After the Bell: Grains, Livestock Rally on Tentative U.S./China Trade Deal

Posted on Fri, 12/13/2019 - 15:14

Corn: December corn futures expired 3/4 cent lower at $3.66 1/4. The March through December 2020 contracts posted gains of 2 to 3 3/4 cents today, though that was midrange and around opening levels. For the week, March corn futures firmed 4 1/4 cents. Today’s price action was somewhat disappointing given news of a trade deal in principle between the U.S. and China. Still, with funds short the corn market and recent price action hinting at a low, it wouldn’t be surprising to see some follow-through buying next week. But traders will likely want to see more details of the deal before they push the market solidly higher. Once the U.S./China trade deal is signed – hopefully sometime in January – attention will turn to actual sales levels for corn, ethanol and DDGs to China. Of the three, China’s need for ethanol may be the greatest, though plans for nationwide 10% ethanol use in 2020 have been scrapped. Any Chinese purchases of corn or corn-based products would be boost to demand, which is struggling.  

Soybeans: Soybeans rose to a three-week high but settled off the week’s best levels. March soybeans rose 9 cents to close at $9.21 ½ and up 17 ¾ cents for the week. Prices touched $9.31 ½ earlier today and that will be key resistance next week. March meal was down $1.20 this week, while March soyoil was up $1.37.  The U.S. and China confirmed they have reached a tentative Phase 1 trade agreement. China has agreed to buy $32 billion of additional U.S. farm products over two years as part of the deal. However, during a press conference today in Beijing, Chinese officials were extremely evasive and vague about the size of ag purchases they will buy. Traders will be watching for signs of any new Chinese purchases next week and further clarification of the trade agreement details. Aside from China news, the market will watch Monday’s NOPA crush report for direction. Traders expect the report to show record crush for November, though down slightly from October’s all-time high.  

Wheat: futures end steady to slightly higher on Friday, capping weekly gains. March SRW wheat rose 2 ¼ cents to $5.32 ½, March HRW futures ended unchanged at $4.42 ¾ and spring wheat rose 2 ¾. For the week, SRW gained 8 cents, HRW rebounded 11 ¾ cents and spring wheat jumped 13 cents. Wheat will follow corn and soybeans next week after the U.S./China trade agreement reduces some U.S. tariffs on in exchange for increased Chinese purchases of American goods. China will import more U.S. grains, China’s vice agricultural minister said today but did not elaborate.  The weakness in the dollar this week is a positive for reducing the cost of U.S. wheat to overseas buyers.  

Cotton: Cotton futures climbed to their highest level since June today in early action, but the market was only able to muster a midrange close, with futures ending anywhere from 37 points lower to 26 points higher through the December 2020 contract. Futures posted gains for the week, with the March contract rising 80 points. Cotton futures initially enjoyed followthrough buying today on confirmation from China that a Phase 1 trade deal involving ag purchases had been reached in principle. But the market backed off gains as the agreement still needs to go through legal channels and amid skepticism that China really would agree to the $40 billion in U.S. farm good purchases in the first year of the deal that U.S. Trade Representative Bob Lighthizer indicated. That would be a massive jump from the current annual record that’s just shy of $30 billion. Updates on this front, and especially any Chinese comments regarding the farm purchases, will dictate price action next week.  

Hogs: December lean hog futures expired 52 1/2 cents lower at $60.475. The February through July contracts posted gains of 85 cents to $1.60, though they ended well off session highs. For the week, February hogs firmed $1.95. Euphoria over the trade deal with China in principle fueled gains in the hog market today, as this would open the door for even more Chinese purchases of U.S. pork. But full details of the deal aren’t known yet and it hasn’t been signed, which caused futures to slip well off session highs. Attitudes toward the trade deal will guide the market next week, but price action could be volatile as traders try to sort out the details.  

Cattle: Some live cattle and feeder cattle rose to new contract highs today. February live cattle surged $2.45 to $127.55 and April futures rose $2.00 to $128.20. March feeders gained $2.80 to $146.25. The breakout to the upside should see fresh followthrough buying. Cash cattle traded steady this week, and traders will be looking for more of the same, with domestic demand still very good and likely to improve given the recent drop in wholesale prices since October. Beef prices rose $1.39 for Choice on Friday and $1.80 for Select. Beef packer margins fell to $95.75 from $171.05 a week ago, but that’s still a good profit. The U.S. and China reached a Phase 1 trade agreement that will lead to a boost in U.S. ag product imports. The deal needs to go through translations and legal reviews and may be signed in January. That could lead to increased beef sales to China.