Soybeans futures ended higher Monday, with corn and wheat lower. Cattle and hogs both posted gains.
Soybeans Recover as China Trade Tensions Ease
Mike Zuzolo with Global Commodity Analytics says soybean futures closed slightly higher on Monday as trade tensions with China seemed to ease over the weekend.
On Sunday, Trump posed on social media, “Don’t worry about China, it will all be fine! Highly respected President Xi just had a bad moment,”. “The U.S. wants to help China, not hurt it!!!”
President Trump did not remove the threat of 100% tariffs but USTR Greer and Treasury Secretary Scott Bessent both acknowledged the situation had de-escalated and indicated there were substantial communications between the two sides over the weekend and more meetings were expected.
Zuzolo says, “Secretary Treasury Bessent, I think gave us a couple of clues on Monday saying that they dialed things back, and that he thinks that the two presidents will meet at the end of the month in South Korea.”
Soybean Traders Still Cautious
Zuzolo says soybean traders are still cautious trying to determine if the U.S. and China can still strike a deal or not but the outside markets seemed more optimistic than the soybean market.
“I think the market believes that the opportunity is still there. I don’t know if the market really has yet at this point Michelle priced in the idea that we may not get any business until January, February. That’s my inkling.” he says.
At the same time export data confirmed China bought a record 12 MMT of soybeans in September and for the first nine months of the year a total of 86.2 MMT, up 5.3% from last year.
However, most of that was purchased from Brazil as China has still not bought any new crop U.S. soybeans he adds.
“That ends up being 9.5, 9.6 million tons a month that we’re missing out on Brazil’s number showing that about 93% of their exports went to China. So it shows that the Chinese are getting plenty. I wouldn’t be surprised at this point to think that the Chinese are actually stockpiling at this point in case things do go bad at the end of this month,” he says.
How Low Could Soybean Prices Fall Without a China Deal?
Zuzolo thinks without a deal with China soybean prices could fall to the levels seen during the last trade war in 2018.
“We’re going to get first notice day, November beans at 10 plus, cash market 50 to 85 cents below that, some cases a dollar below that in the Dakotas, which one is right with November getting ready to go into delivery. So I think we’re just
starting to find out the price discovery mechanism as it relates to China’s lost business,” he explains.
How low soybean prices fall depends on whether or not the U.S. and China get into a full-blown trade war but it is also dependent on peace in the Middle East and the impact that could have on the currency markets.
“The biggest tail when we’ve had since these tariffs hit on Liberation Day and even going back to last February was a sinking U.S. dollar. Are these two major shifts geopolitically and economically going to create the dollar to be a safe haven again?”
If it is he thinks soybean prices could since back to the levels hit in 2018.
“And it was from the end of May to just the middle of June of that year that we lost about $2 a bushel. So again, I don’t think we’re out of the woods, especially if that US dollar bounces and that Brazilian currency especially starts to sink with the Chinese currency,” according to Zuzulo.
Can Anything Save Soybeans Beyond a China Deal?
Zuzolo says while soybean yields are coming down it may not be enough to offset the loss of China demand, so a South American weather problem may be the only hope.
“I think we’re looking at December or January as the best opportunity for a turn in the market, whether it’s China buys, if they don’t come to an agreement here at the end of this month, or the Brazilian or Argentine weather stokes up,” he says.
Corn Falls on Harvest Pressure
Corn futures were also lower and made six week lows as harvest pressure weighed on the market as well as technical selling and bear spreading.
Zuzolo says he has trimmed his national yield projection on corn.
“The corn yield I could dial down from my current 184 maybe as down to as low as 182.5 to183 Just because the expectations are not being met especially in the Western Corn Belt. And my clients in Illinois are telling me their yields are below expectations,” he states.
However, that may not be a big enough yield drop to get ending stocks under 2 billion bu.
Wheat at Contract Lows Competing With Corn
Zuzolo’s other concern with the corn market is wheat is competing against it as prices have gotten low enough for it to be put in the feed ration.
Hard red winter wheat hit new contract and five year lows again on Monday and the other classes are close to their contract lows as well and he says it will take some sort of weather problem in the U.S. or globally to change that.
Cattle Hit Record Highs
Live and feeder cattle futures hit more all-time and record highs in all but the October live cattle contract.
Zuzolo says the perfect storm has supported the cattle markets with cash feeders leading the charge.
“The yearling sales, the spring calf sales have really been strong. I saw Oklahoma City opened up on Monday as a very strong market as well with the feeder sales, Michelle. So the cash is feeding the bull right now,” he explains.
However, he thinks the feeders may be running out of gas as they have hit his price target of $375.
Meanwhile, fed cash trade in the North developed Friday at mostly $235, up $5 and the 5-Area Weighted Average Steer was reported by USDA at $235.20 last week, up $4.44.
What Breaks the Cattle Market?
Still Zuzolo says any correction in either live or feeder cattle futures at these high levels would not change the trend of the market.
He thinks the only things that could break the market are the reopening of the border to Mexican feeder cattle or an economic slowdown that hurts the stock market and consumer spending.
Hogs See Short Covering
Lean hog futures were slightly higher on Monday with short covering after the market got over sold.
Zuzolo doesn’t think it is the start of a major recovery in the market.
