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The main concern of the markets is the trade war between the United States and China, which has generated uncertainty with new announcements but without reaching a final agreement. And it is precisely the lack of agreement, favorable or not, that generates this insecurity and prevails over any fundamental aspect of supply and demand. The new deadline is July 6, when the application of tariffs on Chinese products would be effective. If it is confirmed, the focus will be on reorganizing trade so that the United States will replace its largest importer of agricultural products and China diversifies its origins.
Since the offer, the impact is also negative for prices from the United States. United has finished with soybean and corn plantations and the crops show very good conditions for this time of year. This is measured through reports that the USDA publishes weekly with crop evolution, which show that 77% of corn and 78% of soybeans are in good or excellent condition, well past last year . The weather will be the main driver of the fundamentals market in the coming months.
Last Friday, the USDA released two reports: Quarterly Inventories and Intentions of Seedlings. The data were mainly bearish for corn and wheat, although prices maintained the improvements with which they started the day as wheat found greater support in reducing production in France and in the climatic concerns of the rest. from Europe. The strong numbers were between bullish and neutral for soybean, but prices could not be maintained until closing. Inventories are at record levels and US producers will plant more acres of soybeans than corn for the first time in 35 years.
Monthly losses are in number, soybeans drop 15%, maize 10% and wheat 7%. External falls were transferred to the local market: soybeans fell 8%, maize 9% and new wheat 6%.
Regarding this cereal, 67% of the area was already seeded with good moisture reserves With respect to weather, neutral conditions are announced during the winter with a 50% chance of developing a child event in the spring. In the summer of 2018/19, the probability reaches 65%.
Despite low prices, wheat prices at US $ 180 remain attractive for nearly 20/30% of sales. Recall that, the good weather through, planned a production of nearly 20 million tons and that the export has already bought 12% of new wheat, pace very advanced compared to other years.
On the other hand, the soybean harvest was completed while corn covered 55% of the area and production estimates are maintained. The tariffs for both cereals continue to invite to postpone the sale of goods. For example, the implicit carryback rate for soybean sales in November is close to 20% per annum in dollars, assuming the November futures sale is around US $ 298.
Moreover, it is a good opportunity to purchase purchase options, for those who want to have a revenge in case of market reversal. These options become less attractive in declining markets and, as a result, their premiums are cheaper.
Subsequently, the decisions will focus on the new campaign. Most of them have surely defined their planting plan, but the same thing will probably not happen in terms of price. Therefore, it is good to analyze the current situation to make decisions. Since our attempt to understand price behavior is based on the information available, we refer to it: current values are higher than last year for the same period; Despite the low margins are attractive and we also remain expensive against Chicago which is our reference market. Although there are many local and international uncertainties, we suggest taking advantage of these prices for 20% of the estimated output and waiting for the rest of the variables to be defined
: Daniela Reale – Analyst at BLD SA
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