After the Bell: Grains, Soy Tumble on Ramped up U.S.-China Trade Spat, Improved U.S. Weather

Posted on 07/11/2018 3:09 PM

Corn:  Futures closed down 7 1/4 to 8 1/2 cents and finished near their daily lows, marking contract lows in the process. Corn futures saw strong spillover selling pressure from soybeans and wheat today, as there are renewed trade tensions with China, though the country is not a big importer of U.S. corn. There is still no serious weather threat to the U.S. corn crop, with weather forecasters calling for cooler, wetter weather in the next few days and into early next week, which is right during the critical pollination period for much of the Midwest corn crop. The high USDA corn crop condition ratings continue to embolden sellers in the corn futures market. Traders are awaiting Thursday’s monthly USDA Supply & Demand Report, which traders expect to show an increase to both old- and new-crop corn carryover from June, to 2.107 billion bu. and 1.712 billion bu., respectively. Traders will also be scrutinizing USDA’s comments on the potential impact on grain prices from the present U.S. trade war with China.

Soybeans: Nearby soybean futures gapped lower on the open and the market remained under pressure through the close. Soybeans settled just off session lows with losses around 23 cents, marking new contract lows in the process. Soymeal and soyoil futures also faced pressure, though the meal market ended with just slight losses for the day. News the Trump administration will hit $200 billion worth of Chinese goods with 10% tariffs weighed heavily on the bean market today, though this latest round of duties won’t take effect for at least two months. There is still time to avert these penalties, but the market is on edge about the trade war in general and the likelihood China will again strike back. Meanwhile, USDA will update its Supply & Demand tables tomorrow, and its projections for 2018-19 will incorporate China’s tariffs on U.S. soybeans. Therefore, there’s a lot of uncertainty about how much new-crop carryover will rise versus June.

Wheat: SRW and HRW futures fell 18 to 20 3/4 cents today. September SRW futures violated the March low at $4.75 3/4, touching a session low of $4.71 1/4, the lowest since January.  Spring wheat futures fell 8 3/4 to 12 cents. Four weeks into the new marketing year, U.S. sales are down 29% at 6.019 MMT, the lowest total to start a season in three years. Sales have been restrained as cheaper supplies were available in Russia and other origins. European wheat futures gave back all of last week’s gain today after the rally to five-week highs helped Chicago prices rebound. The 175,000 MT of wheat Russia sold to Egypt yesterday was done at prices lower than expected. China imposed tariffs on some U.S. wheat July 6 and U.S. grain may face new duties after the Trump administration threatened another $200 billion with 10% tariffs on a new list of China imports. Rising U.S. spring wheat crop conditions from USDA earlier this week have traders looking for a bigger U.S. crop in Thursday’s production forecast update. Rains this week are seen alleviating some of the dry pockets across the Canadian Prairies, increasing potential export competition for U.S. crop.

Cotton: Futures gave back most of the gains posted the first two days of this week. October futures dropped 226 points to settle at 85.24 cents, and the December contract fell 184 points to 84.54 cents. The market went reeling again today after the Trump Administration promised another $200 billion in new 10% tariffs on Chinese imports, with Beijing promising unspecified retaliation. That follows $34 billion of tariffs both nations implemented on July 6, including a 25% tariff on U.S. cotton headed to China. Today’s new list shows Washington is targeting key Chinese manufacturing industries, including textiles. That could boost demand for textile products and clothing from countries like Vietnam, Thailand, India, Pakistan, Bangladesh, and Mexico, potentially increasing U.S. cotton exports to those countries. Thursday’s export sales and shipment report will be closely scrutinized.

Hogs: July lean hog futures edged out gains of 27 1/2 cents for the day, but deferred months posted losses ranging from 97 1/2 cents to $3.475 for the day. The front-month benefitted from efforts to keep it in line with the lean hog index as the contract goes off the board July 16. But deferred months faced followthrough selling today, as news of heightened trade tensions with China again weighed on the market. Interestingly, the market has responded more so to penalties from China than from its top market Mexico, despite the fact China brings in a limited amount of high-quality pork. Supply concerns also remain a source of pressure, with traders fearing production could run even higher than USDA indicated in its latest Hogs & Pigs Report. Cash hog bids slipped again today.  

Cattle: Live cattle futures settled $1.575 to $1.60 lower through the December contract, with slightly less losses in far-deferred contracts. Feeder cattle posted losses of $2.20 to $2.625 through the October contract, with slightly less declines in far-deferred contracts. Cattle futures were hit with more fund-based and technical selling today. The big discounts nearby futures hold to last week’s cash trade did nothing to deter sellers today. But the sharp losses in futures this week strongly suggest lower cash cattle trade will be seen. The online Fed Cattle Exchange failed to produce any sales today and there has been no movement in the traditional cash market in the Plains. But after buying a lot of cattle last week, and given the sharp pressure on futures, all signs point to lower cash cattle trade compared to the $112.63 average price in the Plains last week.

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