Marlin: China trade teases market again

Let it be said that the market is tired of all the drama about the China trade deal. When this all started, we were given a three-month window to negotiate, which was supposed to end March 1, 2019. That was a long time ago. 

It has been said by some observers that the market is now ignoring trade talk, but that is simplistic. In fact, the market long ago declined, especially with soybean prices, on the idea that the deal should be discounted. Traders would deal with it when it happened. That has not really been the case. 

Soybeans have gradually worked back up to the high from the middle of June. Then we were 9.48 on the November soybean contract. In recent days we have been 9.451⁄2 and 9.451⁄4. Currently, on this Oct. 29 morning, we are trading 9.18. 

The recent retracing in bean prices came mostly Oct. 25 and was connected to the expiration of soybean options. Perceived disappointment with the latest trade news contributed. 

Several times our president has trumpeted that when the trade deal is finalized, it could mean as much as $50 billion a year in agricultural trade to China. This is a huge number since our highest so far has been more like $20 billion. 

Phase one

There has been a lot of speculation about how we could sell this much. It would have to include corn and meats and increased quantities of beans and soymeal. The reality now is that current news has us close to a “Phase One” deal that would involve $20 billion in agricultural business. This is a disappointment to those who hoped for the $50 billion. 

Interestingly, China has put waivers on more bean imports, and will likely end this year with $20 billion anyway. So, while it seems like we have been stymied on exports all year, in fact we are getting done as much as normal. It is a little weird that, as we close in on a Phase One signing, rumored to be next month, the market acts like it is not enough, and retraces. 

My view is that we are positioning ourselves for a small rally when there is finally a signing. As the potential and real China trade ratchets the market, we have very real harvest results that don’t seem to be having much effect on prices. 

Yields

Spec traders have added to short corn positions, even as significant harvest results are indicating that the early corn yields are consistently off those of last year. Perhaps the crop is off 10% for the early plantings, although some states have reductions of as much as 18% by some accounts. 

It is assumed that when combines hit the June corn, yields will decline more. But, even with the 10% reduction we are already seeing reported, the crop would then be maybe 159 bushels per acre on average, significantly lower than the current U.S. Department of Agriculture number of 168.4 bpa. 

Harvest progress

The USDA released its weekly crop progress report Oct. 28 in the afternoon. It showed the U.S. with 41% of the corn harvested, way off the 61% five-year average. Ohio is at 37%, up from 26% the year before. Our average is 56% by this date. 

The soybean harvest is catching up to historical numbers, mostly because farmers have neglected corn to get the beans finished. Ohio is now reported at 70% harvested, as of Oct. 27 in the evening. That is up from 55% the week before, and almost up to 77% which is our average. The U.S. is at 62%, up from 46% the week before, but lagging behind the 78% average. 

Locally, bean yields are highly variable, but many farmers have been surprised with an average in the 50’s, including late-planted fields. I suspect that the real average is significantly less, as I see many late, unharvested fields that are not knee-high and are likely more like 25 bpa. And, it must be noted that Northeast Ohio is better than many other parts of Ohio. 

In the end, the acres that got planted may have decent yields. We just have so many acres not planted, mostly in corn. 

Look out for the next government numbers. The USDA will give us the monthly crop production and supply and demand reports Nov. 8. Anticipate some revision of crop size, although that may be wishful thinking on my part.