There are so many trees sometimes it is difficult to find the forest. Point to be made, sometimes it is important to boil the markets down to their perceived facts. As far as the soy is concerned. The basis levels indicate further weakness. The pro farmer crop tour has shown pod counts above the historic norm. ( pro farmer issues no soy yield estimate during the tour). The Brazilian is estimated to plant 3-4% more soy acres this year. The carryovers are a record both domestic and global. Yet, analysts still want to talk about a deal with China as though they will clear the decks of all soy stocks. From my perspective we have entered a global phase of overproduction. This will expand further. What can this mean to the market? On Friday the government will release its payment plan to the soy farmer. It is my belief that will become the norm. A decade ago there was a farm program. I venture to say it is on its way back. I also believe this will become an issue for the 2020 election cycle. This is not offered as a for or against. Rather a thought on how we will, as a country, compensate for declining prices. Last soy thought – the Chinese have culled 20,000 hogs. It is my belief the multiple effect will continue and this may be just the start of a serious issue that takes some time to play out. It is also important to note that the Chinese are purchasing alternative sources of protein. Estimated that Indian rape meal sales to China will double to 1 mmt ($210 per ton). There are ample alternative sources with crush margins and soy availability where it is at.
The corn continues to weaken. Option expiration is on the 24th. This could offer an opportunity to quantify a risk and add purchases for the user. The talk on the news is that NAFTA issues with Mexico are moving in a positive light and as early as Monday some announcements could be made. The pro farmer tour continues to show good yield potential. There is some commentary regarding a lack of fill and depth. Yet a very big crop, which is baked in the cake, in my opinion. The question for me now is where does demand ramp up due to the global shortfalls? The wheat topping has also not been a helpful scenario. As always quantify a risk. Given basis levels the corn again approaches $3.00 per bu cash. This to me is to cheap relative to the global stocks to usage. I believe that the USDA numbers on the export are understated at present. The world will need a solid global corn crop after the SA season.
To discuss any long term ideas in the market please call 800 993 5449 or jwalsh@walshtrading.com
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