Grains ended quietly mixed on Wednesday, with sharply higher cattle futures.
Soybeans Fade China Buys
Allison Thompson says soybeans paused on Wednesday with January down 3/4 cent as the market faded news of China soybean purchases. China’s COFCO made its first purchase of U.S. new crop soybeans buying 180,000 metric tons or 6.6 million bushels through the Pacific Northwest as a goodwill gesture ahead of the signing of a trade framework expected on Thursday.
She says the market faded the news because it was already priced in after soybeans had rallied nearly $.90 from the lows a little over a week ago. “Yeah, it seems like we got the classic buy the rumor, sell the fact kind of scenario playing out in the soybean market today. Overall, it was an inside day of trading which really doesn’t tell us much, but at least we didn’t trend lower on the news. It just really tells us that the market’s pausing here before finding its next move.”
Many soybeans contracts are also running into chart resistance and Thompson says there has been a pick up in farmer selling or hedge pressure as end of the month and first notice day approaches on Friday.
Market Wants Details in “China Deal”
The market is now looking for fresh news to rally after optimism about a trade deal between the U.S. and China to be announced on Thursday. Thompson says the market will need some details of soybean purchases to keep the momentum going.
“Hopefully we get some details. And I think ultimately, that’s why the market’s pausing here. You know, we’ve come up a lot knowing that a deal is coming, but now whether it continues or we sell off a little bit, really depends on what that structure looks like. We have not had a lot of details in any of these trade frameworks from the administration,” she explains.
Thompson points that since the U.S. went through the trade war with China in 2018-19 there is at least something to compare to regarding a deal. “We’ve had other trade agreements with them where they have been held to making purchase commitments. So if there’s any type of wording that maybe rephrases something to the phase one or the phase two agreement, at least gives the trade something to go off of, and that might be enough to boost the market higher.”
However, if the framework is vague the market could trend lower until more is known she adds.
How Much Will China Buy?
Speculation is running high that China needs 8 to 10 MMT of soybeans for January and February but its unclear if that is accurate or not.
Thompson says, “Yes there’s lots of numbers floating around the trade on what that could actually be. And you’re right, their window is going to be that January, late December, January, February time frame, which is very similar to last year. And actually last year, we saw them do a decent amount of buying during that same time frame. So I think it’ll depend, you know, if we’re filling reserves, if they got South America’s needs to meet their immediate needs, there’s a lot of different things here stirring this pot. And no one really knows all the answers to it,”
Corn Sees Technical Buying But Largely a Follower
Corn has followed soybeans on the rally according to Thompson but has also seen some technical buying and short covering. Yet she doesn’t want to discount the fact that the market is also seeing some good underlying demand.
“The bull spreads are working which indicates there is some demand from end users. We know exports, even though the government’s been shut down, we’ve had some good export business. I don’t foresee that slowing down on the corn side, but also domestic too. We’re seeing ethanol ramp back up with good usage as well.”
Corn is starting to run into technical resistance on the December contract around $4.40 and then $4.50 she says. “Filling that gap from early July earlier in the week, it really gave the market some momentum, " she adds.
Wheat Sees Further Short Covering
Wheat futures held slight gains on Wednesday as funds have continued to cover their long held short position in all three classes of wheat. However, Thompson says wheat has also been seeing more solid demand particularly on the export front.
Thompson is also watching weather in the hard red winter wheat areas of the Southern Plains. The precipitation was decent for planting but there is concern about increasing dryness and how if could impact the crop later in the season.
“So watching the forecast and making sure they have ample moisture going into this winter is also going to be something on the trade’s radar, especially as we’ve seen the National Weather Service coming out and giving advisories for La Nina going into February. And that usually means that area does tend to be a bit drier. So we could have some ammunition in the wheat market here depending on what the forecast does in the months ahead,” she says.
Cattle Recover on Mexican Border News
Cattle futures closed sharply higher on Wednesday as the markets reacted to news from Mexico’s Ag Minister who suggested there was no date reached for re-opening the U.S. border to Mexican feeder cattle imports. The fear of the ban being lifted attributed to part of the steep sell-off and so confirmation of import restrictions helped the market to recover.
However, Thompson says there was also some technical buying as the market got oversold on the recent melt down. She explains there are gap areas on the charts she is watching for the rest of the week to determine if this is a dead cat bounce or if the market can build on it.
You know, normally when we see a gap, we see that get filled sooner rather than later. So if the market is going to be falling back here later this week, it might be an indication that the trend lower has started. But if that gap does remain open going into the end of the week, maybe we are going to keep pushing this market higher.”
