After the Bell: Soybeans, Grains Pare Early Strong Gains By the Close on China Trade Truce Skepticism

Posted on 12/03/2018 2:58 PM

Corn:  Futures rose 2 ¾ to 4 ¾ cents to start the new trading month, but finished in the bottom half of the daily range. March corn rose 4 ¼ cents to close at $3.82 after earlier reaching the highest price since Nov. 9. The market opened higher after the U.S. and China agreed to call for a trade truce for 90 days from Jan. 1, allowing time for more negotiations. U.S Agriculture Secretary Sonny Perdue said on Monday that it is “yet to be determined” whether China will remove tariffs on imports of American soybeans as part of a trade truce. He did say China may buy rice, poultry grain sorghum and wheat as part of the trade truce. This is also trade chatter about China buying dried distillers’ grain. The market was also supported by a rebound in crude oil prices and much weaker U.S. dollar. Oil prices jumped by more than 5% on the Chinese/U.S. trade truce after Canada’s Alberta province ordered a production cut and the exporter group OPEC looked set to cut supplies later this week.

Soybeans:  Soybean futures ended with gains of 10 to 11 cents, while soymeal was around $4 higher and soyoil around 50 points higher. Soybeans and soymeal ended on their lows, while soyoil finished midrange for the day. Soybean futures reacted positively to news of a trade truce with China, but buyer interest faded through the day as there seem to be more questions than answers. Today’s low-range close isn’t encouraging and suggests bulls may have become exhausted. Tuesday’s price action will go a long way in making that determination. The biggest unanswered question for soybeans is when China will lift its tariffs on U.S. soybeans. Until that happens, it appears unlikely Chinese buyers will take a chance and buy many U.S. soybeans. It will be difficult to push soybean futures above today’s highs until there’s some appreciable export news.  

Wheat:  SRW prices finished down 3/4 cent in the December and up 3 1/2 cents in the March contract. HRW contracts were down 5 3/4 cents in the December and up 4 1/2 cents in the March. Spring wheat closed up 6 ¾ cents higher in March futures to close at $5.82 1/2. Winter wheat futures pushed to multi-week highs in the early going today, following the solid gains in soybeans and corn, on the U.S.-China trade truce. However, when those markets came well down from their highs, wheat futures did the same. U.S. HRW wheat was the lowest offered price in Iraq’s tender for at least 50,000 MT during the weekend. Look for U.S. wheat to be increasingly competitive in the weeks ahead as Black Sea supplies tighten. Australia cut is wheat crop forecast 11% to the smallest in a decade after drought cut production, reducing supplies for exports from the world’s fourth-biggest supplies. The Australian government forecast output at 16.95 MMT, down from the prior estimate of 19.1 MMT.The market is also supported by the rising tensions between Russia and Ukraine.

Cotton:  Prices gapped higher and closed below the opening range. March cotton rose 104 points to close at 79.95 cents. The White House announced Saturday night that China has agreed to “start purchasing agricultural products from our farmers immediately” and that the U.S. has agreed to hold off on a planned increase in the rate on $200 billion in tariffs on Chinese goods and a cease-fire on additional tariffs as the two sides enter negotiations on lingering contentious issues. Agriculture Secretary Sonny Perdue said Monday that is was yet to be determined whether China will remove tariffs on ag imports. That comment helped to trim gain into the close. The 90-day truce may not be long enough to reach a conclusive accord, allowing for a ramping up of tariffs by both sides.

Hogs:  Lean hog futures closed up 27 1/2 cents in the December and down 57 1/2 cents and 70 cents in the February and April contracts, respectively. Prices finished near mid-range on the day. Hog futures saw initial gains on the weekend news the U.S. and China agreed to hold off on new trade tariffs for 90 days in pursuit of an agreement. However, early gains were quickly eroded on uncertainty regarding specifics of the trade truce, as it pertains to U.S. ag products. Until China actually lifts tariffs on U.S. pork (and other ag goods), Chinese buying will remain very limited. Futures prices did recover a bit around midday when the noon pork report showed product prices gained a solid $2.64 on strength in all cuts. Movement was on the light side at 136.74 loads. Chinese demand for U.S. pork is expected to be strong as the country continues to deal with African swine fever (ASF). China’s ag ministry reported more cases of ASF over the weekend, including in the capital of Beijing and in the provinces of Jiangxi, Shaanxi and Heilongjiang.

 Cattle: Live cattle futures settled a nickel to 70 cents lower through the June contract. Feeder cattle posted losses of 72 1/2 cents to $1.40 through the May contract. Price action was disappointing in the cattle market today given strength in the cash market last week. Cash cattle trade improved to the $118 level late last Friday and last week’s price averaged $117.10, up nearly $2 from the previous week’s average. Today’s price action in futures suggests traders doubt packers will bid up for cash cattle again this week after strong gains the past two weeks. Some of the pressure on cattle futures was tied to spillover pressure from the hog market, which had an even more disappointing price performance.  Feeder cattle futures were pressured by weakness in the cash feeder cattle market. The widely watched Oklahoma City auction reported prices as much as $10 lower, suggesting demand for cattle to be placed into feedlots is sluggish.

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