Grains turn softer overnight on China worries.

Grain futures opened firm last night but quickly softened as news that a Hong Kong Court issued a liquidation order for China’s largest property developer Evergrande Group. The liquidation order caused energy and a host of commodity markets to retreat on fears of a weakening Chinese economy. Evergrande Group has seen two years of debt default that is been going on since December 2021 and has been part of Chinese housing struggles since Covid. Last week, China's stimulus was considered an optimistic start to consumption, but that’s going to require a fall in Central Bank lending rates. China has been the demand driver for a host of commodities, and without China, we continue to see this deflationary effect hang over the commodity complexes.

The Commitment of Traders Report on Friday showed managed money sold 4,743 contracts of corn (net -265,285), sold 15,045 contracts of beans (net -91,842), and bought 4,034 contracts of wheat (net -64,541). Funds are the shortest they have been across the Ag complex in 4 years. This information is only useful if a spark were to ignite a surprise rally in commodities, and the massive short position of that size would create a substantial lift.

Mark cargo ships are avoiding the transit through the Red Sea, following a weekend attack on an energy cargo ship with the US expected to rally tallied for Iran’s drone attack on Jordan that killed three American servicemen. The Biden administration will try to respond to the weekend events without getting drawn deeper into the conflict and further raising world energy prices ahead of the US November election.

The FOMC Meeting is tomorrow and Wednesday. The Fed is not expected to adjust interest rates at this meeting. Bonds are pricing five Fed rate cuts in 2024, starting in May. On Wednesday, the Fed is anticipated to keep rates steady, but it’s the communiqué that Chairman Powell produces at 1:30 CT that the market will react to.

South American weather forecasts have the extended 11-15 day model in Argentina hoping for rainfall as stress is building on the crop. An extended 10-day stretch of hot, dry weather is ahead for Argentina and Southern Brazil before potentially some rains arrive in the February 9-14th window. Rain that far out currently is anticipated in the .25-1.25” range with dry weather to follow. Until then, Argentine crops will endure temperatures in the 99-106° range this coming week. Argentina has some sub-moisture that has allowed the crops to withstand the January dryness, but February and early March need to see meaningful rainfall to determine yield potential.

Live and feeder cattle had a strong week, with a firm start anticipated this morning. February cattle had the best weekly gain since late October; nearby futures have finished at an 11-week high. Negotiated fed cattle trade was active on Thursday, with prices $2 higher in the South at $175, while live sales in the North were $2-4 higher at $175-177. The dressed trade was $3 higher at $277. The Annual Cattle Inventory report will be out this Wednesday at 2:00 p.m. CT, and a smaller beef cow and feeder cattle inventory are expected. April cattle has targets for the current rally to be fulfilled at $182-183. March feeders are now near the 200-day moving average in a become overbought and also have achieved targets near 240.