After the Bell: USDA Delivers a Friendly Supply Story For Corn and Soybeans

Posted on 10/11/2018 3:20 PM


Corn: Corn futures jumped higher after the bullish USDA monthly supply and demand update at mid-morning, with prices reaching the highest since August 23. December corn gained 6 ½ cents to close at $3.69 1/4, after earlier touching $3.73. Corn futures were supported by USDA’s estimate for 2018-19 carryover at 1.813 billion bu., up 39 million bu. from last month, but 106 million bu. below the average pre-report trade estimate. The lower-than-expected carryover is the result of the smaller-than-expected U.S. corn crop estimate and a 75 million bu. increase in exports. USDA lowered its corn crop estimate by 49 million bu. from last month, with the figure coming in 94 million bu. less than traders anticipated. USDA bucked the tendency to increase its October corn yield estimate in years when it has risen from August to September. USDA’s October corn yield estimate at 180.7 bu. per acre is down 0.6 bu. per acre from last month. USDA’s objective yield data showed a slight reduction in the number of ears per acre, though they still would be record-large. The implied ear weight increased modestly from last month and would be record-high. This U.S. production forecast may come down a bit more after recent adverse weather across both Midwest and the Southeast. World corn carryover was raised 2.3 MMT, to 159.3 MMT from a month ago--very close to trade estimates. Still, global inventories before the 2019 harvest will be down nearly 20% from a year ago. With U.S. corn the cheapest to deliver, that’s why USDA raised its U.S. corn export forecast. Total global use this season is seen rising 4.1% to a new record.

Soybeans: Soybean futures settled around 7 cents higher and nearer their daily highs. Soybean meal was up $1.30 to $1.80 in most contracts, while soybean oil futures were up 9 points in the December contract and down 23 points in the March. Soybean traders gave today’s USDA October Crop Production Report a slightly bullish read today. The U.S. soybean crop estimate declined 3 million bu. from last month and came in 43 million bu. under the average pre-report estimate. The national average soybean yield was increased 0.3 bu. from last month to 53.1 bu. per acre. However, harvested acres were cut 514,000 from the previous estimate. Today’s USDA report likely caught some of the yield impacts from inclement weather across the Corn Belt and South. But impacts from recent heavy rains and snow across the Corn Belt and hurricane/tropical storm damage in the South and Southeast won’t be factored in until the November Crop Production Report. Soybeans were also supported by a Wall Street Journal report that the White House was moving ahead with plans for President Donald Trump and China leader Xi Jingping to talk at the Group of 20 meetings at the end of November in Argentina. On the other hand, drier Corn Belt weather forecasts limited gains today, as soybean harvesting activity may resume by the weekend.  Very shaky world stock and financial markets are injecting some uncertainty into the grain markets, which could further limit buying interest in the grains until the stock and financial markets settle down.


Wheat: Wheat futures firmed in the immediate aftermath of USDA’s reports, before settling back to finish narrowly in negative territory. SRW and HRW wheat finished low-range and down 1/4 to 2 1/2 cents for the day. The HRS wheat market posted losses of 2 1/4 to 4 1/2 cents, which was just off session lows. Today’s batch of USDA reports was far friendlier for the corn and soybean markets than it was for wheat, but wheat futures briefly got caught up in the post-report move to the upside. However, recognition that USDA’s report contained little friendly news for the wheat market eventually caused prices to move back into the red. USDA raised its 2018-19 wheat carryover projection 6 million bu. more than anticipated to 956 million bu. on a combination of a bigger crop, higher imports and a decrease in feed and residual use, among other factors. On a more positive note, the department’s global wheat carryover projection for 2018-19 came in lighter than expected at 260.18 MMT, with USDA lowering its 2018-19 production estimates for Argentina, Australia and Russia.  But until smaller global crops translate to improved demand for the U.S. grain, buying interest in futures is likely to remain limited.

Cotton: Cotton futures settled 1 to 13 points higher in nearby contracts and near mid-range. Today’s bearish USDA cotton numbers were offset by concerns about recent weather-related damage to the U.S. crop. Today’s USDA’s cotton crop estimate increased 81,000 bales from last month. Traders had anticipated a 162,000-bale decline. USDA increased the national average yield by 6 lbs. to 901 lbs. per acre. That more than offset a modest 29,000-acre cut to harvested acres from last month.  USDA increased its Texas yield by 22 lbs. per acre and its Georgia yield by 34 lbs. per acre. Cotton carryover is estimated at 5 million bales, up 300,000 bales from last month. Total supplies are up 80,000 bales for the 2018-19 marketing year on the increase in the crop estimate. On the demand-side of the new-crop balance sheet, USDA cut estimated exports 200,000 bales from last month, to 15.5 million bales. Unaccounted “use” was also cut 20,000 bales, to 170,000 bales.USDA now puts the national average on-farm cash cotton price for the 2018-19 marketing year at 69 cents to 77 cents, down a penny on the bottom of the range and down 3 cents on the top of the range from September. Hurricane Michael made landfall near Panama City, Florida, yesterday with sustained wind speeds of 155 miles per hour and a category 4 designation. It was the strongest hurricane to hit Florida on record and the strongest system to hit the U.S. since 1969. Damage to the cotton crop in the storm’s path is likely, especially in southern Georgia.


Hogs: Lean hog futures closed lower and in the bottom third of the daily price range. December futures settled down $1.525 at $54.425 and February was down $2.10 to $63.425. Hog futures continued their recent retreat after reaching a three-month peak a week ago and running out of fresh fund buying interest. A bounce-back on Friday toward the middle of this week’s range would likely slow or halt this corrective decline. Hog slaughter rebounded after a couple of days of unplanned slowdowns at southeastern plants. The noon USDA pork report showed carcass cutout value up 11 cents, led by gains in bellies, butts and loins. Pork business was slow and that contributed to weakness in the futures today. The recent strong surge in prices may have priced some pork cuts out of domestic meat case spotlight, especially with the weakness in chicken and beef prices recently. USDA raised its 2019 U.S. pork export outlook 85 million pounds from last month’s projection. Exports are now seen rising 211 million lbs., to 6.2 billion lbs. from a record 5.989 billion projected for this year.  After a slightly smaller expansion in the quarterly hog herd inventory report in September, USDA trimmed its expected 2019 pork production increase.  The result of better demand and smaller supply was a smaller USDA cut for average 2019 hog prices. In addition, USDA raised its 2018 price outlook $2.10 from last month’s forecast after the recent strong rally in cash pigs.

Cattle: Live cattle futures finished narrowly mixed, ranging from 20 cents lower to 55 cents higher through the June contract. Feeder cattle also ended mixed and from 62 1/2 cents lower to 82 1/2 cents higher through the March contract. Nearby futures were firmer, with deferred contracts under pressure in both markets.  Nearby live cattle futures were supported by news of cash cattle trade around $111 in the Southern Plains. That would be about steady with last week’s cash trade and slightly better than traders anticipated. That was enough to encourage traders to maintain the premium nearby contracts hold to the cash market. October live cattle futures ended today at $112.625. USDA lowered its 2018 beef production forecast as fourth-quarter slaughter is expected to be lower than previously anticipated. However, it raised its beef production outlook for next year. This helped encourage the bull spreading in futures today. The export forecasts for 2018 and 2019 were unchanged, despite the record pace of shipments that is running stronger than USDA’s outlook.

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