The U.S. Trade Representative’s office has released its negotiating objectives for the North American Free Trade Agreement negotiations. For agriculture, the trade office wants to eliminate non-tariff barriers on products, like grain. The U.S. also wants to eliminate remaining Canadian tariffs on imports of U.S. dairy products and abolish programs that unfairly discriminate or undercut world prices. The U.S. is also seeking specific commitments on products developed with agricultural biotechnology.
Corn closed the week $.06 1/2 lower. Last week, private exporters announces sales of 162,000 mts of sorghum to China.
Weekly export sales of corn showed a total of 34.5 mb (876,400 mt) with all for the 2017-2018 marketing year. This put total marketing year sales at 901.5 mb, 27 percent less than the previous marketing year. In the weekly EIA report, ethanol production reached an all-time weekly high of 1.108 million barrels/day with production 42,000 higher than the previous week. US ethanol stocks are up .5 million barrels to 22.5 million barrels. The USDA supply/ demand report on December 12 looks to lend little direction to prices, with no production adjustment and the USDA likely to lower demand forecasts by 15 to 25 mb, stocks look to remain large and burdensome.
Fund short covering would be bullish if funds are given a reason to cover positions to pay year end bonuses. There should be very little farmer hedge pressure until after the first of the year, helping basis to narrow and futures to rally.
Strategy and outlook
As prices rally during the winter months, producers look to sell the carry and lock in basis as it narrows. Selling inventory on rallies and replacing ownership with option strategies not only decreases risk, but also allows producers to free up equity and generates cash flow.
Soybeans closed the week $.0. 1/4 lower. Last week, private exporters announced sales of 129,000 mts of beans to an unknown destination and 268,000 mts of beans to China.
Weekly export sales of soybeans showed a total of 76.7 mb (2,086,200 mt) with 74.1 mb (2,015,800 mt) for the 2017-2018 marketing year. This put total marketing year sales at 1.335 bb, 16 percent less than the previous marketing year. Brazil and Argentina currently are planting their crops under ideal conditions in Brazil but dry and hot conditions in Argentina. Brazil and Argentina store little to no excess grain, as storage elevators are absent from the countryside, not like here in the U.S. Grain goes from field to port, which means they need to forward contract, or pre-sell their crop before it’s harvested to insure it doesn’t pile up on the farm. This means South America will post their price for beans under any U.S. price to insure they capture the export business, as there is nowhere to store it. From the start of the U.S. harvest in October until South American soybean harvest in March, the big demand window for U.S. soybeans as South American supplies are unavailable and the U.S. is the only port of origin for the world’s needs. China remains the world’s largest importer of soybeans as their growing economy demands high protein and oil contents.
Strategy and outlook
Producers should make sales as prices rally into resistance. Selling inventory on rallies and replacing ownership with option strategies not only decreases risk, but also allows producers to free up equity and generates cash flow.
This material has been prepared by a sales or trading employee or agent of Midwest Market Solutions and is, or is in the nature of, a solicitation. This material is not a research report prepared by Midwest Market Solution’s Research Department. The risk of loss in trading futures and/or options is substantial and each investor and/or trader must consider whether this is a suitable investment. Past performance, whether actual or indicated by simulated historical tests of strategies, is not indicative of future results. Trading advice is based on information taken from trades and statistical services and other sources that Midwest Market Solutions believes are reliable. We do not guarantee that such information is accurate or complete and it should not be relied upon as such.
Brian Hoops can be reached at (605) 660-1155
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