After the Bell: Crude Oil Plunge Deflates Commodity Markets

Posted on 11/13/2018 2:43 PM

Corn: Futures settled near session lows with losses of 3 3/4 to 4 3/4 cents through the December 2019 contract.  Corn futures were pressured by heavy losses in the crude oil market today, which triggered a broad-based commodity selloff. In addition to the speculative selling that came with that, the sharp pressure on crude oil futures has an impact on ethanol. Lower crude oil will slow blending of ethanol. Also, ethanol margins have declined to the point where they are causing plants to slow production and could cause some plants to temporarily shutter operations if they continue to drop.  Corn export demand remains supportive, with weekly inspections at 1.137 MMT, which was near the top of the range of pre-report estimates. But with the ethanol demand concerns rising, it will be difficult for exports to excite traders enough to spur sustained buying.  

Soybeans:  Soybeans closed lower and near session lows with January settling down 5 1/4 cents at $8.78. December soymeal fell $1.80  to $303.80 and December soybean oil was down 12 points at 27.59.   January soybeans rose to the highest level since Nov. 5 overnight and then failed to make new highs when prices reopened this morning, triggering new selling.  The market got some positive export news today. USDA announced private exporters sold 276,732 MT to unknown destinations for delivery before Sept. 1. Soybeans inspected for export last week rose to 1.302 MMT from 1.244 a week earlier and above trade estimates. Argentina and Spain were the top destinations for U.S. supplies. Still, inspections since Sept. 1 are running 41.9% behind year-ago, compared with 42.3% behind last week. Weakness in Nymex crude oil, down more than 6% today and falling for a 12th straight session, also weighed on buying interest in commodities in general and pressured soybean oil as biodiesel becomes less competitive for blending. Trade remains cautious on prospects for progress in the U.S. trade talks with top global soybean buyer China. Prices earlier rose after reports that Treasury Secretary Steven Mnuchin and Chinese Vice Premier Liu He have resumed talks on trade, and a potential Washington visit by Liu is being considered before the nations’ top leaders meet later this month. However, China has indicated it wants to talk first before making a formal proposal to end the trade war. The Chinese worry that once they make a formal offer, they will lose leverage, according to Bloomberg News, citing officials in both countries.

Wheat:  Winter wheat futures bulls could not produce important follow-through buying interest from Monday’s gains and prices backed off. SRW futures were down 8 3/4 to 12 cents, while HRW futures lost around 5 ½ to 7 cents in the nearby contracts. December HRW wheat futures hit an 11-month low today. Spring wheat was down 4 ¼ to 5 ¾. The SRW futures market led the retreat today much like it led the rally Monday. Monday’s strong rally was accompanied by a large drop in open interest, signaling the buying was to cover short positions, not initiating new longs.  Weather is nipping at global production potential but not creating a big supply shortfall. And demand for U.S. wheat on the export market, while improved recently, remains tepid.  USDA said wheat inspected for export last week totaled 342,157 MT, little changed from 340,564 a week earlier. The Philippines, Iraq, Ethiopia and Brazil were the top destinations last week. Iraq is in talks with Russia regarding allowing wheat imports. Iraq generally buys from the U.S., Canada and Australia.  This follows news Monday that Russia and China are in talks about more Russian regions getting approved to export wheat to China. 

 

Cotton:   December cotton ended down 52 points at 75.86 cents a pound. Prices ended in the bottom 25% of the daily trading range and the lowest close since February.  Prices have largely ignored the smaller USDA crop production forecasts and U.S. and world reserve inventory forecasts last week, a sign of underlying weakness. Not even confirmation Presidents Trump and Xi will be holding a private meeting to discuss the U.S./China trade war at the Group of Seven confab at the end of November in Argentina has helped cotton find a bottom. The market has been pressured by funds liquidating longs amid severe weakness in global stock values the past two weeks. Crude oil prices fell almost 8% today, signaling deflation. A lack of inflation and a stronger dollar recently have put new pressure on cotton values.

Hogs:  December hogs rose 75 cents to close at $57.30 and just off session highs. February hogs rose 65 cents to $62.175.  Wholesale pork carcass values rose 85 cents to a four-day high on moderately active sales. Loins, picnics and bellies advanced, offsetting declines in hams, ribs and butts. Slaughter rebounded to 478,000 head from 477,000 a week ago. Traders are looking for a new record weekly slaughter with large Saturday plans to make up for reduced kills on Monday. Packer margins are estimated at $30.05, up from $28.30 a week ago. Crude oil prices fell more than 6% today and are now down about 9% for the year. That’s a tax cut for consumers and should provide support for stronger meat demand into year end.  December futures remain at a large discount to the cash index, even after the recent two-week drop in cash hog prices the past two weeks. With slaughter on the rise, December will struggle to gain but the discount signals limited downside risk.  

Cattle:  Live cattle futures finished up 45 cents in the December contract and gained 75 cents in the February, after hitting nine-week lows early in the session. Feeder futures were up sharply, with the January contract gaining $3.25 after hitting a four-month low early on today. Nearby live and feeder cattle contracts all scored daily bullish reversals up on the daily bar charts.  This week’s rise in boxed beef values supported cattle futures markets today, but traders continue to wait for an uptick in cash market action, tempering bullish enthusiasm. Choice boxed beef values lost 19 cents today, while Select was up $1.02, on light movement of 58 loads. If wholesale beef prices strengthen further this week, after last week’s drop, it would increase odds the cash cattle market would also firm given that packer margins are still deep in the black. Today’s losses in the corn futures market supported buying interest in feeder cattle futures.

 

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