China softens some Covid policies, and OPEC leaves oil production unchanged.
Grain futures are firmer for corn and wheat, while soybeans enjoyed a second day relief rally from last week’s heavy selling. China relaxing some of its zero-tolerance Covid restrictions contributed to the crude oil rally overnight (OPEC left production unchanged) and general optimism about China’s increased need potentially of raw materials. The Chinese Hang Seng index rallied 4% on the news that the government will not require commuters in their largest cities to take Covid tests with a negative result needed before travel. The Hang Seng tech-heavy index is the largest 30 Chinese technology companies, and that surged 8%.
OPEC announced on Sunday that there will be no change in its production which is consistent with its October meeting, as some thought there might be cuts. But it was the Chinese story that helped support crude all rallying over $2.00 a barrel overnight, back to last week’s highs.
This coming Friday is the December 9 Supply/Demand crop report, with increased carryouts starting to become anticipated. Australia will release its 2022 final production report Tuesday, December 6. This report will have a better reflection on the impact of all the rain that has fallen in Eastern Australia through mid-October and how it has impacted yields.
South American forecast shows Argentina receiving improved rain potential after December 10, with models indicating additional rainfall in the two-week forecast. Brazil continues to enjoy near-normal rainfall and near to below-normal temperatures over the next two weeks. Various weather models have been adding and subtracting Argentine rain over the weekend as the forecast tries to get locations and amounts more accurate. What is apparent is that La Niña is decaying, and the odds of Argentine rainfall improving will likely work its way into the models well into December. Extreme heat is in Argentina currently in the mid-90s-lower hundreds but will dissipate towards the end of the week.
Live and feeder cattle closed higher for last week, with a firm start anticipated this morning. Negotiated fed cattle trade was steady to higher, with the southern plains at $155, while sales in Nebraska and IA/MN were from $157-159, steady to $3 higher. Dressed sales were at $249, up $4 for the week. Box beef values did slip with choice down a $1.90 and select falling $9.81. Slaughter margins for packers dropped to $47/head, which was the lowest since late 2017. The cash trade has now converged with the CME futures as futures are hesitant to add premiums into early 2023. Continued strength in futures will likely be led by the cash market, as this is a sign of a bull market climbing a wall of worry.