After the Bell: Positive Weekly Finish for Grain, Soybeans on Demand and Weather Uncertainty

Posted on 07/20/2018 3:20 PM

Corn: Futures prices finished up around 4 cents, near their daily highs and scored technically bullish weekly high closes today. For the week, December corn gained 15 cents. Look for follow-through buying interest in the corn market early next week, as the strong late-week finish for prices shows the most positive technical development in corn since springtime. Tempering the bullish technical developments late this week, rains moved across the Corn Belt the past 24 hours and fell on some dry areas. Temperatures will remain mild across the region next week. However, the outlook for the Midwest for August is hotter and drier.  Crop conditions typically follow soil moisture ratings. Soils are generally getting drier across the Corn Belt. As a result, it will be difficult to stop the month-long slide in crop condition ratings unless there are widespread rains that broadly recharge soil moisture. With the corn crop 63% pollinated as of July 15, crop condition ratings mean more to yield potential than earlier in the growing season. Such a scenario should also limit selling pressure in corn. Talk of U.S. corn yields easily topping last year’s record have been curtailed. USDA has forecast world corn inventories as a percent of use would fall to the lowest in 46 years.   

Soybeans: Futures ended 3 1/4 to 5 cents higher and near their session highs. Contracts also posted technically bullish weekly high closes today. For the week, November soybeans gained 31 1/2 cents. The improving technical posture for the soybean market late this week should provide some follow-through buying support early next week. Nearby futures this week rose from their lowest level since December 2008 on news of record U.S. soybean crushing and improvement in U.S. export sales. Even Argentina, the third biggest grower, bought U.S. supplies in the latest reporting week to supplement drought-reduced output. Sales to non-China buyers for delivery in 2018-19 are record large as U.S. prices are more than 20% cheaper than Brazil. All of the above suggest at least sideways price action, if not sideways to higher, in the near term. The month of August is arguably the most important growing month for Midwest soybeans. Longer-term weather outlooks call for the Corn Belt to be hotter and drier than normal in the coming few weeks. Comments from the Trump trade team this week indicating that the China situation may not be resolved any time soon is a significantly bearish element that is likely to remain in place for a while.

Wheat: It was spring wheat’s turn to lead the markets higher. September futures rose 18 1/4 cents to $5.55 and near last week’s high. SRW September futures gained 11 3/4 cents to $5.16, the highest close for the contract since June 14. HRW September futures rose 12 cents to $5.08 1/2.  The story for next week will be any further cuts in world wheat crops or increased stressful weather forecasts for U.S. spring wheat in the U.S. Northwest, Canada and Australia.  European wheat futures extended gains on Friday, with benchmark prices in Paris hitting a one-year high, as a worsening harvest outlook encouraged buying and pushed futures through chart resistance, increasing demand for competitively priced U.S. wheat. Fading expectations for the European Union harvest were adding to concerns about a sharp potential fall in production in Russia, the world's biggest wheat exporter. U.S. farmers were more active sellers on Friday’s rally and that may help to slow gains early next week. Confirmation that world wheat crops are smaller and an improvement in weekly U.S. export sales will provide support for U.S. wheat prices to catch up with the gains in European prices this month.

Cotton: Futures slumped to six-day lows, resulting in the loss of about half of last week’s strong gains. October futures fell 56 points and December lost 47 points.  For the week, December cotton futures slipped 76 points. Futures ended on the defensive today after President Trump said he was ready to impose tariffs on $500 billion of imported goods from China, escalating the trade war. That could lead to followthrough selling next week, but weather concerns in West Texas and strong export demand should provide underlying support and may spark buying. The market will be shifting to new-crop fundamentals Aug. 1 and they continue to tell a bullish story. Export sales for delivery in the 2018-19 season are up 28% from the sales pace for this year crop a year earlier and record large for mid-July, USDA data show. It looks hot and dry for the West Texas crop and even some of the rains across the South and Southeast have left a few pockets on dryness. Crop stress will be on the rise and that may add underlying support. Will the U.S. and China find common ground to ease current trade tensions or will both sides continue to ramp up tariff levies? That will be the key to prices longer-term.

Hogs: Lean hog futures dropped to new contract lows and finished 80 cents to $1.275 lower through the February contract. For the week, August hogs declined $3.70 and the October contract plunged another $4.025. More negative trade rhetoric toward China from President Donald Trump remains a source of price pressure, along with declining cash hog prices. It’s very unlikely either situation will improve next week. As a result, the hog market is at risk of additional selling pressure, despite futures being oversold. The upside will be limited to mild corrective buying.  Pork export demand remains record-strong, despite tariffs from Mexico and China. Domestic demand is also strong and should get a boost from seasonal bacon demand for BLT season. With hog slaughter expected to run 3% to 4% above year-ago through fall, demand must remain strong to keep pace with rising supplies.  

Cattle: Futures saw two-sided trade today, but the markets generally settled midrange with slight losses for the day amid some light profit-taking. But both markets posted gains for the week. October live cattle settled $1.55 higher and September feeder cattle finished $3.475 higher. Today’s Cattle on Feed and Cattle Inventory Reports came in largely as expected, which will allow the market to quickly shift its focus back to cash market fundamentals. To start the week, attention will likely be on at what price cash cattle trade gets underway. Negotiations once again stretched late into the week. A focal point of today’s Cattle Inventory report was the beef heifer replacements category. While the figure came in a point higher than expected, USDA’s call for a 2% year-over-year drop in this figure still signals cattle producers have concluded their expansion phase and are moving more heifers into feedlots. Cattle futures typically weaken seasonally in August as retailer beef buying slows and the summer grilling season winds down. We would not be surprised to see a bit of a setback over the next month after recent strength.

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