Prices moved nicely higher again this past week. Soybeans are up $.60 since the start of Dec. Most of the gains came after positive developments in the trade dispute between the US and China.

 

While phase 1 of the deal has yet to be signed, it appears it will be shortly. This averted the increased tariffs Trump threatened China with that would have started Dec 15. China realizes Trump is adamant in addressing the huge trade imbalance between the 2 countries.

 

Apparently, China has agreed to buy $40 billion of US ag products in each of the next 2 years. The most China has ever bought from the US in 1 year was $29 bln in 2013. The 40 billion would be 16 billion more than what they bought this year.

 

Soybeans will be a primary beneficiary of the increased trade, as that is by far China’s largest ag import. Pork imports will also increase, but this is also out of necessity due to their African Swine Fever.

 

US corn, ethanol and wheat exports will also likely increase if China hits the $40 billion target. That is likely why those markets also rallied since the trade news came out last week.

 

Also, helping markets are large speculator short covering. They have been sellers of soybeans for 6 weeks in a row, and sold 13,000 contracts in the latest reported week, to be short 112,000 contracts now. This is adding some fuel to the fire.

 

Export inspections are released every Monday and quantify what is physically exported. So far this marketing year, which started Sept 1, the US has exported 684 million bushels soybeans, up 22.8 percent from last year’s disappointing 557 million.

 

Corn is a different story, however. Since Sept 1, the US has only exported 384 million bushels.  Last year at this time it was 630 million. US prices were uncompetitive with Brazil and Ukraine, but that has now changed so exports should get back on track.

 

As expected, the new government in Argentina raised the export taxes on crops by 8%, as the country is in dire economic straits. The tax is now 33% on soybeans and 15% on corn and wheat. With a collapsing currency, farmers there will be tight holders.

 

Weather in South America has turned wetter, increasing their potential crop size. That makes this week’s futures gains that much more impressive. But, as always, the market gives but can also easily take away.

 

New crop Ontario prices for corn soybeans and wheat are near the magic $5.00, 12.00 and 7.00 round numbers. These aren’t get rich quick prices, but perhaps this isn’t a bad place to begin to reduce market risk on a small portion of the crop?

 

I wish my readers a blessed Christmas and a healthy and prosperous New Year. Mark my words, 2020 will be a better year than 2019!

 

Frank Backx

 

 

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