Grain prices slipped further over the past week. The biggest drop came last Monday, when it was reported the coronavirus had spread into countries such as South Korea, Iran and Italy. Grain markets simply followed many other key markets to lower ground that day.

 

Not helping prices either was the US Ag Outlook Forum that was released last week. This is their earliest estimate of what they think might happen this year. They foresee a huge increase in corn and soybean acres compared to last year.

 

Corn acres may be up 5 percent to 94 million, while soybean could see a massive 12 percent increase to 85 million. Total acres to all crops are expected to be 250.7 million, which is 5 million more than last year.

 

With carry-outs at comfortable to burdensome levels in the 3 major commodities, the higher acres take pressure off of yields in 2020. This obviously makes for a less bullish scenario than if stocks and acres were lower.

 

Despite the Phase 1 signing of the trade deal, China has been noticeably absent from buying many US soybeans or other crops for that matter. I suppose we’ll learn shortly if the trade deal has any teeth.

 

Trump will want to see action, as the US election is only 8 months away and it was the rural states that got him into power in 2016. He has threatened more tariffs if China does not honor their commitments.

 

With the latest drop in price, the charts look weak, which could induce more selling from the trend following speculators. March corn futures got within 4 cents of a new contract low. March soybeans are at their worst level since May, while wheat is at a 3-month low.

 

Specs on wheat are near record long. Further liquidation is likely, and wheat could be the weakest of the grains in the short run. Speculators are more short soybeans than corn, which should support soybeans the most.

 

The US dollar and gold are safe havens in times of uncertainty. The dollar index is at a 34 month high while gold hit a fresh 7 year high. Bond markets have also found renewed strength on the threat of slower world growth due to the coronavirus outbreak.

 

Frank Backx

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