After the Bell: Soybeans Fall on Record U.S. Carryover Forecast as Wheat Jumps on Shrinking Global Supply

Posted on 07/13/2018 2:48 PM

Corn:   Futures lost about a nickel today and around 20 cents this week, scoring new contract lows on Thursday. December futures traded inside of Thursday’s reversal up session, not a good technical sign after failing to hold above $3.60 yesterday and matching that resistance in overnight trading. December finished down 4 1/2 cents at $3.54 3/4, and down 18 1/4 cents for the week. It will be all about the weather, with some forecasters today talking about a big warm up after next week’s rain and cooler temperatures. Coverage and amounts from weekend and early-week thunderstorms will be closely scrutinized. Look for Monday’s weekly crop progress report to show a drop in U.S. crop ratings after this week’s hot, dry weather across the belt. USDA is forecasting smaller U.S. and world corn inventories and the market is trading about 40 cents lower than a year ago. That’s a huge incentive for overseas buyers to lock in prices. On July 12, USDA cut its 2017-18 corn ending stocks projection to 2.027 billion bushels, below the low end of market forecasts, also due to increased export demand. For perspective, a year ago USDA was forecasting carryover at 2.3 billion bushels. USDA pegged 2018-19 domestic corn ending stocks at 1.552 billion bushels, near the low end of market forecasts and down from its June projection of 1.577 billion bushels. It boosted its corn export outlook by 125 million bushels to 2.225 billion bushels but lowered the forecast for ethanol use. Exports may be understated by 200 to 300 million, enough to offset higher U.S.  yields the market has already factored into current low prices.

Soybeans: Futures finished down 14 1/2 to 16 cents, hit new contract lows and scored technically bearish weekly low closes today. For the week, November beans lost 60 1/4 cents. Soybean prices continue to get hit hard by the double-barrels of trade-war worries and generally very good growing weather in the Corn Belt. At present, soybean traders are acting like there is no end in sight to the U.S./China trade conflict. And while some farmers in the northern Corn Belt are worried about wet field conditions, and there is some dryness in the southern Belt, the continued strong soybean crop ratings are still giving traders no reason for concern. Weather forecasts for the region call for cooler temps and rain in the coming days, including precip for the dry southern areas of the Belt. President Donald Trump, who earlier this week threatened 10% tariffs on another $200 billion of Chinese goods, said late this week he is confident of a happy ending to China trade conflict. “Right now, we’re in a pretty nasty trade battle, but I think ultimately that will work out,” he said. Also, a leading Washington-based China expert predicted there could be a deal by mid-August that would allow Trump to declare victory in his trade dispute in China. If this scenario plays out, soybean prices will find their bottom in the next few weeks.

Wheat: Winter wheat futures finished with gains of 10 to 12 cents today, while spring wheat ended narrowly mixed. For the week, September SRW wheat dropped 18 1/4 cents, September HRW futures declined 21 1/4 cents and September spring wheat futures slumped 26 1/2 cents. Support for wheat futures is limited to global production declines, as many of the major exporting countries are dealing with adverse weather. That support is limited, however, especially if the corn and soybean markets continue their sharp declines. If wheat is going to build on the late-week price rebound, corn and soybeans likely need to forge lows and also work higher. USDA’s first other spring wheat crop estimate at 614 million bu. could increase if weather in the Northern Plains remains generally favorable. Traders will look to the Wheat Quality Council HRS tour July 23-26 for additional guidance on the size of this year’s spring wheat crop. Unless demand improves, any increase to the spring wheat crop would add to projected new-crop ending stocks.

Cotton:  Cotton futures finished 34 to 70 points lower today, though that was midrange. For the week, December cotton futures strengthened 341 points. USDA’s sharp cut to U.S. and global new-crop cotton ending stocks clears the way for futures to build on this week’s corrective gains. But as was seen today, the road higher likely will be met with some setbacks. The clock is ticking on finishing old-crop sales, however, so be prepared to sell the final 5% if the market fails to see followthrough buying. West Texas has received some rains recently, but dryness remains a concern. Forecasts for the next two weeks call for scattered rains, but high temps. As a result, net drying is expected, which will keep stress on the crop. USDA’s first survey-based cotton crop estimate comes Aug. 10.

Hogs: The August contract was down 27 1/2 cents, while October and December futures finished up $1.35 to $1.65, respectively, today. For the week, December hogs were down $4.40. While the cash hog market slipped this week as wholesale pork values fell and hog futures tumbled on heavy speculative selling, it now looks like a temporary selling exhaustion will halt the declines. Deferred futures contracts are at a sharp discount to the Lean Hog Index, which should continue to support corrective buying in those contracts next week. But don't look for a strong rally in hogs in the near term. Estimated pork packing margins softened this week, which will limit packers’ willingness to bid aggressively higher for market-ready supplies for the time being. Look for the recovery in the lean hog futures market to continue in the coming weeks. On Thursday, USDA sent a signal to the speculative trade to ease up the selling by forecasting no reduction in current pork export forecasts after reviewing China tariffs. And trade relations seem to be improving with Mexico, the biggest U.S. pork importer.

Cattle: Live cattle futures closed lower Friday and in the middle of this week’s lower trading ranges. August futures closed down 47 1/2 cents at $104.55, down $1.825 this week and the lowest close in four weeks. Feeder cattle end mixed, with August down 30 cents and deferreds slight higher as weaker corn prices spurred some demand. August feeders were down $1.475 this week.  On July 20, USDA releases its July 1 Cattle on Feed and semi-annual Cattle Inventory report. Cattle futures have fully factored in rising on-feed numbers, so the market will be taking its cue from the cash trade that has yet to get started; packers were bidding lower and finding little producer selling interest. They may have to come back with some better bids next week. Slaughter is estimated at 650,000 head this week, up from 624,000 last year and at the top end of trade ideas. Cattle and beef markets are in the middle of the summer doldrums. Still, there were some signs of hamburger interest last week in the wholesale market that may help to put a floor under the market. Steak demand was seasonally weak. The beef market should soon reach a low after the steep drop in values since May.

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