Ahead of the Open: Wheat Reverses Part of Tuesday's Big Rally, Pulling Corn, Soy Lower

Posted on 03/13/2019 7:55 AM

Grain Calls

Corn: Steady to down 1 cent

Soybeans: Down 2 to 4 cents

Wheat: Down 3 to 8 cents

General Comment:  Grain and soybeans were defensive overnight after moderate to strong gains on Tuesday failed to find follow up bullish news. Global commodity and stock markets are cautious ahead of yet another make-or-break parliamentary vote on Britain’s exit from the EU. Speculators, commercials and farmers continue to wait for more news on the progress of U.S./China trade negotiations. Gold rose to a near two-week peak on Wednesday, holding above the key $1,300 mark as uncertainty over Britain's exit from the European Union drove investors to safe haven assets. Higher crude oil and slightly weaker U.S. Dollar Index slowed losses in the grains. 
Trade Representative Robert Lighthizer said on Tuesday during a Senate committee meeting that negotiators may be in the final weeks of discussions to hammer out a deal but major issues remained.  “If those issues are not resolved in favor of the United States, we won't have a deal,” he said. Lighthizer and China's top trade negotiator, Liu He, spoke on Tuesday, China's state media reported, and the U.S. trade representative said during the Senate hearing that he had another call scheduled on today. Lighthizer will be speaking to members of the House and Means Committee later today and is expected to make similar comments on trade talks.
Brazil is conducting studies on how it could be impacted by the end of the trade dispute between China and the United States, which could help Latin America's largest economy to formulate a response if it disrupts soy exports, agriculture officials told Reuters. Regardless of a potential Sino-American resolution, Brazil does not have the soy supply this year to match last year's China-driven spike in exports, said Eduardo Sampaio Marques, the Agriculture Ministry's policy secretary who oversees market analysis and subsidy programs. This year, output is lower and the country does not have inventory to redirect to exports, he added. Lower Brazilian supplies make it more likely China will need to buy soybeans from the United States, where record stocks are piling up in storage. 
China's banking and insurance regulator on Wednesday urged banks to continue increasing lending to smaller firms and further cut their financing costs, as policymakers work to avert an economic slowdown. Big state-owned commercial banks should increase outstanding loans to smaller companies by more than 30 percent in 2019, the CBIRC said, adding that it would also increase its tolerance for non-performing loans at small companies. Chinese banks have been wary of lending to smaller firms with higher credit risks, preferring state-backed customers. But authorities have been urging lenders to help keep cash-strapped private firms afloat, sparking concerns that looser lending standards will expose banks to more bad loans.
USDA’s daily export sales reporting services said no large sales were reported in the past 24 hours, a small disappointment with some looking for additional soy sales to China or even some larger corn or wheat business after recent price weakness. On Monday, USDA announced 926,000 MT of soybeans sold to China and 664,000 MT were announced sold to China on Friday.

Corn market are seen slightly lower, mostly following weakness in the wheat markets. Yesterday’s rally in corn was accompanied by a strong gain of more than 18,000 contracts, which suggest most of the buying was not short covering by funds holding large net-short positions. The National Weather is raising flood risks for most of the central U.S. river systems from North Dakota to Louisiana for the next two weeks as these weeks major storm with heavy snow in the west and heavy rain in central and eastern areas will begin a rapid snow melt and keep soils saturated. The next big storm is not seen until after March 24. The U.S. Environmental Protection Agency on Tuesday released its proposed rule lifting a summer ban on higher-ethanol blends of gasoline, putting the agency on a collision course with Big Oil which has called the move illegal, promising the law may be delayed in the courts.

Soybean futures seen slightly lower to start this morning after prices failed to build on Tuesday’s rally. Crusher demand for soybeans remains strong but may slow as reduced crops in Argentina and Brazil will soon be replenished as harvesting progresses in South America. Argentina exported just 1.4 MMT of soymeal during February, a three-year low and a 29% drop from the three-year average. Meanwhile, the trade flow data shows that Brazil exported 1 MMT of soymeal during February, just marginally under the four-year average of 900,000 MT and well below last year’s record-high 1.5 MMT in shipments. National Oilseed Processors Association reports on February crushing on Friday and traders look for another record.

Wheat futures seen falling back after Tuesday rising the most in seven months. The funds were record short and the buying snowballed, leading to more than a 20-cent gain. Beneficial rains are falling across much of the Great Plains this morning, boosting yield potential as the crops exit dormancy.  

Livestock Calls:

Cattle: Steady to lower

Hogs: Steady to firm

Cattle futures seen steady to lower in followthrough weakness to Tuesday’s steep decline. Funds have begun liquidating large long positions as futures fell below moving average support on Tuesday.  However, wholesale beef prices were higher again on Tuesday with Choice up 86 cents and Select gained 72 cents. Movement remains slow even as slaughter this week is up 7,000 head from a year ago and 3,000 head from a week earlier.

Hog futures seen firm on export optimism and strengthen cash market fundamentals. The pork cutout value climbed 65 cents on Tuesday and carcass values are now up $4.41 for the week. Movement was also strong at 445.82 loads. Cash hog bids jumped an impressive $2.43 on a national average basis yesterday. China has confirmed a new case of African swine fever in Sichuan province after a truck carrying pigs was stopped along the highway.

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