After the Bell: Corn Extends Rally on China Purchases; Livestock Rallies Pause

Posted on 03/22/2019 2:58 PM



CornCorn prices rose a couple of cents on Friday with May futures closing at $3.78 ¾, up 5 cents this week. December corn closed at $4.00, up 4 cents this week. May stalled at its 50-day moving average today but December closed above that moving average for a second straight session.  Next week will be dominated by news from the trade talks in Beijing as the top two U.S. negotiators head for round seven of the talks to end the trade war. Any extension of the talks should be a signal that a deal is close. The market will also be waiting for the USDA’s Prospective Plantings and Quarterly Grain Stocks report. Most are looking for farmers to have told USDA they intended in early March, before the flooding, to increase corn acres at least 2 million to as much as 3.6 million acres from a year ago. The average estimate is for a 2.2 million-acre increase to 91.3 million acres, according to a Bloomberg survey. Because of the flooding and the lack of fall fieldwork, this number may get smaller by the final estimate. Traders are looking for corn stocks on March 1 to be down about 6.5% from a year ago when USDA releases its numbers next week. That’s a bigger drop than the 5% YOY decline reported on Dec. 1 because of increased exports and feed demand. Some market bulls believe if there is a surprise in the March 29 reports it will be a smaller March 1 stocks number because last year crop was smaller. USDA’s final field tests occurred in October and last year there were a higher number of unharvested fields that were damaged by late-season rain and winds.  

Soybeans: Soybean futures closed down around 6 to 7 cents in the nearby contracts, and near their daily lows. For the week, May soybeans lost 5 cents. Soybean meal futures ended the near steady in the nearbys. For the week, May soybean meal gained $4.70. Nearby soybean oil futures closed down around 50 points and hit two-month lows today.  Focus next week will be on U.S.-China trade talks and Corn Belt weather. President Trump told Fox Business Network Friday morning that U.S. trade talks with China are progressing and a final agreement "will probably happen." Asked about his previous remarks about U.S. tariffs on Chinese goods staying in place for a period, he said there was no snag in negotiations. U.S. Treasury Secretary Steven Mnuchin and Trade Representative Robert Lighthizer are due to visit China on March 28 and 29, and Trump probably doesn’t want to risk weakening the American economy ahead of next year’s election. The U.S. is likely to see "historic, widespread flooding" through May, according to the National Oceanic and Atmospheric Association's (NOAA) spring outlook.  Normal corn and soybean planting is still a few weeks away but this situation is likely to significantly impact planting of both crops.  

 Wheat: Winter wheat futures ended lower on Friday and higher for the week. May SRW futures closed at $4.66, up 3 ¾ for the week, while May HRW futures gained 2 cents to close at $4.45 this week. Spring wheat futures jumped more than 18 cents this week. The devastating flooding across the Plains and more to come allowed the spring wheat futures to lead the rally after farmers planted the smallest winter wheat acreage since 1909. On Monday, USDA releases is monthly winter wheat conditions report for March. Wet forecasts for April and widespread snow cover across the Northern Plains means it will be tough to get spring planted in a timely fashion, leading to the potential for lower acres. Traders surveyed by Bloomberg expect the USDA to say next Friday that area farmers said they intended to plant with spring wheat in early March will rise about 200,000 acres to 13.4 million this year. The other big report on March 29 is the March 1 Quarterly Grain Stocks report. Traders are looking for all wheat inventories to rise to 1.551 billion bu. from 1.495 billion bu. a year earlier.

Cotton: May cotton closed down 60 points at 76.58 cents and July dropped 46 points to 77.57 cents. For the week, May cotton gained 106 points. The cotton market bulls are working to keep a six-week-old price uptrend in place on the daily bar chart. This could invite some more chart-based buying interest next week. Attention will also be on the U.S. stock market, which hit a five-month high this week but fell sharply on Friday. More gains in equities will work in favor of the cotton futures market. The market will also be closely watching U.S.-China trade talks in Beijing next week. Weekly exports showed China bought and shipped more cotton, but overall shipments are lagging USDA’s projection. The March 29 USDA acreage report will help to determine the near-term price trend.

Hogs:  April hogs fell 27 1/2 cents and closed near mid-range. June hogs were up 70 cents and also closed near mid-range. Both contracts pushed to new contract highs today. For the week, April hogs gained a whopping $8.93. The hog market bulls had an outstanding week this week, but are they becoming exhausted? Fundamentals are still strongly bullish for the hog market but remember that futures traders factor into prices the known supply and demand fundamentals well before they play all the way out. Futures trading action early next week should provide a clue on whether there is more room to run on the upside in a lean hog futures market that has gone parabolic. The CME Group has raised margins on lean hog futures from $1,705 per contract to $1,980 per contract late this week. This may somewhat slow new speculative buying after active short covering this week.  Market expectations for strong Chinese demand for pork, due to the African swine fever epidemic, paired with a rising cash hog market have fueled the red-hot rally this week. China’s Ag Ministry on Friday urged rural governments to offer temporary subsidies to pig breeding farms and large-scale producers to help stabilize hog production, as fears grow about the impact of a severe disease outbreak on pork supplies. Official figures show the size of the country's pig herd has slumped by nearly 17%. However, some are saying that number is actually much higher. Wholesale pork carcass values rose another $1.49 today.

Cattle: Cattle futures ended mixed on Friday and up for the week. April cattle fell 17.5 cents to close at $129.725, paring this week’s gain to 62.5 cents. June cattle fell 40 cents today to close at $123.50 and up $1.575 this week. Feeder cattle closed higher for the week.  Cattle futures except nearby April all moved to new contract highs this week on support from China acknowledging its African swine fever outbreak is much worse than they have let on in the past, and a second week of large Chinese purchases of pork despite tariffs of 60% on U.S. shipments. The talk of the herd down at least 20% has the potential to change the global meat supply and demand balance as China may also need to buy more beef and chicken to prevent a sharp increase in food prices. Domestic demand remains good but has slowed with the jump in wholesale prices the past three months. Cash cattle traded $1 to $2 higher Friday before the USDA Cattle on Feed Report, which turned out to be slightly bearish. Total cattle on feed rose 0.7% to 11.796 million head on March 1 from a year earlier, above the 0.4% decline expected. Placements last month rose 2.2% from a year ago when traders were looking for a 3.8% drop.  

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