Grains end higher Thursday with livestock lower.
Soybeans Rally on China Trade Truce Extension
Soybeans and products rallied and struck new high closes for the move on Thursday with fresh buying in response to a report of a potential extended trade truce between the U.S. and China. Mark Schultz with Northstar Commodity says that fueled hopes for additional purchases of American agricultural products, including soybeans. President Trump and Chinese leader Xi Jinping could extend their trade truce by as much as a year when they meet in Beijing in April, the South China Morning Post reported Thursday and as reported by Bloomberg. There is also hope that tariffs may finally be lifted on soybeans.
“President Trump made a comment that China would be buying another 8 million metric tons of beans yet this year. Now, whether it’s this year or whether it’s going to be this marketing year, it remains to be seen. But regardless, it would be an increase of bean purchases. And also, they would hike up that bean purchases the following year as well. So those were all good signs that we have seen here over the last five to six trading days and certainly gave the bean market a pretty good
boost to the upside,” Schultz says.
Timing of 8 MMT Matters?
President Trump has stated the 8 MMT of additional soybean business would be old crop. However, there is no certainty regarding the timing of purchases. Right now Brazil is offering cheaper soybeans and that will continue as the harvest progresses. The market is acting like the business is coming today but Schultz says it could be after Brazil’s harvest or it could be split. “I would say even if it ended up being split 50 -50, it’s still going to be a positive sign for the market in here. So it gives you a chance to boost the prices,” he adds.
South American Crop Size
Schultz says the size of the South American crop will also dictate the timing and amount China buys from the U.S. Conab lowered Brazil’s corn crop 1 MMT to 138 MMT, but raised Brazil’s soybean crop 1.9 MMT to 178 MMT, which is 2 MMT below USDA. But Schultz says soybean crop condition ratings in Argentina dropped 7% to 8% in the good to excellent category, so that story is not over yet. He says, “I think maybe in the case of South America, I think you probably have seen potentially, I believe the high production numbers are probably in right now. I don’t think it comes down much, but at this point, but I think at least it probably trickles a little bit lower production or at least steady on the production out of South America.”
He goes on to say that will be at least somewhat helpful for the market. “If it goes to 8 million metric tons this calendar year, probably probably brings your carryout closer to maybe 200, 250 million bushel. If it’s a split half and half, you’d probably get at least under maybe 300 million bushels being carried out. So certainly builds the character or the market scenario that now a weather issue here in the U .S. could be a much more friendlier outlook for the price.”
The market was also keeping an eye on a potential worker strike in Argentina and that may have supported the soybean meal market on Thursday.
Retest the November Highs in Soybeans
With another new high close for the move will soybeans retest last November’s high around $11.72? Schultz thinks that is possible. “So if we take that out, then I would suspect you’ve got a market that would potentially lead you up towards that $11.95 to $12.05 area would be the next upside target on the bean. So it looks like it’s hard to believe that you could go that much higher at this point. But as I said, if you get now some fundamentals where there’s more bean purchases being made than everybody anticipated and couple that with any type of a weather problem that may hurt the crops in South America or at least prevent it from getting any larger. Now you’ve got something that maybe gets a little bit bullish atmosphere underneath that soybean complex”
Farmer Selling Picked Up
Some marketing firms are estimating that farmers have now sold 80% of their old crop soybeans. Schultz says there have been farmer sales on the run up in prices. “Oh yeah. I think the farmer’s selling has been significant on this move. In fact, a lot of it probably got done even at lower levels and where we’re at at the present time. And prior to that, they probably were pretty good looking sales. But yeah, it’s not only one chance. You’ve had two chances now in which the start pricing out beans more or less in the cash market, $10.80 to a low over $11 a bushel pretty much across the country.”
Corn Follows Soybeans and Wheat
The corn market was also higher following soybeans, but more so the double digit rally in wheat and strong exports at 81.5 million bu. Schultz says if wheat can keep moving higher it could help corn break out of it’s sideways trading range. “I do like the fact that the demand has been ferocious for the corn. Now we’re already almost at 2.4 billion bu. of corn on the books that has been sold. That’s a big number and we still got seven months to go.”
Wheat See Chart Breakout
Wheat was up 14 to 15 cents in both Kansas City and Chicago and March HRW wheat closed above the 200-day moving average, so its staging a chart breakout according to Schultz. “We made two month and six month highs on technical buying. If I look around, there’s really nothing that’s really friendly or bullish as far as weather’s concerned. Now, maybe a little bit too cold over in Russia, Ukraine might have done some winter kill. I don’t think we did much here in the U .S. on winter kill.?
Will the funds cover their short positions on a chart breakout? Schultz says, “The funds have been short for like two years. It has been the whipping post. If you want to go short, go short the wheat market.” So he’s not sure how much lasting power the rally has but in past years it can get explosive with a weather problem.
Cattle See Profit Taking Awaiting Cash
Cattle futures were lower with the sell off in the stock market but also saw some profit taking as the market could not take out resistance on the charts at last week’s highs. “Yeah, I mean, it’s a pretty good move up yesterday. And here we kind of toned it down just a little bit. I think this is a wait and see. We haven’t seen any cash trade really being reported. Boxed beef prices have been slowly trickling down. In fact, they’re down to the lowest level in 10 days. So the Packer margins continue to go more deeper into the red. So I think it’s a wait and see whether or not the cash that the packer pays up.”
The flip side is February is a slower month for demand but the swing to above average temperatures may allow some grilling in areas of the Midwest.
Lean Hogs See Sixth Day Down
Lean hog futures were down for a sixth session still seeing profit taking off the recent contract highs. The funds are exiting their long position which had build to over 123,000 contracts. “The hog market has been going to the upside here for 12 weeks up. And in those 12 weeks, those summer contracts posted about an $18 gain. That is any way you cut it, that is a big move to the upside. Now, you’ve had at least your first little corrections. You were due for some type of correction,” he explains. Wednesday the charts got beat up in the lean hogs so there was also follow through technical selling, “We did. October, December, and February contracts are right now working on a potential weekly key reversal lower. So that is a red flag right now. I don’t know if I want to jump on that just yet. We really didn’t do any technical damage on the front months we’ve only got a 38 % retracement.”
