After the Bell: Wheat Rebounds to End Week as Corn, Soybeans Close Mixed

Posted on 09/14/2018 2:47 PM

Corn: Corn futures finished 3/4 cent to 1 1/4 cents higher today. For the week, December corn futures dropped 15 1/4 cents. Corn futures failed to find fresh selling on dips below the July lows after USDA’s bearish production and yield estimates. While that’s encouraging for bulls for now, there’s little incentive for funds to actively cover short positions with harvest getting underway in the Corn Belt. As a result, the upside is limited and a fresh wave of seasonal-based selling is possible. History says the odds are roughly two-thirds to three-quarters that USDA’s corn yield estimate will increase again in October. In years when corn yields have risen from August to September, the average increase for October is 2.7 bu. per acre. Adding that to the current estimate would push the national average yield to 184 bu. per acre. We think that’s too high, but we didn’t anticipate a 181.3 bu. per acre yield this month, either. Despite the record corn yield and crop, ending stocks are still forecast to drop 228 million bu. and slip under 1.8 billion bu., as total supplies are forecast to decline due to lower acreage and total use is expected to grow. Once crop size is “known,” the market will refocus on demand, which is strong, and prices should stage a solid recovery.

Soybeans: Soybean futures finished out the week with losses of 2 1/4 to 2 3/4 cents through the August 2019 contract today. For the week, November soybean futures dropped 13 1/2 cents and set new contract lows. The market absorbed USDA’s record crop and yield estimates relatively well, especially considering the dip below the prior contract lows in July failed to uncover fresh selling. But with President Trump saying on Friday he favors pressing forward with tariffs on an additional $200 billion of Chinese goods and harvest picking up across the Midwest, pressure on the soybean market is not likely to ease. If support at this week’s lows falters, funds are likely to add to their short stance. History says USDA’s yield estimate is likely to rise again in October. In years when USDA has raised its yield from August to September, it adds another 0.7 bu. per acre to the tally in October, on average. That would push the national average yield to 53.5 bu. per acre. But our analysis of FSA’s certified acreage data suggests USDA’s June acreage estimate was 700,000 acres too high. USDA will begin to incorporate the FSA data into its crop estimate in October, so the lower acres could offset the anticipated bigger yield and result in little change to crop size.

Wheat: Nearby SRW prices closed up 8 1/2 to 14 ½ cents today, while the December HRW contract finished up 14 1/2 cents. Spring wheat ended about a dime. For the week, December SRW prices up 1/4 cent, while December HRW gained 1 1/2 cents. Wheat futures late this week saw short-covering support before the weekend. The late-week strength should provide at least some light support early next week. However, wheat prices will likely be a follower of the corn and soybean markets in the coming few weeks, as those major U.S. row crops enter their harvest seasons. Global wheat supplies in exporting nations remain fairly tight and major physical buyers have taken advantage of recent price weakness to step up purchases. That’s another factor favoring the bulls. However, U.S. weather leans negative, with dry conditions likely to aid winter wheat seeding after recent rain boosted soil moisture across the Plains. The U.S. export story will continue to develop in the second half of this season as other suppliers are taking advantage of their weak currencies to ship as much as possible now, suggesting U.S. supplies may become a main source for importers as the year winds down.

Cotton:  Cotton futures closed higher, paring a second weekly decline. December closed down 15 points this week at 81.84 cents a lb. Prices look poised to breakout to the downside. Selling may increase next week should December fall below 81.20 and 80.60.  USDA’s monthly Supply & Demand Report showed the U.S. crop was 447,000 bales larger than estimated in August. Even with a higher export forecast, the ending stocks are forecast higher at 4.7 million bales, or 25% of projected use. Average cash prices are seen between 70 and 80 cents, below current futures values. While global cotton inventories as a percent of use are projected at the lowest in eight years, they are higher than almost every other year since the 2010-11 season.  Stocks represent 61% of global consumption, so there is no shortage of cotton in the world.

Hogs: Nearby futures prices closed mid-range and up 25 to 77 1/2 cents, with the December contract leading gains. For the week, December hogs lost 15 cents. China reported two new outbreaks of African swine fever in the Inner Mongolia region and Henan provinces today. The virus has also recently moved into western Europe, prompting some to deem the situation a pandemic. Traders are optimistic ASF in both China and Europe will eventually translate to more pork exports for the U.S. China is home to around 55% of the world’s hog herd.  Thursday’s U.S. hog kill dropped 60,000 head from Wednesday to just 411,000 head, and down 49,000 head from year-ago as North Carolina hog-processing plants closed as a result of Hurricane Florence. Time will tell how quickly operations are able to get back to normal, but other plants are adjusting slaughter schedules to make up for downtime. Still, it’s likely to be a while before the Carolinas get back to normal hog operations. The late-week surge in the cattle markets will also provide some spillover support for hogs next week.

Cattle:  Cattle and feeder cattle jumped sharply higher to limit up today with live cattle futures rising $1.85 to up the $3 limit and feeders gaining $2.55 to $3.475. All contracts closed higher for the week with new contract highs in most deferred live and feeder contracts. Reports of higher packer cash bids on Friday should have many producers looking for more next week as most packers did not get enough bought this week. Producers will be looking for more strength next week after packers have been working with record profits for the last six months. Weekly slaughter weights fell 1 pound from the prior week compared with the average increase of 4 lbs. for the week. That confirms marketings are current and packers will have to work harder to get numbers to meet extraordinary beef demand.  Grocers have been using beef as a loss-leader to boost store traffic. They have booked beef aggressively into the fall and now packers will need to get the cattle to cover those sales. Consumers are finding jobs easily and more wages means more spending. More meals are getting consumed at home and that has also helped to boost domestic beef demand. Exports are record large so far this year and that should continue strong.

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