After the Bell: Grains, Soy Finish Strong; Hogs Rise Exchange Limit

Posted on 03/15/2019 2:49 PM

Corn: Corn futures closed higher, reaching new weekly highs late in the session on Friday. May corn closed up 3 cents at $3.73 1/4 on Friday and was up 9 cents for the week. December corn closed at $3.96, up 7 ½ cents for the week.  After falling to new contract lows to start this week, prices closed higher. It was not a clean upside reversal as prices failed to climb above last week’s high. But the market went from opening steady to higher and closing lower to opening steady to weak and closing higher this week. If corn continues to find underlying buying on setbacks, the market should continue to work higher into the March 29 USDA Acreage report. Both sides this week talked about progress toward reaching a U.S/Chinese trade deal in the weeks ahead. The end of the annual gathering of leaders in Beijing for their policy summit included new rules for opening China’s market to foreign investment, protection of intellectual property and prohibits the forced transfers of IP from foreign firms to enter the Chinese marketplace. That could be a positive step in the negotiations Coming into the week funds held their largest net-short position in corn for this time of year since 2016. Much of this week’s rally came as fund managers lifted some of that short position,  

Soybeans: Nearby soybean futures finished up 10 3/4 cents today and closed at technically bullish weekly highs. For the week, May soybeans gained 14 1/4 cents. Soybean meal futures gained just shy of $5.00 a ton in the front two months today and closed at weekly highs. Nearby soybean oil futures lost around 15 points today. Look for some follow-through technical buying interest on Monday morning, following the bullish weekly high closes in soybeans and meal futures today. Focus will continue on the back-and-forth between the U.S. and China as their trade talks move into the late stages. At some point—likely sooner rather than later—posturing and rhetoric will have to become a formal agreement. Grain market bulls remain skeptical and will not get too excited until a signed agreement occurs. Extreme flooding in many parts of the Midwest is already leading to discussion regarding intended planted U.S. corn and soybean acres. The wet, cold weather the past few weeks has many in the trade thinking of possible corn-planting delays, which could mean more soybean acres planted. But it is still early.  

Wheat: SRW wheat futures finished 8 to 9 cents higher, HRW contracts ended 6 to 7 cents higher and HRS futures closed around a penny higher. After dropping to new lows early this week, futures rebounded to post solid gains. For the week, May SRW futures firmed 22 3/4 cents, May HRW futures rallied 12 1/4 cents and May HRS futures rose 3 1/4 cents. Late-week price strength in the wheat market was tied to fund short-covering. With funds still heavily short the winter wheat markets, additional corrective buying is possible next week. But it may take a bullish catalyst for sustained fund buying. Without that, traders could view the corrective rebound as a fresh selling opportunity. Reports out of Ukraine signal the country has nearly exhausted its exportable supply of milling wheat. Russian wheat exports have also slowed. But there are still plentiful exportable supplies in other major exporting countries. While U.S. wheat is competitive on a flat price, freight costs are limiting purchases by global end-users. And any extended strength in wheat futures would quickly make U.S. wheat uncompetitive.

Cotton: Nearby cotton futures ended the day up 115 to 120 points and near their weekly highs. For the week, May cotton gained 223 points. The strong finish to the week and near the weekly high suggest some follow-through buying interest will enter the cotton market Monday morning. Money managers are holding the largest net-short futures position for this date since CFTC data began. That suggests those shorts are going to have to cover (buy back) their positions, and likely sooner rather than later. Both sides continue to report progress in Sino/U.S. trade talks. China has suggested any stand-alone trip to the U.S. to announce a trade deal would need to be coupled with a formal state visit instead of a simpler signing ceremony when trade negotiations end. China’s central bank has recently moved to stimulate the economy by easing monetary policy and lower taxes. This could well lead to more consumer demand for cotton, including increased U.S. imports.  U.S. exporters sold 166,100 bales in the week ended March 7, including 49,500 bales sold to China.  Sales increased from 114,028 sold a week earlier. Cotton sales and shipments through last week were still 12% behind a year ago and slightly behind the pace to reach USDA’s forecast for the marketing year.

Hogs: Lean hog futures shot higher this week and the market capped off its impressive run with a limit-higher close across the board, with some deferred contracts notching new contract highs. The April contract ended $8.25 higher for the week, with June up $8.35. The daily trading limit will expand to $4.50 on Monday. The lean hog market has had a dramatic reversal of fortune over the past week as recognition that African swine fever in China has its hog sector in turmoil, presenting opportunity for U.S. pork producers. Funds’ heavy short position provided fuel for a strong rally. Futures are now in overbought territory based on the 14-day relative strength index, but momentum is clearly still on bulls’ side.  Gravel roads in the Midwest are a mess, slowing the movement of hogs to market. This week’s kill is estimated at 2.452 million head, a 3.3% decline from last week and up only 1.4% from year-ago levels. Slaughter has been running more than 5% higher than a year ago recently. These logistics struggles along with China’s historically large U.S. pork buy last week have helped cash prices to strengthen over the past week. While the transportation issue will eventually be sorted out, China’s pork needs will remain a source of support.  

Cattle: Most cattle futures surged to new contract highs on Friday. Feeders followed to new four-month highs before closely slightly lower for the week. April cattle futures rose $1.70 to $129.10 but still ended down 57.5 cents for the week. June jumped $1.575 to $121.925, reaching a new high at $122. May feeder cattle rose $2.10 to $148.45. Lean Hog futures have led the way higher this week in the livestock markets, helping cattle recover from early week losses to rise to new highs. Hogs rallied at least $8 in a week on speculation that the U.S. will ship hefty amounts of pork to China to help cover their loss in pork resulting from reduced production due to African swine fever. Cattle fundamental news was slow with mixed beef prices at midday today on light sales. Demand has been sluggish for the past two weeks and will need to improve to keep cash bids steady next week after dropping about a $1 this week. Slaughter this week is estimated at 593,000, compared with 603,000 last week and 601,000 last year.  April cattle futures closed at about a $1 premium to the cash cattle high for 2019, more than $2 above this week’s bids. Packers are operating with $100 profit per head and have room to raise bids. But beef prices have stalled and usually decline into April so packers may reluctant to follow the strength in futures.

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