I am bullish
I am bullish. Those are three words that I enjoy. I turned bullish corn last May when I told you to “load the boat” but was cautions yet over turning bullish commodities in general because of a cycle low that was due in commodities this fall. I think that low has been set and that we will see gains in commodity prices into 2020. Yes, 2020 is an election year and Trump is very focused on securing his political base, which includes farmers. He screwed us for almost 3 years of his term so has to get going in order to make that up. Were the election held this November, I believe that he would be a one-term President…but good for him, the election is not until November 2020 and voters have extremely short memories. By then farmers will likely have forgotten how he raped the RFS and then when all he did was stop raping the RFS in the “great package”, Poet was ready to label him a ‘Biofuel Champion’. That proved very premature as EPA released rules that did not achieve the deal made by Trump and ethanol advocates. They will have to try again to win back ever angrier famers. By next year at this time we should see blending rise to new highs as biofuel exports expand on the backs of trade agreements.
My wife had me re-read a series that I had written entitled, “The Trump Wave….Duck and Cover” which I aired in February 2016…nine months before Trump’s election. The just of it was that Trump was going to win and his policies were going to be very hard on the ag sector. I think that was prophetic.
It has been a rough couple of years for agriculture. I actually did not expect that Trump would lie to us as much as he did over the RFS. He knew that trade wars were hard on ag which is why he found $28 bln in tariff relief for farmers asking them to be patriots and hold on to him. While that support had gotten pretty shaky lately, I do not think that it is irreparable. Often what I say should happen is different than what I say will happen. You do have to tell the difference. I knew that Trump would be a disaster for the sector in 2016 but that did not cause me to say that he would lose. I have not made my mind up yet on who is going to win in 2020. I do think that ag financial conditions are going to improve.
I think that USDA has crops overstated. There will be a shortage of corn relative to demand where we live here in northwest Iowa. Record historical corn basis levels are telling us something real. We have seen the U.S. soybean carryover go from over a billion bushels to be cut more than half. That is going to get tighten further as crop losses are realized by harvest and China normalizes soybean purchases.
The USMCA needs to be ratified by Congress or the Dems will be hurt politically in the Midwest. Any Dem that doesn’t vote for the USMCA should not be sent back to Congress from the Corn-Belt. NAFTA and the USMCA are little different for ag. We just get our North American markets back after all that the politicians have done screwing around with them.
We were getting screwed by being cut out of the TPP. We were losing market share in Japan to TPP competitors and it was going to get ugly and unjustifiable. Japan wanted something to stave off auto-tariffs and essentially gave us the same deal on ag as if we were a TPP member. This gives Trump something that he needs to run victory laps over. Like with the “great ethanol package”, the Japanese trade deal got us nothing we couldn’t have had before had we joined TPP…we just stop getting screwed. Isn’t it amazing that when we just get back to even how it feels like we won something and Trump takes credit over and over for stopping screwing us? This trade deal will help US meat exports greatly when it goes into effect, reportedly in January.
And then there is the trade deal with China. Trump had been holding out for the whole enchilada but was never going to get it from China in a timeframe and at a cost that he would afford politically. He is in trouble politically and had to dig out. Who in the world would ever impeach a President that just got us the “the best trade deal ever in history”, will be the assertion he will make in his defense. This had been in his bag for some time and it was going to come out at the opportune moment and right now he needed to change the narrative with something positive. He is in deep trouble.
This deal is supposed to get us $40-50 billion in commodity purchases in an unconfirmed timeframe which is enough to make a big difference. The Chinese to several days to confirm this, yet I believed it. I see many commodities including cotton, ethanol, DDGs, soybeans, sorghum, hay, pork, beef, chicken and so on befitting. If we maximize ethanol and pork production again, that indirectly boosts corn and meal feed demand. USDA will have understated demand in their recent October balance sheet. I think that his changing ethanol and trade policy will help this ‘turn’ higher in general commodity prices. I think that we will see contra-seasonal strength in grains which is telling.
Trump says that China is going to buy so much that U.S. farmers may not be able to produce it all and should buy more land. He has a way of embellishing things but I don’t want to squash that down entirely as both the commodity cycle and Trump’s election needs are aligned now for a strong commodity market recovery. I am bullish. There will be bad days like the October crop report but they will be followed by good days like the rally that followed. Funds have been on the wrong side of these markets most of 2019 and I think that they are on the wrong side now and will have to cover shorts and get long.
David Kruse is president of CommStock Investments Inc., author and producer of The CommStock Report, an ag commentary and market analysis available daily by radio and by subscription on DTN/FarmDayta and the Internet.
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