As countries around the world continue to use tariffs to parry, thrust and retreat in global trade war, AgMarket.Net’s Matt Bennett urges farmers to focus on fundamentals.
“From farmers’ standpoint, you don’t want to be reactionary, and you don’t want to base your marketing plans on something that’s outside your control,” Bennett said while speaking this week in Nashville during his company’s annual conference.
Farming for Profit, Not for Price opened amid a flurry of market action and reaction roiled by a tariff skirmish initiated by President Trump and rejoined by leaders of Canada, China and Mexico. Bennett’s advice: Steer around it. The government’s trade negotiations should not create a marketing emergency for farmers.
“Whether you like Trump or not, this is a negotiation,” Bennett said. “We don’t know what’s going to happen. It’s a very fluid situation. Threat of tariffs and the implementation of tariffs are different things.”
Monday’s market recovery lifted corn futures back near or slightly above the psychologically important $5 per bushel level. But it’s unclear how trade negotiations will play out, and Bennett cautioned against getting locked into a “$5 mentality.”
Instead, Bennett said, focus on the prices that drive profit for your farm.
“Profit is a function of that price, but it’s just part of it. You have to look at your profit per acre” and other financial factors, he said. “Prices don’t pay the bills. Profit does.”
A world “awash in soybeans”
Despite the market’s upswing Monday, veteran analyst Dan Basse’s longer-term outlook for grain prices is decidedly bearish.
“U.S. soybeans are looking for demand,” Basse said. “We just don’t have a demand driver for U.S. beans.”
Additionally, trade wars “are never bullish,” Basse said. “If a trade war produces some kind of deal that leads to better grain demand, that’s fine. Otherwise, I don’t see how tariffs build confidence in the U.S. or demand for ag products.”
The new demand reality is China can’t be counted on to be as big a customer as it has been, Basse said.
“If we don’t have China taking ever-more amounts of grain, we need someone else to step up,” Basse said. “Mexico has helped a little with its corn purchases. But that demand seems to be drought-related, not a structural shift in their long-term corn needs.”
A Phase 1-type of agreement with China, such as the one following the 2018-19 trade dispute, could make a difference, Basse said. “But China doesn’t seem to need that this time. Chinese farmers are now losing money producing corn. If China’s farmers are losing money that’s probably a reason why China doesn’t need corn.”
A sustained rally in corn or soybean prices is unlikely barring a weather calamity, such as a major drought in the U.S., or disruption in the Black Sea region, Basse said.
Soybean bulls could run
Additionally, Brian Splitt, a co-founder at AgMarket.Net, noted that speculators recently turned bullish on the market, with commodity funds shifting to a net long position in futures.
Soybean price charts are also flashing bullish technical signals, Splitt said, and the market appears to have priced in an outlook for ample supplies. U.S. soybean plantings may also decline as farmers plant more corn this spring.
“Momentum is firmly to the upside for the near-term,” Splitt said, referring to soybean futures. “The market has known we have a lot of beans for a long time. Something changed in January when funds decided to get long soybeans.”
Soybean fundamentals “are not bullish,” he added. “But something’s changed where funds now want to own the market. Maybe the South American crop isn’t as big as we think. We’re looking at changes in patterns and behavior.”