After the Bell: Soy, Corn Rise on U.S./China Trade Talks, Adverse Brazil Weather

Posted on 01/09/2019 3:06 PM

Corn:  Corn futures closed higher and midrange with March up 2 cents to settle at $3.82. March futures were well contained within Tuesday’s range, leaving the three-week high in March futures at $3.84 1/2 scored on Tuesday as key short-term resistance for the next two sessions. The rally is lacking fresh news but there are few reasons to suspect a quick drop is forthcoming. The U.S./China trade war has been an anchor on prices for much of the past six months and now trade talks are making progress. The U.S. Trade Representative’s office said today after three days of meetings in Beijing that that China has pledged to purchase “a substantial amount” of U.S. farm, energy and manufactured goods. The problem, however, is there were no specific amounts announced. Weather in South America continues to raise yield threats in both Brazil and Argentina. Hot, dry weather is expected across much of Brazil the next two weeks. Heavy rains in parts of Argentina may saturate fields and cause some isolated flooding.

Soybeans: Soybean futures firmed around a nickel today and finished high-range. Meal futures were $1.40 to $1.90 higher. Soyoil futures posted gains of 14 to 19 cents.  Support for soybeans was two-fold, coming from hopes for an eventual U.S./China trade deal and Brazilian weather concerns. On the trade front, U.S. and Chinese negotiators ended three days of meetings with what appeared to be progress toward a broader trade deal. China pledged to buy a "substantial amount" of U.S. ag products, including soybeans, though specific tonnages were not announced. There has been some talk this week China already may have completed its agreed-to U.S. soybean purchases, though they haven’t fully been confirmed by USDA due to the government shutdown. That may cap near-term upside potential unless there’s talk of new Chinese purchases. Brazilian weather remains a growing concern, as an extended period of hot and drier-than-normal weather has trimmed the country’s production potential. Just two weeks ago a record Brazilian soybean crop seemed like a certainty. But now, most crop watchers expect this year’s crop to fall well short of last year’s record – and estimates are on the decline.  

 

Wheat:  Winter wheat futures closed slightly higher in most contracts and near session lows with March SRW up 2 ¼ cents at $5.20 and March HRW futures settling at $5.05 ½, up ½ cent. Spring wheat futures closed up 3 to 4 cents.  Futures rose today with strengthening world prices signaling a switch by global buyers is near. In addition, the U.S. dollar index fell to the lowest level since mid-October as lower U.S. interest rates reduce demand for dollar-denominated assets triggering dollar sales against several currencies. A weaker dollar will help to lower costs for overseas buyers. Earlier today, Egypt bought 415,000 MT of Russian wheat for delivery in late February and early March. While U.S. wheat was the cheapest offered for loading on ships, Russia beat U.S. prices because of lower shipping costs. Nonetheless, the U.S. premium continues to narrow, and today’s sale prices are new multi-year highs. Russian and European wheat inventories available for sale and shipment are tightening quickly with domestic prices above export values.

Cotton: Cotton futures posted gains of 96 to 146 points, led by the lead March contract. Cotton futures were supported by general optimism over trade talks this week between the U.S. and China. Chinese negotiators said China would buy a “substantial amount” of U.S. ag goods, which many believe will include cotton, though no specifics were confirmed. The market likely needs some specifics and confirmation of Chinese buys to fuel sustained buying. Unfortunately, confirmation of any Chinese purchases can’t happen until the partial government shutdown ends. The U.S. dollar was sharply lower today and continued to decline after cotton futures stopped trading. That could fuel followthrough buying in cotton futures on Thursday if the greenback extends its losses. The U.S. dollar index slumped to its lowest level since mid-October.

Hogs:  Lean hog futures finished 47 1/2 cents to $1.525 higher and in the upper portion of today’s range, led by the lead-month February contract. Hog futures were boosted by continued strength in the cash market, which caused traders to widen the premiums nearby contracts hold to the cash index. The average national direct cash hog price was 28 cents firmer this morning, which would be the 10th straight daily gain if the strength is maintained in afternoon trade. Strength in deferred lean hog futures came from hopes of improved Chinese demand for U.S. pork. The three-day trade meeting this week ended on a positive note and China’s building African swine fever outbreak increases its need for pork imports. But it’s unclear if pork was included in the trade talks, and if it was, timing of any Chinese purchases are uncertain. That somewhat limited gains in deferred contracts, as traders are hesitant to build too much premium into the market.

Cattle:  Live cattle futures closed slightly lower and near session lows with February down 50 cents to $124.80 and April slipping 35 cents at $125.80. Feeder cattle closed 55 to 85 cents lower.  After two strong daily rallies and new contract highs in several contracts, the market was due for a correction. Total volume on Tuesday in the cattle market was 145,544 contracts versus the previous month’s average of just 56,000 contracts. It was also the largest 1-day volume total since May 2017. Total open interest on Monday was the largest since November 2017 but declined by 1,945 contracts on Tuesday’s rally as traders liquidated positions in the February contract.Boxed beef cutout values were lower on Tuesday but resulted in strong wholesale beef sales after active holiday sales last week. Prices were lower again this morning on moderate sales.

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