China Cancels U.S. Bean Purchases, So What?

February 13, 2014 12:35 AM

What Traders are Talking About:

Overnight highlights: As of 6:30 a.m. CT, corn futures are trading around a penny higher, soybeans are mostly 7 to 8 cents higher, SRW wheat futures are 1 to 2 cents higher, while HRW and HRS wheat futures are narrowly mixed. Cattle futures are firmer this morning while hog futures are narrowly mixed in electronic trade.


* China cancels U.S. bean cargoes. USDA announced via its daily exports sales system on Wednesday that China canceled 272,000 MT of U.S. old-crop soybean purchases. With new-crop Brazilian beans starting to trickle out of ports, Chinese cancellations of U.S. purchases are no surprise. In fact, they are expected. USDA has some cancellations plugged into its balance sheet -- even after raising its export forecast by 15 million bu. in Monday's Supply & Demand Report. USDA's updated export forecast of 1.51 billion bu. (41.1 MMT) is shy of the 1.58 billion bu. (43.022 MMT) of total commitments (outstanding sales + exports) on the books as of Jan. 30.

The long and short of it: Yesterday's price performance showed that confirmation of cancellations is still going to be hard for traders to ignore, but the bounce back in prices overnight signals the Chinese cancellations are fully expected, and therefore, already "in" the market.

* Corn and wheat pause. Corn and wheat futures have posted nice corrections from their winter lows, but now both markets are pausing. How futures come out of this pause is key to near-term price direction. Failure to extend the corrective move higher soon would suggest short-term tops are in place and futures are likely to roll over. If, however, futures briefly pause and then push through the recent highs, it would signal more near-term price strength is coming.

The long and short of it: Fundamentally, both the corn and wheat markets have their limitations. But a stronger price correction is not out of the question, especially if they work together and the soybean market doesn't face heavy near-term pressure that drags corn and wheat lower.

* February thaw? After brutally cold weather for much of December, January and the first half of this month, temps are expected to warm significantly over the coming week. Forecasts indicate temps will run normal to above normal through the weekend and next week across the country's midsection. With frost levels very deep across the Midwest this year, it's going to be a long time before the ground thaws, so the warmer weather will simply melt snowcover. But in the Plains where there isn't much snow, the warmer temps will thaw the ground. That potentially leaves the winter wheat crop in the region vulnerable to winterkill if another wave of bitterly cold arctic temps move in after the warmup.

The long and short of it: Traders view the warmup in temps as beneficial for the winter wheat crop, but winter isn't over yet and the snowcover may be needed if temps plunge again.


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