After the Bell: Trade Optimism Rally Loses Momentum Ahead of the Weekend

Posted on 02/01/2019 2:20 PM

Corn: Corn futures closed up 1 1/2 to 2 1/2 cents today and near mid-range. For the week, March corn lost 2 cents. This was another choppy and sideways trading week in the corn futures market. Look for more of the same early next week. The market did not sustain much support from the positive progress this week on reaching a U.S/China trade deal, which included China pledging to some corn. USDA on Thursday released the delayed weekly export sales data for the week ended Dec. 20, confirming that business for U.S. corn was strong. Sales from back in December were 1.699 million metric tons (MMT), compared with 1.974 MMT a week earlier and 1.0 to 1.5 MMT forecast by traders. Cold weather will increase demand for corn in feed rations during February. Firming interior basis bids suggest tightening available supplies and a smaller 2018 crop. USDA updates its crop supply and demand table on Feb. 8. Most look for a cut in the size of the corn crop. The size of the cut is key to February price direction given a larger than normal number of U.S. acres that have not been committed to a crop for 2019.  

Soybeans: March soybeans rose 2 ¼ cents on Friday to close at $9.17 ½, making new session lows into the closing bell. Prices touched $9.31 ¼ earlier and ended 8 cents lower for the week. March did close above the 40-week moving average and remains in a well-defined uptrend from the September lows.  Disappointing price action today may put initial pressure on soybeans next week unless the daily USDA export sales reporting service confirms new business a few times next week.  March soybeans reached seven-week highs on China’s pledge to buy 5 million metric tons (MMT) of U.S. soybeans, a similar amount to the 5 million they agreed to buy when the trade truce was signed Dec. 1. Unconfirmed trade talk this morning signaled state-led buyers bought 1 MMT for April to July delivery. Now the key is whether those beans go into state-owned reserves or are crushed into meal and oil, curbing demand for Brazil imports. But even if a full trade deal follows to lift tariffs, the fear is that U.S. shipments may not return to the 30 MMT level seen in recent years. The focus next week is the Feb. 8 USDA final 2018 crop production forecast and update U.S. and world supply and demand projections. Smaller U.S. and Brazil crops are expected after the Jan. 11 updates were delayed by the government shutdown. That should put a floor under prices after a weaker start.  

Wheat: Wheat futures closed higher and near session highs, outperforming both soybeans and corn on Friday. March SRW wheat was up 7 ¾ cents to close at $5.24 ¼ and March HRW gained 9 ¾ cents to settled at $5.08 ¾. Spring wheat added 3 ¾ to 6 cents.  HRW outperforming SRW wheat today was a positive signal. Rallies will be led by HRW prices.  SRW did close above its 100-day moving average and March HRW came up a little short to send out a strong new buy signal.  On Feb. 8, the USDA will release its global supply and demand updates and the annual Winter Wheat Seedings report. Traders are looking for acreage to be down 200,000 to 500,000 acres from a year ago and near a new record low. Too much rain slowed corn and soybean harvesting and prevented some acres from getting planted.  U.S. wheat is competitive on the world market and as delayed USDA export sales are released over the next month, market bulls expect to see confirmation of that improvement. While crops in Europe and the Black Sea region have benefitted from rain and snow the past month, supplies in both regions are depleted and U.S. will gain market share until harvesting begins in June and July.  

Cotton: Cotton futures prices closed down 69 to 76 points in the nearbys, near their daily lows and finishing with technically bearish weekly low closes in the nearby contracts. For the week, March cotton lost 44 points. Given the late break in prices today, look for some follow-through selling pressure in the cotton futures market on Monday morning. Traders will be placing bets ahead of the National Cotton Council’s annual planting survey set for release Feb. 9. U.S. cotton sales for 2018/19 jumped to 373,100 running (500 pound) bales during the week ended December 20, which represented a marketing-year high. The shipments figure at 207,100 bales seemed supportive as well, although the 2019/20 sales figure at just 4,000 bales was disappointing. The cotton market is going to need more impressive weekly export sales data for prices to sustain an uptrend. China is fast-tracking a new foreign investment law that will ban forced technology transfer and illegal government "interference" in foreign business practices. Normally such a law would take a year or more to pass, but it's expected to be enacted in early March, signaling major concessions by Beijing to get a trade deal with the U.S. That’s positive news for the cotton market.

Hogs: Hogs closed mixed Friday and lower for the week, extending a two-month decline. April hogs fell 10 cents to $60.125. Futures fell $2 this week, touching the lowest since mid-August. All the premium injected into the market after the discovering of African swine fever in August has been erased. With Chinese pork prices falling as fast as U.S. prices, the trade does not expect much activity from China imports until at least the second half of 2019. Look for prices to remain under pressure next week as hogs backlogged by the cold weather this week that slashed weekly slaughter will keep pressure on pork and cash prices. Midday pork prices fell $1.35 at midday Friday to $66.70, the lowest since Nov. 20. Ribs fell $10.92 today but it is the $32 drop in belies since mid-January that has hurt cutout values. Bacon demand is likely to improve storage incentives for summer BLT sandwiches. This week’s progress on U.S./China trade talks included a new Chinese commitment to buy 5 million metric tons of beans, but no mention of pork.  

Cattle: February live cattle closed up 87.5 cents at $125.65 today. The April and June live cattle contracts finished up 20 to 37.5 cents. For the week, April live cattle fell by 30 cents. Feeder cattle futures closed down 7.5 cents in the March and down 27.5 cents in the May. Look for some technical selling pressure to emerge early next week, following the big and bearish “key reversal” down on the daily bar chart that occurred on Thursday. The pattern does suggest a near-term market top is in place, from a chart perspective. Also negative for cattle futures heading into next week, Choice grade beef prices were solidly lower again Friday after big losses Thursday. After hitting a two-month high earlier this week, the Choice grade cuts have slumped sharply. Arctic cold continues to hurt weight gains and a return to warm temperatures will likely turn frozen feedlots into mud next week. This has been one of the worst winters for feeding cattle in many years and that will remain a positive factor for prices.  

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