Soybeans ended slightly higher Friday, with corn and wheat lower. Cattle recovered, while hogs further consolidated.
Soybeans End Off Session Highs
Soybeans were slightly higher on Friday but ended well off of session highs. March soybeans got up to $11.37 3/4 before hitting chart resistance and seeing selling exhaustion and profit taking to end at $11.15 1/4, up just 3 cents. on the day. Some farmer selling may have also pulled soybeans off the highs. March soybeans did end more than $.51 higher for the week, while November was up only $.14 1/4.
Is the China News Priced In?
So will the rally continue in soybeans or is the China news all priced into market? Brian Grete with CommStock Investments says he thinks the price action on Friday signals it is.
“I think we kind of played it out. You know, honestly, it lasted longer than I thought, more than 20 plus cent gains for two days in a row. And then we had on Friday intraday, more than 20 cent gains again. And we at one point in time, the March contract was up more than 70 cents for the week. And boy, that’s a lot when there’s nothing more than President Trump saying that he asked China to buy an extra 8 million tons of soybeans for the current marketing year. We didn’t see any confirmation from China. We didn’t see any buying from China that export sources reported. And so it was an extended knee -jerk reaction, I think, to a President Trump true social post.”
Is There a Deal?
Since there was no China confirmation is there really a deal? Why would China buy old crop soybeans from the United States when they can buy new crop soybeans from Brazil at a much cheaper price?
Grete says he’s not sure if there is a deal or not. “I don’t know how sincere China would be in terms
of buying. Let’s be honest, U .S. soybeans are priced way above Brazilian supplies at this point in time. So any purchases would have to continue to be done by state -owned firms. And even then, state -owned firms would be buying these soybeans at a big premium, which means that they’ll go into state -owned reserves, though they would have to rotate some out via auctions, and they would probably end up upside down on that transaction. And so this isn’t typical China activity, to be honest with you.”
Old Crop Versus New Crop
The next obvious question is could these be new crop purchases instead of old crop. Grete says the President also referenced new crop and reiterated China had agreed to buy 25 MMT for the new crop marketing year. “And they’ve dipped their toe in the water a little bit with that, but that’s pretty seasonal. This is the time a year when they normally would buy new crop soybeans. And we’ve seen just a little bit of that so far. But I don’t know. With it being so front -loaded in the futures, I think that the traders anticipate that this will be business that’s done sometime during spring if it gets
done.”
What Would the Sales Mean for Soybean Ending Stocks
If the Chinese do purchase 8 MMT or 294 million bu. of old crop soybeans from the U.S. what would that mean for tightening ending stocks? Grete explains, “Even if China does come in, you know, you’re working with an ending stocks number that’s probably a little bit higher than what USDA says anyway. And so we shall see. And the other thing to keep in mind is if China steps in and buys U.S. soybeans, somebody else is going to get left out and have to turn to Brazil for their supplies. So, you know, this isn’t necessarily one for one tradeoff on that front. You know, there’s only so many soybeans to go around and so many that you can export. And so that all comes into play in the scenario as well.”
Do Soybeans Continue to Rally to the November Highs?
Soybeans were still up over 50 cents for the week in the March contract. So, technically can the futures get back to the old highs, that $11.72 area? Grete says history doesn’t always repeat itself in markets. “What we saw was that the market very much front run the Chinese purchases last fall. And we got to that mid -November high and then we backed off significantly as China was ramping up its purchases. And so we couldn’t see something very similar this time around.”
He says farmers need to be making aggressive sales here especially if they didn’t sell anything last fall. “Because this may not develop into anything at
all. And if it does, it may already be played out before we ever get any confirmation of Chinese purchases,” he adds.
Corn Barely Follows Soybeans
Even with the big up week and up days in the soybean market, corn barely followed. The market ran up into chart resistance on the March around $4.25 on Thursday where it found technical and farmer selling but the lower wheat market has also been an anchor.
Grete says despite that export demand has been running at record levels and ethanol production was running strong up until last week’s weather related drop. “So the demand side of the corn market is really strong, and yet we’re struggling to get upward price movement despite the strength in the soybean market. So I think corn is disappointing, to be honest with you. For whatever reason, we just don’t see the speculative money want to go into the long
side of the corn market as aggressively as what they will for means.”
WASDE to Show 2.2 Billion Bu. Corn Ending Stocks
The other headwind is the WASDE on Feb. 10 is expected to confirm over 2.2 billion bu. of carryout on corn, which continues to keep a lid on prices. Plus, global stocks of all grains has seen year over year gains. “The world has plentiful grain supplies and as a result, the upside is cap from a price perspective.”
Global Supplies Weigh on Wheat
Wheat futures saw more technical selling on Friday and posted lower weekly closes. Grete again thinks the big global supplies are the problem. “The U .S. is far from number one in terms of the world supplier. You know, Russia continues to dominate that, but the entire Black Sea region and Europe, and there’s so many other sources before you get to the United States that it ends up being a concern,” he says. Exports are up year over year but he says last year was so poor its an unfair comparison.
Cattle Recover on Higher Cash
After the washout on Thursday tied to the possible worker strike at the JBS beef plant in Greeley, Co. the cattle market tried to stage a recovery to close out the week. The market got some help from higher cash which was reported at $242 to $245 in the South, up $3 to $6 and $243 to $244 in the North.
Grete says the volatility has returned. “And so you see these big daily price swings up one day, down the next, and maybe up another day and then down again. But, you know, we don’t see any real conviction behind selling in that marketplace. So we continue to see buyers show up underneath the market. And I think, especially in feeder cattle, because feeder cattle still trail the cash index there. And so that’s an important factor. As long as the cash auctions remain strong, I don’t think that the feeder cattle have a whole lot of break in them. And when they do break, we should see buyers show up under the market like we saw on Friday.”
How Soon Until the Market Retests the All-Time Highs?
What is the timeline for the futures to fill the chart gap areas and take out the all-time highs? Again, Grete says history says the cattle market isn’t likely to get to a new highs. “But if we do fill the gap, the gap came the day after the high on those charts. And so if you fill the gap, then you probably are making a new high. And so I don’t know. The history would tell us we probably aren’t going to get all the way of the highs, but I can’t rule it out, to be honest with you. I mean, the cattle market remains dynamic, and it has been for years, and it just continues on here. Obviously, very tight supplies. We’ve had demand hold up relatively well, despite the record retail prices. Exports have struggled, but, you know, everything considered, the cattle market still fundamentally is well supported.”
Black Swan?
Is the only thing that can wreck the market a black swan or maybe reopening the Mexican border? Grete says the market had anticipated that reopening to occur already but it got derailed because of the screw worm flare up again. He says he’s watching the screwworm situation in the U.S. “I think it was actually very beneficial that we saw that screw worm that showed up on the horse imported from Argentina that they detected in Florida. First,
it happened in Florida, which was way away from all the activity down in Mexico. So it didn’t happen in Texas, New Mexico, Arizona, that area, the hotbed area, so to speak. But it proved that our inspection system works. And so I think more than anything, it probably gave traders a little bit of confidence that if screwworm does show up, that they’re going to detect it and get rid of it.”
Lean Hogs Continue to Consolidate
After hitting new contract highs on Wednesday the lean hog futures have been consolidating the last two sessions on a combination of profit taking an hedge pressure.
He says, “So I think it’s been relatively methodical, the climb to the upside, to be honest with you. There’s all the talk about the feeder pig supplies, which are limited and struggles in getting their hands on those and that type of thing. So I think that that’s supportive, that probably gives us enough room to continue to move to the upside unless we see something that changes that narrative. But at the same time, I think it will be where you make a new high and then you pull back a little bit and make a new high and pull back a little bit, as opposed to just a straight shot higher. And to be honest with you, that that’s way more sustainable if you do that than if you have a big old blow off top, that probably puts a top in the marketplace for at least a short term and maybe even longer term.”
