Grains, cotton and hog futures ended mostly higher Wednesday with cattle mixed.
Soybeans Rally as Export Business Confirmed: Was it China?
Soybeans ended slightly higher as rumored export business was confirmed by USDA with a flash sale of 13.2 million bu. sold to unknown destinations. Of that 2.2 million bu. were old crop, the balance new.
Was this China in buying U.S. soybeans?
Ted Seifried says it fits their norm. “Yeah, I do think it was China. You know, they like to play their unknown destination game. But a lot of times, you know, when we’re playing the game on the other side, we can see when it’s denominations of a certain amount. I think it’s 106,000 metric tons. That generally means it is China or a lot of times will be China. So, I think very likely it was.”
However, he is not sure if it was China fulfilling their trade deal or if the buy was for political reasons. If so, he thinks it would have been in their best interest not to purchase under the category of unknown destinations. Still China may be doing that to keep a lid on prices.
“So I think China is starting to buy for for next year. Now I’m not sure if that’s them upholding the trade deal. I don’t think this necessarily means that they’re going to hit that 25 million metric tons that had been talked about this might be China getting a little worried about the Super El Nino that’s forecast for the next Brazilian growing season,” he adds.
U.S. Soybean, Grain Prices Competitive
China may have also been buying as U.S. new crop soybean prices had finally dipped below Brazil’s price and were competitive.
“We are competitive and so we should see more of these sales. It is the time of year where we would start to see China getting involved in buying new crop. So all of this is sort of business as usual for the moment,” he says.
However, Seifried points out the question that is not answered yet is will China buy 25 million metric tons or will it be closer to the 12 million metric tons that they bought last year?
Tariff Cuts Awaited
Also if China is going to buy the entire 25 MMT will they have to lower the 10% reciprocal tariff on U.S. soybeans so commercial firms can buy?
“China has a lot of power over their private firms as well. If they’re told to buy something for political reasons, they will do it. Yes, it would be very helpful for China to drop any sort of tariffs that they have on U.S. soybeans. But is it necessary to get it done? I don’t know,” he adds.
China Looking for Corn and Wheat?
Corn and wheat were also sharply higher on rumors that China was looking for corn and wheat bids according to Seifried
“Yeah, the word inquiring, right? You know, we heard that word on Tuesday about inquiring about soybeans, and then we see some flash
sales, right? And that’s the process. That’s how it goes with China. But inquire doesn’t necessarily mean purchases. The way that corn and soybean acted today, though, it felt like, yeah, they might be in there buying some U.S. corn and some U.S. wheat,” he explains.
Seifried says he will be anxiously awaiting additional flash export sales over the next few days.
“We might not see everything tomorrow. I’m not sure we saw all the soybean sales that were rumored come through on Wednesday morning. I think there might be a little bit more behind it that we see Thursday or Friday. So we’re all kind of sitting on the edge of our seats to see if they bought, what it looks like, how it’s done, and all the details about that,” he adds.
Will This Stop Fund Selling or Trigger Fund Buying?
Just having China back in the market is energizing the market but will it get funds to cover shorts positions or to at least stop selling?
He says, “I don’t know if they have a whole lot more to liquidate in corn or wheat. The question is soybeans, and that’s more of a soybean complex question. I really don’t like what soybean oil has done here the last couple of days. I’m a bit worried about that. If they start liquidating their soybean oil position more aggressively, then I’m worried about their soybean position as well.”
And it may keep them from wanting to go short in the corn market because Seifried thinks the recent sell off may have been tied to disappointment about how these trade deals have performed, specifically the $17 billion discusses with China recently.
“There was no sign that China was going to do anything to fulfill that or that prorated amount for this current marketing year or calendar year. We’re not sure. We never saw this thing signed. So this would change that maybe a little bit. I’m not sure it’s a true confirmation that motivates the funds to go run back in and rebuild that long position back to where it had been. But I think at the
minimum, it might stop them from continuing to sell or get shorter,” he adds.
Technical Bounce or Are the Lows In?
From a technical standpoint, you could certainly argue the markets were oversold and due for a technical bounce and grains held chart support where it was needed.
He says, “We got down to 26 on the relative strength index that’s about as low as corn usually gets and so you know from a technical standpoint that was telling them to stop selling either way. Then Wednesday’s nice reversal higher we just missed an outside reversal higher day, which when down near the lows like this means something.”
Still, it is too early to say the lows are in according to Seifried and the market will need to see higher weekly closes,
“Yeah, a higher weekly close would be great, an outside higher weekly close would be even better,” he states.
Gearing Up for Reports?
Could the funds also be pausing to get the USDA Acreage and Quarterly Stocks reports out of the way?
Seifried says analysts are working on their numbers right now but some private firms have already released estimates.
“This is a really interesting question this year right because historically anytime we are above average pace and planting we almost always get more corn acres. However is this the big one-off year because of the high price of fertilizer at the time of when we were making these decisions a month and a half, two months ago or so?” he asks.
With a fast planting season there could have been more corn acres and that is the historic tendency.
Cattle End Mixed, Light Profit Taking in Live Cattle
Live cattle futures ended mostly lower after making more new highs for the move.
Seifried chalks that up to profit taking ahead of cash and the USDA Cattle on Feed report.
However, this also follows a strong technical day when live cattle closed above all major moving averages, so it isn’t a concern.
“Look what we did on Tuesday. You know, roaring back, closing up the highs again.”
He says the charts had been looking suspect due to concerns about demand with high gas prices and the stock market coming under pressure.
“But in just the last week, a lot of that has changed and a lot of it’s stemming from the ending of the war in Iran. Stock markets come back up in a big way. Now, it faded a little bit today because of the rate decision and the language used there. However, the stock market coming back, crude oil prices coming down, much less concern about that domestic demand, and we come roaring back,” he concludes.
