AFter the Bell: Corn Rebounds on Wet Weather as Beans and Hogs Fall on China Trade Tensions

Posted on 05/13/2019 2:35 PM

Corn: Today saw a strong reversal up from new contract lows. July corn rose 4 ¾ cents to close at $3.56 ½ after touching $3.43 earlier. December closed up 4 ½ cents at $3.76 ½. Futures shook off the escalating U.S./China trade tensions as traders’ attention turned to the slow U.S. planting progress. A classic setup for heavy rain begins during the May 17-21 period as numerous storm systems interact with a warm and muggy air mass. Until then, scattered showers are focused near the Corn Belt and Northern Plains throughout the week, while the southern half of the Delta and much of the central and southern Plains stay dry for 5 to 7 days, and all areas turn much warmer. Pesky, light rains will slow planting progress from Nebraska and South Dakota to Ohio this week. This wet pattern could last until early June as this pattern shift will keep pumping storms in off the west coast and that will collide with warm, muggy air in the southeast and keep the Midwest wet.Traders are looking for USDA to report corn planting to have risen to 35% completed as of Sunday, up from 23% a week ago but well below the prior five-year average near 69% done for the date. Plantings less than 50% completed by this week will cut yield potential and planted acreage this year. Near the close, Treasury Secretary Steven Mnuchin told reporters that talks are continuing with China and the administration is discussing a possible meeting. After the close President Donald Trump told reporters he has not decided whether to go ahead with tariffs on another $325 billion in goods imported from China. He did indicate he plans to meet with Chinese President Jinping Xi at the G20 meetings in Japan next month. He also said the U.S. plans to provide about $15 billion to support U.S. farmers during the trade spat.

Soybeans: Soybean futures closed down 5 to 10 1/2 cents today and set new contracts lows. However, prices did finish the day near their session highs, which begins to suggest the bears may be exhausted from the recent strong selling pressure. Tuesday’s price action will provide a better clue whether the bears have run out of gas, or not. Nearby meal futures closed right around unchanged after hitting contract lows early on, while bean oil also scored new contract lows today. The ag commodity markets accelerated lower today after China this morning announced it will be raising tariffs by 5% to 25% on about $60 billion of U.S. goods. China may stop buying ag products, according to the editor of one China publication.  Ag markets were already rattled by the failed China-U.S. trade talks last Friday. President Trump today made more blunt remarks that China needs to fall in line with U.S. demands, which are likely to create more uncertainty in the grain markets—and uncertainty is bearish for prices. The monthly WASDE report last Friday had few surprises and was viewed as another bearish signal. USDA’s old-crop soybean carryover estimate at 995 million bu. was up 100 million bu. from last month and came in 75 million bu. higher than the trade anticipated. USDA’s new-crop ending stocks projection at 970 million bu. was 60 million bu. more than anticipated. There is some drier weather forecast for the Corn Belt this week, which should allow farmers to get some field work done. Tonight’s weekly USDA crop progress report is expected to show U.S. soybean planting at around 16% complete as of Sunday, which compares to 6% last week and a reading of 35% last year.

Wheat: Wheat futures reversed course after posting losses overnight to end roughly 11 to 12 cents higher in SRW contracts, mostly 8 to 10 cents higher in HRW contracts and a penny or two higher in HRS contracts.  Seller interest dried up around midmorning in the wheat market, which sparked a flurry of corrective buying. The SRW market led the way. Given the aggressive short stance of funds and today’s high-range closes, followthrough buying is possible overnight and during Tuesday’s session. But contracts must clear today’s highs and uncover buy stops or there’s a risk traders will view today’s strength as a fresh selling opportunity. Fundamental support behind today’s corrective buying was a strong weekly export inspections figure, which at 842,418 MT was well above pre-report expectations. In addition to strong exports last week, there was a long list of countries taking shipment, suggesting the price drop is encouraging more demand. But more positive export demand news is needed to signal to traders prices have dropped far enough.

Cotton: July through October cotton futures settled at their 300-point limit lower today, and deferred months weren’t too far behind, settling 251 to 275 points lower on the day. Limits will expand to 400 points tomorrow. Recent erosion of U.S./China relations weighed heavily on the cotton market today, as existing tariffs have limited China’s purchases of the U.S. fiber. And today China responded to higher tariffs from the U.S. by rolling out a list of $60 billion worth of U.S. goods that it will hit with even higher tariffs on June 1. Negotiations between the two sides continue, but both China and the U.S. appear to be digging in, signaling talks may extend far longer than what was signaled just a few weeks ago. This afternoon, President Donald Trump did say he has not yet made a decision about whether to go forward with tariffs on another $325 billion worth of Chinese goods and he said he plans to meet with China’s president at the G20 meeting next month. He also said he plans to provide U.S. farmers with another $15 billion worth of aid. But the market wants a resolution of trade issues, not more handouts.  Meanwhile, wet weather continues for Texas. While the rain has slowed planting efforts, the moisture is still seen as generally beneficial for the crop. USDA will provide an update on planting progress this afternoon.  

Hogs: June lean hogs closed down the daily $3.00 trading limit today. July hogs were down $2.90 and hit a two-month low. The U.S. ag commodity and global stock markets were hit hard today after China announced this morning it will be raising tariffs by 5% to 25% on about $60 billion of U.S. goods. China may stop buying U.S. ag products, according to the editor of one China publication.  Ag markets were already rattled after failed China-U.S. trade talks last Friday. President Trump made more aggressive remarks today regarding China’s behavior on trade, which is likely to keep markets on edge. For the U.S. ag markets, that means limited buying interest amid the uncertainty of this matter. Aside from the overriding bearish China news, there are some positive fundamentals seen in the hog market. The noon pork report showed carcass cutout value up $1.62, led by big gains in bellies and good gains in picnics. The national average cash hog price rose 28 cents on Friday to $80.80 and up $1.86 last week. The strength in cash markets are should lend some support to nearby futures. The CME Lean Hog Index is now trending higher. USDA said last Friday that 2019 pork exports would rise 6.4% this year from 2018, up from the prior estimate of a 1.2% gain. However, much of the increase was in China buying in the second half of this year, which is now in question.

Cattle:  Cattle and feeder cattle closed sharply lower and near session lows. June cattle fell $2.70 to $109.75, with August feeders down $3.725 to $143.10. The immediate cash cattle and beef fundamentals are neutral to positive, but futures are locked into a fund liquidation sell off. Beef prices were higher on Monday at midday on moderate sales. Beef prices are at or near a bottom as warmer weather is going to start to boost beef demand.  The fear is that producers will continue to sell market-ready cattle at lower prices to curb losses. Last week’s slaughter came in at 664,000 head, the largest of the year and the largest for that week since 2010. Look for packers to continue to look to own inventory at current prices to lock in strong profit margins.  


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