."

Grisafi says soybeans are still in the field, and physically some areas in the north are struggling to fit within the working windows.

In the southern plains, Payne says winter wheat planting met a significant challenge. 

"They had a tremendous amount of moisture and didn't get planted," says Payne. "I would say three-quarters of the acres that I work with got in, but a lot of guys had to take prevented plant and thrown in the towel."

Payne says given the dynamics around fewer acres, weather issues abroad and potential for less wheat from Russia, the wheat market may set a new direction in 2019.

"I think the market tends to have a lot of opportunities come the first quarter," says Payne.  "I think we could get a surge into the sixes and that's where you got to be ready to move."

Hear more from this discussion with Clinton Griffiths in the video above. 

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