On Monday morning of this week, there was a sense that we were finally emerging from the dark and dreary wilderness that grain and soy markets have been aimlessly wandering for the past several years. Within days, China would be inking a new trade agreement with promises to purchase more ag goods than ever imaginable, and this protracted trade war was finally drawing to a close. Indeed, the combination chart for corn, wheat, and beans had risen to levels not traded since last summer, and this without a domestic weather issue in the making, and it looked as if we could finally see that proverbial light at the end of the tunnel. Of course, we have all heard the quip that it was not really the light of day that we were seeing, but instead, another locomotive headed our way, and unfortunately, there were quite a few run off the tracks when it arrived. We have witnessed a rebound in the overnight trade, but corn, of all markets suffered one of the largest single-day washouts in months on Thursday, and beans are on track to post the most significant weekly loss in five months. If we were to close right now, for the week, March beans would be down 22-cents and at the lowest point in a month, and March corn would have surrendered 10-cents and is back trading around the Thanksgiving lows. The only market emerging unscathed is wheat as currently March futures are still 2-cents higher for the week and could record the highest weekly close since August of 2018. I guess you could say the soy and corn markets have become the victim of expecting to see too many eggs to show up in the Chinese basket, and once we recognized the hens had not even laid them yet, someone came along and knocked even the scarce holding out of the bulls’ hands.
While this may have turned out to be a disappointing week for many, I believe it will ultimately turnout out to be nothing more than a detour on the road to recovery. As I mentioned previously, the wheat market still performed well this week and I suspect is showing the way. It did receive another bit of positive news this morning as France reported that soft wheat sown this year was 10% lower and dipped to a 19-year low. Unless the rest of the EU is going to pick-up the slack, this news would seem to fly in the face of reports of increased exports from the Union. We also need to keep in perspective what time of year it is. We have not even begun to really talk about acreage for 2020, let along weather and with the washout this week, I would dare say there is little to no risk premium in the price level. Do not lose sight of the fact that the USDA is currently projecting a 15% reduction in corn ending stocks, taking them below 2 billion bushels for the first time since 2015/16 and a whopping 48% reduction in soybean ending stocks. Granted neither is what would be considered tight, but therein lays the risk of producing the next crop. Last but not least, we have the China wild card. If they do step up purchasing as promised, we should experience quite a surge in demand for the next two years, which in itself should suggest there is limited concern about seeing prices extend much lower.
When all or any of this will show up in market sentiment is unknown, but I do believe the current breakdown is providing producers with opportunities to implement option strategies that will enable them to make sound marketing decisions when we move into the spring and summer sunshine.