Ahead of the Open: Quiet, Choppy Trade as U.S. Officials Head to Beijing Next Week for Trade Talks

Posted on 03/20/2019 7:53 AM

Grain Calls

Corn: Steady to up 1 cent

Soybeans: Down 1 to 3 cents

Wheat: Up 1 to 4 cents

General Comment: Grain and soybean markets were mixed overnight, and more choppy trading should be expected today ahead of the weekly USDA export sales report tomorrow. A lack of clarity in the U.S./China trade talks also limits trading incentives today. Still, U.S. Trade Representative Robert Lighthizer and Treasury Secretary Steven Mnuchin plan to fly to Beijing next week to meet with Chinese Vice Premier Liu He. It is not clear how long the talks will last. Mr. Liu will pay a return trip to Washington, D.C., the following week, White House officials said. Talks between the two nations are in the final stages with a target date for a deal by the end of April.  However, Bloomberg reports that some U.S. trade negotiators are growing concerned about China’s shifting stance on trade talks, according to people familiar with the situation. Chinese officials would like stronger assurances about the lifting of tariffs after the country agreed to change their intellectual-property policies. China's threat to cut the Boeing 737 Max from its list of U.S. imports, citing safety concerns, challenges its proposed plan to reduce the trade surplus. The change in tone comes as investors are growing increasingly concerned about the health of the Chinese economy, with the slowdown there, rather than the trade war, now seen as the bigger risk.

Later today, the Federal Open Market Committee publishes its latest monetary policy with updated economic forecasts that are expected to show policy makers now see only one rate hike this year. No change in interest rates is expected today. Investors will be intensely focused on the Fed’s perspective on its inflation-targeting goal. The immediate question for investors is whether the Fed will be "dovish enough" today.

Drier, warmer weather may begin to ease flooding in some areas but increase snow melt in northern areas and keep rivers full. Rains this week and two new systems bring rains back to region late week and into early April. The El Nino is rapidly building in the equatorial Pacific with some rather dramatic warming noted during the past two weeks. That ocean warming increases the risks for more rain in April beginning in the south and moving into the Midwest.

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 this morning with some support from planting delays offset by rising export competition from big South American crops.  

Soybean futures are seen lower on worries corn planting delays will lead to more soybean acres and uncertainty about the U.S./China trade talks. The Brazilian oilseed group Abiove cut 1 MMT from its 2018-19 Brazilian soybean crop estimate, which it now pegs at 116.9 MMT. That is still higher than most crop estimates for the country. Heat and dryness earlier in the season trimmed crop potential, though rains have generally stabilized the crop in recent weeks. In fact, the recent wet pattern has led to some talk the crop could have some quality issues.

Wheat futures rose overnight as funds continue to cut large net-short positions. President Trump and Brazilian President Jair Bolsonaro agreed on Tuesday to implement a duty-free tariff rate quota (TRQ) for wheat, a longstanding obligation under Brazil’s World Trade Organization (WTO) commitments. This agreement opens an annual opportunity for U.S. wheat farmers to compete on a level playing field for 750,000 MT of wheat under the TRQ. Brazil was the largest wheat importer in Latin America and the fourth largest in the world in marketing year 2017/18.

Livestock Calls:

Cattle: Steady to weak

Hogs: Slightly lower

Cattle futures seen steady to weak with traders nervous about the market sustaining the rally into the normally weak seasonal trend into April. Nonetheless, wholesale beef prices rose again on Tuesday with Choice up $1.34 to the highest since early May. Select beef rose 87 cents. Sales were good. While June rose to a new contract high Tuesday, prices closed in the bottom half of the daily range. Also, April has failed to rise above its high set on March 1 even as the deferred futures set new highs. Friday’s March 1 Cattle on Feed Report is expected to show a 0.3% drop in feedlot inventories after placements fell 4% in February and marketings rose 0.8%, according to a Reuter’s poll.  

Hog futures are seen opening slightly weaker in a continuation of the consolidation of the stunning rally that began yesterday. Futures are simply too far ahead of the cash market with April contract more than a $13 premium to the CME cash hog index at a time in the season where any premium is unusual. Cash hog bids rose $1.20 to $57.46 on Tuesday. The wholesale pork carcass value rose $1.75 to $74.14, the highest since Nov. 5. However, sales were light to moderate yesterday. The good news is slaughter this week is down to 930,000 head from 952,000 a week earlier. Some of the slowdown may be tied to transportation problems. Market should find support from the U.S. and Brazil agreeing to "science-based conditions" to allow the U.S. to export pork to Brazil.

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