Ahead of the Open: Grains, Soybeans Weaker on Larger USDA World Inventory Forecasts

Posted on 11/09/2018 7:43 AM

Grain Calls

Corn:  Down 2 to 3 cents
Soybeans: Down 2 to 4 cents
Wheat: Down 2 to 5 cents

General Comment: World stock markets are on the defensive this morning and U.S. futures point to a drop at the open this morning on Wall Street as commodity producers lead on the downside. China stocks fell nearly 1.5% overnight, the fifth straight drop, after China’s banking and insurance regulator told banks to allocate at least a third of new loans to private companies and asked them not to withdraw loans from companies struggling to pay. A barrel of West Texas Intermediate for December delivery dropped below $60 for the first time since February this morning and is now more than 20% below the high hit in early October, adding to the negative undertone in the grain markets as the U.S. dollar rises near a 16-month high.

Progress on U.S./China trade may come from talks today in Washington. U.S. Secretary of State Mike Pompeo and Defense Secretary Jim Mattis will take part in the talks in Washington, with Chinese politburo member Yang Jiechi and Defense Minister Wei Fenghe. They were supposed to have been held in Beijing in October but were delayed amid rising tension over trade, Taiwan and the South China Sea. While the focus will be on diplomacy and security, moves to try to resolve a damaging trade war between the two countries are expected to be touched upon ahead of a planned meeting between U.S. President Donald Trump and Chinese President Xi Jinping at the G20 in Argentina at the end of November.

 

Corn is expected to open on the defensive despite USDA cutting its U.S. crop and ending stocks forecasts in Thursday’s monthly reports. However, foreign traders are reacting to the USDA adopting China’s huge and unexpected upward revision in supply, despite U.S. traders ignoring the changes and pushing corn prices higher yesterday. Global carryover was nearly doubled to 307.5 MMT from 159.35 MMT forecast last month. While China supplies are isolated from the world market because it would require big and illegal subsidies to move them into world markets, the trade is fixated on the sheer magnitude of the increase, ignoring the fact the global supplies outside of China are headed lower for second straight annual drop. Key price to watch today for near-term direction will be where December futures close relative to last week’s settlement at $3.71 ¼.

Soybean prices are headed for a fifth straight drop as Thursday’s USDA forecast for rising U.S. and world inventories and a cut in China’s soybean import projection reinforced concerns about the ongoing U.S./China trade war. The U.S. soybean crop will be smaller than expected but stockpiles are projected to rise. Demand for U.S. soybean meal remains record high, leading to upward adjustments in USDA forecast yesterday. As China scoops up any available soybeans supplies in South America, that means global feed producers are turning to more U.S. soybean meal. Argentina crushers, the biggest exporters of meal and oil, have seen profits erode from high prices and low inventories of soybeans. Archer Daniels Midland has approached Argentina crusher Molinos Agra about buying its crushing plant, according to three sources cited by Reuters.

Wheat prices seen headed lower and near last week’s lows on pressure from the stronger dollar reduced competitiveness of U.S. supplies on the world market. Prices also falling on USDA raising both its U.S. and world carryover forecasts on Thursday. Russia will likely produce a 69.3-MMT wheat crop for 2018 the country’s ag ministry said today. This year’s much smaller wheat crop and aggressive pace of exports has stoked speculation for months that Russia may eventually act to curb its wheat shipments, boosting demand for U.S. supplies.

Livestock Calls

Cattle: Steady to weak
Hogs: Steady to weak    

Cattle futures are seen on the defensive to start today. Choice beef prices were down $2.15 and Select dropped another $2.66, both heading for first weekly decline since at least Oct. 12. Sales have improved this week and signal domestic demand remains strong.  Slaughter remains manageable, up 1.1% from a year earlier. USDA

Hog futures are seen opening steady to weaker. The pork cutout value has slumped $3.50 this week, with a $1.18 decline Thursday pushing it to the lowest since Sept. 13. All cuts except picnics softened. And the recent slide in cash hog prices is giving no signs of abating. Packers lowered bids $1.18 yesterday on a national average basis. Still, USDA cut its output forecasts for 2018 and the first quarter of 2019 in Thursday’s monthly report and raised its export projections. China’s Sichuan province banned imports of all live hogs and hog products from other regions, effective Nov. 8. This comes after several neighboring provinces reported cases of ASF. Sichuan, which is in China’s southwest, is the nation’s top hog producer.

 

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