After the Bell: Corn, Soy Retreat on China Trade Pessimism, Fund Selling

Posted on 11/20/2019 3:11 PM

Corn: December corn futures closed down 3 1/4 cents and hit a two-month low today. March corn fell 3 1/2 cents to $3.77 1/4 and hit a nine-week low. The lack of any new 24-hour sales today after two days of sales to unknown destination totaling 322,000 metric tons (MT) put pressure on the futures market today. Cash corn basis was steady to weak during yesterday's small rally both at domestic locations and the Gulf, which was a negative surprise. Corn Belt weather leans bearish, with some dry days ahead after storms that move through the Midwest the today and tomorrow. Brazil weather remains good, with rain likely in most areas except the northeast region. Argentina is looking for timely rain the next two weeks for crops. U.S. ethanol production rose 3,000 barrels per day, to 1.033 million barrels per day. It was the eighth straight weekly gain but remains below last year. Still, inventories of ethanol fell 471,000 barrels to 20.514 million barrels. The report was mildly bullish. December options on futures expire Friday and first-notice day for December corn is November 27. Put option sellers covering positions has likely been featured in corn futures recently. Thursday’s weekly USDA export sales report is expected to show U.S. corn sales of 400,000 to 900,000 metric tons in the 2019-20 marketing year.

Soybeans: Soybean futures enjoyed gains early in the session, but around midday the market turned down and futures ultimately settled low-range with losses of 2 to 6 ½ cents. The front-month settled at its lowest level in nearly two months. Soymeal also reversed lower and finished $1.20 to $2.30 lower for the day, while soybean oil held onto modest gains around 25 points. Soybean futures initially found support at yesterday’s lows thanks to recognition U.S. soybean prices are highly competitive on the global market and Brazil’s exportable supplies are running low. But a report from Reuters that a Phase 1 trade deal may not be completed this year caused futures to flush lower, taking out support at this week’s lows and the 100-day moving average. Funds reportedly were net sellers of around 9,500 soybean contracts today. Meanwhile, rains in Brazil and Argentina have helped speed along planting, with progress now running just a bit behind the usual pace. And more rains in the near-term forecast should get crops off to a decent start. That limited early buying.

Wheat: SRW wheat futures finished 2 to 3-plus cents higher and HRW contracts ended fractionally to around a penny higher, while spring wheat futures dropped 2 to 3 cents. Winter wheat futures weren’t impacted by reports the U.S. and China may not complete the initial phase of a trade deal this year, despite negative reactions in other markets, including soybeans. Winter wheat futures also staved off spillover pressure from the corn market. Falling crop condition ratings and technical-based selling are supportive, though they aren’t enough to sustain buyer interest if corn and soybeans continue to weaken. Weekly export sales data could impact prices Thursday, though the pre-report range of estimates from 200,000 to 500,000 MT is relatively safe. It would likely take a bullish surprise to trigger a strong price response from traders.

Cotton: December cotton fell 100 points to 63.44 cents and March futures fell 100 points to 64.22. Pessimism about reaching a U.S.-China trade deal rose and cotton prices fell. Completion of a "phase one" U.S.-China trade deal could slide into next year, trade experts and people close to the White House told Reuters today. As Beijing presses for more extensive tariff rollbacks, the Trump administration has countered with heightened demands of its own. It’s been five weeks since an initial deal was agreed to and both sides continue to throw roadblocks on completing the official wording of a deal. The next date to watch is Dec. 15, when tariffs on some $156 billion in Chinese goods are set to take effect, including holiday gift items like electronics and Christmas decorations. “If talks are really going well, that hike will be suspended," said Christian Whiton, a senior fellow for strategy and trade at the Center for the National Interest, told Reuters. Certificated stocks deliverable against the December contract rose to 65,199 bales as of Tuesday, up from 57,548 bales a day earlier and a sign of limited demand for cash cotton. On Thursday, USDA releases its weekly export sales report. Last week, sales jumped to a marketing year high of 345,100 bales and another big week of sales will be needed to slow the price erosion this week.

Hogs:  Futures ended sharply lower to near limit down in the February, April, June, July and August futures. February closed at $66.625, narrowing the spread to the cash market to about $7.50. Selling intensified today in the hog futures on speculation that the completion of a Phase 1 U.S.-China trade deal could slide into next year as Beijing presses for more extensive tariff rollbacks, and the Trump administration counters with heightened demands of its own. Trump and U.S. Trade Representative Robert Lighthizer recognize that rolling back tariffs for a deal that fails to address core intellectual property and technology transfer issues will not be seen as a good deal for the U.S., a person briefed on the matter told Reuters. After the unexpected retreat in pork cutout values Tuesday, prices came roaring back on Wednesday, up $2.93, led by strong gains in hams and bellies. Sales were moderately active. Slaughter is estimated 48,000 head larger than a year ago and adds to the worries about Chinese demand looking to non-U.S. supplies of pork and other meats. Trade on Thursday will pivot off the weekly USDA export sales report for the week ended Nov. 14.  

Cattle: December live cattle futures closed up $0.525 at $119.30 today, with February cattle gaining $0.425 at $125.475. January feeder futures closed up a nickel at $144.075. February cattle are trading at a historic nearly $10 premium to the cash market. The cash market is expected to trade steady to higher into the first quarter, but February cattle have already priced in a significant cash rally. There were reports today that cash cattle were trading at $116.00 in Kansas and Texas, amid moderate activity. Part of that expected cash strength is probably tied to hopes for increased beef sales into Japan starting Jan. 1. Boxed beef values were firmer today, with Choice up 61 cents and Select 73 cents higher on modest movement of 79 loads. The Choice-Select grade spread was at $23.42 today.Packers are still enjoying good processing margins just shy of $330 a head. In addition, herd expansion has come to an end and a downed Tyson plant will come back online in the weeks ahead. USDA Cold Storage and Cattle on Feed Reports loom at week's end.

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