Market Update; Friday, February 1st, 2019
New month buying and favorable trade talks are supporting this morning's trade.
Overnight strength is carrying over into the day session today, with soybeans leading the charge. Soybeans are taking support from what is being termed a positive outcome from trade talks between the US and China. The main point being China agreed to the purchase of 5 million metric tons of US soybeans. No time frame was given with this purchase though, which is tempering its reaction. New-month fund buying is also supporting today’s trade, as is a firm cash market. Corn and soybeans have traded above technical resistance which has generated additional buying interest.
Corn values are on the positive side to finish out the week, but advances are being limited. In the trade talks between the US and China an agreement was made to sell 300 million gallons of ethanol to China in 2019. While this is positive news, it may simply prevent US ethanol reserves from building to an even more burdensome level. Argentine and Russian officials have increased their corn crop estimates which is weighing on corn this morning. March corn is right at technical support of $3.78 which needs to hold to prevent a set back as the day progresses.
Soybeans are posting solid gains as we see fresh buying in the complex. This is being credited to the trade talks between the US and China, mainly the agreement for China to purchase US soybeans. While positive, the sales volume of 184 million bu contains no timeline, and really does not alter our huge carryout projection all that much. In fact, unless we see our stocks to use reduced by 50%, soybeans will remain over-valued in the global market. The purchase agreement for soybeans announced yesterday may be more of a “goodwill” gesture than out of need. Soybean futures are being hindered by news China is also in talks with Brazil on soybean trade, which may reduce future soybean demand on a whole. In a side note, Brazilian officials claim BR163 will be fully paved by the end of 2019, eliminating much of the logistic issues with Brazilian soybean exports.
Wheat futures are also on the positive side this morning, but as with corn, advances are being held in check. Russia has also increased its wheat crop expectations for this year. We have yet to see an increase in wheat demand that was hoped for, which is keeping values under pressure as well. Wheat values are finding support from Australian weather that indicates drought losses are likely this year.
This commentary is the sole opinion of Karl Setzer. This is intended for informational purposes only and not to be used for specific trading recommendations. The information used to generate this commentary is used from a variety of sources believed to be accurate. If you have any questions or would like additional market information, feel free to contact Karl Setzer at 517.541.1449, extension 411, or at ksetzer@citizenselevator.com