Mid Week Comments
China!!! - 01/14/19
Once again this week the focus is on China, our 25 million acre customer
from the past that has promised via Phase 1 to become a 35 million acre
customer in 2020, and even bigger in 2021. But the market still acts
like China is a 15 million acre customer like they were in 2019.
Wednesday the US and China will sign the Phase 1 agreement, and at some
point the trade will need to digest just what that means for the market.
Meanwhile, USDA has not changed anything demand related, either, due to
the trade agreement - kicking the can further down the road as well at
least to the February report. Does that mean we get the last MFP Trump
money payment in January?
US stocks continue to rally so far this year, running to new all time
highs in the S&P and Nasdaq as stocks are on a huge run higher. This is
not a short term trend, as we've rallied since the great break in 2008-
09. In fact, in the most recent decade from 2010 to 2020 we nearly
tripled the stock market, so it has been a historic run indeed. In Pro
Ag's opinion, this could last another decade as well with similar rallies
in terms of gain. So the US stock market is alive and well, with the US
economy zinging along under an extremely profitable period. If we had
known that electing a businessman instead of a politician as President
would be this successful, we would have had a businessman ALL the time
the last 50 years!!! If only we could get rid of the professional
politician - and fake news as well - things could really be smooth.
South American weather continues to offer some adversity, with below
normal precip the next 7 days in Argentina and Brazil. Temps are more
concerning in Argentina, with above normal temps forecast while Brazil is
more normal. Early harvest in far northern Brazil is beginning, with
progress just slightly behind normal in Matto Grasso (about 2%
harvested). Brazil is a tropical nation in the north, with high temps
above 70 degrees F almost all the time. Rainfall is also high, so the
planting season is virtually all year long - IF you can catch the rains
right when the crops need it. There are problems in SAM this year, with
Argentina still somewhat dry as well as central/eastern Brazil, so it
will be important for the crop to have intermittent rainfall in the next
China and the US are playing nice again, with the US dropping the
"currency manipulator" designation Monday, Jan. 13 on China just 2 days
before signing their phase 1 trade agreement. Both sides seem somewhat
unhappy at times with the agreement, so its probably a fair agreement
between both sides. The US seems more anxious to get going on "phase 2"
negotiations than China, meaning perhaps they have more to gain???
While the market wants to minimize the impact of the China trade
agreement, it also seems to quietly rise almost every day due to the
agreement. And perhaps it should, as it is probably the most positive
development in at least 2 years (and maybe even 6 years) for agriculture.
But like all markets, they seem very distrustful of governments - and for
good reason. Historically, markets work DESPITE government, not BECAUSE
of government. Its when governments get OUT OF THE WAY that markets work
best, while where they work worst of all is in places where communism is
in rule (the most invasive of all types of government). Ex: Venezuela,
Cuba, USSR. Ironically, China is communist, but has allowed markets to
work in their country the past 30 years or so. This is a fact China is
very proud of as they believe their way is the best way. It will be
interesting to see if they continue to allow markets to work, or screw
that up, too.
USDA's Jan report kind of kicked the can down the road, including NO
revisions in demand in 2020 for the Chinese "Phase 1" agreement which
will be signed Wednesday. In fact, USDA cut corn exports by 75 mb Friday
- even though they may have to raise it back up 75 mb for the Chinese
agreement. No hike in soybean demand, either, and they surprised the
market by RAISING corn yields 1 bu and soybeans 0.5 bu/acre. They cut
planted and harvested acreage, though, almost offsetting the yield
hike. But no allowance was made for unharvested corn and soybeans; in a
note they indicated they did nothing with it but assume it was already
harvested. BUT they may need to resurvey at a later date (DUH!).
Interesting! USDA was VERY aggressive in cutting demand with the tariff
implementation 18 months ago. But now that a trade agreement with China
has been forged, there is no change in demand???
Ray can be reached at firstname.lastname@example.org.
Ray is President of Progressive Ag Marketing, Inc., a top Ranked
marketing firm in the country. See http://www.progressiveag.com for
rankings and link to data from Top Producer Magazine and Agweb.com.
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