Grain and livestock futures closed mostly lower on Thursday.
Soybeans Fade as China Buys More From Argentina
Mark Schultz, Northstar Commodity, says soybeans ended lower in tandem with lower soybean meal as China reportedly bought another 10 plus cargoes of lower priced Argentine soybeans after they dropped their export tax.
“The government announced that they were gonna follow that all taxes on all agricultural products to zero all the way to October 31st in an attempt to generate more cash. The Argentine government puts on a tax for the Argentine farmer about 26%. So that goes down to zero. That’s an improvement of almost a little over as a bushel for the Argentine farmer for his beans. So he’s been an aggressive seller,” he explains.
The sale put total purchases over 20 cargoes in two days, which would equal 1.3 MMT, and Schultz says there is talk that China may buy more.
Argentina has nearly 7 MMT of soybeans stockpiled they could sell but he questions how many more cargoes of whole soybeans they can afford to sell without putting their crush industry at risk of running out.
“I would say they’re going to have to walk a pretty fine line here. They might do another million metric tons. But after that, then I think the Argentine farmers are going to our Argentine government would like to keep it further in-house. They like to be a big supplier of meal in the world. They’ll need those beans for crushing,” he adds.
Argentina is the top exporter of soybean meal in the world and has relied on that business for years.
Bearish Export Demand Keeps Piling Up
Schultz says the export news for soybeans has continued to be bearish as China has bought no new crop soybeans this year and there is speculation they may be able to go without sourcing from the U.S. without a trade deal.
He says that puts the U.S. soybean export program in jeopardy and may force USDA to lower their export projection, currently at 1.695 billion bu., similar to the levels during the 2018 trade war with China.
“Right now export business is maybe slipping another 150 to 200 million bushels from what USDA currently has on the books. Could be a little bit more than that. It all depends, because then and you’re going to focus on Brazil beans, which are already planting down in the South. So they’ll be harvesting beans in Brazil, probably by first half of January for sure.
And again, they’ll be right, those beans will be right back onto the world market. So, our window of opportunity to sell at least to China has gotten very, very small,” he says.
Can Soybeans Continue to Hold $10?
Schultz says with this much negative demand news he’s been surprised the soybean market has been able to hold prices above $10 to $10.05 on the November contract.
“If you ask me I’m still wondering why we’re not already at $9.50 futures on the bean market at the present time,” he adds.
However, without a China deal or big yield cuts he thinks the market could fall below that level and retest the August low at $9.81.
Corn Ends Lower But Still in an Uptrend
The corn market also saw spillover pressure from the higher dollar and lower soybeans.
So far, corn has been holding together due to the combination of disappointing yield reports and strong demand.
Flash export sales were reported in corn for a third day with Mexico buying another 12.3 million bu. and weekly exports are expected to be strong.
Will Corn Get Above Chart Resistance?
Despite its resilience, December corn has been unable to get above chart resistance around a gap area at $4.32 1/4.
And Schultz says it will be a slow grind.
“If you can clear that, and I would still say you’re gonna run into resistance about every eight to 10 cents higher from there, you’ll bump into some resistance. And as you go up, you’re likely to have more farmers selling,” he says.
Wheat Futures Fail Again
After a reversal off contract lows in all three exchanges and a strong finish on Tuesday, the wheat market failed again on profit taking and the higher dollar.
Schultz says there is also just too much competition in the global wheat market at present.
Cattle Futures Consolidate Awaiting Cash
Live and feeder cattle futures both saw consolidation as the bullish news regarding New World Screwworm and the Cattle on Feed Report are already priced in.
Schultz says boxed beef is also nearly $30 off its highs.
We were $403, $406 dollars on the choice cutout about three weeks ago and here we are now sitting about $378, $379. Packer margins running around $130, $135 per head in the red. And they were about $135 to $140 in the black 10 days ago,” he explains.
So, he thinks the market is waiting for cash development and needs see higher prices to be able to retest the recent contract highs.
Lean Hog Futures See Profit Taking and Hedge Selling
Lean hog futures saw some profit taking a day after scoring new contract highs and seeing the October contract extend about the $100 level.
However, with the profitable margins offered he thinks hog producers were also doing some hedge selling.
“If you just look out and take your profit margins and locked everything up. You’re probably talking about $34 to $37 a pig profit, something we haven’t seen since 2014. So that it’s pretty impressive,” he says.
Traders were also likely positioning ahead of the USDA Hogs and Pigs Report out on Thursday.
Schultz is expecting a bearish report as he thinks numbers are both slaughter numbers and weights are starting to show that expansion is starting.
