After the Bell: Wheat Soars on Fund Short Covering, Lifting Corn, Soybeans

Posted on 03/12/2019 3:26 PM

Corn: Corn futures closed higher, with new-crop futures leading today. May futures rose 3 ½ cents to close at $3.65 ½, while December gained 4 ½ cents to $3.91.  The U.S. and China may be in the final weeks of discussions to hammer out a deal to ease their tit-for-tat tariffs dispute, U.S. Trade Representative Robert Lighthizer said on Tuesday during a Senate hearing. Lighthizer and China's top trade negotiator, Liu He, spoke on Tuesday, China's state media reported, and the U.S. trade representative said during a Senate hearing that he had another call scheduled on Wednesday. "We are working more or less continuously," Lighthizer said. Traders are aware that managed money is sitting on a near-record short position for this time of the year and the perceived U.S.-China trade progress curbed new selling today. Traders argue that a US-China trade signed deal is needed to ignite a bull run. Lighthizer added that the U.S. has pursued reforms "not to hurt the WTO – but to ensure that it remains relevant to a rapidly changing world." The more than 20-cent (5%) gain in wheat futures provided solid support to the corn market. Brazilian farmers may harvest 92.807 million metric tons (MMT) of corn this year, up from 91.652 MMT projected in February and still below the USDA official forecast of 94.5 MMT. A positive factor Tuesday.  

Soybeans: Soybean futures closed up 6 1/2 to 7 cents and near their daily highs. Nearby contracts dropped to 3.5-month lows earlier today before rebounding. Soybean meal futures gained just over $1.00 in the two front months after falling to new contract lows earlier in the session. Soybean oil was up 33 points in the May contract today.  Short covering was featured in soybeans today, following recent heavy fund selling pressure. Solid gains in the wheat and corn markets also spilled over into buying interest in soybean futures today. USDA did not announce any new sales to China today in its daily reporting service allowing for a weaker reopening. However, it would not be surprising to see soybean business to China pick up significantly in the next 10 days. U.S. exporters reported the sale of 926,000 MT of soybeans to China on Monday following 664,000 MT reported sold to China last Friday.U.S. and Chinese trade representatives held more talks over critical issues in a phone call late Monday, with China’s state-run Xinhua News Agency reporting that arrangements were agreed for the “next stages” of negotiations. That is a positive sign of progress, but it may take an official date for the signing ceremony to produce more market strength. Smaller Brazilian soybean crop forecasts also supported soybean futures gains today. Brazil’s Conab revised its soybean production estimate down to 113.459 MMT, down from 115.343 MMT forecast in February and below 119.281 MMT harvested a year ago. The government agency also cut its soybean export forecast to 70 MMT from 71.5 MMT seen in February and below the 83.605 MMT last season.  

Wheat: Wheat futures finished near session highs with gains of 22 to 24 cents in SRW contracts, 19 to 22 cents in HRW contracts and 12 to 13 cents in HRS contracts. A flurry of corrective buying and short-covering propelled wheat futures more than 5% higher today. The percentage gain in SRW wheat futures was the strongest for the most actively traded contract since July 25, 2018. While we’d like to say there was a fundamental reason for today’s strong price gains, it was simply corrective in nature. Unless the price rally sparks a wave of global demand, any additional upside strength will be determined by how many more shorts funds want to cover. Given their heavily short status, additional corrective buying is possible but not guaranteed. Tenders from Algeria and Tunisia to buy wheat close on Wednesday, but unless the U.S. unexpectedly garners some of the business, the demand side of the market remains price-restrictive. While flat prices for U.S. wheat are competitive, freight has caused buyers to exclude U.S. supplies on most of the global optional origin purchases.  

Cotton: May cotton closed up 168 points at 74.87 cents today. July was up 163 points at 76.05 cents. Both contracts closed near their daily highs and closed at five-week high closes today. Upbeat trader ideas regarding a U.S.-China trade deal being finalized soon helped to support the cotton market today, as did a weaker U.S. dollar index and slightly firmer crude oil prices. Cotton bulls should not get too excited at present. The current U.S. cotton export pace is almost 11% below the prior year’s level and new sales have slowed. Additionally, the pace of weekly shipments is below the level needed to reach the USDA projection of 15 million bales. Also, world production is seen by USDA as increasing some 400,000 bales, to 118.9 million bales, and USDA lowered world consumption slightly to 123.6 million bales.    

Hogs: Lean hog futures saw two-sided trade today, but the market ultimately settled high-range and up 30 to 80 cents. Nearby contracts settled at their highest level in nearly seven weeks. Lean hog futures saw a mix of followthrough buying and profit-taking, with the former winning out for much of the day. Traders are encouraged by China’s announcement last week that it would stockpile some pork, a seeming acknowledgement of the severity of its African swine fever outbreak. Meanwhile, its hog prices have climbed to 14-month highs and are expected to continue pushing higher in the weeks ahead. Domestic market fundamentals have also improved of late, with cash hog prices strengthening Monday and again this morning and the pork cutout value jumping another $2.06 to the upside on stronger movement this morning. Pork carcass values are now up nearly $6 for the week. Slaughter continues to run ahead of week- and year-ago levels, but traders’ attention is elsewhere for now.  

Cattle: Cattle futures fell sharply lower, pulling feeders lower, too. April live cattle closed down $2.30 at $126.65, with June falling $1.575 to $118.675. May feeders closed at $146.10, down $1.35.  The rally finally confirmed signs of exhaustion today, pushing funds to exit long positions as technical support gave way. Funds were net-long more than 129,000 futures and option contracts as of March 5, CFTC data shows. They probably added to that position since then to the largest-ever long bet for this time of the year and very close to the record of more than 145,000 contracts back in September 2010. Some of the selling was also unwinding of long cattle/short hog spreads as hogs surged higher in early trading. Cash cattle fundamentals remain strong and it will take weeks for feedlot conditions to improve, and that may lead to another short-term consolidation period. Midday boxed prices continued to rise with Choice up another $1.48 and Select gaining $1.55. Movement was moderate to slow for a third day. Cash cattle trade is seen steady this week after moderately active trade volume last week. Rising packer-controlled supplies will limit strength in the cash markets.

Add new comment