After the Bell: Choppy Trade Waiting for China Deal Details, Adverse Weather Impact on U.S. Crops

Posted on 10/14/2019 2:40 PM

Corn:  Futures ended slightly lower and near midrange. December futures fell ½ cent to $3.97 ¼ after touching $4.02 ½. The market started higher on the verbal trade account announced last Friday between the U.S. and China. But nothing has been formally written or agreed upon today and there is uncertainty about the timing of the $40 to $50 billion of new Chinese purchases that President Donald Trump touted last week. It also not clear if corn, ethanol or DDGs will make the list of products China buys. Weather during the weekend produced plenty of snow in the parts of the Dakotas, Nebraska and Minnesota and sub-freezing temperatures fell as far south as Missouri and western Illinois. Underlying support for the next month will come from expectations for USDA to make another cut in the size of this year’s crop. With the harvest delays, much of last year’s carryover is now used and farmers are going to wait for this year’s crop to dry down before harvesting. Farmers will be waiting for rallies to sell additional quantities of dry corn from this year’s harvest.

Soybeans: Soybean futures gapped higher on the open and rallied to the highest level since mid-June before retreating. The market eventually worked back into positive territory and closed with gains of around 4 cents. But all-in-all, today’s price performance was pretty disappointing. Soymeal ended the day mixed and soyoil futures posted light gains. This weekend’s cold snap was longer-lasting and more widespread than anticipated, and it came with significant snowfall for some areas of the Northern Plains. But it will take time to assess just how many bean acres were damaged and what the extent of the damage is. Tomorrow’s crop condition update from USDA will provide some hints as to how much of the crop was at risk, but it will likely take harvest results to get a realistic idea of damage. The market also had Friday’s Phase 1 trade deal between the U.S. and China to digest. Details are light at this point as the agreement still needs to be put to paper over the next three to five weeks. While $40 billion to $50 billion worth of ag purchases by China over two years would be significant, analysts point out that the gaping pork supply hole China needs to fill could quickly eat into that tally. China’s hog herd was down 41.1% from year-ago levels in September due to African swine fever, the country’s ag ministry reports. That is a dramatic cut to feed needs. In addition, China’s far less conclusive comments on the “deal” have traders on edge.

Wheat:  December SRW wheat futures hit an 11-week high today and closed up 3 cents at $5.11. December HRW futures hit a two-month high and gained 6 1/4 cents at $4.25 3/4. Spring wheat futures prices closed about 4 cents higher. Underlying support for wheat futures markets remains the weather and potential crop losses. The blizzard in Canada and the Northern U.S. Plains damaged crops in those regions late last week. The extent of the damage is not going to be fully understood for a while, but the situation justifies a market premium at present. Warming mid- to late week this week will melt snow more aggressively, but cooling this weekend into next week will slow the snow melt once again Managed funds as of Oct. 8 reduced their net-short position about 2,400 contracts to about 19,100 contracts of SRW wheat and increased net-short in HRW wheat 2,200 contracts to slightly more than 35,000 contracts. The bigger HRW position is logical as HRW stocks rise and exports lag. But a lack of details on the partial U.S./China deal has the trade covering shorts.

Cotton: Cotton futures settled low-range with losses of 29 to 166 points through the July 2020 contract. December futures led today’s losses. Today’s low-range close sets the market up for followthrough selling on Tuesday. Cotton futures gapped higher and surged to strong gains. But buyer interest dried up and selling built amid uncertainty with details of the U.S./China trade deal from last Friday. While President Donald Trump touted $40 to $50 billion of Chinese purchases of U.S. ag goods over a two-year window, Chinese media reports signaled Beijing officials had a different take on the agreement. There are also questions as to whether cotton would be included even if China makes the purchases Trump proclaimed they would.  Frosts and light freezes occurred as far south as West Texas over the weekend, which will cause some crop damage. But the frost/freeze event generally wasn’t as severe as far south as traders anticipated ahead of the weekend. Conditions are expected to be warmer and drier the next two weeks.  

Hogs:  Mixed finish after starting higher this morning. December fell 47.5 cents to close at $69.125 and February was up 20 cents at $77.25. Uncertainty about the size and timing of any U.S. pork purchases China may have agreed to during last week’s talks will have to wait several weeks until both sides combine their notes and put Phase I of a new trade deal on paper. Cash hogs on Monday were steady, according to preliminary data after hog slaughter last week rose more than 9% above a year earlier. It was the second-largest weekly slaughter rate on record. Carcass weights are on the rise amid cooler autumn temperatures but are unchanged from a year ago at 210 lbs. Despite historical production rates, the pork cutout at $77 is nearly unchanged from 2018. Once again, strong domestic demand looks to be developing in the 4th quarter as U.S. end-users are concerned about Chinese demand in the year ahead. This is supporting the pork market and holding estimated slaughter margins at the highest level of the year. China's pig herd in September was 41.1% smaller than it was a year earlier, the agriculture ministry said on Monday, as a year-long African swine fever epidemic continued to slash the world's largest herd.  

Cattle:  December live cattle futures closed up $1.30 at $113.45 today, finishing near the daily highs and hitting a 2.5-month high. November feeder cattle futures ended up $1.825 at $146.075 and scoring a five-month high. Market fundamentals remain bullish for cattle futures. Cash cattle prices last week were up $1 to $2 and more gains are expected this week after light trade last week. Boxed beef cutout values were 3 cents higher for Choice and up 5 cents in Select today on light movement of 40 loads. The Choice-Select grade spread is presently $26.96--still suggesting very current marketings of animals. The large speculative funds more than doubled their net-long positions to 12,012 futures and options contracts as of Oct. 8, from 5,887 contracts a week earlier. Look for more buying interest from the specs as charts are bullish.



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