Grain market betting on a better trade deal

There is little doubt as to what is driving grain futures markets these days: We are betting on better prices as we are anticipating a positive deal with the Chinese.

Traders are hanging on every nuance of every news story about negotiation between the Chinese and the Americans. Apparently, as long as both sides are talking, the grain markets react as if any deal is a good deal.

Well, maybe any deal is better than the uncertainty that has dominated trading, especially since the end of November meeting on the sidelines of the G-20 summit in Argentina. There, we agreed to work actively on negotiating an end to our tariff war over the three months ending March 1.

Since the biggest trade is in soybeans, it is the soybean market that has shown the most volatility of the grains as the three-month period has progressed.

If we take a wider look, it is the Dow that has been rattled the most. It is interesting to note that, while it is easy to measure the health of our economy by the movement in the stock market indices, our economy, by every measure, is much stronger than the Dow.

Currently we have lost the entire year’s gains in the Dow Industrial Average on the stock market. The overall economy, however, remains at historic levels of unemployment and consumer confidence.

The soybean market may be exhibiting more confidence than it should. If we look at the March soybean futures chart since the G-20 interim agreement, we see a March futures gap from 9.09 1/2 on Nov. 30 to 9.16 1/2 on Dec. 3. This came as a direct result of the enthusiasm generated by progress in trade talks.

In the process, we actually had a high of 9.35 3/4 that day, but closed up 10 1/4 cents at 9.17 3/4. A few days later we had a March futures spike to 9.41, the recent high.

Immediately after that, however, trading was fairly consistently lower, although some days were positive. By the 27th, we were back to 8.80 1/2, more than 60 cents below the high.

The last few days have turned this trend around, as we have digested a steady diet of encouraging news about progressing in trade talks from phone calls to actual travel to China by our delegates for further talks. The last seven sessions have been mostly higher, with 9.27 3/4 traded Monday, Jan. 7. This Tuesday morning we are at 9.22.

While this trading has been going on in the beans, the corn futures have shown less volatility, but a similar pattern. After the trade talk gap, March corn futures nearly reached 3.88 on Dec. 12. Today we are 3.84, at the top end of the recent 15-cent range.

Sadly, there is a downside to watching the recent trading. We seem to be working higher as we anticipate good trade news. There is real risk that we don’t get a good deal, and prices actually drop.

Based on current soybean sales, there is little reason but hope that prices are this high. We have four huge crops in a row and carryout now in the range of 1 billion bushels. Last year, with a smaller carryout, we only got futures into the mid-tens.

Still, most farmers are deferring sales waiting for higher prices. Some beans have been sold recently on the rebound in prices.

The corn price is still hard to swallow. We are having a serious rain storm in Ashtabula County this morning. This is unusual only in that it is indicative of a mild winter.

As I mentioned to Squeeze this morning, this is usually when we get a January thaw. Instead we are seeing rain instead of snow, and nothing to thaw after a green Christmas. Sometime this afternoon we may see sunshine.

I hope to see trading sunshine later this month, or by the middle of February at the latest.