Year End Headlines and A Frigid Start to 2018 - Friday, 29 December 2017

Final year end positioning has many traders moving to the sidelines. This lack of interest from the trade has weighed on the entire market causing prices to over-react to any negative news more dramatically than normal.  Typically the market has a tendency to move higher between Christmas and New Year’s. In fact 8 out of the last 12 years corn has seen a price increase and soybeans have seen prices move higher 7 times between the two holidays.  As we continue to move through the winter months the trade begins to focus more heavily on new crop acres in the U.S.  Economically it makes sense to move acres that do not have fertilizer already applied to soybeans, the cost of nitrogen is rising which is moving the cost of production much higher than soybeans.

Ethanol supplies are high, up 18% from last year and profit margins are tightening around the globe.  Brazil has announced that plants will be idled until the profit margins improve, which could be beneficial to the U.S. as exports could increase.  Some of the news headlines to follow in the days ahead:

  • There will be no vote this year on the bio-diesel tax credit.
  • EU has more corn inventory than a year ago.
  • Exports out of the Black Sea are expected to decline 10% this year.
  • Soybeans sourced from the U.S. are $3/MT cheaper than those out of South America.
  • South American weather has improved and outlooks for next week also look favorable.
  • Weather causes slowdown of Midwest grain movement.
  • Sales of U.S. corn are running 19% behind 2016 but still ranks 3 highest for the past decade.
  • Soy protein is the lowest since 2008.
  • U.S. corn loadings are running behind expectations at 20% vs the normal 28%.
  • Argentina is not exporting any soybeans.
  • Japan is expected to import U.S. ethanol sometime in January.
  • China has stopped all ethanol exports.
  • Concern is growing that the NAFTA negotiations may fail.
  • Funds are short 209,000 corn contracts and 79,000 soybean contracts.
  • Funds have sold soybeans 9 out of the past 10 trading sessions.

 

As we approach the start of the New Year analysts speculate on what the trade will do.  Many analysts expect we will see fund short covering and buying as the year starts while many look for further selling.  There are some immediate ship bids at this time but uncooperative weather throughout the Midwest will limit any substantial movement despite the attractive bids offered.

On the weather front, WeatherTrends 360 expects the arctic cold to stay put for the next couple of weeks. The Eastern portion of the U.S. can expect to see the coldest temps in over 30 years while western regions of the country will be experiencing some of the warmest temps in 12 years. Several opportunities for snow fall continue over the period as well.



The winter forecast continues to support expectations of a La Niña winter weather pattern.  This fact along with several other indicators signal forecasters to make the following weather predictions. They look for the southern tier of the U.S. to see temperatures run warmer than average for the remainder of the winter and into early spring.  The portion of the country from the Pacific Northwest into the Great Lakes region should plan for below normal temperatures through March while the Southwest, Southern Plains and Southeastern U.S. can expect to see temperatures run much above average for the first 3 months of 2018.  The latest forecast from NOAA predicts an 80% or higher chance that La Niña will remain in place through the winter.

 

Ag Performance wishes you a

Happy, Healthy and Profitable

New Year!!

 

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