Tuesday, November 20, 2018

Grain Markets Overview: 2019

From AgWeb, Nov. 19:

Bull-Bear Outlook 2019: A New Reality For Grain Markets 
Geopolitical forces, excessive soybean supplies and a likely shift to more corn acres create volatile corn and soybean markets for 2019. While your grain marketing plan faces many headwinds, don’t be surprised when a few tailwinds provide opportunities for you to capture profits. Below you'll find the recommendations shared by five commodity analysts. We'll publish recommendations from four more analysts tomorrow.

Brian Basting, Advance Trading - The trade issue with China is critical. Without a prompt resolution, U.S. soybean carryout might expand considerably and pressure prices. With world corn demand expanding, the market is depending on a rebound in South American production. A recovery in output could send the market lower, while another shortfall might provide market support. One potential difference from 2018 might be indications of active investment in Brazilian agriculture by China, which could be negative to prices. Solidifying relationships with long-time trading partners could be a key to fuel price strength. Price prediction is impossible, so marketing flexibility is preferred. Options are a marketing tool to establish a floor for anticipated (or realized) production, but also provide the opportunity to participate in rallies. An advantage of buying a put option is that if a crop problem surfaces (eg. 2012 drought), bushels are not committed to be delivered. It is prudent to add cash sales to your portfolio in addition to the long option purchases. Since the crop insurance harvest price has been established, it is critical to establish downside price protection via cash sales and option management on all bushels in storage. South American weather trends as well as developments in the trade dispute with China will likely be market movers. Monitoring cash basis trends as well as carry in the futures market is prudent. There are too many years where carry opportunities are missed.

Bill Biedermann, Allendale Inc. - U.S. producers will face a marketing challenge this year, no matter if you’re bullish or bearish. The geopolitical hot spots around the world are probably as heightened as they were prior to WWII as the world migrates to a protectionist posture. This will make for extreme volatility as well as an extreme incentive to quickly reach a trade expansion agreement. Corn has a near record tight stocks-to-use ratio. In 2019, projected ending stocks decline by 15% compared to 2018 and decline 30% from two years ago, while world stocks fall 20% and 30% from two years ago. Additionally, an adverse weather scenario would cause an eye-opening move. Maintaining ownership is imperative and will offer the best potential asset gain. But, we all need cash flow. Thus, if you have to sell, replace it with futures. If you’re not comfortable with that, then use options. For 2019, get started when sales near $4.20 or profitable levels. Without trade agreements, soy stocks could hit 1.2 billion bu., while a trade expansion could mean 600 million bu. I would use puts to protect the downside risk, unless your basis has improved and you can sell cash. I would replace ownership with an affordable call. If the trade disputes continue, keep your eye on stock markets and the world soybean price for direction. As long as the world soybean price is strong (north of $11), our cash price is attractive. That’s why our market is holding at prices higher than traders expect. If world prices sink, I’d rather lose a 25¢ premium than lose a dollar in cash ownership....