Ahead of the Open: China Buys Some U.S. Corn, Markets Watching Weather

Posted on 03/22/2019 8:09 AM

Grain Calls

Corn: Up 2 to 4 cents

Soybeans: Down 2 to 4 cents

Wheat: Up 1 to 2 cents

 

General Comment: Grain and soybean have plenty of mixed China trade headlines to pick from this morning. On the positive side, U.S. President Donald Trump told Fox Business Network this morning that

U.S. trade negotiations with China were progressing and a final agreement "will probably happen." Asked about his previous remarks about U.S. tariffs on Chinese goods staying in place for a period of time, Trump said there was no snag in negotiations.
U.S. Trade Representative Robert Lighthizer and Treasury Secretary Steven Mnuchin will travel to Beijing for meetings at the end of next week, and Chinese Vice Premier Liu He is expected in Washington in April. The current goal is to reach an accord after Liu’s trip, though President Donald Trump has said he wants a deal that can be enforced, not one that’s quick.

The markets are eager to find out whether the promise of long-term U.S. tariffs on China is a negotiating tactic or sometime that is real. If US/China tariffs remain in place, they create a “trust issue” for both sides that could harm the chances of a final pact. If a deal is struck with the US/China both keeping tariffs, that would signal only China government companies would buy U.S. farm goods, reducing potential tonnage. Private companies would not be able to pay the tariffs and still compete.

To further complicate negotiations, Taiwan and the U.S. will hold talks later this year as part of upgraded efforts to counter China’s growing pressure on Taiwan for political unification. President Trump has elevated 40 years of informal ties with Taiwan through more open contact and planned arms deals. Bloomberg reports this morning that the Trump Administration has given initial approval to Taiwan’s request to buy more than 60 F-16 fighter jets for the first time since 1992. China said the U.S. should stop arms sales to Taiwan. 

 

USDA daily export sales reporting service said private exporters sold 300,000 metric tons of corn for delivery to China during the 2018/2019 marketing year. That is a positive development, confirming rumors the past 24 hours.

 

Corn market is seen firmer after rising near a one-month high overnight on rumors China is shopping for U.S. corn for immediate shipment to show the U.S. it is complying with promises to buy U.S. farm goods and encourage the Administration to drop their demands to keep tariffs in place as an enforcement mechanism. Sales announced this morning confirm the rumors and should add to the upside in early trading. Forecasts for more rains the next two months aggravating flooding and keeping fields too wet for timely planting adding additional bullish sentiment.  Prices are testing the 50-day moving average at $3.79 3/4. NOAA said on Thursday that the extensive flooding in Nebraska and Iowa would persist in the wider region through May and become more dire as water flows downstream. About 13% of the U.S. ethanol production capacity has been closed by flooding, as plants in Nebraska, Iowa and South Dakota have been forced to shut down or scale-back production. The U.S. has some 200 ethanol plants capable of producing 1.06 million barrels per day (BPD), and about 100,000 to 140,000 bpd of capacity has been taken off line due to the floods, three trade sources told Reuters.

 

Soybean futures are seen opening lower but look for some buying to develop on the weakness. Planting delays for corn and wheat may lead to more soybean acres this spring since the oilseed can be planted later without yield drag. U.S. prices remain above both Brazil and Argentina export offers, limiting buying outside of China, which has pledged to buy more U.S. to complete a trade deal.

 

Wheat futures are heading for the first two-week gain since late January. The market has absorbed fund selling well this week. Watch for a close above $4.73 in May SRW futures today to confirm a seasonal rally is unfolding. Exports remain sluggish, but an upturn this week may bring in increased bargain buying from overseas consumers. Taiwan bought 111,000 MT of U.S. wheat overnight. The story is weather. Too wet in the U.S. wheat belts and more rains seen into May. Drier conditions are also beginning to develop in parts of Europe and the Black Sea region.  

 

Livestock Calls:

Cattle: Steady to firm

Hogs: Higher

 

Cattle futures seen steady to firm, following the hogs higher. Cash trade has been slow to develop with packers and feedlots waiting for this afternoon’s monthly Cold Storage and Cattle on Feed Reports to make sales. A wide range of guesses from analysts on both the marketings and placements categories signals a fair amount of uncertainty for cattle inventories. We expect today’s Cold Storage report to show frozen beef stockpiles of around 490 million lbs. at the end of February, down roughly 20 million lbs. from the month prior and inline with the historical average decline of 18.5 million lbs.  

Hog futures seen higher after closing up the expanded limit on Thursday. Expectations for strong Chinese demand for pork paired with a rising cash market have fueled the red-hot rally. National average cash prices surge $3.34 on Thursday and wholesale pork carcass values jumped $2.20. This afternoon’s Cold Storage Report will provide another read on demand. We expect it to show there were around 590 million lbs. of pork in frozen storage at the end of February, lighter than the 10-year average and a rise of 37.3 million lbs. versus the historical average increase of 44 million lbs. That would be especially impressive considering the huge surge in pork production last month. CME Group has hiked margins on lean hog futures from $1,705 per contract to $1,980 per contract. That may slow the buying after active short covering this week. China’s Ag Ministry on Friday urged rural governments to offer temporary subsidies to pig breeding farms and large-scale producers to help stabilize hog production, as fears grow about the impact of a severe disease outbreak on pork supplies. Official figures show the size of the country's pig herd has slumped by nearly 17%.

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