Grains end mixed Friday with soybeans higher but corn and wheat lower. Cattle bounce, while hogs make new lows for the move.
Soybeans Bounce But Await Proof of China Business
January soybeans ended 9 1/2 cents higher Friday and were up 1 3/4 cents for the week, even after profit taking tanked the market Thursday. However, Matt Bennett with AgMarket.Net says to go back and retest this week’s highs or move to new highs, soybeans will need to see proof of China purchases.
“I mean, it would appear to me that’s what we’re going to need. We’ve got to have some sort of an influence to push us on up higher. I mean, historically, you take the market up to $11 and you usually go to $12.50. I mean, the market doesn’t like spending a whole lot of time in the 11s on the way down or on the way up. And clearly, we were below 11 for quite some time. We go up here and kind of test 11. Are we going to go back and fill gaps? I mean, we’d have to go down 30, 40 cents to do that,” he explains.
Will the U.S. Sell China 12 MMT of Soybeans in Two Months?
Bennett says the market is also looking for clarity on the details of the China deal and purchases. “Are they going to buy 12 MMT of soybeans? When are they going to ship them? If they buy 12 and then they’re going to buy 25 MMT next calendar year, is that all going to be next fall time frame? Nobody really knows what’s going on here resolutely anyway.”
Noting a pressing need for soybeans, a Chinese commerce official said Thursday that Beijing would encourage companies to buy U.S. agricultural products – as long as the price is right.
Bennett also thinks selling 12 MMT of soybeans to China in the next two months is problematic and shipping it will be even more difficult. “Obviously the river levels are not conducive you know for shipping full barges. In a lot of instances some of this stuff may come off the PNW and it would certainly be good in the Northwestern quadrant of the corn belt as those folks might like seeing a little bit of business coming out out there finally. But by all means, it could be problematic. I think you could sell them a heck of a lot quicker than what you can ship them. But just getting the sales on the books would be a nice thing to see.”
China Buying Brazil Soybeans At a Cheaper Price
So far China has bought seven to eight cargoes of U.S. soybeans but those have all been by government owned entities like COFCO and Sinograin, not private crushers. So, the market is waiting for confirmation of the China deal and actual business before taking the next leg higher.
In the meantime, China has been buying cheaper Brazilian beans for December delivery and leaving many in the market to wonder if China will fulfill the deal they struck with the U.S. Bennett says, “Yeah, there’s lots of question marks, Michelle. I mean, whenever they’re going in there and buying cheaper Brazilian beans, I mean, you look at the market, and with our market racing higher like it has, and it kind of eased off as far as Brazil’s soybeans go. And so Brazil’s beans are cheaper than ours. And that’s not even including the tariff China still has on incoming soybeans from the U.S.
This week China was in buying Brazilian bean for December deliver and Bennett says, “the market didn’t like it much.” He adds that is this is a trend that continues it means the high is in the soybean market for a while.
Will Soybeans See a Friendly USDA Crop Production and WASDE?
The other fundamental factor that could push soybeans back above this week’s $11.37 high on the January contract would be a bullish USDA Crop Production and WASDE report on November 14. However, Bennett is skeptical about the soybean balance sheets tightening even with 12 MMT of demand from China.
“I think USDA’s export figure was too high to begin with,” he explains, “so, even with a drop in yield by one to two bushels that may not be enough to get ending stocks below 300 million because if USDA lowers yield they could still probably pull exports back a little bit, even with the Chinese news.”
Soybean Meal Rally Over?
The soybean rally was also sponsored by a huge rally off the lows in the soybean meal market. However, the last leg of the rally was fueled by fear of Argentina’s oilseed workers striking on November 6. Instead they agreed to a wage increase to avoid a strike and that let some air out of the soybean meal market on Thursday. Bennett says meal prices got too low, especially relative to bean oil, and so some of the buying was just unwinding that short position. However, he says without a catalyst like the port strike he thinks it will be hard for meal to rally back to the this week’s highs.
Corn Still Reluctant Follower of Soybeans
December corn was down 1 1/2 cents on Friday and 4 1/4 cents lower for the week. The market was following the rally in soybeans but hit stiff chart resistance on Thursday which on the December contract was the 200-day moving average at $4.36 1/2. Friday corn was also drug down by the correction in the wheat market.
Bennett says corn has been a reluctant follower of the $1 plus rally in soybeans. “You know, corn was getting stopped by $4.25 forever. You know, and then all of a sudden you come in here, you rally the bean market a dollar, you know, and you get the, you get December corn up to $4.35, $4.40. I mean, it wasn’t a big rally, but it was something, you know, and clearly, whenever you got 200, 250 bushel of corn, you know, a 15 cent rally in the market means something,” he says.
What News Does Corn Need to Break Out of Its Trading Range?
Corn has been in a sideways trading range between $4.20 and $4.35 and Bennett says the only catalyst he sees breaking the market out of the top side of that range is a bullish USDA Crop Production and WASDE report. However, to get ending stocks below 2.0 billion bushels he thinks will take national yield dropping below 180 bushels per acre combined with an increase in demand for ethanol use and/or exports.
“The problem is many of the private trade estimates have corn yield at 185 to 186 bushels and while I am lower than that at 182 I think if USDA lowers yield they will also lower feed and residual,” which he says will keep ending stocks ample.
Cattle Futures Bounce But Are Funds Done Selling?
Live and feeder cattle futures saw a bounce on Friday but was it just a “dead cat bounce”? The key will be whether or not the funds are done liquidating. Bennett says the market fundamentals have not changed but the market psychology has. “Funds are fearful of President Trump’s plan to lower beef prices and so they are heading for the door,” he says.
