Grain and hog markets were mostly lower Monday with cattle higher.
Soybeans Correct in a Risk Off Day
Soybean futures saw a correction on Monday after seeing the market close well off its highs on Friday on a combination of farmer selling and profit taking. Risk off in the outside markets also played a role in the selling pressure according to Lane Akre, economist with Pro Farmer. “Yeah. The outside market volatility has just been keeping up and especially gold and silver and commodities as a whole with the volatility we see in a crude oil futures. You’ve got guys trying to take money from one place, put it into another place because these moves just get exacerbated, especially in the metals market. and CME group continues to ratchet up margins and guys got to take some risk off the table.”
Do Soybeans Have the China News Priced In?
Soybeans however, were up 50 cents in the March contract last week on President Trump’s social media post that China agreed to buy another 8 MMT of soybeans for the current marketing year. Monday brought confirmation of 9.7 million bu. of that business but is most of this news and new demand priced into the market? Akre says, “Not yet. There’s no way because if China is going to fill in a 20 million metric tons, it’s going to change the balance sheet in a pretty big way. Exports have honestly been pretty good, especially the last few weeks. Inspections have actually been above average for what USDA’s estimate is currently at. And even if we only increase exports to 1.650 billion, we’re bringing down the balance sheet to 265 million bushels, that’s tight. And that’s not reflected in the prices right now. And if China does buy that total 20 million metric tons, we’re going to be tighter than 265 million. And that’s not in the balance sheet yet.”
How Much More China Business Does the Market Need to See?
However, the soybeans have not retested the mid-November highs. So, how much more China business will need to be confirmed for a rally to that level?
“A couple more flash sales. I don’t think it’s going to take too much. And I think some of that consolidation that we’re seeing is farmer selling and it is just some technical correction. So with that big move that we’ve seen, we’ve consolidated within Friday’s range today and have to think a little bit that’s positioning ahead of tomorrow’s USDA report too. There’s not going to be many changes in that report, but still some traders like to take some risk off the table ahead of these USDA reports.”
Bean Oil Rallies on India Deal, 45Z
Bean oil was up sharply on the interim deal with India. However, he says a lot of Indian farmers are really concerned about this deal, but right now the US bean oil price is really competitive on the Indian market. And if we’re able to export more there. It’s offloading some of that extra supply that we’re getting from the really robust U .S. crushing pace that we continue to see running upwards of 9 -10 % over last year’s pace, which was also a record.” The market is also seeing some buying on last week’s 45Z proposal.
Funds Adding to Long Soybean Position
The funds have also started adding to their long soybean position again according to Akre. “And with some of the volatility that we saw last week, there was 800 ,000 contracts trading across the contracts and soybeans, and that could easily flip from a net short to a really impressive net long on the bean front. So it’s hard to say where funds are going to be at. We’ll find out Friday, just how much buying they did do. But you’ve got to think it’s pretty impressive.” That means new money is coming into the market.
Corn Disappoints
Corn followed soybeans and wheat lower despite a big plunge in the dollar index. Akre says the market has been disappointing, with old crop only up 2 cents compared to soybeans being up 50 cents. “We’re up against that sideways range, that capped price action, all of November and all of December, that we basically fell out of after that big January report. So if we’re able to break back into that sideways range, I think that’s about as good as it’s going to get for corn for now, until we might see demand really show up in a big way in the latter portion of the marketing year. Right now, we’re still dealing with nearly a 2 .3 billion bushel carryout, and that’s just a lot of supply to work through.
WASDE Positioning
The grain markets were also seeing some positioning ahead of the WASDE Tuesday which is usually a yawner in February. However, it may still confirm the large corn ending stocks. “We shouldn’t see much change. USDA could make a lot of changes. The December Crushings report indicated a really terrible ethanol yield. And if that continues and it indicates a low quality crop, they’re going to have to use a lot more bushels to make ethanol than what we usually have to. And a lower quality crop would also indicate that they’re going to have to feed cattle more just to get the same kind of caloric output that we’re used to. And that’s good on the demand front, but I don’t know how drastic USDA. is going to be making these changes. But after this one month of really new crop data indicates that lower quality crop could be increasing use by a pretty significant amount.”
South American Weather
Another pressuring feature on Monday was Argentina looks like it may get some rain and the corn and soybean markets took note. Although there isn’t much change expected to show up in the South American numbers in the WASDE. “The pre -report estimates show some increases in the Brazilian estimates, and that could be weighing on the market a bit but we’ve seen some concerns over this for freedom of plantings but yeah Argentina has
been garning a lot of attention with some of that recent dryness but it’s also hard to say how much of the damage is already done from the dryness that they have seen.
Wheat Fails Even With Lower Dollar
Even with a plunge in the U.S. dollar the wheat market could not get any traction. “No, just overabundance on the world market. I mean, the U .S. sees a logistical disadvantage in terms of exports, and that’s where any of the increases that we’re going to see in demand is going to be coming from exports. So if we’re having challenges in the export front, we’re going to be really struggling to garner any kind of bullish momentum. Export inspections weren’t bad this morning, just not good enough.”
Cattle Extend Gains
Cattle extended gains on Monday pricing in higher cash at $242 to $245 in the South, up $3 to $6. “Yeah, the cash is currently trading over nearby futures.” he says. “For the past several weeks, futures have been trading over the cash market. We’ve kind of seen a bit of a shift in that front. So you would think that the continued strength that we’re seeing in the cash market, we averaged over $240 last week, you’d think that futures would kind of be playing catch up because last year, about this time, futures were doing about the same thing. But the cash market never slowed down, and the beef supply is not going anywhere. But I think that new world screwworm risk of crossing the borders is just weighing on people’s minds.”
Hogs See Hedge Pressure and Profit Taking
Hog futures were down again on Monday on hedge pressure and profit taking. Akre says, “So I think some guys are taking advantage of the higher prices. We issued out some hedge advice just a couple weeks ago. Trying to just cover some of that summer risk and it’s also a bit of a wait -and -sea market there as well because demand could be playing a big role in the pork market over the summer months. Over the past year and a half, we’ve been thinking that these high beef prices are going to slow down consumer consumption, and it really hasn’t. But pork could really play a big role on picking up some of that demand. Lost on the beef side this summer, but I think the market’s got to see it before it really prices it into the futures.”
