Ahead of the Open: Corn Seen Firm on Weather, Record Fund Short Position; Soy, Wheat Mixed on China Trade Deal Delays

Posted on 03/18/2019 7:40 AM

Grain Calls

Corn: Steady to firm

Soybeans: Mixed to weak

Wheat: Mixed

General Comment: Soy and wheat prices are recovering some of the overnight losses tied to concerns a U.S./China trade deal may be delay until the middle of this year. A meeting between Presidents Trump and Xi to end trade war may be pushed back to June, sources told the South China Morning Post. While an April meeting has been described as less likely, the two sides could be able to reach agreement by the middle of the year, the article noted. While a Trump administration official Friday said progress was made on enforcement language, the SCMP article said a stumbling block is “the demand from some in the White House for an enforcement mechanism to ensure China lives up to its promises. China dismissed U.S. security warnings against its telecom’s equipment maker Huawei as groundless and "abnormal" on Monday, as the Chinese government's top diplomat Wang Yi went to Brussels this week to cool growing European frustration over trade.
While eager to talk up "win-win" cooperation with the European Union, the world's biggest trading bloc, Wang began a day of talks against a backdrop of intense EU diplomacy. The EU bloc is seeking to translate a new wariness about China expansionism and failure to follow international rules into a more defensive EU policy.  EU leaders will discuss China at a summit on Thursday for the first time in many years, part of a flurry of high-level meetings as President Xi Jinping travels to Italy and France from this week and the bloc holds a summit with China in April.

The story going forward is whether funds want to hold record short positions with futures below fair value. With the entire Northern Hemisphere growing season ahead, funds are short a combined record number of contracts of corn, wheat and soybean for this time of the year. Corn net-shorts expanded more than 81,100 futures and options to an all-time record 257,965 contracts in the week ended March 12. Managed money increased soybean net-short positions almost 40,000 contracts to more than 90,000. In the SRW wheat markets fund net-short positions slipped 300 contracts to 72,148 futures and options while in HRW funds increased net-short positions 4,415 contracts to 49,286 contracts. 
A late winter storm broadsided a vast swathe of the U.S. agriculture industry last week as heavy snow closed roads and buried cattle in the Plains while excessive rain flooded Midwest farm fields and swamped grain elevators. The U.S. Midwest weather forecast is drier through the Plains and Midwest the first half of the week before good rains arrive to the Plains over the weekend. Rains then move into the southern half of the Midwest Sunday into the early part of next week. Temperatures are seen running below average for the Plains and Midwest for most of the week then warming to near average later in the weekend and the first half of next week. INTL FCStone projected Friday that U.S. corn plantings will rise to 90.4 million acres and soybean plantings fall to 87.7 million acres. Corn planted acres forecast is about 1.5 million less than many trade estimates and soybeans are about 2 million more, reflecting some of the weather concerns. 
President Trump on Tuesday welcomes Brazil's president, with economic, Venezuela and trade issues on the agenda. Talks will focus on getting Brazil to lift tariffs on U.S. ethanol imports, approved an import quota of 750,000 MT of U.S. wheat and lifts its ban on U.S. pork imports.

USDA daily export sales reporting service said private exporters did not report any large new sales of U.S. commodities.

Corn market is seen steady to firmer in a continuation of last week’s fund short covering rally. Commercial traders hold the smallest net-short position ever as of last week. The underscores the wide divergence about corn prices between the record fund bets on lower prices and record-low short hedge position held by commercials suggesting upside potential. The last record small commercial short positions in at the end of October 2013 led to nearby corn futures rising 82 cents to a May 1 high.  

Soybean futures seen mixed today with fund short covering offset by worries a trade deal with China will be delayed. CFTC data on Friday showed commercials flipped to net-long 28,099 futures and options, the most since January 2018. NOPA processed 154.45 million bu. of soybeans last month, down from 171.63 million bu. in January but up from 153.72 million bushels a year ago. That was more than 4 million bu. above pre-report estimates. However, soybean oil stocks at the end of February swelled to a seven-month high of 1.752 billion pounds. The crush rate on a per day basis fell only slight to 5.52 million bu. from 5.54 million bu. in December and January.

Wheat futures seen mixed after giving back some of last week’s gains tied to fund short-covering overnight. Prices earlier rose to the highest since March 6. Prices fell to a 14-month low last week and that will be key support for the next several weeks. Traders have almost exhausted Ukraine's milling wheat export quota for the 2018/19 season, having exported 7.7 MMT of the agreed 8 million, analyst APK-Inform said on Friday. Like corn, commercials are holding a relatively small net-short hedge position of 11,155 contracts, the smallest since January 2018.

Livestock Calls:

Cattle: Steady to weak

Hogs: Steady to firmer

Cattle futures seen steady to weak amid lower cash markets to end last week. Wholesale Choice carcass values fell 71 cents on Friday and Select dropped $1.42. Movement remains sluggish. Cash cattle for down about $1 last week. Following the recent high, the cutout is expected to soften in the coming weeks, finding a short-term low in April. Fund positions increased fractionally to a net-long positions of 128,713 futures and options as of March 12, CFTC data showed on Friday. That is the most for this time of the year since 2014 and highest since November 2017. Wholesale beef prices, when looking at the USDA composite cutout, have traded at or above year-ago levels for all but one week so far in 2019. 

Hog futures are called higher after rising the exchange limits on Friday amid rising cash prices and fresh pork values. However, U.S. Customs and Border Protection agents made the biggest seizure of agricultural product in American history last Friday. The seizure in New Jersey of a million pounds of smuggled Chinese pork raises major fears that additional illegal shipments slipped through customs and may infect the U.S. hog heard with African swine fever and shut down U.S. exports. China made its biggest purchases of U.S. pork in nearly two years in the week ended March 7, USDA data showed last week. Funds were net short 3,633 futures and options as of March 12, down from 6,292 contracts net short a week earlier. That position probably is now net long after the buying surge to end last week.

Add new comment