After the Bell: Grains Rally After USDA Supply and Demand Report; Livestock Rebound

Posted on 07/12/2018 3:15 PM

Corn:  Futures favored the upside in two-sided trade today and futures were able to settle in the upper half of their daily trading ranges with gains of 5 1/4 to 6 cents. USDA’s report data favored market bulls, but the market had a relatively muted response as trade fears remain a weight across all commodity markets. USDA lowered both its old- and new-crop corn carryover estimates for the U.S. to 2.027 billion bu. and 1.552 billion bu., respectively, whereas the market had anticipated increases to both. The unexpected drop in U.S. carryover also helped global carryover to come in lighter than expected, especially for new-crop. Normally, this data set would spark a stronger move to the upside for corn. But outside of trade concerns, buying was likely also tempered by a lack of U.S. weather concerns, high corn crop ratings and a disappointing showing in today’s weekly export sales report.

Soybeans: Futures end higher after pushing to new contract lows following the release of bearish data from the USDA at midday. August soybeans rose 3/4 cent to $8.33 3/4 a bu., while November futures climbed a penny to $8.49 1/4. August meal gained 40 cents to $330.90 and August oil fell 16 points to 28.27 cents. U.S. soybean inventories were forecast to rise to the highest ever as a trade war with China, the world's largest buyer of the oilseed, will cut into exports, USDA said Thursday.  It pegged ending stocks for the 2018-19 crop year at 580 million bushels, up from its estimate of 385 million a month ago before China imposed tariffs on imports of U.S. beans. If realized, that would surpass the previous record carryover of 574 million bu. set 12 years earlier. The government cut its export projections for soybeans by 250 million bushels to 2.040 billion bu., assuming the trade sanctions will remain in place the entire marketing year. That means any deal before that time would lead to higher sales to China. What surprised the trade was a lower carryover forecast for the 2017-18 year. USDA forecast Aug. 31 stocks at 465 million, down from 505 million estimated last month and below the lowest trade estimate ahead of the report. Any soybean buyers outside of China will be sourcing from the U.S., by far the lowest cost origin in the world for shipments the next six months.  

Wheat: Winter wheat contracts ended the day near mid-range and up 7 1/2 to 13 cents. Spring wheat futures were up a nickel. Worries about major world wheat growers producing shorter crops this year offset a monthly USDA supply and demand report today that tilted slightly in favor of the bearish camp. Today’s USDA data showed all U.S. wheat production at 1.881 billion bu., which was above trade expectations of 1.858 billion bu. and compares to 1.827 billion bu. in June. All U.S. winter wheat production was forecast at 1.193 billion bu. versus trade expectations of 1.196 billion bu. and compares to 1.198 billion bu. in June. U.S. wheat carryover was pegged by USDA at 1.100 billion bu. for 2017-18-- up from 1.080 billion bu. in June; and 985 million bu. for 2018-19--up from 946 million bu. in June. For global wheat carryover USDA projected 273.5 million metric tons (MMT) for 2017-18--up from 272.37 MMT in June; and 260.88 MMT for 2018-19--down from 266.16 MMT in June

Cotton: October and December futures contracts closed locked up the 400-point daily limit today, with deferred contracts up sharply. Futures prices hit three-week highs today. A bullish USDA monthly supply and demand report gave the cotton market bulls some much-needed fuel today. On old-crop cotton, USDA cut 200,000 bales from estimated carryover from last month, dropping it to 4.0 million bales. On new-crop cotton, expected harvested acres were cut 620,000 from last month. That was partially offset by a 4-lb. increase in projected yield, pushing yield to 845 lbs. per acre. The U.S. crop is now projected at 18.5 million bales, down 1 million bales from last month. On the demand side, USDA cut 500,000 bales from expected U.S. exports (to 15.0 million bales).  For global carryover, cotton was pegged at 84.96 million bales for 2017-18--down from 88.21 million bales in June; and 77.84 million bales in 2018-19--down from 83.02 million bales in June. The bottom line for cotton today is the 5.18 million-bale drop in predicted 2017/18 global ending cotton stocks. This big reduction looks quite supportive of the outlook for cotton both domestically and globally.

Hogs: Hog futures rebounded after the recent four-day plunge. August and October gained back all of the losses sustained Wednesday, and December clawed back a large portion of yesterday’s steep drop. August futures climbed $1.625 to close at $70.425 and October rose nearly $2. Enough is enough after panic speculative and producer selling to start this week. Selling evaporated as cooler heads prevailed today on the realization that China pork trade is not going to have a major sway in overall U.S. exports. In fact, U.S. pork is now on special for other overseas buyers to swoop in for some discounts. Wholesale pork business has been robust the first three days of this week, a sign the retailers are also interested in more features. Any improvement in loin and ham demand would help to put a stronger floor in the cash hog market going into the peak slaughter this fall.

Cattle: Live and feeder cattle futures moved higher today, which was quite welcome after yesterday’s plunge. Live cattle futures settled midrange and up 82 1/2 cents to $1.35. Feeder cattle futures posted gains of 67 1/2 cents to $1.625. Live cattle futures enjoyed an upside day of trade as the market was encouraged by futures’ ability to respect support at the 40-day moving average yesterday. This spurred some corrective short-covering and fund buying today.The market also benefited from higher export forecasts from USDA for both 2018 and 2019 that reflect strong demand from Asia. In addition, beef export sales were also solid the week ending July 5, based on USDA’s Weekly Export Sales Report released earlier today. We’re still waiting for cash cattle action to get started. While lower trade is anticipated, August futures’ $7.60-plus discount to the cash index is likely overdone.

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