Market analyst says too many balls to juggle

CHICAGO, Ill. — Darin Newsom said this was the most difficult market outlook presentation he has put together in the last decade.

There are too many wild cards and no clear path forward for grain and oilseed markets. With that caveat, he provided his best guess where soybean, corn and wheat prices are heading.

Newsom tends to rely heavily on technical charts, which are bullish for soybeans. However, this year he is leaning more toward the bearish market fundamentals.

The biggest bearish factor is that U.S. farmers harvested an “extraordinary” 4.36 billion bushels of soybeans this year.

“We have a lot of supplies on hand right now,” he told delegates attending the 2016 DTN Ag Summit.

Cash prices have been unusually strong, given the burdensome supply, setting a high of US$9.72 1/2 per bu. in the last week of November.

Cash prices will trend higher if soybeans follow the same seasonal pattern of the last three years, establishing a seasonal high of $10.42 to $10.65 in July 2017.

However, Newsom is not convinced that is the way the year will unfold. He believes cash prices are higher than they should be because of an unusually strong early-season export program.

He thinks China has been doing some pre-emptive buying in anticipation of a looming trade war with the United States. U.S. President-elect Donald Trump has pledged to impose a 45 percent tariff on im-ports from China.

“China gets a little grumpy about that stuff,” said Newsom.

“Are they doing their buying and shipping right now?”

He believes the pace of exports will slow dramatically starting in February and March if Brazil harvests its expected 103 million tonnes of soybeans.

Newsom said Brazil would be a more attractive trade partner because its currency is weak and it isn’t threatening China with tariffs. It makes him wonder if the U.S. Department of Agriculture’s 2.05 billion bu. export estimate will be met. That is why DTN is recommending farmers be 100 percent sold on soybeans.

The outlook is similar for new crop futures. The November 2017 futures contract closed at $10.26 1/2 the last week of November.

It is forecast to trend down to $9.65 to $9.85 the first week of February, climb to a seasonal high of $10.51 to $10.73 in June and then fall to a harvest low of $9.04 to $9.22.

That is what the technical charts say, but Newsom worries about what happens if fund money becomes nervous about bearish signs in the market. Funds are currently 140,000 contracts net long on soybeans.

He believes the funds will be-come antsy if interest rates rise and the U.S. dollar continues to strengthen, as anticipated.

Funds are counting on the USDA’s long history of grossly over-estimating soybean ending stocks. The current forecast is 480 million bu. That will shrink to 175 million bu. by the September estimate based on the previous three years.

However, if the USDA’s initial estimate is correct, the situation would be a lot less optimistic, and DTN’s June price forecast would have to be lowered.

The corn supply situation is also burdensome. Growers harvested a record 15.23 billion bu. of the crop, and ending stocks are forecast at 2.4 billion bu., resulting in a 16 percent stocks-to-use ratio.

The average cash price was $1.97 per bu. the last time the stocks-to-use ratio was that high, which means it could be argued that the current price of $3.25 to $3.30 per bu. is too high.

“It certainly looks that way to me,” said Newsom.

As with soybeans, strong export demand is propping up the cash price. He expects that demand will continue because Brazil had a poor corn harvest last year and needs to rebuild its own stocks rather than exporting to markets such as Mexico this year.

Newsom thinks prices will move higher until spring planting is done and farmers start moving their old crop corn. That will cause basis levels to tank and the cash market to fall.

He forecasts a low of $3.06 in January and a seasonal high of $3.28 in the spring. History shows new crop futures tend to post a high the first week of December.

“From there it’s a train wreck. It just goes down,” said Newsom.

Many pundits believe corn will lose acres to soybeans, but U.S. farmers are addicted to the crop, so he wouldn’t be surprised if the decline is less than anticipated.

Newsom believes the seasonal high of $3.80 for December 2017 new crop corn has already been achieved, and prices will steadily decline to a harvest low of $2.80.

Wheat has been stuck in a sideways trading pattern for years, and he doesn’t see that changing.

World ending stocks are forecast at 249 million tonnes, which works out to a 35 percent stocks-to-use ratio.

“You want to talk about a cumbersome market? It’s wheat.”

There is no relief on the horizon with the Black Sea wheat crop in good shape heading into winter.

“Do I think we’ve seen the lows in wheat this year? Absolutely not,” said Newsom.

He believes hard red winter wheat has already posted its seasonal high cash price of $4.07 per bu. He is forecasting a weakening basis throughout 2017 and the potential of sub-$3 cash prices.

Newsom is forecasting that new crop July 2017 Kansas City wheat futures will tumble from a high of $4.82 3/4 to a harvest low of $3.95.

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