Ahead of the Open: Grains Weak on Large World Inventories, U.S./China Trade Talk Uncertainty

Posted on 02/11/2019 7:54 AM

Grain Calls

Corn:  Steady to down 1 cent
Soybeans: Weak to down 2 cents
Wheat: Down 2 to 3 cents

General Comment:  

 U.S.-led trade uncertainty along with increasing concerns over the extent of the current global growth slowdown has seen a drop in commodity demand. Last week, the European Commission sharply downgraded euro zone growth for this year and next and U.S. President Donald Trump added to the anxiety with a declaration that he had no plans to meet with Chinese President Xi Jinping before the March 1 deadline to achieve a trade deal. Chinese Vice Premier Liu He will join Treasury Secretary Steven Mnuchin and Trade Representative Robert Lighthizer in Beijing for high-level trade talks Feb. 14-15, with Lighthizer recently warning that time is running to make enough progress on a new deal. The markets are also watching for a U.S. Commerce Department reports due on Feb. 17 that could impose auto tariffs on European cars. Against a backdrop of global growth uncertainty and despite a Fed that is comfortably on hold, the dollar continues to win the least ugly contest with negative rates continuing in Japan and Europe boosting dollar buying.

The USDA on Monday did not confirm any additional Chinese soybean purchases. Between Monday and Wednesday, the agency announced sales totaling 3.8 million metric tons (MMT) to China, and 98% of those were for delivery in 2018-19. Another 456,000 MT were reported sold to unknown destinations for delivery this season.

Brazil corn and soybean belts will get near- and above-normal rainfall over the next two weeks as cool fronts trigger t-storms in varying areas at varying times, easing the size and intensity of soil moisture dryness.  Argentina receives some storms through today, but that is followed by at least 10 days of drying, which may become more notable with time because rainfall was also limited over the last two weeks. 

Corn is seen starting a little softer this morning. Prices traded in a wide 8-cent range on Friday and closed lower. That negative price action is keeping pressure on the market this morning as larger world inventories offset smaller U.S. crop and inventory forecasts from USDA on Friday.

Soybeans seen slightly lower after a mixed overnight trade. Brazil's 2018-19 soybean crop estimate was cut by more than four MMTs to 112.5 MMT, agribusiness consultancy AgRural said on Monday, as it revised a forecast from January citing a drought in key producing states.  Farmers have halted sales of Brazil's soybeans as port premiums declined, the real currency strengthened and a pause in a trade war prompted top importer China to purchase soy from the United States, growers and trading companies said. This morning, USDA confirmed export sales of 120,000 metric tons of soybean meal for delivery to Ecuador, with equal amounts sold for 2018-19 and 2019-20.

 

Wheat prices seen weaker to start, testing last week’s lows.  Wheat rose on Friday after USDA confirmed U.S. growers planted the second-smallest acreage since 1909 this year.  However, the agency estimated U.S. quarterly and end-of-season wheat stocks at the high end of analyst forecasts, while also raising its estimates for wheat production and exports in top supplier Russia, allowed prices to give back much of the midsession gains. U.S. wheat exporters won a 120,000 MT sale to Egypt on Friday as part of a tender purchase by the world's biggest wheat importer, but the market is looking for signs of more business. Russian ag minister meets with grains exporters today but no limits are expected to be announced. This morning, USDA reported128,000 MT of hard red winter wheat for delivery to Nigeria during the 2018-2019 marketing year while also confirming the Egyptian purchases from Friday.

Livestock Calls

Cattle: Steady to mixed

Hogs: Weaker

Cattle futures seen mixed after posting strong gain to close out last week. Beef carcass prices were down on Friday with Choice falling $1.36 and Select slipping 36 cents. Sales were light even as slaughter rose 4.2% last week to 614,000 head. Packers did pay more for cattle on Friday and that signal packer may need cattle this week. USDA on Friday trimmed is estimated gain in 2019 beef export to 75 million lbs., down 10 million lbs. from its December forecast. U.S. beef production in 2019 will rise 750 million pounds, that down 180 million from its December projection. USDA export projection may prove too low as cattle ranchers in Australia’s Queensland state lost more than 500,000 head in recent flooding.

Hog futures seen on the defensive to start this morning. Wholesale fresh pork prices fell 29 cents on Friday on sluggish sales. Prices fell $2.19 last week, ending at the lowest since Aug. 29. Cash hogs were mixed on Friday with the national average price falling 13 cents while the Iowa/Minnesota weighted average rising 34 cents.  Slaughter last week rose 5.3% to 2.516 million head. On Friday, USDA reduce the expected rise in pork exports in 2019 to 361 million lbs., down 150 million from December’s projection. USDA also cut its forecast for the increase U.S. pork production this year by 380 million pounds, still looking for an increase of 1.02 billion pounds from 2018. China’s ag ministry confirmed a case of African swine fever on a farm that raises 4,600 pigs in Hunan province.

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