After the Bell: Choppy but Firm Trade Ahead of USDA Report, China Talks

Posted on 10/09/2019 3:10 PM

Corn: Corn futures settled steady to 1 1/2 cents lower and low range for the day. Corn futures traded both sides of unchanged in quiet trade today. Traders were unwilling to actively cover shorts or add to long positions today, despite the winter storm that’s forecast for the western Corn Belt the next couple days. Traders appear content to see what USDA’s October crop reports have in store tomorrow morning before greatly adjusting positions. The Sept. 1 stocks number released last week will shave a good chunk off new-crop ending stocks in tomorrow’s update. The question is how much USDA adjusts its yield and crop estimates. A smaller crop estimate is anticipated, but a major reduction this month seems unlikely. Any impacts from the impending winter storm will obviously not be factored into tomorrow’s report, so traders may instantly assume the crop size will get smaller in November. It would likely take a crop estimate lower than 13.5 billion bu. and a national average yield under 166 bu. per acre to garner a strong price response. Even though we feel the crop estimate will continue to decline, we wanted to take advantage of the rally from the early September low in case there’s a bearish reaction to the report data tomorrow.

Soybeans: Soybean futures posted gains of 2 3/4 to 3 3/4 cents in most contracts today, though that was a low-range finish. Soymeal futures ended $2.60 to $3.10 higher. Soyoil futures dropped 11 to 14 points. Soybean futures built on recent price gains today on support from optimism about stronger Chinese demand for U.S. soybeans. As we reported in “First Thing Today,” China is reportedly offering to increase annual purchases of U.S. soybeans from the current 20 MMT to 30 MMT in a push for an interim trade deal. That would be about 367 million bu. of soybeans, which would have a significant impact on the new-crop balance sheet, especially since traders are already expecting USDA to cut projected ending stocks by about 120 million bu. in tomorrow’s Supply & Demand Report. Around 50 million bu. of the expected cut to ending stocks is anticipated to come from a smaller crop estimate. Keep in mind, USDA’s update tomorrow won’t include any potential damage to the crop from the impending winter storm, so traders will assume an even smaller crop estimate in the months ahead.

Wheat: December soft red winter wheat futures closed steady at $5.00 1/4 and hit a six-week high. December hard red winter wheat futures gained 3 cents on the day, to close at $4.13 1/4. Spring wheat slipped 1 ¾ to 2 1/4. Wheat futures today saw modest support from weather forecasts for a hard freeze that may extend south into Texas Thursday and Friday mornings, increasing risks for any germinated winter wheat in the Southern Plains. The northern Plains, Midwest and Canadian Prairies are set to get hit with a major snowstorm late this week. Some forecasts suggest a small band of more than 30 inches of snow from North Dakota into Canada with 8 to 16 inches of snow for much of central South Dakota north into the Prairies. That weather system and its impact on wheat will likely reduce Northern Hemisphere production, keeping a firm tone to the U.S. wheat markets. Thursday morning’s monthly USDA supply and demand report is expected to show only minor changes in both the U.S. and world ending stocks.

Cotton: Futures closed with solid gains and near session highs. December cotton rose 77 points to 62.09.  The cotton market was supported by positioning ahead of the USDA Crop Production report on Thursday and the start of high-level U.S.-China trade talks in Washington.Traders are looking for a small cut in U.S. production after conditions fell in September. That should lead to a smaller increase in U.S. ending stocks from a year earlier, but world inventories will also remain large, according to the average of traders surveyed by Bloomberg.  Sub-freezing temperatures are forecast the next three mornings as far south as Texas and that could lead to additional cuts in production in later USDA forecasts. Futures prices are also following the recent improvement in cotton basis levels, a sign that growers have little interest in selling cotton at harvest at current low prices.  

Hogs: Futures closed sharply higher but well off early-session highs. December hogs rose 2.075 to $69.475 with February rising $2.35 to $75.95. Hogs extended Tuesday’s strong reversal to the upside today on strength in cash markets and China pledging to buy more in U.S. ag products that would likely include pork to reach a mini deal. Traders were surprised that China’s top negotiator was still coming to Washington for talks after the Trump Administration blacklisting some 28 Chinese companies, discussing investment restrictions and banning travel by some of the country’s officials. The national average cash hog price jumped $2.28 on Tuesday. Wholesale pork cutout values fell for a second session but movement at midday was strong after sales on Tuesday jumped to a three-week high. Slaughter so far this week is down 5,000 head from a week ago but still up 71,000 head from a year ago.South Korea has reported another suspected case of African swine fever (ASF) on a farm in Yeoncheon, which is located north of Seoul. This would break a five-day streak without any new cases. Continued spread of ASF remains the bullish demand story for the next several years. However, some argue that strong prices around the world are high enough to help producers and countries work harder to rebuild herds. Focus will be the weekly USDA export sales report in the morning.

Cattle: December live cattle futures closed up $0.325 at $111.175 today and hit a two-month high. November feeder cattle futures gained a solid $3.00 to close at $144.25 and hit a more-than-four-month high. The cattle futures markets remain supported by the recent strength in beef trade. The Choice cutout rose $0.86 and Select fell $0.90 today, on sales of 107 loads. The spread between Choice and Select grades has widened to $28.30, suggesting very current marketings. The market is looking for another gain in cash cattle prices this week with little action reported so far.  USDA estimated dressed weights last week rose 3 lbs. from a week earlier to 821 lbs. but remain 10 lbs. below a year ago. The cattle markets also are finding support from the cold, snow and rain forecasts for starting late tonight into Saturday for the northern Plains and Midwest. Some forecasts suggest a small band of more than 30 inches of snow from North Dakota into Canada with 8 to 16 inches of snow for much of central South Dakota north into the Prairies. Such conditions will be very hard on animals, especially given the warm fall experienced so far has given them little chance to adjust to cold weather.

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