After the Bell: Corn, Soybeans Rise on China Trade Optimism But Rally Remains Weak

Posted on 03/04/2019 2:52 PM

CornFutures enjoyed gains throughout the day, but the market finished mid- to lower-range for the day with gains of 1 to 1 3/4 cents. Comments from the Trump administration signaling a trade deal with China is getting closer lifted the corn market to start the week, especially as it may entail some big commodity buys and the lifting of Chinese tariffs on imports of some U.S. goods. Goldman Sachs said that China may be considering another $30 billion in annual purchases of U.S. soybeans, corn and rice. The latest Commitment of Traders data signals funds have the largest net short position for this time of year since 2016, signaling the fuel is there for a big rally if a spark comes in the form of a trade deal. Meanwhile, weekly corn export inspections were in line with expectations, but concerns persist that USDA may be too high with its export estimate. USDA will have a chance to update that figure Friday.

Soybeans: Nearby soybeans closed up 3 3/4 to 4 3/4 cents today and near their daily lows. Meal was up $2.80 to $3.10 in the nearby contracts and bean oil was off 13 to 15 points in the front two contracts. The soybean market did not get a serious price boost today from reports the eight-month trade war between the U.S. and China looks to be nearing an end. Grain traders are waiting for more specifics on how and when China will buy U.S. farm products given that big crop from South America are already getting harvested. This is giving the grain market bulls some pause at present. Speculative fund traders increased their short positions in soybeans more than expected in the week ended Feb. 19 and probably added to those positions last week. Funds were net-short 42,810 contracts, up from 10,038 net-short a week earlier. CFTC releases week of Feb. 26 data Tuesday and net position update for March 5 on Friday. Soybean weekly export inspections data today were disappointing, with USDA reporting 843,925 MT were inspected for export last week, down from 1.308 MMT a week earlier. That fell short of expectations. China was the destination for 337,600 MT last week, also down from the prior week.

Wheat: Futures opened higher on follow-through buying to last Friday’s strong recovery but failed to sustain gains and closed lower. May SRW wheat fell 1 ¾ cents to close at $4.55 ½ while May HRW fell 1 ¾ to $4.43. Spring wheat futures were down 2 ¼ to 9 cents.  Futures failed to hold the early gains and closed lower, making new session lows on worries about weak U.S. exports leading to higher U.S. carryover inventories this year. USDA updates its supply and demand forecasts on Friday. Funds’ net-short position in HRW wheat expanded to 30,786 futures and options in the week of Feb. 19, the most since the end of 2016. Heavy deliveries against March futures and few commercial stoppers also weighed on prices Monday. Wheat inspected for export last week fell to 440,314 MT from 767,570 MT a week ago. That was below the 600,000 to 800,000 MT expected. Wheat opened slightly firmer on speculation the drop to an 11-month low last week will spur export sales. However, in its first forecasts for the 2019/20 season, the European Commission said EU common wheat output would rebound to 140.8 million metric tons (MMT) from a drought-hit 2018-19 crop of 128.7 MMT. EU wheat exports were projected to rise to 25.5 MMT from 18 MMT this season. U. S. Senators Pat Roberts (R-Kan.) and Jerry Moran (R-Kan.) are pushing U.S. Trade Representative Robert Lighthizer to work on resolving a long-standing trade barrier for U.S. wheat shipments to Brazil.

Cotton:  Cotton opened higher and closed lower and near session lows. May cotton fell 72 points to 73.13 cents and December was down 61 points at 73.15. Prices opened higher on support from reports U.S. and Chinese negotiators were moving closer to hammering out a new trade accord China is supposedly preparing to drop its tariffs on U.S. ag commodities with a signing ceremony expected by the end of the month. China purchases of cotton could rise sharply. Goldman Sachs confirmed in an overnight note to its clients that China pledged to secure $30 billion more ag products per year on top of pre-trade war levels, which is about triple current ag trade levels. Last Thursday’s weekly USDA export sales report showed additional Chinese sales cancellations, so the market probably needs to see actual new business with China to stage a rally. Shipments were strong at 345,700 bales in the week ended Feb. 21 with the majority going to Vietnam, Pakistan and India. Prices retreated at midsession when U.S. stocks turned lower and the dollar rallied. Funds were net-short 18,854 futures and options contracts as of Feb. 19. That’s the biggest short bet since late 2013 and the most bearish position for mid-February since 2007.  

Hogs: April lean hog futures closed up 92 ½ cents and nearer the session high today on short-covering from recent strong selling pressure. The June contract finished the day down 35 cents and nearer the session low. Reports Sunday that the U.S. and China are very close to securing a trade deal that will include an increase U.S. pork exports to China helped support the futures market today. Cold weather in the central U.S., with some more snow and wintry weather on the way in the region by the end of the week are likely to support firmer cash hog prices this week. Low pork prices should help improve domestic demand, especially with beef prices at multi-month highs. Cash hog bids strengthened 33 cents on a national average basis on Friday. Wholesale pork carcass prices rose $2.09 in the noon report today, on strength in ribs, hams and bellies. Movement was decent at 140.56 loads.

Cattle: Live cattle futures finished 15 cents to $1.20 lower, as the lead April contract paced losses. Feeder cattle ended mixed with prices 2 1/2 cents lower to $1.075 higher. April live cattle futures faced profit-taking and corrective selling today, despite roughly $2 higher cash cattle prices last week and strength in wholesale beef prices. With packer cutting margins still deep in the black, there is incentive for them to keep kill lines as full as possible, opening the door for additional cash gains. But today’s price action signals traders are taking a prove-it attitude toward additional gains in the cash market, suggesting followthrough selling is possible. Unless cash fundamentals weaken or futures flash major topping signs, however, the downside should remain relatively limited. Weight data signals feedlots are current on marketings and feedlot conditions remain stressful, especially in the Midwest and Central Plains. As a result, feedlots will be reluctant to sell cattle at lower prices. That could set up an extended cash standoff if packers are unwilling to raise cash bids.

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