After the Bell: USDA Boosts Global Supply Cushion Ahead of U.S. Planting Season

Posted on 03/08/2019 3:06 PM

Corn: Corn futures closed down around a penny today, hit new contract lows in the nearby May and March, and closed at technically bearish weekly low closes today.  For the week, May corn lost 8 cents.   Given the bearish attitudes and the very poor chart posture in the corn market, bulls are hoping for a short-covering bounce early next week, in a market that is arguably technically oversold. Corn traders did not get any positive news from today’s monthly USDA supply and demand report. USDA raised its corn ending stocks projection by 100 million bu. from last month and stocks came in 99 million bu. higher than the average pre-report trade estimate. For demand, USDA cut projected feed and residual use by 25 million bu. (to 7.015 billion bu.) with all of the reduction in ethanol use (now at 5.550 billion bu.). Projected exports were cut 75 million bu. from last month (now at 2.375 billion bu.) due to reduced U.S. price competitiveness and expected higher shipments from South America. USDA now projects the national average on-farm cash corn price at $3.35 to $3.75, steady on the bottom end of the range and down a dime on the top end of the range from last month. USDA weekly export sales were good this week and also included the first Chinese purchase of U.S. sorghum in many months despite prevailing tariffs. That’s one positive for the corn market. Also, the speculative funds increased their short positions to the second-highest level for this time of the year since 2016. That suggests at some point in the coming weeks those big fund shorts will have to offset their positions by buying futures, which could at least help forge a market bottom.

Soybeans: Soybean futures tried to work higher in early trade, but the market dropped ahead of USDA’s reports and extended losses following their release. Futures settled 6 to 7 cents lower on the day through the November contract and around 15 cents lower on the week. Trade news with China was negative this week, pushing futures to their lowest level since November and damaging the chart posture of the market. Momentum is down and traders crave concrete trade details and actions. In addition, Brazil’s soybean shipping season will pick up in the weeks ahead, further depressing already slow U.S. bean exports—barring a trade deal with China. Recent weeks have featured high snowfall tallies and frigid temperatures for the Midwest and that pattern is expected to persist into late March. Therefore, it is safe to say that planting delays and flooding are likely. At month’s end, USDA will release its planting intentions projections; most expect a fairly notable drop in bean acres this season. U.S./China trade relations will likely remain in focus over the next few months, with rhetoric late this week indicating that President Donald Trump and China’s Xi Jinping are unlikely to meet at the end of March, as initially planned, since a number of key hurdles have yet to be overcome. Further, U.S. Trade Representative Bob Lighthizer has signaled that negotiations will likely need to continue beyond any initial agreement.

Wheat: Winter wheat futures fell to new contract lows and rebounded slightly to close higher, while spring wheat extended weekly declines. May SRW futures rose 1 ¼ to $4.39 ½, paring the weekly loss to 17 ¾ cents. May HRW futures rose 3 ¼ cents to $4.30 ¾, paring its weekly decline to 14 cents. May spring wheat futures closed at $5.49 ¼, down 9 cents this week.  Price declines this week leave the market open for some consolidation. Much of the speculation that 2019 production will top 2018 is now factored into the market and the growing season is still ahead. With funds sitting on the second-biggest short position in winter wheat futures for this time of the year, it will take some positive news on the export front next week to sustain rallies. Weather will be the focus as U.S. and the Northern Hemisphere winter crop come out of dormancy.

Cotton:  Cotton futures finished with gains of 12 to 38 points today. For the week, May cotton futures slipped 36 points. USDA made no change to U.S. ending stocks and modestly raised its global carryover projection for 2018-19. The report was neutral and traders had an expected muted price response. Unless there’s fresh market-moving news next week, price action is likely to remain light and choppy as traders await news on the U.S./China trade front. Aside from trade happenings, the other focal point over the next month will be March planting intentions. Cotton acreage is expected to rise from last year and USDA’s March plantings estimate will give traders a benchmark from which to add or subtract from through spring based on prices and weather. China raised its 2018-19 cotton import forecast by 400,000 MT to 2 MMT. Unless the trade war with the U.S. is settled, however, Chinese buyers are more likely to secure needs with imports from India and Brazil. Longer-term price prospects are capped for cotton until China resumes active purchases of U.S. supplies, especially if acreage increases this year as anticipated.

Hogs:  Futures closed sharply higher after rising the exchange maximum $3 earlier. April hogs rose $2.825 to close at $60.55, while June gained $2.65 to $78.175.  April hogs rose to the highest price since April 12 and finished above the 40-day moving average for the first time since Dec. 13, a positive signal for additional gains next week. Higher fresh pork prices in the face of elevated production suggest strong cash markets next week.  Slaughter this week rose 5.7% to 2.548 million head this week from a year ago, USDA estimates. Wholesale pork carcass values at midday rose 63 cents as stronger ham and belly prices offset weakness in loins, butts and ribs. Movement was slow even as prices rose to the highest since Feb. 12. USDA raised its 2019 pork production forecast 90 million lbs. to 27.43 billion lbs. from a month ago. The monthly supply and demand update also cut the annual pork export forecast by 175 million lbs., but still up 255 million from a year ago. Domestic demand appears stronger than USDA may be forecasting. Pork stocks at the end of January increased less than the 10-year average.  

Cattle:  Live cattle futures closed up 85 cents in the April and up 82 1/2 cents in the June, which hit a new contract high today. Both June and April contracts closed at technically bullish weekly high closes today. For the week, April live cattle futures gained 18 cents. Feeder cattle futures ended the day up $1.75 in the April contract, at a bullish weekly high close and hit a four-month high. For the week, April feeders gained a solid $2.68. Look for some follow-through buying interest in the cattle futures markets on Monday, following today’s gains. There was good cash cattle trading activity today, at an average of $128.00. That's steady to $1.00 higher than levels steers and heifers fetched last week. Today’s monthly USDA Cattle on Feed report showed cattle held in feedlots rose 0.4% from a year ago, slightly more than the 0.2% increase expected.  Placements fell 5.3% in January as marketings of fed cattle rose 2.8%. The report is neutral and fully priced into futures. The key is keeping the beef moving higher. The premium April futures hold to cash prices and June futures will keep cattle marketings very current. USDA’s Cold Storage Report on Thursday showed that beef stocks declined contra-seasonally during January. And wholesale beef prices this week extended their rally to the highest levels since last June, boosting packer margins and allowing them to bid higher prices.

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