Wheat shows small gains again this morning after yesterday's strong gains.
After an initial soft overnight grain trade, President Trump stated during a press interview that he may start out with a 10% tariff on China by February 1 (not really a surprise and less than ever anticipated). However, as early morning hours came, the grain trade firmed, with more short covering noted in the wheat trade. In yesterday’s strength, basis erosion was noted as farmer selling has become very prevalent over the past week during this current price lift.
Dryness continues to be a concern in southern Argentina in Buenos Aires, where 30% of Argentina’s crop is raised. Rains look to be in the forecast for Southern Brazil and the northern half of Argentina later this week, with seasonal temperatures in the 80s and 90s. Meanwhile, below-normal rainfall and above-normal temperature trends exist across S Argentina, where crop losses are starting to mount. The soybean harvest in northern Brazil is only at 2% when typically, this time of year should be at 10%, but it should start to advance over the next week as a drying trend begins to develop.
China has suspended five Brazilian export firms because of recent old crop cargoes that did not pass phytosanitary inspection. The cargoes were either sharply discounted or sold back in the world market. China is trying to raise crush margins and slow down imports for the post-Lunar New Year. Also, end-of-season crop soybeans can often hold more residue as bins are swept clean.
Index funds are now caught in a game of chasing out of what was profitable shorts that were not lifted at the end of December more aggressively, and this is in soybeans first. Now, wheat is finding itself being caught in the same game of trends that appear to have ended to the downside, and sideways action has given way to funds not wanting to be short soybeans and wheat while wanting to add to length and corn. This could be a sign that the present future’s advance could soon be coming to an end for a while, as the last 10 days of January and the first 10 days of February are typically a very price negative seasonal. Farmer sales accelerate during this time of the year with so many bills due in February. This is why February is called the John Deere low.
Cattle futures trading was mixed yesterday as we start a shortened trading week with live cattle firmer and feeder cattle softer. Cash markets in the Plains were at a standstill with frigid temperatures across IA and MM, which will cause cattle feeders in those regions to look for higher prices this week. Temperature relief does come here in the week ahead with a return to near to above normal temperatures. Meanwhile the mid-week cash trade appears to be steady.
IA State University estimates for December closeouts showed mixed results. The estimated margin on 560-pound steer calves was down $29/head for the month, but it still showed a positive return of $151. The return on finishing yearly steers was up $10/head for the month, but it still showed a $15head loss. Estimated breakeven prices were just below record highs at $186 for the 560-pound cans and $196 for yearly steers.
February live cattle are paused at $199, a few dollars under recent cash market quotes. The January 31 inventory report will give us the first peak at herd size movement in a year, as the semi-annual report on July 31 was canceled for budgetary reasons early last year. March feeder cattle continue to remain paused in the 268.00-270.00 range, which has proven significant resistance despite the cash index being much higher.