Late-week bearish grain sellers get turned on their head overnight.
The grain trade is reacting to the foolishness they pursued last Thursday-Friday, as I explained the trade always throws the baby out with the bathwater and goes into liquidation mode when it does get what it’s wants. Sharp reversals were seen overnight with soybeans, corn, and wheat all gapping double-digit prices higher. China will be buying not only the agreed-upon 25 MMT of soybeans over the next three years, but also corn, wheat, and some beef and pork.
This renew China interest in US grains is occurring as we see potential production declines in the safrinha corn crop, with large areas of dryness resulting in irreversible losses. High expectations for a sizable new-crop Brazilian corn are being scaled back. You wouldn’t know this, but some weather observers contend that things are okay. Still, not only is Brazil’s corn crop getting smaller, but there is a need for more domestic feed and fuel.
The overnight rally may be checked by day-trading sell vigilantes, but buying will likely continue, as many traders are caught short ahead of what could be a significant shift in carryouts, which were already lower last week. China's procurement of up to 30 billion dollars of ag goods will be supportive for Chicago wheat (SRW wheat, which they like to accumulate and will tighten carryout significantly), with corn and soybeans also in the hunt. Last week’s US carryouts will be lowered again in the coming reports.
Cattle futures went out strong last week, with record cash prices. A $260 price was seen in both the north and the south, while dressed sales were in the $408-415 range. Cattle futures should also open higher this morning on word that several packing plants were put back on the authorized lists to sell to China, and China’s interest in buying US beef. Last week’s cash feeder index had slipped $4.74 and was at $370.09, but will look to improve this week after last week’s early one-day cash drops were absorbed.
Last week’s box beef values had choice picking up $0.86, while select pushed higher by $ 4.24. Slaughter margins are put at a loss of $146/head, but the byproducts should produce gains of $ 41. Poultry continues to be Tyson's saving grace for a source of profitability.
August cattle is now the spot-active contract, with resistance at 252.51 and support at 243. August feeders need a close above 364 today to keep technicals (moving averages and wave count developments) from turning negative. August feeder cattle have created a no-fail line at 352 that needs to hold on a closing basis, no matter what happens. Again, a close above 364 today is needed to keep August feeders in a friendly tone with live cattle.