Grains and cotton markets closed higher on Friday and for the week, with cattle lower.
Soybeans Soar For the Week on China Buying
Soybeans were higher on Friday on fund buying and news China was in to buy four more cargoes or 250,000 MT of soybeans, making seven for the week.
The January contract hit 13-month highs and soared $.55 for the week pushed by the trade framework struck between the U.S. and China containing soybean purchase commitments of 12 MMT for 2025 nad 25 MMT annually through 2028.
Shawn Hackett with Hackett Financial Advisors says he expects China to uphold the first purchase agreements as a goodwill gesture. It also makes sense for them to buy for December and January as they wait for Brazil’s crop to come to market. However, after that he is more skeptical about additional purchases.
Will China Stick to the Deal?
Hackett says no one has seen the fine print of the agreement to see if the deal is actually binding. “Yeah, unfortunately, this is one’s more of a wink, wink, trust us. It doesn’t appear we’re going to get this kind of clarity we had the last time. So it’s going to keep us guessing a little bit.”
However, it it’s like the Phase One deal the Chinese may rely on some sort of “commercial considerations clause” requiring they only need to buy U.S. prices are below South American beans.
“What happens after that three -month period, I think is I’m very skeptical about after what happened the last time we did a trade deal with them. And remember, when Brazil goes to harvest here in March and this next huge soybean crop is ready for export, I kind of wonder how excited they’re going to be to be running to our market for beans when they can buy a bunch over there at a substantial discount,” he adds.
How Tight Could Soybean Carryout Be in the November WASDE?
USDA said it will be releasing a WASDE Report on November 14 and if the agency incorporates the China demand he thinks that will tighten the balance sheets.
“I don’t think there’s much of an adjustment to go on on the yield side for soybeans. So if we’re going to get a reduction in the carryout on soy, it’s going to be how they manage adding Chinese demand and then taking some of the other exports off, which they certainly would do. My best guess is, I think we’re going to move somewhere between 230 and 250 million bushels on this next report,” he explains.
How High Will Soybean Prices Rally?
With China potentially buying 441 million bushels of soybeans the next two months Hackett thinks prices will likely rally to $12.
“I absolutely believe that the Chinese would probably be willing to pay a five or 10% premium on U.S. prices over the Brazilian price. That’s a reasonable expectation. That’s kind of the premium they were willing to pay for Brazil beans when they were in the reversal a few months back. So all things being equal, you know, that meaning we could push maybe the soybean market up to that mid $11, the $12 area before they might push back and say, you know, we’ve done enough for now. Let’s let things settle down here a little bit.”
Corn and Wheat See Late Day Rally: Is China Buying?
Corn and wheat futures started the day lower on what looked like some profit taking and end of month position squaring. However, late in the day the markets recovered follow soybeans but Hackett thinks there was also some commercial buying that is either front running expected Chinese purchases or outright buys by China.
“With the lowering of tariffs on ag goods as part of the China framework agreement commercial accounts were in buying corn, wheat, cotton and natural gas,” he says.
And Hackett thinks China needs corn. “We never really know what’s going on in China, you know, they, they tell us what their stocks are. And of course, we’re supposed to trust them. But when I look at it, we’re not seeing a lot of extra exportable supplies out of Brazil because of ethanol demand for corn base down there growing like crazy. Russia, Ukraine’s had two terrible crops in a row. And China had a terrible crop year this year for corn. I believe they need quality corn feed to be purchased,” he explains.
How High Could Corn Prices Go?
December corn was up $.08 1/4 and March was up $.07 on the week. Hackett says the market may continue to follow soybeans and if so corn could easily go to $4.80 on the charts before seeing much resistance or slow down in buying.
However, he thinks the market is also going to pushed by lower yields and ending stocks in the November WASDE. USDA said Friday it is releasing a crop production and WASDE report on November 14. Hackett expects yields could be lowered to the low 180s in this report. “And ultimately by January, we think we come under 180 on corn in yields, maybe 178,” he adds.
Hackett says with the additional China demand added in that quickly gets the ending stocks down to 1.5 to 1.7 billion bushels.
Wheat Also Seeing China Buying?
Hackett thinks the wheat market is also seeing some Chinese buying interest with the lower tariffs and as part of the China purchase commitments. The winter wheat futures were up $.22 to $.23 cents on the week as funds are also covering shorts and with spillover support from the higher soybean market.
Can Cattle Recover?
Live and feeder cattle futures were mostly lower on Friday erasing early gains and capped off the week with losses of $16.28 on January feeder cattle and $4.25 on December live cattle. From the high to the low prices the last few week the December live cattle contract has lost $25 and the January feeder cattle $55. So can the markets recover from that?
Hackett says, “The markets don’t need to recover. I think that’s an appropriate decline taking the on the on the idea that we’re going to take these 50% tariffs on imported beef from Brazil off the table. I think that’s an appropriate reaction and a reaction that should stick.”
He says political headlines surrounding the border remaining closed to Mexican feeder cattle imports initially supported a recovery but the market is also trying to price in Brazilian beef imports even though there has been no official decision on tariffs.
“I think the high is in the cattle market,” he adds.
