AFter the Bell: Grains, Soybeans Finish with Strong Weekly Gains on Supply Concerns

Posted on 06/14/2019 2:44 PM

Corn: Corn futures settled with gains of 6 1/2 to 11 cents through the March contract. July futures led gains amid bull spreading. For the week, July corn futures surged 37 1/4 cents and the December contract rallied 29 3/4 cents.  Front-month corn futures surged above the 2015 and 2016 highs on the weekly continuation chart and rallied to their highest level since June 2014. Futures confirmed an upside breakout from the bull flag formation on the daily charts. That gives funds a reason to add to long positions next week. In addition to the futures strength, basis is firming, signaling exporters and end-users are scrambling to get coverage. That adds more fire to the bullish fire. Supply-scare rallies are typically violent but short-lived. Markets have a tendency to price in a worst-case scenario and then back off. While it’s easy to sit back and wait on the market to keep rallying, especially if you are in an area that has reduced production potential this year, the strong price rally should be used to trim old-crop inventories and to price some new-crop bushels.

Soybeans: Prices closed higher and near weekly highs, forming weekly reversals to the upside. July soybeans rose 8 ¾ cents on Friday to close at $8.96 ¾ and up 40 ½ cents this week. November gained 8 ¼ cents to close at $9.23 ½, also up 40 ½ cents for the week. Futures will start firm next week if wet weekend weather is confirmed and more rain remains in the forecasts. Traders are increasingly concerned about soybean planting progress and development given the cool, wet spring. Final plant dates have already passed for some key growing areas and prices are still below the spring insurance prices, increasing the odds for growers to take their prevent-plant crop insurance option. But beans can be planted much later in the year than corn and growers have been working whenever soils were firm enough for machinery.  News on the U.S./China trade front is mixed. On one hand, the Trump administration is threatening to hit more Chinese goods with tariffs if China’s Leader Xi Jinping does not meet with President Donald Trump at month’s end. But Trump also said he had a feeling a deal could be reached. Trump may not feel like easing the pressure on China as the man on the other side of the table is facing more economic headwinds. China’s industrial output in May slowed to 5%, a 17-year low.

Wheat: Prices were mixed Friday with winter wheat closing higher and spring wheat falling. July SRW futures rose 3 cents to close at $5.38 ½ and up 34 cents this week. July HRW wheat gained 8 cents to close at $4.76 ¼, up 27 ¼. July spring wheat fell 3 cents to $5.63 ¼, down 5 ½ cents. July SRW wheat futures climbed to their highest point since December today and the market rose for a fifth straight weekly gain.  More stormy weather is likely in the Midwest and adjacent areas over the next two weeks, signaling too much moisture will remain a concern for the SRW wheat crop. Meanwhile, dryness is a growing concern in areas like Australia and the Canadian Prairies and parts of the Black Sea region. International forecasts will be closely watched next week for any moisture relief after a few showers this week provided limit benefit. Early wheat yields in Texas, Oklahoma and Arkansas are slightly better than expected to  record-large in some cases as cool/wet weather has favored crop development. There is a question of quality, so weather remains a key factor the next 30 days as harvest ramps up

Cotton: Cotton futures faced pressure for most of the day and settled low-range with futures down 52 to 83 points for the day. The front month still edged out a 41-point gain for the week, and the December contract finished 24 points higher for the week.  Cotton futures have moved sideways to lower over the past week on an apparent lack of concern about the weather. An unusually wet spring means traders’ concerns about the crop are minimal. But its worth pointing out that cotton planting was at its slowest pace on record as of last Sunday and we’re hearing reports that abandonment may climb this year as some producers have struggled to get the crop planted (and replanted) due to excessive rainfall. Harvest will bring in data as to whether the soggy spring really did up abandonment, curbing what had been projected to be a large crop.  Otherwise, weekly crop condition ratings will remain in focus.

Hogs: Hogs closed sharply lower Friday, extending weekly declines to the lowest price in two to three months. July hogs fell $2.03 to $81.35 and December hogs dropped $2.03 to $74.15. August hogs closed below the 50-week moving average for the second straight week, opening fresh downside risk next week. June futures expired at $79.375. That leaves July at a $2.50 premium to the cash index. After two days of gains, cash hog bids slipped on a national average basis on Thursday and were weaker again this morning. For futures to reverse the downtrend, cash prices need to lead the way higher. Strong midday pork prices may not last as sales were sluggish. Still, it was positive to see stronger belly and loin prices today. Packer margin held steady this week at $6.75 per head, according to HedgersEdge.com. The counter-seasonal cash market weakness reflects record slaughters and slower expansion in export sales to both China and Mexico.

Cattle: Live cattle futures finished 27 1/2 to 80 cents lower through the December contract. Feeder cattle settled 70 to 77 1/2 cents lower through the November contract. For the week, August live cattle futures firmed 97 1/2 cents, while August feeders dropped $1.725. Rising corn prices and falling cash feeder cattle prices weighed on feeder cattle this week. Live cattle futures managed corrective gains, though buyer interest was limited by a lack of strength in the cash market. Unless recent trends in these markets reverse next week, it will be difficult to trigger sustained buying, especially in feeder cattle futures. Seasonally, the cattle market is moving into a period after Father’s Day where demand typically slumps until retailers gear up for Labor Day features. But with summer-month futures trading at a sizable discount to the cash market, seasonal pressure should be somewhat limited this year. In fact, it wouldn’t surprise us to see a contra-seasonal price recovery. But the cash market must put in a low and start to strengthen before buyers actively return to futures.

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