On The Money Grain Commentary 12-19-19

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Corn Outlook:

The announcement of the Phase I trade deal between the U.S. and China has renewed optimism in the ag industry. In the agreement, China is to purchase $40-$50 bln of ag products. However, details of the agreement are lacking. Many are questioning the dollar amount as their largest purchase was $30 bln in 2013. In addition, it would displace Brazil and other suppliers to China. This would not be a wise strategic move by China if they want to keep their options open in case geopolitical tensions escalate. Meanwhile, corn may stand to gain the most in the agreement if China rebuilds their pork industry. Exports certainly need as boost as they are down 55 percent from a year ago. Inspections last week were a marketing year high at 27.0 BB but that is a far stretch from the 42.3 MB needed each week to reach USDA’s projection of 1.850 BB. Currently, shipments are on track for only 1.090 BB.

Bean Outlook:

Traders are enthusiastic that soybeans will be the biggest beneficiary from the finalization of the Phase I trade agreement with China. However, that may not turn out be the case as they have already booked a large quantity of soybeans. In addition, it is not in their interest to throw Brazil under the bus in favor of the U.S. considering the history of political tensions between the two powers. During the third week of November, shipments to China peaked at 42.2 MB. They have since fallen to 25.2 MB for a decline of 40.2 percent. Keep in mind that this is the time of the year when China’s focus turns to the South American crop. For now, an increase in U.S. shipments to them is needed to suggest they are deviating from the norm and intend to follow the agreement to the letter. In the meantime, Argentina has increased their export tax from 7 to 12 percent which will likely swing some business to the U.S.

Wheat Outlook:

Wheat has risen on the coattails of corn and soybeans to a large extent from the enthusiasm of the Phase I trade agreement with China. However, there are other issues supporting the market, namely areas of dryness in the southern Plains, Australia, Ukraine, and Russia. In other developments, exports are mostly a nonevent with inspections last week at 18.6 MB. This is below the pace of 19.8 MB that must be shipped on a weekly basis to reach USDA’s target of 975 MB. Currently, we are on track for 825 MB.

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