October 19, 2019

Markets Hang on Trade Negotiations

Good Morning from Allendale, Inc. with the early morning commentary for February 13, 2019.

Grain markets hang on the latest headlines out of China as negotiations between the US and the Chinese continue on trade. President Trump's reaction to any headlines has the potential to swing markets one way or the other.

US/China Trade headlines sparked markets yesterday, and left traders looking for more. The latest has President Trump saying that he could, "let the March 1 deadline for a trade agreement with China slide for a little while, but that he would prefer not to and expects to meet with Chinese President Xi Jinping to close the deal at some point."

World Weather, Inc. notes that drying in Southwestern Argentina is expected to expand. They stated, "The region, like most of Argentina, will experience at least seven days of dry and warmer than usual weather. The combination of low soil moisture and quick drying is going to induce rising crop stress and some production concerns for late season crops."

Malaysia will increase the amount of palm oil used it their biodiesel from 10% to 20% according to a government offical. The move comes as the country deals with record stocks and low prices.

The U.S. Environmental Protection Agency is considering releasing its draft proposal to expand sales of higher ethanol blends of gasoline without including simultaneous measures it promised the oil industry to curb biofuel credit speculation, according to three sources familiar with the matter. The move would help the agency lift a summertime ban on sales of so-called E15 gasoline in time for the U.S. driving season, but is likely to anger oil refiners that had been asking the Trump administration for biofuel credit market reforms to reduce their costs. (Reuters)

Through January 15th (the most recent data available), trading funds were net sellers of 47,735 corn contracts to reduce their net long position to 27,459 contracts. In soybeans they sold 19,662 contracts to be net short 20,882. They bought 518 wheat to reduce their net short to 15,961 contracts.

Managed money funds were estimated buyers of 21,000 corn contracts, 9,000 soybeans, 2,000 wheat, 4,000 soymeal, and 1,500 soyoil in yesterday's trade.

The economic calendar has MBA Mortgage Applications Index out this morning along with CPI and Core CPI at 7:30 AM CST, Crude Oil Inventories at 9:30, and Treasury Budget at 1:00 PM.

The latest live cattle position held by managed money funds was net-long 98,557 contracts, an increase of 2,818 over the previous week. In hogs, they were net-sellers of 1,944 to be net long 11,567.

April hogs left a gap on the chart from 59.37 - 59.45. June posted a 75.85 - 76.15 gap as well as hog futures climbed higher. Rumors that supplies could be returning to normal helped spur the buying.

The five year average basis last week was +$1.67 (cash over futures). Keep this in mind when evaluating what futures are implying for the period ahead. Basis in mid-March is normally $4.36 over April futures.

Dressed Beef Values were mixed with choice up .28 and select down .86.  The CME feeder index is 141.66.  Pork cut-out values were down .24.

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