Ahead of the Open: Corn, Soybeans Steady to Firm to Start Ahead of China Trade Talks, USDA Reports

Posted on 03/25/2019 7:36 AM

Grain Calls

Corn: steady to up 1 cent

Soybeans: Up 2 to 3 cents

Wheat:  Steady to mixed

General Comment: It will be quiet until late week when rains return, U.S. negotiators travel to Beijing for more talks and USDA releases its Prospective Plantings and Quarterly Grain Stocks reports. China talking positive about working to satisfy U.S. demands to reach a trade deal and that has grain exporters watching for more purchases of U.S. ag commodities. China will work to boost imports and achieve a more even balance of trade with the United States, Vice Premier Han Zheng said on Sunday, just days ahead of the latest round of talks aimed at bringing an end the tariff war, the South China Morning Post reported. Han said also that China would improve market access and ban the practice of forcing foreign firms to transfer proprietary technology to joint venture partners. China will reduce direct government intervention in its vast industrial sector, Miao Wei, the industry minister said on Monday, as Beijing seeks to ease concerns about its industrial policy, core to Washington's complaints in the Sino-U.S. trade war, Reuters reports today. Still, China on Monday urged the United States to properly handle Taiwan-related issues to avoid damaging China-U.S. relations and peace and stability across the Taiwan Strait, Xinhua state news agency reports. Foreign Ministry spokesperson Geng Shuang made the remarks at a news briefing when responding to media reports saying the United States sent two warships through the Taiwan Strait on Sunday.

The market will also be waiting for the USDA’s Prospective Plantings and Quarterly Grain Stocks report. Most are looking for farmers to have told USDA they intended in early March, before the flooding, to increase corn acres at least 2 million to as much as 3.6 million acres from a year ago. The average estimate is for a 2.2 million-acre increase to 91.3 million acres, according to a Bloomberg survey. Traders are looking for corn stocks on March 1 to be down about 6.5% from a year ago when USDA releases its numbers next week. That’s a bigger drop than the 5% YOY decline reported on Dec. 1 because of increased exports and feed demand. Traders surveyed by Bloomberg look for acreage to fall to 86.2 million acres from 89.2 million planted last year. March 1 inventories are expected to soar 28% to a record 2.702 billion bushels for the date.

 The U.S. bond market is edging closer to signaling a recession. The spread between the 3-month Treasury bill and the 10-year note move into negative territory on Friday, the first time since 2007. The more widely watched part of the curve — the gap between yields on the 2-year and 10-year debt — is getting closer to inversion as well, falling to just 10 basis points, versus 60 basis points a year ago. The yield curve has been a reliable recession indicator in the past. Developed-market sovereign debt continues to rally, with yields in Australia and New Zealand dropping to record lows overnight following the inversion of the U.S. yield curve on Friday, while Japan’s 10-year yield fell to the lowest since 2016. Money markets are now pricing a 90% chance that the Federal Reserve will cut rates by December. Chicago Fed President Charles Evans in a speech in Hong Kong this morning said that the Fed may have to ease if downside risks take hold.  The dollar is slightly weaker this morning and a positive for grains.

The flooding will worsen across the West Central U.S. with snowmelt and rain combine and add water on saturated soils. The peak in the flooding is not expected until the first 10 days of April provide the slightly drier forecast is realized. Rains are forecast to return later Thursday into Friday and the weekend. things turn quiet again the first half of next week----temps will be running below average the next 10 days.

USDA daily export sales reporting service said private exports did not make any large daily sales.   On Friday, USDA announced 300,000 MT of corn to China, the largest Chinese corn purchase in 5-1/2 years and a rare sale of the grain in the middle of the U.S.-China trade war.

Corn market is seen steady to firm on concerns about wet soils and flooding in the northern Plains and Midwest increasing late planting risks. The weekly CFTC report showed funds increased their record net short to 261,326 futures and options in the week ended March 19 and commercials further reduced their record small net-short positions to 5,820 contracts. This remains the fuel for a major rally with any bullish surprises in the USDA reports at the end of the week or continued wet conditions lasting into the end of April.   

Soybean futures are seen firm on hopes for additional Chinese soybean purchases this week.  China reduced its global soybean imports 18% to 4.456 MMT in February, including 1.986 MMT from Brazil. U.S. soybean shipments to China rose to 907,754 MT in February, up from 135,814 MT in January and just a fraction of last February’s 3.35 MMT. The CFTC reports showed funds reduced net-short positions 26,205 contracts to 63,992 futures and options last week, still the biggest bearish bet for this time of the year. Commercials cut their net-long position to 1,539 futures and options but remain the largest ever for this time of the year despite record supplies coming quickly from South America. Funds also bought back a chunk of net-short positions last week, but still hold the largest bearish bet ever for this time of the year.

Wheat futures are seen mixed this morning waiting on tonight’s monthly USDA crop conditions state updates. Rains seen aiding HRW crops but keep SRW areas too wet in some areas. Managed funds increased net-short positions to the 73,506 in SRW wheat futures as of March 19, the largest since April. Funds were net short a record 51,380 contracts in the HRW market, CFTC data showed on Friday.

Livestock Calls:

Cattle: Steady to firm

Hogs: Higher

Cattle futures seen steady to mixed, watching the hog market for direction. The week’s cattle slaughter was an estimated 631,000 head, versus 611,377 head last year, with Friday’s kill 113,000 head and Saturday’s kill 42,000 head. Packer beef margins for the week were a positive $93.25 per head, versus a
positive $99.08 the week before, according to HedgersEdge.com. Beef prices were mixed on Friday and up for the week with Choice slipping 22 cents to $229.09, but still up $2.01 for the week.  Cattle on fed report Friday was slightly negative. Total inventory in feedlots on March 1 were 0.7% larger than a year ago, compared with expectations for a 0.4% decline. Placements rose a larger-than-expected 2.2% in February from a year earlier and marketings increased a smaller 0.5% from last year. Higher placements year-on-year in Nebraska and Iowa were slightly surprising considering feedlot conditions there. USDA’s Cold Storage Report shows there were 479.3 million lbs. of beef in the nation’s freezers as of Feb. 28, roughly 10.7 million lbs. lighter than what we anticipated and a 30.9-million-lb. drop from January. The 10-year average drop for this period is 18.5 million pounds. The outsized drop is even more impressive with higher production in February, confirming strong beef demand.

 Hog futures seen steady to firm, but a pause would not be a surprise at some point this week after this month’s surge in prices. National cash hog prices jumped another $2.29 on Friday to $66.44, up $12.24 last week and $21.72 this month! The pork cutout values rose $8.90 last week to $77.79 and up $17.30. Pork margins were positive by $21.26 per head, versus a positive $28.81 per head the week before. Some may see the March 1 cold storage report slightly disappointing for the pork market at first blush, with stocks climbing 53.2 million lbs. (9.5%) from the end of January to 616.0 million pounds. On average, stocks typically surge 33.1 million lbs. over the period. Pork production jumped 5.3% in February, and some of that supply may have been withheld by packers and exporters in anticipation of increased Chinese buying. China imported 81,493 MT of world pork supplies in February, up 13.6% China has reported an outbreak of a highly pathogenic strain of H7N9 bird flu at a zoo in northeast Liaoning province, the country’s ag ministry said Monday. The virus was first detected in a flock of peacocks. from the year prior. So far this year, the country has imported 207,041 MT of the meat, up 10.1% from year-ago.

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