After the Bell: Grains, Soy Rebound, Paring Weekly Losses in Consolidation Trade

Posted on 08/16/2019 2:56 PM

CornDecember corn futures closed up 9 3/4 cents today at $3.80 3/4. Prices closed near the daily high. For the week, December corn still lost 37 cents. After plunging more than 45 cents early this week, corn prices late this week saw some short covering on ideas the market was overdone on the downside. Funds have liquidated most of their net-long positions and are now net short.  Monday’s USDA supply and demand report that still left many traders with lingering questions regarding this year’s U.S. corn and soybean acreage and production potential makes next week’s annual Pro Farmer Midwest Crop Tour even more important. We will gather samples from seven Corn Belt states next week. USDA’s August crop estimate did not include objective field samples this year – just farmer surveys and satellite imagery. That means the Pro Farmer Crop Tour will provide the first broad field samples of the crops this year. Even with the larger U.S. corn crop, world inventories are forecast to fall 6.4% from this year. When combines get rolling this fall, producers and traders will get a better feel for U.S. corn production this year because of the lateness of planting.  

Soybeans: Soybeans closed higher, paring weekly declines. November soybeans were up 9 cents to $8.78 ¾ and down 12 cents this week. Soybean meal futures rose about $3 today and oil gained about 6 points. After holding support this week, the market will key off weekend rainfall amounts and coverage and field measurements from the annual Pro Farmer Midwest Crop Tour that kicks off Monday. Look for more consolidation after a slightly smaller USDA crop forecast offset sluggish export demand. China can do without supplies from the United States in the fourth quarter and can rely on imports from South America instead, said Zhang Liwei, a senior analyst at the China National Grains and Oils Information Center. China's Commerce Ministry said earlier this month that Chinese companies had stopped buying U.S. farm products in the latest escalation of the trade war between the world's two largest economies. China was reportedly buying Brazilian cargoes for fall delivery this week.  The markets did find light support from a strong crush last month. The NOPA U.S. soybean crush in July topped most trade estimates and surged from a 21-month low in June to the sixth highest for any month on record.

Wheat: Wheat futures finished 1 3/4 to 4 cents higher in SRW contracts, 4 1/2 to 5 1/4 cents higher in HRW contracts and 2 3/4 to 3 3/4 cents higher in spring wheat futures. For the week, September SRW futures dropped 28 3/4 cents, September HRW futures fell 22 3/4 cents and September HRS futures declined 13 1/2 cents. USDA’s August crop estimate and 2019-20 ending stocks came in higher than expected, which tripped up the market, along with heavy spillover pressure from the corn market. The direction corn takes is likely to have an impact on wheat again next week. And the corn market is likely to be influenced by what we find on the Pro Farmer Midwest Crop Tour. . Demand is perking up as bargain buying has emerged.  Egypt was a buyer of 295,000t Russian, Ukraine wheat on Thursday. For the week ended Aug.8, U.S. All wheat sales are running 18% ahead of a year ago, shipments up 27% with the USDA forecasting a 4% increase on the year. Only 8% of the spring wheat crop was harvested on Aug. 11. While seasonal pressure from spring wheat harvest isn’t as influential on prices as winter wheat harvest, this will hang over the market a while long because of the planting delays this year.  

Cotton:  December cotton futures closed up 51 points at 60.13 cents today and near the session high. For the week, the contract gained 123 points. Today’s moderate gains can be chalked up to a rally in the U.S. and world stock markets amid improved trader and investor risk appetite. What happens in the world stock and financial markets next week will likely be a key driver for the cotton market.The weekly USDA export sales reports on Thursdays will continue to be a trading highlight of the week. Recent cotton futures price weakness spurred a sharp improvement in U.S. export sales for both old- and new-crop delivery in this week’s report. Total sales commitments are equal to 48% of USDA’s annual forecasts, above the prior five-year average of 41%. This week USDA raised the U.S. cotton crop production to a 14-year high, so exports will have to lead rallies. U.S. retail sales surged in July despite worries in the marketplace about a U.S. economic recession being around the corner. Stronger U.S. retail sales into the end of the year would bode well for domestic demand for cotton.

Hogs: Futures closed sharply lower to limit down, extending this week’s decline. October futures closed down the $3.00 maximum to $62.00, with December down $2.975 to $60.775. Hog futures closed at a 12-month low Friday on fears that rising seasonal hog supplies will overwhelm demand. The bearish supply story capped optimism on Thursday despite signs of improving Chinese pork buying. Slaughter this week is estimated at 2.497 million head, up from 2.459 million a year ago.  China made its biggest weekly purchase of U.S. pork in seven weeks in the week ended Aug. 8 despite the government last week telling importers to avoid U.S. farm products. Several weeks of China buying 10,000 MT would turn the market back to the upside. October futures closed at a more than $17 discount to the cash index today. That’s excessive. While investors occupied themselves discussing inverted yield curves and possible recession, the trade war not-so-quietly came roaring back into focus. China said it was preparing retaliatory countermeasures to the new set of tariffs slapped on their goods by the U.S. and said it wants the U.S. to meet it in the middle in the negotiations, a suggestion President Donald Trump was ready to acknowledge. He did say overnight that he would have a phone conversation with President Xi Jinping relatively soon.  

Cattle: August live cattle closed down 27 1/2 cents at $99.925, while the October contract lost 47 1/2 cents to close at $98.05. Prices hit contract lows again today and closed at technically bearish weekly low closes. For the week, October live cattle lost $8.70. November feeder cattle futures closed down 90 cents today and for the week lost $5.525. The U.S. cattle market was hit with one of those rare “market shocks” this week when a fire last Friday at a Tyson Foods beef processing plant near Holcomb, Kansas shuttered the plant for an indefinite period and raised concerns about U.S. slaughter capacity. There are seven other major plants within reasonable proximity that could pick up much of the lost Tyson slaughter capacity, especially with larger Saturday kills. Still, traders don’t like uncertainty and with today’s technically weak closes don’t be surprised to see some follow-through selling pressure in futures early next week. On the positive side of the ledger, cattle marketings remain current. The combination of softer cash cattle prices and soaring boxed beef values this week has pushed packer profit margins to $297.55 a head, according to LLC. That’s giving plants plenty of incentive for aggressive weekly and weekend kills, which should in the coming weeks help to offset the impact of the downed Holcomb, Kansas meat plant.

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