After the Bell: Corn, Soy and Livestock Rally on China Buying Potential

Posted on 09/10/2019 2:35 PM

Corn:  Corn futures finished high-range with gains of 6 1/2 to 7 1/4 cents through the July 2020 contract.  Traders reacted to the unexpected three-point drop in USDA’s crop condition ratings Monday afternoon with corrective gains. Reports China may follow through with more purchases of U.S. ag goods to strengthen trade negotiations allowed the market to finish high-range. That sets the market up for potential followthrough buying overnight. The drop in crop ratings and improved Chinese trade hopes were little more than reasons for traders to cover short positions as they prepare for Thursday’s September crop reports from USDA. With funds heavily short the corn market, it wouldn’t be surprising to see them cover more short positions tomorrow, especially since the corn crop estimate and new-crop ending stocks are expected to be lower than last month.  

Soybeans:  November soybeans closed up 14 1/4 cents at $8.72. December soybean meal futures gained $4.10 at $298.10. December bean oil ended up 8 points at 28.53 cents. Prices closed nearer their daily highs in all three markets. Short covering was featured today, likely due in part to upbeat comments late Monday on the U.S.-China trade talks from U.S. Treasury Secretary Steven Mnuchin. “I think the enforcement area we at least have a conceptual, an agreement on,” he told Fox Business Network. But he added that President Donald Trump has no problem keeping heavy tariffs on Beijing if a deal can’t be reached. Also positive today is USDA’s daily export sales reporting service announcing sales of 138,000 MT of soybeans for delivery to Mexico during the 2019-20 marketing year and 195,750 MT of soybean meal to Mexico.  In Brazil, significant rainfall is not forecast away from Rio Grande do Sul over the next 14 days, limiting soybean planting because widespread drought already exists.  Rains will also remain limited on dry Argentina sunflower areas, though some fell over the last 24 hours. The USDA crop condition rating for soybeans held steady last week at 55% rated “good” to “excellent.”   

Wheat:  December SRW wheat closed up 7 3/4 cents at $4.82 1/4 today, while December HRW futures gained 5 3/4 to $4.03 3/4. The SRW contract hit a four-week high today. This week’s price gains suggest the global wheat markets may be near seasonal bottoms. The market’s rally this week also comes on lower Australian crop forecasts and dry weather threatening yield potential in Argentina. Still, U.S. supplies face abundant global supply competition that will limit price upside in the coming weeks. South Korea bought 76,000 MT of various classes of U.S. wheat for delivery in December and January. France's farm ministry on Tuesday increased its estimate of the country's 2019 soft wheat harvest to 39.45 million tons from 38.2 million seen a month ago, confirming that the EU's top grain grower had gathered one of its biggest-ever wheat crops. The revised soft wheat production estimate was up nearly 16% compared with last year's volume and would be the second largest on record after 2015. The weekly USDA crop progress report saw U.S. spring wheat at 71% harvested versus 87% average for this date and there is some more rain in the forecasts later this week.

Cotton:  Cotton rose for a second day with December rising 36 points to 59.34 cents. The markets was supported by a drop in U.S. cotton crop ratings and early-harvest reports of yields coming in slightly below expectations. The rally gained steam at midsession after the South China Morning Post reported that China would consider buying more U.S. farm products during the upcoming round of negotiations in Washington next month. As part of the discussions, China has offered to buy American products in exchange for a delay in a series of US tariffs and easing of a supply ban against Chinese telecommunications giant Huawei Technologies, the newspaper said, citing sources familiar with the situation. China could also offer more market access, better protection for intellectual property and to cut excess industrial capacity, but would be more reluctant to compromise on subsidies, industrial policy and reform of state-owned enterprises.The markets also gained on hopes China’s return to the U.S. market would encourage other buyers of U.S. fiber to step in before next month to take advantage of current low prices.

Hogs: Lean hog futures reversed course from earlier sharp losses to finish higher to sharply higher. The October contract ended 12 1/2 cents higher, while the December through April contracts posted gains of 75 cents to $1.825, led by the December contract. Reports China may agree to followthrough with plans to make major purchases of U.S. ag goods fueled the impressive turnaround in the hog market today. That signals hog traders are still very much interested in the trade front, largely because the U.S. has a lot to gain if the two sides reach a trade deal. China needs pork as supplies are dwindling and it domestic prices are surging (up 46.7% last month). A trade deal would clear the way for Chinese firms to buy even more U.S. pork. Purchases are already up sharply, even with hefty Chinese tariffs on U.S. pork. But today’s buyer interest won’t last if the trade rhetoric turns less hopeful again. The cash hog market continues to weaken, with the average national direct price down another $1.36 this morning. Packers are having no problems securing needed slaughter supplies, which gives them no incentive to increase cash bids. Cash hog prices typically fall from now through midwinter as supplies build seasonally.

Cattle:  Live cattle futures closed with strong gains after falling yesterday to new contract lows. October cattle rose $1.95 to $96.15 and December gained $2.05 to $101.225. November feeder cattle rose $1.95 to $$130.70.  Cash markets traded steady to $2 weaker again today and midday beef prices were lower, with Choice down 63 cents and Select sliding 28 cents. Sales were moderately active. Feedlots continue to sell at lower money to stay current and that remains a long-term positive development for the market. The spread between Choice and Select cutouts is $24.64, suggesting Choice supplies remain very tight heading into the fall. Dressed weights rose 3 lbs. last week to 815 lbs. from a week earlier but remain 12 lbs. under a year ago. The market probably gained amid Chinese news reports saying the country would offer to buy U.S. agricultural goods in the next round of negotiations next month. That followed news that China authorized three beef production facilities in Ukraine to export and South African ramping up beef exports to China today. China's Ministry of Agriculture and Rural Affairs reported a new case of African swine fever (ASF) on a farm in the northwestern region of Ningxia on Tuesday.  China’s consumer price index (CPI) rose 2.8% over year-ago last month, driven by a 10% rise in food prices. Pork prices surged 46.7% last month as the country deals with pork shortages from ASF. prices of other meats in China also rose in August, contributing to the jump in food prices; beef, mutton and chicken prices were all up — between 11.6% and 12.5%.

Add new comment