Ahead of the Open: Soy, Grains Seen Quietly Higher on U.S./China Trade Optimism

Posted on 01/03/2019 8:03 AM

Grain Calls

Corn: up 1 to 2 cents
Soybeans:  Steady to up 2 cents 
Wheat: 2 to 5 cents higher

General Comment: China and U.S. negotiators are getting closer to a deal ahead of key meetings next week in Beijing, a former Chinese trade official said.  “I’m optimistic about the outcome,” said Wei Jianguo, who was vice trade minister until 2008. Both sides “have done their homework for the negotiations” and “sent positive signals,” he told Bloomberg, adding that he anticipates a deal that includes specific agreements. Trade officials from the two countries are set to sit down in Beijing next week for the first face-to-face negotiation since Trump and his counterpart Xi Jinping agreed to a 90-day truce in their trade war last month. EU trade chief Cecilia Malmström, U.S. Trade Representative Robert Lighthizer and Japanese Economy Minister Hiroshige Sekō will meet in Washington next week to advance their trilateral initiative to temper market-distorting trade practices in China. In September the group agreed to launch a joint proposal for improving transparency and notifications for subsidies at the World Trade Organization (WTO). No agreement was reached to end the partial government shutdown on Wednesday during a meeting of congressional leaders and President Trump at the White House. A second meeting is planned for Friday. USDA will decide tomorrow whether to delay major reports scheduled for Jan. 11 due to the government shutdown, Chief Economist Robert Johansson told Reuters. "Right now, we've still got time to get them done if we get funding restored,” Johansson said. On Jan. 11, USDA is scheduled to release its Annual Production Summary, monthly Supply & Demand Report (WASDE), Winter Wheat and Rye Seedings and Quarterly Grain Stocks. South America weather remains a small threat to production. Scattered thunderstorms affect much of Brazil as a cool front drifts northward though Sunday. Drier, warmer weather follows for about 7 days in most of Brazil, increasing stress on some corn and soybeans. In Argentina, a stormy period is likely for most northern and eastern areas. That may leave aid harvesting of wheat in southern areas.

Corn is seen firm with a second day of gains in the crude oil markets lending support. Market still waiting on news China may buy some U.S. corn as part of a new trade deal.

Soybeans are expected to be mixed as the government shutdown prevents USDA from confirming trade talk that China was buying more U.S. soybeans yesterday. The spread between U.S. and Brazilian export prices is near zero, suggesting traders are more optimistic a deal may be close. The key is China lifting its 25% tariff on U.S. soybean imports.  

Wheat futures are seen firming with a soft dollar helping to support ideas U.S. export demand will improve in the second half of the marketing year.

Livestock Calls

Cattle: Steady-mixed

Hogs: Steady-mixed

Cattle futures seen trading both sides waiting for the cash trade to develop after settling lower on Wednesday. Holiday beef trade kicked off with a $1.29 gain in Choice cuts and a 25-cent rise in Select yesterday, while packers moved a solid 117 loads of product on the day. Strength in the wholesale beef market gives traders some hope packers may raise cash cattle bids again this week, but most are expecting steady to slightly lower cash prices.

Hog futures seen steady-mixed, but prices will need to take out Wednesday’s highs to sustain strength given the premium futures are trading to cash markets. The average national direct cash hog price firmed 93 cents Wednesday, accelerating recent price strength.  However, fresh pork carcass values slipped 15 cents yesterday on relative light sales.

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