After the Bell: Grains Lower as Trade Talks End and USDA Projects Larger Inventories

Posted on 05/10/2019 2:37 PM

Corn: Corn futures finished with losses of 1/2 to 2 cents in most contracts today and fell to new contract lows. For the week, July corn futures dropped 19 cents and the December contract fell 15 3/4 cents. USDA provided fresh bearish fodder for traders by projecting new-crop ending stocks at 2.485 billion bu., which was more than 350 million bu. higher than expected and would be up 390 million bu. from the current marketing year. Combined with the weekly low-range close, fresh contract lows and trade uncertainties, bears will try to press prices lower next week, especially if drier conditions last longer than next weekend as forecast. The upside will remain limited to mild corrective buying, though some short-covering is possible with funds holding a near record short position. Trade worries have overshadowed any potential concerns with the slow start to the planting season. If severe planting delays extend into late May, however, it could start to grab traders’ attention, as yield declines would become more likely and the threat of losing acres to soybeans or prevent-plant claims would rise. But given the extra cushion on projected new-crop ending stocks, corn could lose some acres and yield potential without traders getting too concerned.  

Soybeans: Soybean futures finished 1 1/2 to 3 3/4 cents lower through the March 2020 contract. For the week, July soybean futures dropped 33 cents and the November contract fell 31 cents. Soybean futures plunged to new contract lows this week. Momentum is clearly on the bears’ side. Chinese negotiators left Washington without a trade deal. Assuming the trade impasse continues next week, traders are likely to press the downside even more, as the upside is limited to modest bouts of corrective buying. The ramped-up tariffs that were enacted on Chinese goods won’t be charged for cargoes that were on the water by midnight last night. That gives negotiators two to four weeks to get a trade deal ironed out. While the clock is ticking on getting a trade deal in place, we aren’t holding our breath on a finalized deal by early June given the lengthy nature of the negotiations. The longer the negotiations drag on, the less likely it becomes there will be a rally in old-crop futures. USDA projects soybean ending stocks will remain highly elevated at 970 million bu. for 2019-20, down only 25 million bu. from the current marketing year. That assumes soybean plantings will be in line with March intentions. In reality, soybean acres will increase from March intentions, meaning ending stocks may rise from the current marketing year.

Wheat: SRW wheat futures fell 2 3/4 to 5 cents in the nearby contracts, while HRW contracts were down 10 1/2 to 11 1/2 cents. Both flavors hit new contract lows again today and also closed at technically bearish weekly low closes. For the week, July SRW lost 13 cents. July HRW was down 13 1/2 cents. Spring wheat futures for September delivery fell ¼ cent on Friday and up 3 ½ cent this week. Look for some follow-through selling pressure early next week after winter wheat traders gave a bearish read to today's monthly USDA supply and demand report. U.S. wheat production is estimated to increase 7.1% from last year, at 1.268 billion bu.—up 84 million bu. from last year, but 9 million bu. below the average pre-report trade estimate. The national average winter wheat yield is estimated at 50.3 bu. per acre, up 2.4 bu. from 2018. Old-crop U.S. wheat ending stocks were estimated at 1.127 billion bu., up 40 million bu. from April and 32 million bu. higher than the average pre-report estimate. New-crop wheat carryover is projected at 1.141 billion bu.--81 million bu. higher than traders anticipated and would be up 14 million bu. from the 2018-19 marketing year.  The charts remain fully bearish for winter wheat futures, which is also likely to continue to invite chart-based selling. Traders will also be looking to the corn and soybean markets for direction in the near term. Grain markets are likely to continue to struggle if the ongoing U.S./China trade dispute drags on. A China trade deal is important to the global wheat market because in 2001 China committed to buying 9.6 million metric tons of wheat to gain entry into World Trade Organization. Slow U.S. planting is raising expectations for acreage losses in the Northern Plains spring wheat region this year. Rain is also beginning to hurt U.S. winter wheat yield quality and yields.

Cotton: Futures prices tumbled to 1.5-year lows today to continue their steep downdraft. July cotton futures closed down 178 points, while the December contract lost 117 points. On the week, July cotton fell a whopping 728 points. Look for some follow-through selling pressure to start next week, following this week's steep drop in cotton futures. About the only hope the bulls are hanging their hat on is a market that is now extremely oversold on a short-term basis and due for at least a corrective bounce next week. Today's USDA monthly supply and demand report offered the bulls no good news. Old-crop cotton carryover was estimated at 4.65 million bales--up 250,000 from last month. USDA’s new-crop cotton ending stocks projection at 6.4 million bales was 70,000 bales higher than traders expected. Total supplies are expected to rise 3.99 million bales to 26.66 million bales. Total use is projected to rise 2.25 million bales to 20.1 million bales. Cotton is struggling in large part due to the ongoing U.S./China trade impasse. There is still risk of additional selling pressure until any trade deal is completed.

Hogs:  Futures ended mixed on Friday and lower for the week. June hogs fell 33 cents to close at $89.68 on Friday and down $3.08 for the week. October closed 35 cents lower on Friday at $84.95 and down $3.65 for the week.  Next week will be focused on any fresh trade news with China and grocer demand for pork after this week’s firm undertone failed to generate much additional business. Packer margins are thin, and futures rallies will be led by strong cash hog prices into the normal seasonal peak in July. USDA today in its monthly WASDE report raised its 2019 export forecasts 71 million pounds to 6.246 billion, with next year’s exports jumping another 430 million to 6.675 billion. That number may still prove to be light depending on the direction of trade talks with China.  U.S. President Donald Trump on Friday said he was in no hurry to sign a trade deal with China as Washington imposed a new set of tariffs on Chinese goods and negotiators ended a second day of talks to try to salvage an agreement.  China's inflation picked up steam in April, hitting its highest level in six months, due to a spike in pork prices as the country is grappling with the outbreak of African swine fever, according to official data on Thursday.

Cattle:  Live cattle futures closed higher, paring this week’s declines. June cattle closed 50 cents higher at $112.45 on Friday and down about $1 this week. October cattle jumped $1.375 to $109 025, paring the weekly decline to 65 cents. August feeders gained $2.35 today and finished up about 50 cents this week.  Cattle futures were pulled lower in early trade by weakness in other commodity and financial markets, but then rebounded. Today was just the second day out of the past 13 sessions that prices closed higher, a positive signal for next week provided the cash cattle market finds a strong bid from packers next week, after most cattle traded about $2 lower this week. Packers have been careful to keep cash bids following the lower trend in beef prices this week. Domestic sales improved at the lower prices and that is a positive sign for packers to ramp up schedules amid very profitable margins.  Weekly beef export shipments hit a marketing-year high last week, while sales were well above average.  Fundamentally, summer and fall cattle futures have fallen back to price levels that represent fair value.  


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