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Market volatility ahead

By Doug Tenney, Leist Mercantile

Producers across the country are hoping grain prices do better in 2019. Next month, USDA will be releasing their final estimates for 2018 U.S. corn and soybean production and yields as well as quarterly grain stocks as of Dec. 1, 2018. Many are expecting both corn and soybean production and yields to be reduced slightly with the challenging weather in Ohio and South Dakota, which stalled the final harvest of corn and soybeans during the last half of November and into December.

Dec.1 was a big day for producers. On that date during supper, U.S. President Trump and China President Xi sat down to discuss trade issues. Be glad it was not a “quick” meal, as it lasted two hours. It was a meeting months in the making, yielding a tremendous amount of uncertainty on the parts of producers across Ohio and the United States. Following that meeting, we know that several things were agreed upon. Each country agreed not to place additional tariffs against the other. Neither the U.S. nor China removed any of the tariffs put in place months earlier. At the outset of the Dec. 1 agreement, China’s crushers continue to insist they will not be buying U.S. soybeans if tariffs are in place.

In the days that followed there was a bit of a lighter step and feeling of optimism on the part of farmers nationwide. Some may use the word “euphoria” as soybeans reached prices not seen for four months. On the other hand, being much more cautious in my outlook for soybean prices, I urge you not to start counting any extra dollars in your pocket just yet.

Here’s why. March 2019 CBOT soybeans closed at $9.1775, up 10 cents for the day, with a day’s range of 19 cents. While higher for the day, it was a disappointing close with the settlement price just 1 cent above the day’s low. In the hours before the Sunday 8 p.m. grains opening, soybeans had been called 20 to 40 cents higher. That did not happen even on the grains opening. Those that study the charts with the Candlestick method recognized a doji formation, which often indicates a trend change. A trend change lower is the last thing producers want after seeing grain prices decline during much of the summer. Since then, USDA confirmed Chinese entities had purchased 41.5 million bushels for delivery to China during the current marketing year.

If you thought Dec. 1 was a big day, look at what’s the coming ahead around March 1. I have already circled the last days of February and early March. It marks the end of the 90-day period during which both the U.S. and China are to continue their trade talks. Just as Congressional budgets often go to the last hour before the new budget is agreed upon, this trade agreement could hold until the very end of the 90-day period before new agreements take place. Additional soybean trades will be very difficult during this 90-day cooling off period for the trade talks.

China has pledged to buy a “large” amount of U.S. farm goods if the Trump administration does not impose additional tariffs. While scanning many stories and trade commentaries in the days which followed the trade announcement agreement, it was difficult to find more than a few words detailing information concerning intellectual property (IP) rights. It would be most surprising if the U.S. is able to secure language on IP in talks during that 90-day period.

This year we have seen plenty of corn and soybean acres yet to harvest after Thanksgiving, not just isolated patches but throughout the state of Ohio. Frustration levels are increasing with each day the combine does not run. The two weeks following Thanksgiving continued with more of the same frequent, rainy weather, which took place during harvest. The last weekly crop progress report for the season had the U.S. corn and soybean harvest at 94%.

Expect huge grain price volatility in the next 60 days.

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