Ahead of the Open: Midwest Rain, U.S.-China Trade Tensions Halt Three-Day Corn, Soy Rally

Posted on 07/19/2018 8:07 AM

Grain Calls

Corn: Down 1 to 2 cents

Soybeans: 3 to 5 cents lower

Wheat: Mixed

 

General Comment:  China’s currency fell almost 1% overnight to the lowest in more than a year on signs of further monetary easing to support the economy. Shanghai Composite Stock Index fell for a fifth straight day. U.S.-China trade relations are not improving. White House National Economic Council Director Larry Kudlow said Wednesday that Chinese President Xi Jinping doesn’t want to make a deal with the U.S. on trade. Overnight, China's foreign ministry was quick to blast Kudlow's accusation as "shocking" and "bogus."  A more positive tone set on U.S.-Mexico trade after Commerce Secretary Wilbur Ross said solid progress is occurring on writing a new NAFTA accord, maybe just a bilateral deal that puts more pressure on Canada.  Forecast remains unchanged with light showers and some pockets of heavy rain moving through the Midwest the next five days and mild temperatures. Some warmer weather is possible by late next week with forecasters still divided about the August outlook. Weather leans negative for grain markets today with traders watching precipitation amounts and coverage after recent dryness in some areas.

 

Corn futures expected to be lower this morning on beneficial weather, halting a three-day bounce. The shallow-nature of the recent rebound provides little incentive for speculators to rush to cover shorts. Improving demand should keep a floor under prices. Old-crop sales in week ended July 12 were 641,000 MT, up 59% from the prior week and 38% above the prior four-week average. Argentina bought 80,000 MT. New-crop sales were 774,500 MT with Mexico taking 32% of the total.

 

Soybeans are seen falling on few signs of any talks to reverse the U.S.-China tariff war. Export sales in week ended July 12 were a mostly positive development. Old-crop sales rose 59% to 252,300 MT with new buying from the Netherlands, Canada and Iran. New crop sales of 613,400 MT were mostly to unknown destinations for 433,000 MT. It was positive that Argentina bought 120,000 tons of U.S. beans last week, but that was offset by China canceling 60,000 MT.
 

Wheat futures will open mixed to a little lower on sluggish U.S. weekly export sales. Sales improved to 300,000 MT in the week ended July 12 but were 25% below the prior 4-week average. Interesting new sales to Argentina and Brazil but overall total was disappointing. Prices failed to hold gains Wednesday and closed near session lows to turn the market more defensive. European wheat prices also started lower and turned fractionally higher which provides underlying support amid smaller EU production outlook.
 

Livestock Calls

Cattle: Steady to higher

Hogs: Steady to weaker

 

Cattle seen steady to firmer after strong rally to new swing highs on Wednesday. Boxed beef cutout values rose 41 cents for Choice and 23 cents for Select on moderate demand after strong sales a day earlier that helped to clean up supplies. The story today will be sharply higher trimming prices on good demand, a sign of strong hamburger demand. Traders are looking for July 1 cattle on feed to be up 4% from a year ago when USDA reports Friday afternoon. June placements seen up 0.6% from a year ago while marketing rose 1.1%.

 

Hogs futures seen starting defensive, but much of the cash market weakness yesterday was already traded as August and October futures fell to new contract lows. Futures are oversold and may see some short covering after a weaker opening.  Weekly export sales rose to 19,700 MT in the week ended July 12, 33% higher than the prior four-week average with Mexico the biggest shipper of pork last week—a positive development. The average national hog price dropped $1.36 to 70.62 after trading in a range of $67 to $73. Packer and producer sales are down from a year ago with more formula sales as slaughter is up 4.6% this week. The pork cutout value dropped $1.85 on sharp losses in hams and loins.

 

 

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