After the Bell: Strong Grain Rallies as Winter Storm Heads for Midwest Ahead of USDA Crop Report

Posted on 10/08/2019 2:31 PM

 Corn: Futures surged to the highest since mid-August. December corn rose 8 ¾ cents to $3.95 ¾. Futures rose on Tuesday, rebounding from weakness in the overnight session after finding technical support and refocusing on wintry weather headed for the northern Midwest later this week. Corn harvest was just 15% done on Oct. 6 and less than 60% was mature. Conditions fell last week amid too much rain and snow, adding to underlying support ahead of the USDA Oct. 10 Crop Production report.  The storm is expected to drop between six and 12 inches of snow in major crop- production states such as North Dakota, Minnesota and South Dakota, increasing risks to unharvested crops. Traders are looking for U.S. production to fall to 13.684 billion bu., down from 13.799 billion bu. forecast in September. The market has become more sensitive to any setbacks in harvest yields after the USDA put quarterly stocks of corn well below expectations in a report Sept. 30.   

Soybeans: November futures rose to the highest since July 19 before closing at $9.20 ½, up 5 ¼ cents. Prices erased overnight declines tied to increasing U.S.-China trade tension the past 24 hours as forecasts for freezing temperatures and heavy wet snow across the northern Midwest increased concerns about crop losses. Thursday’s USDA Crop Production report sees traders looking for a 50-million-bu. reduction in production to 3.583 billion bu. on an acreage reduction of 300,000 from September and a yield loss of 0.6 bpa to 47.3 bpa. The expected carryout is expected to fall to 521 million bushels, down 120 million from last month. The market focus will be on the bean pod weight which in September was historically heavy and can certainly be revised downward, making a material impact. If that’s the case, the onerous 1 billion bushels of carry-in expected just last month could fall below 500 million and suggest strong underlying support, and increases sensitivity to any extended hot, dry weather in South America that is already slowing planting and germination.

Wheat: Wheat futures rallied alongside corn today, with SRW futures hitting their highest levels in roughly two months and closing with gains of 9 ¾ to 11 ¼ cents. HRW wheat finished 7 to 8 cents higher and HRS wheat posted gains around a nickel. A winter storm is heading toward key spring wheat producing areas in the U.S. and Canada, where harvest has been stalled by wet weather and a previous snowstorm. USDA yesterday reported that as of Sunday, North Dakota had yet to bring in 10% of its crop and Montana still had 14% in the field. Temperatures are expected to plunge across the Plains with some weather watchers warning below-freezing temperatures could occur as far south as Texas. That encouraged the market to build some weather premium into the winter wheat markets as well; 26% of that crop had emerged as of Sunday. Strength in the winter wheat market today can also be attributed to spillover from the corn market, which also rallied on weather concerns and ideas USDA’s corn production estimate will decline on Thursday.

Cotton: December cotton futures closed down 51 points at 61.32 cents today. Prices closed near mid-range. The U.S.-China trade tensions appear to have ratcheted up a notch today, which was a negative for the U.S. cotton market that is seeking more business with China. U.S. and Chinese deputy trade negotiators on Monday started two days of talks aimed at paving the way for the first minister-level negotiations in months, to be held on Thursday and Friday. However, the Trump administration has just blacklisted Chinese technology giants for violating predominately Muslim ethnic minorities and added 28 companies to the “entity lists” which restrict companies from exporting American-made technology to China. The Beijing government said it would retaliate against the moves. Reports said the U.S. is also moving to limit capital flows into the China market by restricting U.S. pension funds from investing in China. The cotton market may also have been unsettled today by a charge from China that a huge amount of cotton subsidies are being provided by developed cotton-exporting members of the World Trade Organization (WTO), which "has been the crux of the cotton issue and led to global market distortion," China's ambassador to the WTO said on Monday. He said China will establish its "own cotton value chain," which suggests the nation wants to move away from the present world pricing scheme.

Hogs: December lean hog futures closed up $3.15 at $67.40 today, following a limit-down move on Monday. Today’s price action scored a technically bullish “outside day” up on the daily bar chart after prices reached a four-week low early on. Futures were supported today on short-covering amid notions U.S. pork exports could improve in the coming months, what with the African swine fever disease ravaging much of Asian’s hog population. The pork product market is off to a very good start this week as cutout value rose $2.58 on Monday and gained another 83 cents midday, on decent movement of 244.18 loads today. Cash hog prices are also firmer early this week. Gains in futures will likely be limited, however, as Monday’s big slaughter, at  489,000, matched last Monday’s big tally and topped the year-ago kill by 16,000 head.

Cattle: October and December live cattle futures ended 7 1/2 and 35 cents lower, respectively. Other contracts mildly favored the upside. Feeder cattle futures posted gains of 15 to 35 cents through the April contract. Nearby live cattle futures paused today, as traders took some profits out of the long side of the market. Traders are hopeful the cash cattle market will firm again this week, but there is some uncertainty after the average cash price jumped $2.41 last week. October live cattle ended at less than a $1 premium to last week’s average cash price, so selling pressure should be limited. Wholesale beef prices rose $1.99 in Choice cuts and 61 cents in Select cuts this morning, though movement was light at just 60 loads. The Choice/Select spread remains wide at more than $26.50, signaling feedlot supplies of well-finished cattle is limited. That should continue to keep a solid floor of support under the cash market, especially with packer margins deep in the black. That gives packers incentive to actively compete for the tight supply of highly finished cattle.

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