Rumors of greatness, but markets still so-so

combining corn
(Farm and Dairy file photo)

You will be hearing of trade wars and rumors of trade wars. That is a slight re-write of Matthew 24:6, which leaves the “trade” part out. The real verse advises, “See that you are not frightened, for those things must take place, but that is not yet the end.” (NASB)

The best rumor from last week actually came from a very good source. Sonny Purdue, the ag secretary, said the new trade agreement would triple the value of ag products that we ship to China. If this works out to be true, it would represent $60 billion a year in ag exports, an incredible number.

It is, however, consistent with an earlier rumor that referenced trade of $50 billion a year. The No. 1 principle of grain trading is to “buy the rumor, sell the fact.” This promotes the view that the market always over-reacts to a good rumor by quickly moving higher, then moderating as reality is realized.

Price action last week on the futures markets in Chicago did not support the rumor very well. Corn prices gained four cents, continuing a good recovery after the 3.861⁄2 December futures low of two weeks ago.

Being cautious

Futures did not boom higher, however. This either means big exports are already in the market, or that the market is not ready to believe the rumor. I am inclined to believe the market is being cautious after being teased for almost four months.

The soybeans were actually softer this week, after making a 9.461⁄2 March 21 recovery high from the 9.343⁄4 low of March 12. We are currently at 9.37, down almost three cents this Tuesday morning, March 26.

Keep in mind, that analysts have considered the soybeans to be over-priced for market conditions, and corn maybe under-priced. Corn looks to be finally losing some of the burdensome carryout from five good crops, while the soybeans are losing a little this year after a record expectation of nearly one billion bushels left over.

If we increase soybeans due to late planting or price considerations, it will add back in carryout bushels. There is support for the rumors, however. China has made good-faith purchased of corn, soybeans, pork, soft white wheat, and sorghum over the last few weeks.

Trade rally

It is hard to believe that we would not kick off at least a large short-term rally if a trade agreement anywhere near the size of the rumors did materialize. May Chicago wheat futures have finally headed north on the charts after declining for several months.

We thunked the bottom of 4.27 on March 11, but got as high as 4.73-3⁄4 on March 22. We are currently at 4.76-1⁄4, up nearly seven cents this Tuesday so far. Wheat futures have been held down by a near-record level of short positions from the fund traders.

The corn and soybean moves have come as the funds have added to near-record levels of short speculation in those commodities. The good news there is that every time we see a huge short spec position, there is usually a huge long spec position to follow.

Thus, the specs can be the force that adds to any rally when it is sparked off.

Record floods

Fundamentally, the biggest news in the markets is really the record floods in the western Corn Belt. Farms in Nebraska are being devastated, and there is talk already that some areas will not even be planted.

Large areas along the Platt, Missouri, and Mississippi Rivers are flooded, with snow and rain still going on. The market has not yet made any big move with this devastation because it is early.

If this were April instead of March, the prices would be going crazy as we worried that significant acres would not be planted or would be planted late. The reality is that these conditions could continue long enough to still limit corn acres and yields.

Amazingly, we in northeast Ohio are looking at the best spring in my lifetime if we do not change to wet weather. I saw tillage along Route 11 in Ashtabula County last week. We did not end the winter with two feet of snow to melt. In fact, we had no snow cover.

My first maple tree budded out the first full day of spring, so the sugar season is over and local farmers can pull taps and get ready for planting.


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