Ahead of the Bell: Grains, Soybeans Weaker on Fading China Trade Deal Optimism

Posted on 11/16/2018 7:28 AM

Grain Calls

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

General Comment: Global trade concerns are keeping pressure on world stock and commodity markets after U.S. Trade Representative Bob Lighthizer denied a report Thursday that he told some industry executives that another round of U.S. tariffs on Chinese imports had been put on hold as the two nations pursue talks. That followed comments by Commerce Secretary Wilbur Ross yesterday that the U.S. still plans to raise tariffs on China in January, with Donald Trump and Xi Jinping only likely to agree a “framework” for further talks when they meet at the G-20 at the end of month. Market expectations for a breakthrough were reduced and buying dried up in commodities. In a move away from the crowd, Morgan Stanley says the dollar’s bull run has ended and it’s time to sell the currency “The dollar may weaken as credit spreads widen, equity prices fall, and sovereign bond yields also begin falling amid disinflationary pressure and falling oil prices,” Morgan Stanley’s global head of FX strategy Hans Redeker wrote in a note. Goldman Sachs and Credit Agricole also see a weaker dollar ahead. A growing pool of banks calling for a weaker dollar may lead to increase in investment in commodities including grains as fund managers move out of stocks and bonds.

Corn is expected to be steady to weaker on weak technical chart signals and slowing demand from ethanol producers. The drop in crude oil prices has had a negative impact on ethanol processor margins, increasing slowdowns. The weekly USDA export sales report showed sales in the week ended Nov. 8 were 892,500 MT, up 27% from a week earlier and 95% higher than the prior four-week average. Sales were at the high end of trade estimates and should helped to put a floor under prices as futures head for a second weekly decline. South Korea bought 198,000 MT of corn from the U.S. and optional origins on Friday for delivery in February.

Soybean prices seen steady to weaker, pulling back from a two-day rally as traders will be waiting for fresh and likely daily indications of the direction in U.S./China trade relations.  South American weather remains favorable with a drier outlook in Argentina for improved planting progress. Buenos Aires Grains Exchange estimates planting is 22% complete, down from an average of 37%. Rains in Brazil maintain favorable soil moisture with planting approaching 80% complete in many areas. However, there is been some concern developing about too much rain in central and northern Brazil if it continues for several weeks, reducing sunshine and keeping soils saturated.  Weekly export sales rose 47% to 470,400 MT last week from a week earlier and were 54% ahead of the four-week average. Europe and Argentina continued to be the top buyer. USDA daily reporting service said private exporters sold 100,000 MT to unknown destinations for delivery this marketing year. Also, soybean meal sales were very strong at 432,300 MT.

Wheat prices seen weaker amid slow export demand. USDA said sales last week to 438,300 MT, down 34% from the prior week and 18% below the past four-week average.  Trader are also waiting for some details from Saudi Arabia’s tender for 475,000 MT of wheat. Rains are reducing crop conditions in Argentina where 44% was rated “good” to “excellent” this week, compared with 58% a year ago, the Buenos Aires Grains Exchange said. Argentina exporters may be reluctant to offer wheat because of the higher quality wheat demanded by Saudi Arabia.

Livestock Calls

Cattle: Steady to weak
Hogs: Steady to firm

Cattle futures seen steady to weaker as lower, albeit light, cash cattle bids seen putting the market on the defensive. However, firmer wholesale beef prices moved slightly higher Thursday on moderate new sales.   USDA weekly export sales report showed beef sale improved 18% from the prior week but were still 16% below the four-week average.

Hog futures are expected steady to firm on a rebound in cash hogs following the recent decline.  However, fresh pork values were low on Thursday, refocusing trader attention on large market-ready supplies.  U.S. exporters sold 20,500 MT of pork last week, down 3% from the prior week but up 14% from the four-week average. African swine fever (ASF) was confirmed in Sichuan province in southern China, the 18th province to report the deadly hog disease. The country’s ag ministry also says ASF was also discovered in a wild boar in Jilin province in northeastern China.

 

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