Corn and wheat ended higher Tuesday with soybeans lower. Livestock futures saw a down day in cattle but higher in hogs.
Corn Rallies on China Buying?
Corn futures were up for a second day after seeing technical buying and with some talk of China buying corn out of the Pacific Northwest. Ted Seifried with Zaner Ag Hedge says rumors of China purchases circulate nearly every time the corn market rallies. However, he is not seeing evidence of those purchases and doubts China needs corn. “I don’t know why China would buy U.S. corn. It wasn’t part of the agreement, which is yet to be signed. So unless it was politically motivated, I would think China would want to go to Brazil. They have this new relationship with Brazil. When it comes to their corn, I think they want to protect their relationships with Brazil,” he says.
He admits port values in the PNW did kind of spike and so did basis. However, he doesn’t think that necessarily means China. “It could be one of our normal customers, like Japan, for example,” he says.
Corn Sees Short Covering
So Seifried thinks the bounce was technically inspired buying after the March contract bounced off the 100-day moving average support area on Wednesday. However, corn has been trading sideways between that support and overhead resistance up at the 200-day moving average. He says if corn could finally close above that level for more than a day, it could take out the $4.50 area and stage a bit of a breakout.
“We saved a breakdown below the neckline of what could potentially be a head and shoulders topping formation in corn. Now, if we were able to get up and over that 200-day moving average for the fourth time, close above it and then not break down the very next day like we have the previous three times. We could potentially break out to the upside and really negate this potential head and shoulders formation,” Seifried explains.
Corn Needs a Catalyst
However, corn will need a catalyst to get above that chart resistance because farmer selling picks up when corn gets to the top side of the trading range. The catalyst could come in the January WASDE if USDA would lower yield. It would take a sizable cut to get the bulls excited and get below 2 billion bu. carryout he says. “I do think if you cut two or three bushel an acre off of corn, we’ll get below a 2 billion bu. carryover, but I don’t know about significantly below 2 billion bushel because it will be offset by USDA lowering feed and residual,” he explains.
Wheat Follows Corn
Wheat futures got spillover support from the corn market but Seifried says soft red winter wheat also saw technical buying to relieve its oversold condition. “Chicago wheat hit new contract lows Tuesday and Wednesday so it was due for a correction,” he says. However, wheat will have a tough time rallying due to the big global production. “USDA has had to continue to raise the world production number. I think we’re, what, 30 MMT off of the original number they had a few months ago,” he states. China canceling two cargoes of white wheat from the U.S. was also bearish for the market. “Anytime China cancels anything, that really does not help the market psychology.”
Why Do Soybeans Continue Lower Despite China Purchases?
The soybean market continues to slide despite the confirmation of export sales and China soybean purchases. USDA reported another 4.2 million bu. flash sale of soybeans to unknown destinations on Thursday morning and adds to the string of recent purchases that have included China. Seifried says however, that business has not been enough to support the market because it’s half the soybean purchases China made last year.
“The problem is, is that I think the markets realized that 12 million metric tons probably isn’t enough to get us to the USDA full marketing year expectations for our exports, and that they’ll probably have to cut exports again if China doesn’t buy above and beyond that 12 million metric tons. And while the buying is good, the pace does not suggest necessarily that they’re going to outperform on that one,” he explains.
Seifried says South American weather is also favorable and soybean prices in Brazil are cheaper than the U.S. and so there’s no reason for China or any other countries to buy soybeans if it isn’t politically motivated.
Funds also got near record long in mid-November while the government was shut down and they are exiting those positions. “The analyst guesses were, were so far off they weren’t even half of what the funds actually accumulated as far as their long position. And the funds have just simply lost interest in the story. And so they’re getting out of that position,” he adds.
Soybeans Make New Lows for the Move
Soybean futures made new lows for the move on additional technical selling and fund liquidation. Seifried says the market confirmed the head and shoulders top, fell to fill the chart gap areas and then closed below that level which is bearish. Funds got near record long in soybeans in mid-November and then started to bail on those positions and take profits and they are still liquidating.
Profit Taking in Cattle
Live and feeder cattle futures were down for a second day with the market consolidating after several attempts to take out chart resistance areas. Seifried says in live cattle the market has been capped by the 100-day moving average. So, cattle are at a pivotal point and need to fill gap areas on the chart to keep moving higher.
“I mean, the good news there is that both cattle and feeders did close well off their lows. So, you know, we didn’t completely fall apart after running into the one hundred day moving average, major moving average pretty much five days in a row. Not being able to to to break through it and break out to the upside and fill the gap above us. The market finally just gave in a bit.” he says.
Cash trade will also be a key. Thursday some light trade developed in the North at mostly $358 dressed, up $4, with a range of $355 to $363 and live sales prices at $228.
Lean Hogs Finish Higher
Lean hog futures were higher on short covering and fund buying after a lower day on Wednesday. Seifried says the hog market is also getting support from a possible seasonal bottom in cash and cutouts.
