(Editor’s note: This article was written prior to USDA’s Jan. 10 supply and demand report.)

In the days leading up to the U.S. Department of Agriculture’s supply and demand report, no one knew what exactly to expect, which had the corn and soybean markets somewhat anxious. Would USDA leave things unchanged from its previous report, or would it make adjustments, and which direction would those adjustments be?

As the new year got started, both commodities had pulled back some, according to Luke Swenson, president of The Money Farm, West Fargo, N.D.

“We’re hitting right at technical resistance and we went out and actually sold a bunch of corn right at the new year,” Swenson said. “The main thought behind it is just the fact that we are sitting here looking technically at how much we ran over the last two weeks. We’re going into a USDA report, which is a big question mark because no one is really confident about what’s going to be said one way or the other, and we’re actually a little bearish on our outlook for it.

“It just seemed like a good time to take some risk off the table, even though long-term we’re bullish,” he added.

As for the report, Swenson feels a lot of people might be expecting USDA to make some big adjustments, but that’s more of an unknown at the moment.

“I don’t think (USDA is) going to sit and revise acres or yields down big, because the only thing they’re going off of is farmer survey revisions and overall yield has been okay,” he said. “Some are expecting there to be big adjustments this month and that just seems hardened. In our opinion, I think you have to get into March before we see them really make any big adjustments.”

Of course, one of the big things for the markets is that China and the U.S. have come to a tentative agreement on phase one of a deal to help bring the trade war to an end. China has been making some purchases, more so for soybeans at this time, and phase one is expected to show some good demand. But the fact of the matter is the deal hasn’t been signed yet, and that is expected to take place on Jan. 15. Because of that, Swenson said he doesn’t expect any adjustments to USDA’s numbers in the January report.

“There’s nothing from China in phase one that’s going to show up in the deal yet. It shouldn’t actually, because there’s no deal signed,” he said. “They’ve taken production out of exports just because of the fact we’re still in the middle of the trade war. But until they have an official, concrete (agreement), something that’s been signed, I don’t see any big adjustments.

“On top of that, I think if there’s going to be a bullish surprise hidden in (the USDA report), it’s the fact that they’re going to say we’re going to increase feed usage a couple hundred million (bushels), something like that,” he continued. “That might be where our bullish surprise lies. But outside of that, we’re not expecting much for it (in the USDA report).”

The big unknown hanging out there is what China is going to say and what the official terms are going to be behind it. And that’s creating a lot of excitement and anticipation.

“We’ve had more excitement around this than anything in a long time. It takes a lot for me to say I’m super excited about what they’re actually looking at, but if these numbers that they’re touting are true, then next year could be pretty darn interesting,” he said.

But, again, it’s not officially signed, so until it is that excitement should be tempered.

At the moment, Swenson said China is not expected to buy much corn from the U.S., but the question is if they need to buy $40 billion worth of goods they’re going to need more refined products, including more ethanol, more DDGs (dried distillers grains).

“They’ll probably take some more corn with it as they’re getting their hog production into more refined rations,” he said, adding that corn and corn products are “in this huge grey area around what officially the terms of this agreement are.”

Another unknown is what China’s actual hog numbers are. According to various sources the number has varied from 700 million head down to 200 million, from 25 percent to 40 percent.

“I think (40 percent) is the truer number,” he said. “The question is, of that 40 percent, what percent are on western rations versus slop rations? That’s the big unknown that a lot of people don’t have a handle on.

“But I think you’re going to see a little quicker rebound than people expect there. People are a little optimistic next year,” he added.

The U.S.-Mexico-Canada trade agreement (USMCA) that was recently signed in the U.S. may not have much impact on corn exports to Canada, but it should help with demand to Mexico.

“Export demand for corn I think will be pretty good. If we send more to Mexico we’ll be in good shape,” Swenson said. “China could buy a good chunk again because they don’t like buying from Brazil either. It’s cheaper to come and rail it straight down from the United States. That should, hopefully, be another record year for them.”

He also noted that Japan picks up a lot of corn and he thinks we’re going to see China moving in, even if it’s just the refined products.

“Anything related to moving corn is good,” he said.

Looking at local prices, basis around eastern North Dakota and western Minnesota was sitting at -40-60 cents under, depending on location. At one local elevator in west central Minnesota regularly followed in this column, as of Jan. 7, the January cash price for corn was $3.44 and basis was -40 cents under. June 2020 cash price was listed at $3.51 and basis was -45 cents under.

As for recommendations to producers, Swenson said this: “We’re sitting at 60 percent sold at right around a $4.10 average, and we’ve got re-ownership of about 20 percent of that and we’re content to let that sit and work, basically into the spring, and see how this China deal shakes out,” he concluded.

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