Grains futures were mostly higher early Thursday as well as cattle, hog futures were mixed.
Soybeans Rally as Trump Touts China Deal
Randy Martinson with Martinson Ag says soybeans are hitting new highs for the move with the tailwind of comments from President Trump about getting a trade deal with China next week in South Korea.
Trump told reporters in the Oval Office that he would speak with Chinese President Xi Jinping on Russian oil, resuming soybean purchases and rare earths exports. “We’ll make a deal on, I think, everything,” Trump said.
China also said Vice Premier He Lifeng plans to meet with U.S. officials in Kuala Lumpur from Oct. 24 to 27 for the next round of trade talks.
Basis and spreads have also been firming, especially around soybean processing plants, in anticipation of possible soybean exports to China.
China Buying Brazil and Argentina Soybeans?
Despite that Martinson says trade talk is that China is back buying Brazil and Argentina soybeans.
That is a bit surprising considering their prices are higher than U.S. values.
How Much Could China Buy?
How many soybeans could China even buy from the U.S. if an agreement it struck between the two presidents?
Martinson says estimates put China’s needs for December and January at around 300 million bu. and while that would be an improvement on the current boycott of U.S. soybeans it is well short of the 800 million bu. of U.S. soybeans they bought last year.
He says the other question is how fast could U.S. farmers, especially those in the Northwest Corn Belt, get soybeans in place to rail to the Pacific Northwest and then shipped to China for December delivery?
Can Other Countries Back Fill for China?
If the U.S. doesn’t get a deal with China Martinson says other countries will likely back fill some of the export business but they can’t totally make up for the 800 million bushels China bought last year.
That is even if the USDA drops yields 2 bushels per acre in the future.
So there will still be bushels added on to the final ending stocks number.
Corn Tries to Follow Soybeans Hits Resistance
Corn continues to try to follow the strength in soybean prices and a sharp rally in crude oil with the U.S. imposing additional sanctions on Russian oil companies.
However, corn is once again running into chart resistance on the December contract around $4.25.
Export and ethanol demand has been strong which is also holding up futures and basis levels have improved as well according to Martinson.
Wheat Sees Short Covering
Wheat futures are higher early Thursday still within striking distance of contract lows in the three classes.
Martinson says wheat is seeing spillover from the rally in corn and soybeans but is also seeing fund short covering.
The market was also able to brush off news that the Trump administration was going to raise tariffs on Colombia which is a top export customer for U.S. wheat, but also corn and soybean meal.
Cattle Futures Try to Recover After Trump Beef Comments
Cattle futures are trying to recover from the melt down Wednesday that produced limit down closes in most of the feeder cattle futures.
President Trump’s negative social media comments tanked the cattle futures as he claimed he was the one that deserved the credit for the higher cattle prices with his move to increase Brazilian tariffs on beef 50%. He also said they would be taking further action to lower beef prices to help out consumers.
USDA released more details of their plan yesterday to expand beef production and lower retail prices and it included expanding processing, increased purchases of local beef for schools and opening up more federal lands to grazing.
In a move that is alienating cattle producers, a story from Politico says the White House is looking to buy four times its typical quota of Argentine beef. Trump administration officials have told congressional Republicans and agriculture industry representatives that they’re eyeing a purchase of 80,000 metric tons of Argentine beef, though that number is not final and talks are ongoing.
Argentina Beef Imports a Drop in the Bucket
Even if the U.S. increased Argentina’s beef quote to 80,000 metric tons it would not have a significant impact on the market.
However, Martinson says the Trump administration has also been meeting with Australia and has an upcoming meeting with Brazil and they could look at increased beef imports from those beef exporters.
Brazil was the top importer of beef into the U.S. before the tariff increase in August and that could be market moving according to Martinson.
When Does Cash Trump All?
Fundamentals have not changed in the cattle markets and the tight supplies and strong cash values for fat and feeder cattle remains.
Martinson says its only a matter of time before the cash market brings the futures back to reality.
Yes, there will be fund liquidation on fear of the administration’s beef plan which could bring a deeper correction but he thinks the market will find support on the charts.
