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

Posted on 12/03/2019 2:34 PM

Corn: Active March corn futures closed down 3/4 cent at $3.81 1/4. The December contract lost 1 1/2 cents at $3.72. Prices closed nearer their daily lows. It can be argued that the corn market did not fare too badly today given the keener risk-off trader/investor environment around much of the globe today. U.S. President Donald Trump is once again raising doubts about a trade deal with China anytime soon, sending global stocks sharply lower. In London, Trump told reporters that a trade agreement with China might have to wait until after the U.S. presidential election in November 2020, denting hopes of a quick resolution to the dispute which has weighed on the world economy. Selling interest in corn futures was limited today by fund covering of large net-short positions amid a drop in the U.S. dollar index and the very slow pace of U.S. harvest. USDA late Monday reported corn harvest increased five percentage points to 89% done as of Dec. 1. That was nine percentage points behind the five-year average for the beginning of December and leaves more than 9 million acres still to harvest, or about 1.4 billion bushels still in the field. USDA updates its crop production forecasts on Jan. 10. The futures market also drew some support from no deliveries against the expiring December futures, underscoring tight immediate supplies with the slow harvest and tight farmer holding of crops. U.S. corn is competitively priced on the world market and exports need to ramp up significantly to sustain any rally into the new year.  

Soybeans: January soybean futures gained 1/2 cent today to close at $8.71.  March soybean meal closed up 90 cents at $279.90 and March bean oil gained 4 points to 30.49 cents. The soybean bulls can argue today’s scant gains in futures prices were not bad given the latest downbeat global assessment of the U.S.-China trade talks. With another round of U.S. tariff increases set for Dec. 15, President Donald Trump this morning in London told reporters that a trade agreement with China might have to wait until after the U.S. presidential election in November 2020. Commerce Secretary Wilbur Ross told CNBC this morning that while there is always a chance for a breakthrough on trade with China, if there is no deal, the U.S. is prepared to raise tariffs on Chinese products again on Dec. 15. As of Sunday, USDA reported 96% of the U.S. soybean crop was harvested, up just two points from the previous week and three points behind the five-year average. More than three million acres of soybeans were left to be harvested. The weekly CFTC Commitments of Traders report showed funds in soybeans were record weekly sellers of a net 61,393 futures and options, switching to a net-short position of 42,941 futures and options, the most since September.

Wheat: Winter wheat futures fell for a second session after rising to new 5-month highs last Friday. March SRW futures fell 10 cents to close at $5.25 ¼ with March HRW wheat sinking 2 ½ cents to $4.36 ¾. March spring wheat rose 3 ¾ to close at $5.32. Russia captured 100% of today’s Egyptian tender for wheat, with exporters selling Egypt 295,000 metric tons (MT) for January shipment. SRW futures followed Paris wheat lower on the Russia sales, even though they were done at higher prices than the last Egyptian purchase. Canada releases an update on crop production Friday. Traders polled by Reuters are looking for a small increase in production from the September crop estimate of 32.491 MMT. Funds switched to a net-long position of 10,475 futures and options in the SRW market on Nov. 26, up from a net-short position of 2,049 contracts a week earlier, CFTC data on Monday showed. The relative strength of spring wheat futures and weakness in SRW futures looks like traders unwinding long SRW and short spring wheat after spring wheat traded under SRW recently.  

Cotton: Cotton futures ended 70 to 76 points lower and near session lows through the July 2020 contract. Milder losses were posted in some of the far-deferred contracts. U.S./China trade uncertainty weighed on the cotton market today. President Donald Trump said he’s not yet ready to complete a trade deal with China and raised the possibility of the trade deal being delayed until after the U.S. elections in November 2020. There were hopes China will ramp up purchases of U.S. cotton once a trade deal is reached. China is the world’s largest consumer of cotton and the U.S. is the biggest exporter.  Aside from the back-and-forth demand news, there isn’t a lot for traders to focus on. U.S. harvest continues to run slightly ahead of the five-year average, including in the top two production states Texas and Georgia. Funds mildly trimmed their net short position in the cotton market as of Nov. 29. Given a lack of fresh supportive news, funds may add to their net short stance, especially if they have technical reasons to do so. Otherwise, the fund short should limit downside risk.  

Hogs: Prices rebounded sharply after holding Monday’s lows, erasing all of yesterday’s declines. February hogs rose $2.15 to $62.50, with April gaining $1.70 to $74.275. Futures opened lower on Tuesday as comments from U.S. President Donald Trump diluted optimism around a potential breakthrough in the U.S.-China trade dispute. Trump, speaking to reporters in London, raised the possibility of the trade deal being delayed until after the U.S. presidential elections in November 2020.  Prices quickly rebounded this morning, erasing all of Monday’s declines on speculation Chinese pork imports will continue, what with high domestic prices. Increased Chinese reserves on rising imports and commercial stocks will help stave off pork price rallies ahead of the Lunar New Year holiday in late January, according to Yang Zhenhai, director of the ministry's animal husbandry and veterinary bureau. China's pork prices fell 20% in November before rising again this week as consumption increased with colder weather while supplies remained short in the world's top consumer of the meat. Pork imports will be stepped up in the fourth quarter, Yang said. If food inflation drives consumer prices up more than 4% next year and the economy slows that could become a problem for the government. CPI rose 3.8% in October as pork prices more than doubled from a year earlier.  Wholesale pork cutout value fell $1.38 on a sharp drop in belly prices. Sales improved from Monday’s slow pace.  

Cattle: Live and feeder cattle futures saw another relatively quiet day of trade, with futures bouncing on either side of unchanged before settling narrowly mixed. Traders in the cattle complex appear to be taking a wait-and-see approach early this week regarding the cash market, with December live cattle just a few bucks above last week’s cash cattle action around $118. Wintry weather and strong packer profit margins mean most expect higher trade again this week. But steer dressed weights hit their highest level in at least three years and the narrowing spread between Choice and Select boxed beef values also signals some waning in in keeping feedlots current on marketings. Nearby feeder cattle futures are trading a few bucks under the feeder cattle index, which helped that market to favor the upside today. Recent softness in corn prices and higher trade at an Oklahoma City feeder cattle auction today also worked to bulls’ advantage. Higher trade in lean hog futures added a bit of support to both live and feeder cattle futures.

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