After the Bell: Choppy Grain Trading Session on U.S./China Trade Uncertainty

Posted on 08/27/2019 2:54 PM

Corn: Corn futures finished low-range with losses of 1 1/2 to 3 cents. Traders continue to show no concern with the delayed development of the corn crop. All premium has been removed from price, funds are moderately net short (just over 82,000 contracts as of Aug. 20) and futures are hovering just above the contract lows. That suggests near-term downside risk should be limited. But the upside is also limited until there’s a bullish catalyst. At this point, it would likely take a national average yield estimate from USDA of 166 bu. (the July projection) or lower to spark a sustained wave of buying. That might not happen until combines roll this fall. The other factor that could spark a corn rally would be an early or even normal end to the growing season. With 39% of the crop (26.1 million acres) not yet in dough stage as of Aug. 25 and 73% (65.7 million acres) not yet dented, there are a lot of corn acres that would be at risk if there’s a killing frost/freeze in September. Therefore, traders will closely monitor weather, especially with private forecasts trending cooler next month. But current price action suggests traders are not concerned. However, that could lead to a sharp reaction if the growing season isn’t extended this year.

Soybeans: Soybean futures faced pressure throughout the day and ended low-range with losses of roughly 7 to 8 cents. Soymeal and soyoil futures also ended the day in negative territory. Yesterday USDA raised the amount of soybeans it rates in “good” to “excellent” condition by two percentage points, confirming the benefit of rain across much of the Midwest over the past week. But traders ignored data from the same report reminding that the crop is far behind its usual development for this point in the season. While the bean crop may be adding to its crop potential, it will need warm temperatures, sunshine and added weeks beyond the usual first frost dates to realize that potential. Conditions this week have been on the cool side and are expected to remain so into early September. That won’t help the crop to catch up. Pressure also stemmed from the trade front as comments out of China did not confirm Trump’s assertions that Beijing was eager to return to the negotiating table. The trade war paired with reduced feed needs out of Asia due to African swine fever means that supplies are far from tight.

Wheat:  December SRW wheat closed up 1 1/2 cents at $4.76 3/4, with December HRW wheat up 2 3/4 cents at $4.04 3/4. Spring wheat futures closed mixed.  Reports said Egypt's state grains buyer, GASC, bought 350,000 MT of wheat today. The purchase was comprised of 230,000 MT of Russian, 60,000 MT of Ukrainian and 60,000 MT of French wheat, the report said. Ukrainian grain exports from seaports during the week of Aug. 17-23 remained at a high level of around 1.4 MMT, preliminary data from APK-Inform consultancy showed on Tuesday. Wheat exports rose to 1.16 MMT from 1.09 MMT the previous week, the consultancy said. European Union’s soft wheat exports in the 2019-20 season that started on July 1 had reached 2.81 million MT by Aug. 25, up 6% on last year, official data showed on Tuesday. There is a strong tendency for the world wheat market to bottom during the tail end of August or early September. But better demand and lasting dryness across the Southern Hemisphere will be needed to sustain rallies.

Cotton:  December cotton futures closed 10 points higher at 57.92 cents today but more than 150 points off the session high.  Cotton prices gave back early strong gains after U.S. stocks fell amid a further inverting of the yield curve raised U.S. recession worries, while uncertainty reigned on the progress of trade negotiations between the U.S. and China. Cotton opened higher on a larger drop in weekly USDA crop ratings released Monday after the close and building on Monday's advance, as U.S. President Donald Trump predicted another round of talks with Beijing. China's foreign ministry, however, reiterated on Tuesday that it had not received any recent U.S. telephone call on trade.

Cotton prices may languish near current levels with farmers likely to hold the fiber for higher prices and traders wait for a sign of increased overseas buying of U.S. cotton.  The underlying strength of the U.S. economy, as evidence by a smaller drop in the Conference Board’s Consumer Confidence Index amid all the trade war banter, is a positive sign for clothing demand heading into the fourth quarter and holiday shopping cycle.

Hogs: October lean hogs closed down $0.575 at $63.225 and December futures lost $0.125 at $62.90. Futures prices pulled back today on corrections from sharply higher to limit gains seen on Monday. Influential reports from China today appeared to contradict upbeat U.S.-China trade comments made from President Trump on Monday. The lack of any clear end game for the trade war continues to limit buying in the hog futures market. Still, prices are at a premium to a year ago despite record supplies. China needs record pork imports to meet domestic demand amid its significantly reduced hog herd due to African swine fever. On average, cash hog bids dropped $1.21 to start the week, though bids did strengthen 85 cents in the Iowa/Minnesota. Pork cutout value fell another 59 cents today, led lower by butts and bellies, on decent movement of 249.35 loads.

Cattle: October live cattle futures closed down $1.225 at $99.775 while December live cattle declined $1.175 at $104.80. November feeder cattle futures closed down $1.425 at $132.60. The cattle market started firmer but failed to hold early gains amid talk that packers were backing off slaughter this week despite record profit margins. Worries about how long grocers and consumers will continue to pay higher beef prices have packers curtailing slaughter to keep supplies current. U.S. consumer confidence fell less than expected in August, with households still upbeat about the labor market despite an escalation in trade tensions The Conference Board said its consumer confidence index slipped to a reading of 135.1 this month from a slightly upwardly revised 135.8 in July. The index was previously reported at 135.7 in July. Economists polled by Reuters had forecast it dropping to 129.5 in August. That’s a positive sign for domestic beef demand. Some of today’s weakness was tied to uncertainty about locking in a trade deal with Japan, the biggest buyer of U.S. beef. U.S. sales are down about 5% this year because of the U.S. pulling out of the Trans Pacific Partnership last year that maintains higher tariffs on U.S. beef than other exports of beef to Japan.

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