Some general thoughts given the surreal environment we are navigating. The fundamentals of each market will dictate the price discovery. However it may be of value to consider how quickly the perceived fundamentals can change. Especially given the fact that approx 3 Trillion dollars have been and is in the process of being moved into the economy in one form or another. In addition the boom and bust cycles that historically take time may become a rapid case scenario in certain circumstance. The money flow has helped to stabilize the stock market which under the circumstance has acted fairly well. The vix as a benchmark represents that fears have eased, if only temporary, this of course remains to be seen. It now appears that the Chinese are gearing up for AG purchases. It appears they want to honor the trade agreements regardless of price. Explained in the soy thoughts. The one constant here will be risk with a capital R. This risk will create opportunity for success but also large failures. The amount of unknown needs to be considered and quantified as we all move through this.
BEANS – The beans held higher through the day. The Chinese have indicated they will purchase 275-300 million bushel of soy. This regardless of US price relative to competition. As mentioned above the Chinese want to honor phase one trade at all costs. The US is weak but they remain weaker. The actual purchases if realized will change the balance sheet here and globally. This could offer a rally to be taken advantage of from a sales standpoint. The question as planting moves is will there be acreage shifts from corn to beans. My early thoughts are yes. In the 2-3 million acre range. If the rally does occur we will discuss potential strategy ideas to take advantage of.
MEAL – The meal was the leader in the complex for a long time. This dominate scenario could be coming to a close. The animal production both domestically and in China is in question. This could lead to a reduction in longer term feeding trends. In addition the crush margins in my opinion are way overvalued. This ultimately will continue to push the record monthly processing numbers. This in turn could cap rallies in the meal in general.
OIL – The bean oil has been under pressure due to crude and the loss of bio blending. This is a real concern. However, crude is rallying. This lends support. In addition the Chinese are talking about replenishing the strategic vegoil reserves with Bean Oil from the US. This would be a supportive factor for certain to be considered. The market is due a rally. However, not a bull market given the structural issues at present.
CRUSH – It has been a thought for some time that the margins are over valued. The recent trade has us back near the lows. This trend could continue. The long term margins look overvalued as well. As always quantify your risk.
John J. Walsh
President, Walsh Trading, Inc.
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