Grain and livestock futures ended mostly higher on Monday.
Soybeans Soar on Hopes of China Soybean Purchases
Arlan Suderman, chief commodities economist with StoneX, Inc., says soybeans led the rally with nearly 24 cent gains in November on hopes for China export business after President Trump tweeted he’d encouraged Beijing to quadruple their purchases.
However, he thinks the market may have gotten ahead of itself.
“I don’t blame traders for covering some short positions just in case there were purchases or even a deal announced but I think the market may be too optimistic about the news,” he says.
Especially since there was no confirmation in the commercial market of any sales and certainly no indication of a deal at hand.
“China does have enough infrastructure within the system that they can kind of buy some under the cover, but we see no evidence of it, and it’s unlikely that they did,” he adds.
Trump Extends China Tariff Truce 90-Days
The markets closed just as President Trump announced he was extending the Aug. 12 tariff truce between the two countries another 90-days.
“The fact that President Trump, according to CNBC, signed an executive order extending the suspension of the high tariffs in another 90 days, indicates to me we’re probably not close to a deal involving commodities yet.” explains Suderman.
Will a Possible Deal Miss the Soybean Export Window?
The 90-day extension could mean the U.S. will miss the fall export window for selling soybeans to China and that is a concern to Suderman.
“Yeah, another 90 days takes us to November and trade deals usually tend to wait to the last minute for leverage against the clock. So, this is not a good sign for getting a deal signed that’s going to impact soybean trade. If you look at soybeans at China’s books on the books right now, they usually are very active booking new crop soybeans in the summertime for delivery. As we harvest those beans, immediately load them on a boat and start them across the water.”
China has not bought any soybeans in the new crop marketing year even though U.S. prices are over $1 below Brazil.
He says China has enough Brazil soybeans booked through October, even November and so the U.S. may not pick up any business until after that.
“They have 12 million metric tons landed in July. I think 11 million bushels, excuse me metric tons were expected to land this month, 10 or 11 next month, 9 million in October,” he explains.
China is also buying Argentina soybean meal as a contingency plan in case a deal isn’t worked out with the U.S.
Markets Gear up For WASDE: Is the Most Bearish Yield Priced In?
Corn and wheat saw some spillover support from the rally in soybeans, but the grain markets were also squaring ahead of the August WASDE.
Suderman thinks the 184.4 bushel corn yield estimate may already be worked into the corn market.
“The market bottomed last week when the average trade guesses came out at only 184.4 on corn yield. That told me the traders were looking for a higher figure,” he says.
Will August Be The Biggest Yield Estimate From USDA?
Suderman says it is very likely August will be the high water mark for yield as USDA does not use field surveys for the report and because of past precedent.
“I dug up the data for the last 32 years going back to 1993. And I found that the final yield was higher than the August yield in those years when they raised it in August only five times. It was lower than that August yield 11 times and matched it once. And so USDA, when they raised it in August, have a tendency to overstate the yield and then pull back from that,” he explains.
So, Has the Corn Market Bottomed?
If USDA comes in with a smaller yield estimate than 184 bushel and that is confirmed by the crop tours in the Midwest he thinks it’s possible the corn market may have put in an early harvest low with the contract lows scored last week.
“Last year the market bottomed in August and so the precedent has been set,” he says.
What Will the WASDE Hold for Soybeans and Wheat?
Suderman says soybean yield estimates heading into the WASDE are at 53 bushels, which he thinks is reasonable. He doesn’t expect much change in demand from USDA.
“I wouldn’t be surprised if they cut their new crop exports, but I don’t expect them to do that in this report.”
Wheat production is expected to be slightly higher due to strong hard red winter wheat yields, but could be offset by a lower spring wheat production estimate and better demand.
Market Watches Trump Putin Meeting
President Trump and President Putin are set to meeting in Alaska on Friday and the market will be closely watching the outcome especially commodities like crude oil and wheat.
Suderman doesn’t think there is much war premium in the ag markets and so a cease fire could be negative for the wheat market.
Cattle Recover Monday But Is the Top In?
Cattle futures saw a slight bounce on Monday after bearish reversals on Friday which has many calling a top in the cattle market.
However, the fact that live and feeder cattle futures both posted higher weekly closes on Friday is a signal to him that the top may not be in just yet.
