After the Bell: Solid Recovery After Early Steep Drop on Crop Production Uncertainty

Posted on 08/05/2019 2:47 PM

CornCorn futures settled 3 3/4 to 5 3/4 cents higher through the July 2020 contract and near session highs. Corn futures were pressured overnight and through early morning trade by Chinese trade concerns. But the market reversed course midmorning and extended gains into the close amid corrective buying. Whether the high-range close triggers followthrough buying overnight will largely depend on this afternoon’s crop progress/condition data and update U.S. weather forecasts. Traders have shown limited concern with dryness across areas of the Corn Belt, as crop condition ratings have been relatively stable. But with much of the crop pollinating or filling grain, traders should start to pay more attention to any moisture stress. With that said, traders may be hesitant to add new long positions ahead of USDA’s Aug. 12 crop reports, which will feature the first survey-based crop estimate. A wide range of views on acreage, yield and crop size may keep traders relatively conservative.

Soybeans: Soybean futures closed steady to fractionally higher today but in the upper half of the day’s trading range. Prices hit 10-week lows early on. Soybean meal closed up $2.50 in the nearby contracts and soybean oil down around 45 points in the nearby contracts. Soybean traders got another dose of bearish news from China to start the trading week, but the high-range close after early losses hints bears may be exhausted and prices now could trade sideways into next Monday’s key USDA monthly supply and demand report. The Chinese government has asked its state-owned enterprises to suspend purchases of U.S. ag products after President Donald Trump ratcheted up trade tensions with the Asian nation last week, people familiar with the situation told Bloomberg. However, China's state planner said Monday that 2 million metric tons (MMT) of U.S. soybeans destined for China will be loaded in August, according to state media, as it dismissed claims that China has not been purchasing U.S. agricultural products. Traders are also looking for mixed U.S. soybean crop conditions in tonight’s weekly USDA report, with some improvement in areas that got rains and further erosion in the dry eastern areas.

 Wheat: Wheat futures saw wide-ranging trade today, facing pressure during the overnight session but working higher during the day. SRW settled 3 ¼ to 3 ¾ cents higher, HRW posted gains of 4 ¼ to 5 cents and spring wheat futures ended split with nearby futures up slightly and deferred months fractionally lower. Wheat futures took their cue from the corn and soybean markets today, dropping during the overnight session but working higher after those markets also climbed back into positive territory. Gains were impressive considering dramatic losses in the equity sector today amid fears about what the latest escalation of the U.S./China trade war might mean for the global economy. Fresh fundamental news was fairly limited today. The ag consultancy IKAR trimmed its Russian wheat crop estimate to a still-solid 75.5 MMT, and a recent frost/freeze event had limited impact on the country’s wheat crop. USDA is not expected to make big changes to either its U.S. or global wheat crop estimates next week.

Cotton: Cotton prices closed lower but off session lows. December futures closed 94 points at 58.48 cents. As U.S./China trade war developments continued to escalate cotton prices pushed lower to start this morning.  The Chinese government reportedly asked its state-owned enterprises to suspend imports of U.S. ag products after President Donald Trump ratcheted up trade tensions with the Asian nation last week, people familiar with the situation told Bloomberg News. Then China let the yuan breach the key 7-per-dollar level for the first time in more than a decade, in a sign Beijing might be willing to tolerate more currency weakness that could further inflame a trade conflict with the United States. Prices also drifted lower amid rising U.S. crop forecasts as weather continues to support yields and reduced abandonment in Texas.  

Hogs: October lean hogs closed up $1.70 at $67.425 today and finished near the daily high after dropping to a 12-month low earlier today. Today’s high-range close suggests the bears are now exhausted after a strong two-week downside assault on prices. Some decent follow-through buying interest in the next couple days would strongly suggest a market bottom is in place. Short covering in the lean hog futures was featured today. A solid jump in pork cutout value to start the week also supported the futures price recovery. Wholesale pork cutout value was up $2.36 today, led by a whopping $21.41 jump in bellies. The strong gains in bellies hint that a seasonal downturn in pork product prices during August may not be the case this year. Still, the futures downdraft recently halted the cash market rally last week, and it may take time to see significant cash market strength after China last week canceled prior pork import orders for both 2018 and 2019.  U.S./China trade war developments continued to escalate. The Chinese government reportedly asked its state-owned enterprises to suspend imports of U.S. ag products after President Donald Trump ratcheted up trade tensions with the Asian nation last week, according to Bloomberg News. Then China let it currency, the yuan, breach the key 7-per-dollar level for the first time in more than a decade, in a sign Beijing might be willing to tolerate more currency weakness that could further inflame a trade conflict with the U.S. Yet, the hog futures market rallied today, suggesting the bearish U.S.-China trade war may have negatively impacted the hog market as much as it can, as the situation has been factored into futures prices.

Cattle: Live cattle closed mixed to higher and feeders staged a strong rebound from early losses. October live cattle fell 42.5 cents to $107.40 with December up 12.5 cents at $111.90.  November feeder cattle rose 67.5 cents to $139.10 after touching $135.025. Cattle followed the rest of the commodity and stock markets sharply lower this morning, only to reverse course at midsession.  Aug live cattle futures’ low today was 450 points below last week’s high and almost $9 below last week’s 5-area negotiated cash average, which was above the prior week and the prior year.  Packers need to continue to replenish inventories and supplies of market-ready cattle in the north are tight.  Most impressive about today’s rally is that stocks continued to make new lows this afternoon and cattle were rebounding. Mild weather continues to support active consumer grilling demand for beef. At midday, Choice was unchanged at $214.74 after rising $2.03 last week and Select gained another $1.02 today after rising $2.29 last week

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