Corn and soybeans end lower Friday, with wheat mixed. Cattle rally, while hogs retreat.
Why Do Soybeans Keep Making Fresh Lows?
Soybean futures made new lows for the move again on Friday and March was 27 cents lower for the week. Soybeans have corrected around $1.20 from the highs on Nov. 18 and are trading lower than before the China deal was announced on Oct. 30. Jim McCormick with AgMarket.Net says the slide has been frustrating in light of recent confirmation of China sales. The problem is the export business, even if China buys the full12 MMT, is not enough to fix the lagging exports.
McCormick says the soybean market exploded in an anticipation of a trade deal with China. “The funds just poured money in, took it to the second largest long position ever, okay, topping that position out when the market topped out here in late November,” he says.
However, in the process, U.S. soybean prices got too high and now are trying to find fair market value. “It’s because what happened when China came in and bought beans, Michelle, it was a political buy. It wasn’t economical. The beans are
being sold cheaper on the world market to the Chinese from the Brazilians. They bought our beans simply because the deal was you buy our beans and then we will buy your computer chips,” he explains.
Soybeans See Chart Damage
Now the market is seeing technical selling after damage was done to the charts according to McCormick. “Now, as we started taking out support, we took out the neckline of a head and shoulder pattern, and we trapped a lot of that length in the market,” he explains. So, now the traders that have been trapped and taking losses are liquidating.
How Low Will Soybean Prices Fall?
McCormick is hopeful after three weeks lower the soybean market has gotten oversold enough it can find a low soon. Where is the technical low? He says, “For the last few months, you get down to the $10.20, $10.30 zone, that’s going to be support. So, roughly 30 cents lower on the January contract.” He anticipates some short covering into the end of the year under light volume, essentially a dead cat bounce. However, even then soybeans will be in a trading range where $10.80 is going to be resistance. So, the market could trade in that range through the end of the year.
South America Weather a Headwind
The other factor causing the ugly slide in soybeans is the lack of weather issues in South America. “That’s the biggest problem the American producer has right now, who has beans or wants to market new crop beans. Our competition, South America, is going to have a big crop it looks like at this point in time. The world is oversupplied at the moment. So it’s going to be tough.”
Corn Slightly Higher for the Week But Range Bound
March corn was up 3 cents on the week but still could not get through the 200 -day moving average even with strong exports and talk of China business. McCormick says the market is range bound. The bottom of the trading range is supported by strong end user demand, while the topside is limited by farmer selling.
So it will take a supply shock in the January WASDE to change that and get ending stocks below 2 billion bu. “So the fear is they’re going to lower this crop two, three bushels. They’ll pretty much offset it by lowering the feed and residual comparable amounts and that will keep carryout over 2 billion bu. “And that means we’re just that status quo that we’ve been in, unfortunately for the last couple of months and continue trading the sideways range.”
China Buying Corn?
Even rumors this week that China was buying corn of the Pacific Northwest failed to get March corn to sustain a rally above the 200-day moving average. McCormick says, “Our cash contacts are telling us they do believe some deals were done. We did hear there was quality issues with part of the Chinese crop so it makes sense that maybe they are doing a
little bit of buying maybe a little bit political buying but the fact of the matter is six or seven boatloads is not going to be enough to be a game changer for the market right now,” he adds.
Wheat Market an Anchor
Winter wheat futures also ended lower for the week and are only a few cents off contract lows in soft red winter wheat contracts. That has been an anchor on the corn market and the pressure in wheat is likely to continue according to McCormick as nearly every major wheat producing country has had a record crop. “The problem is if you got all this excess world wheat around that could be fed,” he says.
Cattle Futures Higher for the Week, Still Unable to Break Resistance
Live and feeder cattle futures were slightly higher for the week but if you look at a chart they had a fairly sideways week. The 100-day moving average continues to cap any rally attempts. To get through those areas and move up to fill the gap areas on the charts will take continued strong cash prices and strong demand. He is concerned with a slow down in demand after consumer credit card bills come in from Christmas buying. However, he admits cattle supplies remain tight and so far there has not been any sticker shock for consumers.
“The question now is how bad is the economy going to be? I mean, you had Chairman Powell say, look, you know, the job market is getting weaker. That is why they cut interest rates. I think that is going to be a red flag for the beef market.”
After the close USDA’s Cattle on Feed Report was bullish, showing on feed numbers at 98%, placements at 89% and marketings at 88%.
Lean Hogs Pause Before the Next Leg Higher?
Lean hog futures were slightly lower for the week taking a little pause after a nice correction from the lows. However, McCormick thinks the market can take the next leg higher with the help of the softening dollar which makes pork exports more competitive. Plus the continues problems with African Swine Fever in Spain could open the door for more U.S. pork movement.
