Ahead of the Open: Soy, Grains May Rally on Signs of Progress on China Trade Talks

Posted on 01/31/2019 7:26 AM

Grain Calls

Corn:  Steady to mixed
Soybeans: up 1 to 2 cents
Wheat: Steady to mixed

General Comment: President Donald Trump tweeted this morning that China trade meetings are going well and "no deal will be made until my friend President Xi, and I, meet in the near future to discuss and agree on some of the long standing and more difficult points." Trump will meet China's Vice Premier Liu He in the Oval Office around 2:30 CT today as two days of negotiations are set to end with little indication so far that China is willing to bend to U.S. demands. While a breakthrough was never expected this week, traders will look to the concluding statement promised by the White House for progress on core issues such as intellectual property rights, market access and China promises to buy more American goods. Wall Street Journal reporting this morning that “China is pinning its hopes on another meeting between President Trump and Chinese leader Xi Jinping to help solve the trade dispute as a wide gap remains between U.S. demands and what Beijing is willing to offer.” The Chinese delegation has proposed to the U.S. that Trump meet with Xi in the tropical Chinese city of Hainan after his planned summit with the North Korean leader, Kim Jong Un, in late February, the people told the Journal. 

Activity in China’s vast manufacturing sector shrank less than expected in January while an index of service industries activity rebounded this month. Even with the less negative economic data and government efforts to spur activity, concerns are growing that China may be at risk of a sharper-than-expected slowdown if the trade war with the United States drags on. Veteran China watchers typically advise taking Chinese data early in the year with a pinch of salt, as trends may be distorted by the timing of the Lunar New Year holidays, which begin this weekend through Feb. 19. The European Union is considering proposals that would effectively result in a de-facto ban on Huawei Technologies equipment for next-generation mobile networks, Reuters reports today. The potential move marks a shift in EU’s stance on telecom security. A move to exclude Chinese firms such as Huawei would likely be welcomed by the United States, which has been trying to prevent American companies from buying Huawei infrastructure equipment and has been pressing allies to do the same. 
China's yuan rose for a seventh straight session on Thursday, breaching a key threshold to a fresh 6-1/2-month high versus the dollar, after the U.S. Federal Reserve signaled a pause in its tightening cycle. The Russian ruble rose near a 10-week high and most Asian currencies posted strong gains versus the dollar. Gold is near a 7-month high. Ocean shipping rates are in freefall, which combined with a weaker dollar may aid U.S. farm exports. 
Brazil’s weather forecast still has good rains developing Feb. 2 and increasing coverage after Feb. 5 in some of the driest areas. Dryness and drought intensity will diminish the first two weeks of February.
Argentina’s weather forecast still has good rains over the northern two-thirds of Argentina for the next couple of days before a drier pattern next week.  Shower and rain return by late next week to maintain generally good conditions.  

Corn is seen consolidating impressive gains made Wednesday. But bulls still need a strong finish to the week on Friday. USDA released delayed export data for the week ended Dec. 20 today and won’t catch up until March. Sales from back in December were 1.699 million metric tons (MMT), compared with 1.974 MMT a week earlier and 1.0 to 1.5 MMT forecast by traders.

Soybeans seen firming on strong export sales, including large Chinese purchases. USDA reported sales in the week ended Dec. 20 were 2.391 MMT, including 1.466 MMT sold to China. Most of the sales to China were already reported under the daily reporting service. Sales were down from 2.836 MMT a week earlier and in the middle of the 1.8 to 2.8 MMT expected by traders. In additional soybean meal sales that week were 427,400 MT, up 43% from the prior week.

Wheat futures will follow corn with cold weather for a second morning raising risks of light winter kill damage to Midwest crops. Wheat sold for exports in the week ended Dec. 20 was 526,300 MT, up from 313,580 MT a week earlier and 200,000 to 600,000 forecast by traders.

Livestock Calls

Cattle: Steady-mixed

Hogs: Steady-weak

Cattle futures seen mixed this morning. Wholesale beef prices were mixed as Choice slumped 8 cents and Select gained 43 cents. Movement was moderately active, a positive sign of first of the month featuring.  Slaughter was slightly curtailed by cold temperatures to 112,000 head on Wednesday, down from 117,000 a week ago and 119,000 a year ago.

Hog futures seen steady to weak. Average national cash hog price fell 15 cents on Wednesday amid light demand.  Cold weather curbed slaughter to 261,000 head yesterday, down from 465,000 head a wek ago. Even with the slaughter slowdown, fresh pork carcass values fell $1.70 as most cuts declined amid lackluster new sales. Portugal shipped 270 tons of pork to China, first cargoes from the European country to the world's top pork market, state media Xinhua news agency reported.

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