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Midwest Marketing Solutions

By Staff | Dec 30, 2019

USMCA

The United States, Mexico and Canada reached a deal on tweaks in labor and steel and aluminum provisions in the U.S.-Mexico-Canada Agreement.

Now, the USMCA needs approval from U.S. and Canadian lawmakers.

“There’s no question this trade agreement is much better than the North American Free Trade Agreement, but in terms of our work here it’s infinitely better than what was initially proposed by the administration,” said House Speaker Nancy Pelosi. “It’s a victory for America’s workers and one I take pride in advancing.”

Phase 1

While the U.S. and China have an agreement, in principle, for a phase one trade deal, both countries will now move to a legal review of the language. They also need to determine how to handle the signing of the agreement.

President Donald Trump touted this trade agreement last Friday.

“These farmers are going to have to go out and buy much larger tractors because it means a tremendous amount of business,” he said.

The Administration says China has agreed to purchase $50 billion in U.S. farm products each year for the next two years, but China has not confirmed that number. According to INTL FC Stone, if China would purchase $50 billion in agricultural products, they would go from 15 percent of the United States’ export value to 32 percent. China has traditionally been a big buyer of U.S. soybeans and pork, but this type of commitment would greatly expand the list of exports going to China.

Corn analysis

Corn closed the week $.04 1/2 higher. Last week, private exporters did announce any export sales.

In the weekly export inspections report; U.S. corn exports last week were a marketing year high at 27.0 million bushels and rising from the previous week’s 19.3 million bushels.

However, corn exports were were still considerably below the roughly 38.4 million bushel/week average needed through the end of August in order to reach the USDA’s 1.850 billion bushel export projection.

The current “needed” pace reflects a 16 percent stronger export pace from this point forward than last year’s 33.1 million/week.

Cumulative exports of 285 million bushels are down 55 percent from last year’s 63.0 million at this time. U.S. ethanol production, for the week ended 12/13/19, slipped to 1.064 million barrels/day (313 million gallons/week) from 1.072 mbpd (315 mil gal/week) the week prior, the first pullback in production from the previous week in 12 weeks.

This was still 1.7 percent above last year’s same-week production of 1.046 mbpd (308 mil gal/week). U.S. ethanol stocks last week were steady at 916 million gallons (21.798 million barrels), virtually unchanged from the previous week’s 21.815 mil barrels.

Strategy and outlook

The bullish weekly reversal should end the fund selling that drove prices near contract lows. The new trade agreement will limit the downside risk for prices with the markets slowly rallying as fresh demand becomes apparent.

Soybeans analysis

Soybeans closed the week $.17 3/4 higher. Last week, private exporters announced sale of 126,0000 mts of soybeans to China.

In the weekly export inspections report; U.S. soybean exports, for the week ended 12/12/19, were 46.3 million bushels, down from the previous week’s 51.5 mb and declining for the 3rd consecutive week.

Cumulative exports of 685 million bushels are up 23 percent from last year’s 557 million, with exports needing to average roughly 28 million bushels/week through the end of August in order to reach the USDA’s 1.775 billion bushel export projection vs last year’s 30.2 million bushel/week average from this point forward.

The monthly NOPA crush report totaled 164.9 million bushels, sharply below the average trade estimate of 172.0 million, below the entire range of market ideas, down considerably from October’s 175.4 million and short of last year’s record November NOPA crush of 167.0 million bushels. NOPA crush for November would imply U.S.-total crush for the month around 175.6 million bushels, which would be down 1.4 percent from last year’s 178.1 million and put 1st quarter (Sept-Nov) crush at 525 million bushels vs last year’s 531 million. Based on the USDA’s 2.105 billion bushel marketing year total crush estimate, Dec-Aug crush would need to total roughly 1.580 billion bushels, a 1.2 percent increase from last year’s 1.561 billion – thanks to RJ O’Brien.

Strategy and outlook

Futures bounced off long term support with strong end user buying supporting values. Prices are likely to probe weekly resistance amid the new trade agreement. The timing of Chinese purchases will provide interesting and indicative of how the balance sheets will be affected.

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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