After the Bell: Soybeans Rise on Drop in U.S. Crop Conditions; Grains Consolidate Recent Gains

Posted on 08/07/2018 3:01 PM

Corn:  Corn futures end fractionally lower and in the bottom half of the daily trading range after the overnight rally failed to take out the July 31 highs. September closed down 1/4 cent at $3.70 3/4 with December down 3/4 cent at $3.84 1/2. Market lacked fresh buying interest as much of the rally since the July lows has come on fund short covering. Wetter midday forecasts also limited buying interest ahead of the USDA supply and demand report on Friday. USDA may raise its national yield forecast to 176.3 bu. per acre from 174 bu. estimated in July, according to a Bloomberg News survey. Demand remains strong from overseas buyers. USDA reported 179,000 MT of optional-origin new-crop corn sold by private exporters to unknown destinations on Tuesday. Brazilian corn exports may total only 20 MMT in 2018, down 10 MMT from last year as shipments above that level would leave Brazil with little in reserve, a Louis Dreyfus official said today.

Soybeans: Soybean futures finished within a couple cents of today’s highs while posting gains around 12 cents. Meal futures firmed $2.60 to $3.10 through the December contract. Soyoil futures were mostly 29 to 30 points higher.  USDA’s sharper-than-expected drop in crop condition ratings Monday afternoon gave traders fuel to cover short positions in the soybean market today. USDA lowered its “good” to “excellent” rating by three points to 67%. There was also some positive demand news that aided the corrective buying. USDA announced a daily sale of 145,000 MT of soybeans to an unknown destination for 2018-19. Plus, traders caught wind that Oil World expects China to import 15 MMT of U.S. soybeans in the October 2018 to March 2019 period, as South American supplies tighten seasonally and other suppliers won’t be able to meet all of its needs. The challenge for the soybean market will be to build on today’s gains. Given rains the past two days across portions of the Corn Belt and a relatively non-threatening weather forecast, that won’t be easy. But funds may want to cover more short positions ahead of Friday’s USDA reports. Managed money accounts were short roughly 66,500 contracts of soybean futures as of July 31.

Wheat: Winter wheat futures ended down mostly 5 to 7 cents today and nearer their daily lows on some normal profit-taking from recent strong gains. Spring wheat futures closed fractionally to 4 cents lower. Some technical chart consolidation was featured today in the wheat markets, along with some position squaring ahead of Friday’s USDA monthly supply and demand report. USDA is expected to reduce its world wheat inventories figure to 254.5 MMT, down from 260.9 MMT estimated in July. The Pro Farmer-Doane estimate is 249 MMT. The lowest trade forecast calls for a cut to 245 MMT. Adverse weather throughout the growing season and at harvest has reduced France’s wheat crop. The country’s ag ministry cut its soft wheat crop estimate by 1 MMT, to 35.1 MMT, which would be down 1.5 MMT (4.1%) from last year. However, that’s still around 1 MMT to 2 MMT above move private crop forecasts, so it failed to provide lasting support today. We believe the wheat market will eventually need a dose of bullish demand news to keep upside momentum building. However, export demand for U.S. wheat has been slow to respond to deteriorating world wheat crop conditions.

Cotton: Cotton futures finished down 31 to 50 points and near mid-range today. Some mild profit-taking from recent gains was seen in relatively quiet trading today. There remain concerns about the crop in West Texas to limit the downside. However, increased trade tensions between the U.S. and China recently have capped gains in futures. The very dry West Texas cotton crop is expected to get some rains later this week, but amounts will likely vary widely and not be sufficient or widespread enough to alleviate drought in the region. Traders are unlikely to be too aggressive in either direction until they see USDA’s first survey-based U.S. cotton crop estimate on Friday. Global cotton ending stocks are at their lowest level since 2011-12 and could tighten further. Monday afternoon’s weekly USDA crop progress report showed just 40% of the U.S. crop was rated in “good” and “excellent” condition on Aug. 5, down from 43% a week earlier and 57% a year ago. The crop rated “poor” and “very poor” rose to 32% -- up two points from the previous week and more than double the 14% a year earlier.

Hogs: August lean hog futures finished 80 cents lower today, plunging to another contract low and finishing near session lows. The October and February contracts settled 25 and 5 cents lower, respectively, while the December contract ended 17 1/2 cents higher. August hogs were pressured by ongoing weakness in the cash hog market. The national average cash hog price dropped $2.13 this morning, according to USDA. Recent price action suggests the downtrend in cash prices is accelerating, which is giving traders confidence to keep selling the lead contract despite its wide discount to the cash index. August hogs ended today $8.84 below where the cash index will be quoted tomorrow (for Aug. 6). With market-ready hog numbers building seasonally, the decline in cash hog prices may persist well into fall. In fact, the cash market is tracking 2016 very closely. In that year, cash prices slid into November before bottoming. If the cash market continues to slide, it’s going to take some positive trade developments for futures to put in a low. There appears to be solid progress on renegotiating the North American Free Trade Agreement, with Mexico and the U.S. shooting for completion by the end of this month. Getting the Mexican market back fully would be price-supportive. Mexico is the top market for U.S. pork and shipments to the country plunged 15.5% in June – the first month of Mexican tariffs on U.S. pork.

Cattle: After opening steady to better both the live and feeder cattle futures tumbled in the first hour of trading before stabilizing at lower levels. Prices drifted sideways and ended in the bottom third of the daily price ranges. Live cattle settle down 32.5 cents to $1.45 through the February contract with feeders slumping $2 to $3. After a strong cash cattle trade to end last week, the market was expected to hold the $2 gains this week. Now, the trade is talking about a weaker market based on reports of larger carryover supplies from last week’s showlists and plenty of contract animals to fill slaughter needs. Midday beef prices were higher and provided only limited support with talk about a slaughter slowdown next week if beef sales don’t improve the rest of this week. Much of the selling looks like funds closing out long positions. Speculation is rising that feedyards may be less aggressive for replacements with most closeouts losing money and those placed in recent months projected to lose $50 a head.

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