After the Bell: Grains, Soy Consolidate Before USDA Report; Hogs Rally Sharply

Posted on 08/09/2018 3:35 PM

Corn: Futures finished around 2 cents lower, which was near mid-range for the day. Corn futures faced a little profit-taking today as traders prepared for Friday’s USDA reports. That will provide traders with USDA’s first survey-based assessment of the crop. The average pre-report estimate from a Reuters survey expects the initial corn yield to be pegged at 176.2 bu. per acre, up from the July trendline projection of 174.0 bu. per acre. A figure under the average trade estimate would likely be bullish, especially if USDA trims global ending stocks. We believe the market has priced in a yield of 178 bu. per acre, so anything above that would likely be bearish. More light and choppy trade is likely ahead of Friday’s 11 a.m. CT reports. Weekly corn export sales were solid at 554,500 MT for 2017-18 and 657,700 MT for 2018-19, but fell within the range to trade estimates and failed to provide a price spark. While global corn and other feedgrain supplies are tightening, there hasn’t been a panic reaction from global end-users. If the U.S. crop size is smaller than expected, that could spark some panic buying.

Soybeans:  Futures contracts finished down around 6 cents and in the bottom third of the daily price range today. November beans closed down 6 1/2 cents at $9.04. Soybean futures saw some selling pressure today on position evening ahead of Friday morning's USDA monthly supply and demand report that will show the first field-based estimate on U.S. production. Showers in parts of the Corn Belt this week may have stabilized or improved some crops despite remaining dry Midwest pockets. Also bearish for beans today was more harsh anti-U.S. rhetoric coming from China. China state media accused the U.S. of a “mobster mentality” in its move to implement tariffs on China goods and warned Beijing will fight back. U.S. soybean exports remain strong. Combined weekly export sales of old- and new-crop soybeans were 954,300 MT, at the top end of trade estimates. Net sales of old-crop soybeans were 421,800 MT, about 5 times larger than normal for the week. Weekly soybean meal shipments totaled 255,600 MT, more than double normal shipments. However, many traders are looking for rising U.S. and world ending stocks projections in USDA’s report on Friday.

Wheat: Wheat futures finished mostly 1 to 3 cents lower in HRS contracts, while winter wheat futures ended mostly 4 to 6 cents lower. The wheat market is starving for some positive demand news that signals end-users are more aggressively coming to the U.S. for supplies as global crop shrink. Unfortunately, this morning’s weekly export sales data didn’t provide the needed spark. Export sales for the week ended Aug. 2 totaled just 317,100 MT. It’s probably going to take an export sales figure of 800,000 MT to 1 MMT to get traders excited enough to push the market the next leg higher. Strategie Grains slashed its European Union (EU) soft wheat crop estimate another 4.7 MMT amid what it labeled “catastrophic” yields in northern Europe. The consulting firm now estimates the 2018 EU soft wheat crop at 127.7 MMT, which would be down 14.1 MMT (9.9%) from last year. There are also crop concerns in the Black Sea region, Australia and Canada. But global crop woes have mostly been factored into the market unless USDA’s cut to global ending stocks is greater than expected in Friday’s Supply & Demand Report. The average pre-report estimate from a Reuters survey puts global ending stocks at 256.42 MMT, down 4.46 MMT from last month. Our estimate is 249 MMT.

Cotton: Futures closed narrowly mixed with October down 13 points and December futures rising 8 points. Widespread rains the next several days are expected to revive any cotton not already damaged in parts of Texas. Rains are also headed for parts of the Mid-South.

Traders are looking for production to slip to 18.39 million bales in USDA’s first survey-based estimate of the crop Friday, down from 18.5 million projected in July.  Today’s weekly export sales report implies old-crop shipments ended near 15.85 to 15.95 million bales, below the USDA’s estimate last month of 16.2 million. So there could be a cut in tomorrow USDA update. Sales for the 2018-19 season are up 39% from a last year’s new-crop pace in early August.  Traders are looking for no change in USDA’s new-crop export forecast for 15 million bales. The current pace of business implies something closer to 15.5 million.

Hogs: October lean hog futures closed up their $3.00 daily limit today, scoring a technically bullish key reversal up on the daily chart. The December and February contracts ended just shy of limit up. The daily price limit for Friday expands to $4.50. Heavy short-covering and perceived bargain buying were featured in the lean hog futures market today. It's likely that the heavily short speculative fund traders are starting to bail out of their positions. If prices trade firmer at the opening Friday morning, look for funds to exit more short positions. Also, a solidly higher close on Friday would be a clue the hog futures market has finally bottomed. Another week of good U.S. pork export sales were reported by USDA this morning -- 16% above the prior four-week average. There is also more positive talk about completing a U.S.-Mexico framework for a revamped North American Free Trade Agreement.The pork cutout value rose a solid $2.14 this morning, with gains in loins and big gains in bellies. Movement was solid at 150.69 loads. But the cash market continued its plunge, with the average cash bid dropping another $2.17 this morning.

Cattle: Live cattle futures and feeder cattle futures closed lower for third time this week. Live cattle ended 70 cents to $1.95 lower and near session lows. Feeder cattle posted declines of 72.5 cents to $1.30 through the January contract. Live cattle futures tumbled after opening steady to slightly firmer as cash bids from packers and wholesale beef prices weakened at midmorning. Cash trading was reported at $109 today in the Midwest, down from some early week bids around $112.50 and down from the $114 packers paid to end last week. Packers look ready to recoup all of last week’s lost margins. It doesn’t look like they are having a problem keeping the lines active as slaughter rose to 477,000 the first four days of this week, up from 472,000 last week and 468,000 a year ago. Weekly export beef sales were strong in the week ended Aug. 2, up 15% from the prior 4-week average. Part of the selling in live cattle today was unwinding of long cattle/short hog spreads as hogs rose their daily trading limit.

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