Daily Grain / Hogs Marketing Outlook Written by: Jim Gerlach 1/9/2019

Transcription

1 Daily Grain / Hogs Marketing Outlook Written by: Jim Gerlach 1/9/2019 Early Call 8:45am EST: Corn up 2, soybeans up 3, wheat up 2. Grain markets are higher across the board as traders hope the trade optimism helps confirm the recent Chinese buying rumors. Global equities are higher around the world overnight as optimism reigns surrounding the U.S.-Chinese trade talks. According to media reports, the talks were extended into an unexpected third day as the two sides make progress toward defusing the rift between the world's two largest economies. Crude oil strength is also noteworthy this morning as crude attempts to close higher for the eighth session in a row. Crude oil has rallied back over the 50-handle level and is almost 20% above the 18-month lows set in December. Grains: March soybean contracts dropped 0.6% to $9.18 ½ at the Chicago Board of Trade Tuesday. Corn contracts up for March delivery also fell by 0.6% to $3.80, while wheat contracts for March delivery rose 0.2% to $5.17 ¾. March corn settled slightly above the 50-day moving average of $3.79 ¼ with the next level of support at the 100- day moving average of $3.77 ¾. March soybeans next level of support at the 50-day moving average of $9.02 ¼. Market participants in the U.S. are speculating that China has purchased the 5mmt of soybeans previously agreed to when President Xi and President Trump met last year. If that is completed, no one knows if any further U.S. soybean purchases by China are around the corner. The USDA announced yesterday afternoon that it will be extending the deadline for agricultural producers to apply for payments under the Market Facilitation Program--since the deadline for applications was originally set for Jan. 15, but the government shutdown has left farmers unable to apply. "We will extend the application deadline for a period of time equal to the number of business days FSA offices were closed, once the government shutdown ends," confirmed Agriculture Secretary Sonny Perdue. President Trump took to the airwaves last night, addressing the nation from the Oval Office at 9pm and made a case for Congress to provide funding for a U.S.-Mexico border wall. The speech comes while the president mulls over declaring a national emergency over border security, one such way that the government shutdown may end. Talks between U.S. and Chinese delegations being held in Beijing have been extended to continue Wednesday, after they 1

2 were previously scheduled to conclude Tuesday. The talks between midlevel officials is believed to have made progress, which is sparking hope for both the grains and livestock sectors. Rain in Brazil occurred the last day in southeast Sao Paulo, southeast Parana, southern RGDS and western Mato Grosso and will favor southern Brazil the next 10 days. 90sF expand into central/northeast Brazil during the 6-10 day period, but some modest weakening in ridge strength occurs by the day period. A return of scattered, day rains focuses the main yield loss on the northeast ¼ of Brazil s ag belt later in the month. Official state crop forecasting agency Deral reports that Parana, Brazil first crop corn condition is down to 74% good, 24% fair, and 2% poor vs. 85%, 14%, and 1% in mid-december. National forecasting agency Conab will release updated Brazil crop estimates on Thursday, with first crop corn expected to come in lower due to dryness. The safrinha crop will not likely see adjustment until February. Deral said soybean harvest is 5% complete, a record pace, with conditions 58% good, 30% average, and 12% bad vs. 87%, 13%, and 0% last year. Analytical firm Agroconsult estimates Brazil soybean production at 109mmt (USDA 120mmt). In Argentina, central areas were drier than expected yesterday, with rains mainly in the south/far north, with the northern 1/3 rd favored in the short-term. Rains ease for much of the remaining southern Argentina wheat harvest the next two weeks, but 6-15 day forecasts are wet for the heart of the corn/soybean belt. Excess rain risks focus on the northeast 10% of the belt in the shortterm but expand to about 25% of the belt in the 6-15 day period. Noted crop scout Dr. Michael Cordonnier cut the Brazilian soy crop 3mmt to 116mmt, taking the total 2019, 5-nation soy crop to 186.6mmt, up 15.4mmt vs. last year while corn is at 138.3mmt, up 20.8mmt vs. last year. Dryness damage to Brazilian soybeans is now irreversible, even if rains were to reappear as worries grow too over the impact of the lack of moisture on safrinha corn prospects. Dr. Cordonnier flagged the potential for further downgrades. Terming 114mmt as an optimistic figure, he said that while it was for now impossible to say where the total soybean production will end up, we can say that the estimates of the Brazilian crop are heading lower. He flagged some market estimates of a 20% decline in output year on year equivalent to a harvest of approximately 96mmt. The caution follows findings from the early harvest in the top soybean growing state of Mato Grosso, where early yields in the Lucas do Rio Verde municipality have come in at the equivalent of bpa, below expectations of bpa Dr. Cordonnier said. The soybeans were planted early this year, but hot and dry weather during December hit the early maturing soybeans just at the wrong time resulting in lighter seed weights. However, even the vast majority of the crop still a way from harvest (Cordonnier estimates that about 60% of Brazilian soybeans are in the pod-setting phase) has been irreversibly damaged by dryness. In any given area, 2

3 additional rainfall going forward would probably stop the yield declines, but they would not add-back to yields already lost, especially for the early maturing soybeans. Virtually every major soybean producing state in Brazil is now forecasting that the soybean yields in will be lower than in In fact, after a period which has seen some parts of Parana, Mato Grosso do Sul and Sao Paulo go without decent rains for more than a month, further dryness is expected. For the next couple of weeks, the rainfall in Mato Grosso, Goias, Mato Grosso do Sul, Sao Paulo, and north eastern Brazil might be down 50-90% below normal, Dr. Cordonnier said. Weather service Radiant Solutions said that drier weather in central and north eastern areas this week will allow dryness and stress to expand there, highlighting that this was a threat too to the safrinha corn crop, planted as a follow-on crop after soybeans in some states, particularly Mato Grosso, Mato Grosso do Sul and Parana, with Goias another major grower. Across much of the safrinha corn belt subsoil moisture is already notably lower than last year at this time, and with below-normal rainfall expected over the next 10 days, soil moisture will only decline further. This will stress germination and early growth of the crop, particularly in Mato Grosso do Sul and far southern Mato Grosso, Radiant said, although adding that there was time left for a moisture rebuild, with the ideal sowing window usually seen as closing late next month. RJO s South American crop roundup yesterday included: 1) Estimates for a Brazil soy crop at mmt but could erode further if warm/dry persists into mid-jan. 2) China last week bought 0.5mmt Brazil soybeans, with FOB soy basis firming slightly. 3) Zero odds of Brazil truck strike but some privates are building truck fleets to bypass government mandated truck rates. 4) Mato Grosso soybeans due to late planting are only 2% harvested vs % last year. 5) The need for rain soon in dry areas of Parana, MGDS and Goias is characterized as urgent in part due to high temps. 6) It s too early to make an informed call on the Brazilian corn crop (trade talking 92-93mmt vs. the USDA s 94.5mmt). 7) Argentina s corn crop is estimated at mmt (USDA at 42.5mmt), with soybeans at mmt (USDA at 55.5mmt) and the wheat crop at mmt (USDA at 19.5mmt). 8) Argentina wheat harvest is 91% complete with good quality overall. 9) Argentina soybeans are 90% planted (slightly above last year) while only 2.5 million corn acres are left to plant over the remaining 4-week window. They could see some shift of soy area to corn. 10) Argentine meal stocks are slightly above average for early Jan (+1.3mmt). 11) All Argentina crop areas have adequate moisture, with only 7-10% rated as excess as of today. Trade focus is turning towards 2019 U.S. acreage, with yesterday s newsletter discussing just how tight the 2019/20 U.S. corn carryout could be if acres increase just 2 million acres. Part of the reason is tied to rising input costs for corn. U.S. fertilizer 3

4 prices continue to move higher, rising for the 4th straight week last week. According to the University of Illinois, northern IL has seen a $15/acre increase over 2018, central IL is up $16/acre and southern is up $21/acre. Purdue University noted a $27/acre increase over 2019 for Indiana farmers. The thing to keep in mind with these crop budgets is they were completed before the most recent retail fertilizer price spike. Some universities will update crop budgets in the spring, and it will be interesting to see if the fertilizer costs in these budgets are even higher than fall estimates. Turning to soybeans today, if the U.S. soybean balance sheet does not shed the 4-6 million acres it needs to, carryout could once again be north of 900mb. Using three million less acres, trendline yields and demand growth of 3% in crush and 15% in exports, a carryout of 935mb vs. 955mb in 2018/19 would be indicated. There is no guarantee export growth could or should be that high next year. For what it s worth, wire services published average trade estimates for the delayed USDA January reports. Average 2018/19 corn crop size was pegged at billion bushels (178.0bpa yield) vs billion in Nov (178.9bpa yield). Soybeans were pegged at billion bushels (51.8bpa) vs billion (52.1bpa) in Nov. 2018/19 corn ending stocks were pegged at billion bushels vs billion in Dec, soybeans were at 904mb vs. 955mb in Dec and wheat was at 987mb vs. 974mb in Dec. U.S. winter wheat seedings were pegged at million acres vs million last year, HRW was million vs million last year, SRW was million vs million last year and white wheat was pegged at million vs million last year. For quarterly grain stocks as of Dec 1, corn was pegged at billion bushels vs billion last year, soybeans were pegged at billion vs billion last year and wheat was pegged at billion vs billion last year. Average estimates for Brazilian crops were 120.1mmt for soybeans (USDA 122.0mt) and 94.3mmt for corn (USDA 94.5mmt), while Argentina s estimates were 55.3mmt for soybeans (55.5mmt USDA) and 42.4mmt for corn (USDA 42.5mmt). On the demand front, Malaysian palm oil futures rose 0.2% Wednesday amid expectations of export gains and a likely drop in production. In related oils, gains in the Chicago benchmark soybean oil contract and Dalian palm oil contract added to strength. Indonesia s Energy Ministry pegged biodiesel production in 2019 at billion gallons vs billion in Egypt issued an international tender late Tuesday to buy an unspecified amount of wheat for delivery between Feb and/or March Algeria purchased at least 550,000mt of wheat as part of a tender, according to traders Wednesday. The 550,000mt Algeria reportedly bought is expected to come from France, the U.S., and Argentina. The grain will be shipped between mid-february and mid-march, though wheat from South America may be shipped at any point in February. At least 120,000mt of the demand will be filled by U.S. HRW. Tunisia is 4

5 tendering for 100,000mt of durum wheat. Estimated U.S. ethanol margins have improved over the last two weeks but are still below year-ago levels with corn grind expected to remain depressed in today s EIA report. The soybean market has had a pattern recently of rallying on bearish headlines and selling off on rumors of Chinese buying and South American weather issues. Fortunately, we do have confirmation the Chinese buying is starting to show up as three vessels off the PNW are declared for China. The loadings should continue and pick up into February, especially if the rumored buying this week actually happens. However, market sentiment is that the Chinese have completed their round of good-faith purchases of soybeans, which may have totaled as much as 5mmt. With the Chinese buying believed to be done and the U.S. left still with a plethora of beans, a new major buyer of beans may have to be found to give the U.S. soybean crop a home. One encouraging feature for bull traders was chatter China could switch from buying U.S. soybeans to corn. Traders have been anxiously awaiting if China will lift the added import tariffs on all the US agriculture products including sorghum, corn, DDGs, and ethanol. China will want to make sure that it looks like it is keeping its purchase promises as trade negotiations advance. Hogs: Cash hogs are called steady to $1 higher. Cash hog levels are expected to continue to be supported, though there are starting to be some questions as to just how much additional support may develop over the next few days. Most bids are expected to be steady to $.50 higher. Wednesday plant runs are expected at 477,000 head. Saturday schedules are expected to be near 195,000 head. The national bid gained $1.16 Tuesday to close at $50.18, while the IA/MN bid gained $.93 to close at $ The CME Lean Hog Index was up $.87 from the previous day at $54.50 on January 4 th. The USDA pork carcass cutout value was down $.40 on Tuesday afternoon at $70.16 on good movement of 474 loads. Estimated packer margins were $32.81/head for non-integrators and $14.61/head for integrators vs. $35.54 and $15.42 the previous day. Weekly kill is up 5.26% over last year. February hogs surpassed the 200-day moving average of $62.46, with the next level of resistance at the 100-day moving average of $ Hog futures activity is likely to remain mixed for the first half of Wednesday. The choppy back and forth market direction during the week is limiting overall market direction, although prices seem to be slowly advancing, but it has been hard to sustain strong market growth across the complex. Continued uncertainty about trade negotiations is still limiting market interest. Lean hog futures bounced back from midday lows Tuesday, with most contracts holding limited single-digit gains, even though spot February futures posted $.70 gains. Spillover support from the cattle trade provided limited support to lean hog futures. Movement for both was attributed to signs 5

6 of some tightening of supply in the U.S. Meanwhile, rumors that the U.S. and China may agree to drop tariffs on livestock, propagated after both sides agreed to meet for a third day, didn't appear to have much effect on futures. Supporting this move are suggestions that the ongoing spread of African swine fever in China is more damaging to their supply than previously believed. Futures closed mixed, $.35 lower to $.70 higher. Lean hog prices bounced around in a wide trading range Tuesday as initial support was replaced by general apathy and moderate pressure. However, buyers resurfaced in the last few minutes of trade, pushing most contracts higher. Many nearby contracts held single-digit price shifts. The February contract was the big winner, gaining $.70 to close at $ The firm support seen over the past week is sparking renewed commercial buyer support as traders focus on cash and pork market gains. Pork values trickled lower with moderate pressure in most primal cuts. Trade through the morning in live cattle and feeder cattle Wednesday is expected to be a mixed bag, with position-taking likely at opening bell, although the underlying firm tone in the market should allow for follow-through buying activity once the initial jitters settle out of the market. Triple-digit gains flooded back into live cattle and feeder cattle trade Tuesday. The renewed support pushed front-month live cattle contracts to new contract highs, sparking follow-through buying late in the day Tuesday. Sharp gains flooded into nearby live cattle trade Tuesday despite initial market struggles. Futures closed $0.40 to $2.10 higher. The front-month February futures contract led the renewed support in live cattle, closing at $ following a $2.10 rally. This most recent market surge broke through resistance levels and established new contract highs. The ability to move prices higher in early January points to further potential buying developing in the near future. Front-month live cattle contracts are trading at the highest level since February 2018 in the continuous front-month chart. A move above $ would break through 2018 highs, setting the tone for additional seasonal support. Beef cutouts were down $0.95 lower (select $207.26) to off $0.30 (choice $213.98) with good demand and light offerings of 183 loads. Cash cattle markets remain undeveloped with asking prices and bids still silent late Tuesday afternoon. The overall lack of movement is not shocking or unexpected at this point, although there is some uncertainty as to intended activity until the last half of the week. Wide price swings developed through feeder cattle trade as early losses quickly turned into continued support. Futures ended the session $.82 to $1.65 higher. Initial losses Tuesday morning put feeder cattle on the defensive as traders backed away from early week support. But the depth of selling pressure was limited through the morning, opening the door for additional strong market gains in the last half of the session. January futures led the complex higher with a $1.65 gain. However, the momentum shifted from feeder cattle trade to live cattle futures moving into the driver's seat late Tuesday. 6

7 Weather: The U.S. and European models are in fair to good agreement during the outlook period. A weak trough is expected to move into the western U.S. early in the outlook period. This trough moves across the north-central U.S. before settling southward over the Midwest region during the middle to later part of the period. Temperatures warm ahead of this advancing trough and cool somewhat behind it. Moisture associated with this trough appears limited in nature, especially over the Plains and western Midwest regions. The mean maps at 8-10 days continue a feature a split jet stream pattern. The northern branch of the jet stream features ridging from Alaska northward into the Siberia side of the Arctic circle and a polar trough centered just north to northeast of Hudson Bay in Canada. North to south flow between the ridge the trough will transport colder weather southward into central Canada. The flow turns more from the west over south-central and southeast Canada which should limit the southward extent of this colder weather. The southern branch of the jet stream features a mean trough just off the west coast of the U.S. We see a west to east flow with embedded short-wave troughs over the southern Plains, the Delta and the southeast U.S. These troughs appear weaker during this period but as we have seen a number of times already these troughs can strengthen without much advanced notice. Rains of in Argentina fell across most of Corrientes and then down into La Pampa and the southern ½ of Buenos Aries, with things mainly dry in the rest of the Argentine growing regions yesterday. Temps were in the 80 s and low 90 s for highs. The forecast sees another front to bring rains to most of the Argentine growing regions today through Friday. The 610 day sees fairly ample rains as well. Some of the rains could be heavy enough to cause localized flooding in Corrientes the rest of this week. In Brazil, rains of fell with coverage of around 75% across most of RGDS, Santa Catarina and Parana, as well as up into Mato Grosso yesterday, with things dry elsewhere. Temps were in the 70 s under the clouds and rain in the south, with upper 80 s to low 90 s for highs elsewhere. The forecast sees showers and thunderstorms to bring fairly decent rains to RGDS, Santa Catarina and Parana, as well as most of Mato Grosso in the next 5 days, with rainfall fairly limited in MGDS, Minas Gerais, Goias and Sao Paulo. The 6-10 day period has changed a bit and now sees fairly decent rains for all of the Brazilian growing regions, with the exceptions of Minas Gerais and possibly eastern Goias. Things were fairly quiet across the majority of the Plains and Midwest yesterday, with temps in the 40 s and 50 s for highs and lows in the 20 s, 30 s and 40 s. Rains will impact the eastern 2/3 rd of OK and TX Friday, with some snows of 1-3 in the eastern ½ of KS Friday. That area of precip will then go on to bring 3-7 snows to the southern ½ to 2/3 rd of IL, IN and OH Saturday. Another system looks to bring some light rains and snows to the Midwest by the second half of next week. Otherwise little in the way of 7

8 precip and fairly mild temps are seen to keep stress limited in the main livestock and winter wheat areas of the southern Plains in the next 10 days. Temps will be running above average across the southern Plains for the next week to ten days, with average to below average temps seen for the Midwest the second half of this week, then warming. There are no winterkill threats. Global Weather Highlights: The upper level analysis today shows a relatively strong trough moving northward over southern Argentina bumping into the Atlantic ridge that is nosing across southern Brazil. Thunderstorm activity will be heaviest between these two features which appears to be from just north of the central Argentina ag belt to north Argentina and RGDS Brazil. The trough is projected to weaken this weekend and early next week. This allows the ridge to build further west and south with time. This might mean that RGDS will also come under its influence for a time, but it is not certain the ridge would be strong enough in that area to totally shut off the chance for afternoon thunderstorms. In either case, this upper level ridge should limit the chances for showers to occur from Parana and MGDS north and northeast during the next 10 days. It should also promote near to mostly above normal temperatures in these locations. Scattered thunderstorms activity should maintain more favorable conditions for developing crops in RGDS and Santa Catarina. Recent showers in Parana may have helped ease stress to crops for a time, but the tendency for below normal rainfall and above normal temperatures going forward will further stress crops and limit production potential from this area and areas to the north and east. Drier, hotter weather in the Mato Grosso area, Goias and Bahia will increase stress to developing crops while favoring maturing crops and harvesting. Mostly favorable conditions continue for developing corn and soybeans throughout the major growing areas of central Argentina with adequate to surplus soil moisture and only brief hot spells. Periodic scattered showers and no significant heat waves should favor developing crops in South Africa at this time. However, more rain might still be needed in some locations. It has recently turned quite cold in portions of southeast Europe and Ukraine with readings falling below zero F. However, these temperatures occurred in areas where snow cover was more than adequate to protect the crop from this cold weather. Chinese wheat areas have turned colder recently but it does not appear to have been cold enough to impact dormant winter grains. It does not look to be very cold during the next 7 to 10 days, although below normal at times. Precipitation occurs mainly through the Yangtze river valley while the North China Plain remains seasonally drier. North American Weather Highlights: There are no significant concerns for travel or transport in the western Midwest during the next 7 days. There s no significant risk to the soft red winter wheat crop at this time. Favorable conditions continue for 8

9 overwintering wheat in the southern Plains. There is no damaging cold weather in sight, with no significant stress to livestock in the feed lots during this period. Macros: The macro markets were modestly supportive as of 8:30am EST, with Dow futures up 0.5%, the U.S. dollar index is down 0.1%, crude oil is up 2.8% and gold is down 0.1%. The S&P 500 on Monday rallied to a 2 ½ week high and closed 0.97% higher. The DJIA gained 1.09% and the Nasdaq 100 gained 0.98%. Bullish factors included signs of progress in U.S./Chinese trade talks after President Trump tweeted that trade talks with China are "going very well," and strength in energy stocks after crude oil prices rose 2.60% to a 3-week high. A bearish factor was the U.S. Nov JOLTS job openings report of -243,000 to a 5-month low of million, weaker than expectations of -21,000 to million. President Trump will meet today with Congressional leaders for another negotiating session about the partial U.S. government shutdown. Mr. Trump is due to visit the border on Thursday. The U.S./Chinese trade talks seem to be going well although the WSJ on Tuesday reported that the two sides are still far from striking a deal. President Trump on Tuesday also fueled some market optimism when he tweeted, "Talks with China are going very well!" The U.S./Chinese talks among mid-level officials held on Monday and Tuesday were extended into a third day on Wednesday, which suggested that progress is being made. The next major step is that Chinese Vice Premier Liu, President Xi's top economic advisor, is due to travel to Washington for talks with USTR Lighthizer later this month. There are only 7 weeks left until the March 1 deadline for the talks, when President Trump has said he will boost the tariff to 25% from 10% on $200 billion of Chinese goods if there is no trade agreement. We believe the odds have improved significantly for a U.S./ Chinese trade agreement. Chinese officials are under heavy pressure to get a deal since the trade tensions are causing significant stress for the Chinese economy and stock market. Meanwhile, the Trump administration is also under pressure to get a deal due to the U.S. stock market correction and the fact that time is starting to run out for President Trump's first term. However, the markets may not get the solid trade deal they are hoping for since there are reports that the U.S. is only considering a phased drawdown of punitive U.S. tariffs on Chinese goods depending on China hitting trade agreement milestones such as U.S. goods purchases and policy changes. Today's minutes from the Dec FOMC meeting are not likely to show much of a dovish shift among Fed officials. The FOMC at its Dec meeting implemented its fourth rate hike of 2018 and issued Fed-dot median forecasts for two more rate hikes in 2019 and one more rate hike in 2020 to a funds rate target range of 3.00%/3.25%. The FOMC minutes will certainly not go as far as Fed Chair Powell did last Friday when he said that the Fed is listening to the markets and suggested that the Fed might be willing to pause its rate-hike regime. The market has become a little less dovish about Fed 9

10 policy in the past week due to the upward rebound in the U.S. stock market and some optimism about the U.S./Chinese trade talks. The Dec 2019 federal funds rate on a yield basis fell to a low of 2.24% last Thursday, reflecting a 64% chance of a 25 basis point rate hike this year. However, the Dec 2019 funds rate contract has since rebounded higher to 2.375%, which is only 2.5 basis points below the current effective funds rate of 2.40% and indicates that the market is now discounting a 10% chance for a Fed rate cut in The market is discounting an 84% chance of one 25 basis point rate cut by the end of Share prices have surged in Europe and Asia on Wednesday on hopes for progress in resolving the tariffs battle between the U.S. and China as three days of talks in Beijing wrapped up without details on their outcome. Germany's DAX added 1.3 percent to 10, while the CAC 40 in France climbed 1.4 percent to 4, Britain's FTSE 100 jumped 0.8 percent to 6, Wall Street looked set for more gains, with the future contract for the Dow up 0.5 percent while that for the S&P 500 also rose 0.5 percent. Japan's Nikkei 225 index gained 1.1 percent to 20, and Hong Kong's Hang Seng jumped 2.3 percent to 26, The Shanghai Composite index surged 1.0 percent to 2, while South Korea's Kospi advanced 2.0 percent to 2, Australia's S&P ASX 200 surged 1.0 percent to 5, Shares also rose in Taiwan and Southeast Asia. The Chinese Foreign Ministry said trade talks with the U.S. in Beijing had ended after three days of discussions. It gave no details. President Donald Trump tweeted overnight that "Talks with China are going very well!" a potential positive sign even though no major developments had been announced. Experts say it may take months to resolve the causes of the trade war, which include disagreements over Beijing's handling of technology and intellectual property. President Donald Trump's televised address Tuesday night helped soothe frazzled nerves over what steps he might take in the standoff with lawmakers over border wall funding, which has resulted in a partial government shutdown. Trump argued for funding on security and humanitarian grounds as he sought to put pressure on newly empowered Democrats. Oil prices also continued to rally. U.S. crude rose $1.05 to $50.83 per barrel in electronic trading on the New York Mercantile Exchange. It has risen for eight of the past nine days and gained 2.6 percent to $49.78 per barrel on Tuesday. Brent crude, used to price international oils, added $1.06 to $59.78 per barrel. It gained 2.4 percent to $58.72 a barrel in London. The dollar climbed to yen from yen. The euro rose to $ from $ Summary: A market can only climb so far without more bullish news. In the past two days, the corn market has been inundated with rumors of China buying U.S. corn, soybeans and wheat. The lack of USDA sales data prevents confirmation. After an $.11 rally from the lows set just six days ago, corn is correcting a bit. Despite the Chinese 10

11 purchase rumors and that U.S. corn is competitively priced, export inspections for last week came in at a lackluster 19.7mb. Although shipments to date are 61% above last year, that is down from 73% above the previous week. There is much optimism that the U.S.-China trade agreement is moving in the right direction. China's approval of five genetically modified products, including corn, soybeans and canola, is a sign China may be serious in working with the U.S. Although corn is riding the coattails of soybeans on the weather and demand-inspired rally, at some point the heat and dryness in some key producing regions of Brazil may begin to affect corn production as well. Following a $.47 rally from the trendline lows set just eight days ago, the soybean market was ripe for a correction. Even though the trade is convinced China has now purchased a minimum of 5mmt of U.S. beans, with some estimates as high as 6mmt, much of this has likely been covered already in the cash and or futures markets. Some profit-taking and selling set the bean market back on Tuesday. Short term, some beneficial showers are hitting dry areas in Brazil, but the forecast is for the heat and dryness to re-emerge, threatening soy yield in some key growing areas, most notably Parana. The trade is flying blind regarding confirmation of sales to China, but with the approval of five genetically modified products on Monday, including a few soybean varieties, the door is open for more China business. Conab will be out with their update on Brazil soybean production Thursday, and the estimated is expected to drop by 3-4mmt from their previous 120.3mmt projection. Wheat was getting a nice bounce early Tuesday, led by Chicago, on technical considerations and the prospect for new export business. However, much of the gains had dissipated by the close. Rumors circulated of China looking to buy up to 6mmt of U.S. wheat, centered on soft red winter and spring wheat. The U.S. has become much more competitive in world markets, and with a host of world importers tendering for wheat, the U.S. is expected to earn some of that business. Algeria and Morocco are tendering for soft milling wheat, and that is the likely reason Chicago was leading the pack Tuesday. News that Algeria had rejected a vessel of Argentine wheat due to low falling numbers and sprout has buyers seeking an alternative. The U.S. could surely use that business, as last week's dismal export inspections of just 9.6mb fell far short of the weekly requirement. Total shipments are still 13% below a year ago. March corn slid lower in a bearish outside day Tuesday. Corn bulls faltered on the approach of major range-top resistance in the $3.87 ¾-$3.90 ½ area, which confined bullish market action since August. The swift retreat suggests the corn bulls are getting cold feet near key resistance. The March corn contract is now testing 20-day moving average support and sustained declines below that level this would be a negative nearterm trend signal. On the downside, strong corn support lies at $3.72 ½-$3.72 ¾, the respective Dec. 26 and Dec. 31 lows, and that will become a bearish corn target on a close below the 20-day moving average. Bigger picture, March corn has been coiling in 11

12 a large neutral range since mid-october between major resistance at $3.90 ½, the Oct. 15 high, and major support at $3.67 ¼, the Nov. 26 low. March soybeans sank to a slightly weaker close amid a minor bout of profit-taking Tuesday after the recent strong price run-up. March soybeans reversed lower Tuesday just ahead of major 200-day moving average resistance at $9.30 ¼. That level will be a major technical challenge for soybean bulls near-term. It would take a sustained rally and close above the 200-day moving average to open the door to a run back toward $9.41, the Dec. 12 high. Minor backing and filling ahead of the 200-day moving average resistance is not a surprise, given the significance of that long-term moving average. On the downside, minor chart support lies at $9.14 ½ and then $9.08 ¾. Bigger picture, since mid-september, the March soybean contract climbed in a larger uptrend with higher daily highs and higher daily lows. The strong buying seen in recent days off the $8.80 ½ low, scored on Dec. 27, is a continuation of that uptrend. A/C Trading Co. does not accept orders to buy or sell by , text or any other form of social media. This material has been prepared by a sales or trading employee or agent of A/C Trading Co. and is, or is in the nature of, a solicitation. By accepting this communication, you agree that you are an experienced user of the futures markets, capable of making independent trading decisions, and agree that you are not, and will not, rely solely on this communication in making trading decisions. DISTRIBUTION IN SOME JURISDICTIONS MAY BE PROHIBITED OR RESTRICTED BY LAW. PERSONS IN POSSESSION OF THIS COMMUNICATION INDIRECTLY SHOULD INFORM THEMSELVES ABOUT AND OBSERVE ANY SUCH PROHIBITION OR RESTRICTIONS. TO THE EXTENT THAT YOU HAVE RECEIVED THIS COMMUNICATION INDIRECTLY AND SOLICITATIONS ARE PROHIBITED IN YOUR JURISDICTION WITHOUT REGISTRATION, THE MARKET COMMENTARY IN THIS COMMUNICATION SHOULD NOT BE CONSIDERED A SOLICITATION. 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 A/C Trading Co. believes are reliable. We do not guarantee that such information is accurate or complete and it should not be relied upon as such. Trading advice reflects our good faith judgment at a specific time and is subject to change without notice. There is no guarantee that the advice we give will result in profitable trades. 12