Ahead of the Open: Soy, Grains Start Firm on U.S./China Trade Talk Progress, Improving Demand

Posted on 01/09/2019 7:59 AM

Grain Calls

Corn:  Up 1 to 3 cents
Soybeans: Up 2 to 4 cents 
Wheat: Up 2 to 4 cents

General Comment: Chinese and U.S. negotiators wrapped up trade talks which had been extended into a third day, on an optimistic note with official details from both sides still not released. More talks will likely be announced for later this month. While there is still some distance between both sides on some of the harder issues, there was progress made on energy and agriculture trade. However, people familiar with the negotiations told Reuters that the two sides remain far apart on Chinese structural reforms that the Trump administration is demanding in order to stop alleged theft and forced transfer of U.S. technology, and on how Beijing will be held to its promises. China wants to end the trade dispute but will not make any "unreasonable concessions" and any agreement must involve compromise on both sides, the state-run China Daily newspaper reported.  

The good news is the both sides are getting more serious about ending the trade war than extending it as President Trump see to want to put a floor under the U.S. stock market ahead of his re-election bid and President Xi wants to reverse slowing economic growth as Chinese debt expands to toward critical levels. Still, if they’re to reach a lasting accord by March 1, when threatened tariff increases are set to take effect, both sides will have to make some tough choices. The next few weeks will determine who wants a deal more: Trump or Xi.

There have been some showers across parts of Brazil the past week to reduce the wide area of soil moisture deficits but the next two-week outlook like will continue to be a period of hit or miss thunderstorms rather than widespread beneficial rains. Argentina will continue to see widespread and heavy rains, introducing some flooding where soils become saturated. The weather remains supportive for both corn and soybean prices.  

Corn is seen firmer on speculation that China may soon buy U.S. corn in the wake of the positive Beijing trade talks this week and threatening South America weather forecasts. March futures need to rise above Tuesday’s high at $3.84 ¾ to maintain a positive technical picture.

Soybeans seen reversing Tuesday’s losses with key resistance at the Dec. 7 high at $9.27 ¾.  Traders are eager to hear details about China pledges to buy U.S. farm goods from this week’s U.S./China trade talks.  Dry weather in Brazil also lending support on rising yield risks.

Wheat futures seen rising a second day on improving global demand Algeria is said to have bought 550,000 metric tons (MT) of optional-origin wheat around $261.90/MT and probably will include U.S. supplies. Prices are the highest in more than 3 years and signals world supplies are tightening.  Egypt seeks an unspecified amount of optional-origin wheat for March shipment and the lowest offers included U.S. HRW supplies, European traders told Reuters. Taiwan bought 111,650 MT U.S. wheat. 

Livestock Calls

Cattle: Steady-firm

Hogs: Steady-firm

Cattle futures seen adding to Monday’s gains to new highs in several futures contracts before some profit taking emerges. Boxed beef cutout values were lower on Tuesday but resulted in strong wholesale beef sales after active holiday sales last week.

Hog futures seen steady to higher after the national average cash hog prices jumped $1.16 cents.  Wholesale pork carcass values slipped 40 cents on weakness in loins, picnics, bellies and butts. Sales were active Tuesday topping 473 loads, the most since October 2016. Packers need to be selling more pork with slaughter this week rising to 960,000 head, up 5.3% from a year ago. Positive U.S./China trade talk progress this week increases chances for stepped up China buying of U.S. pork amid the African swine fever outbreak in China.

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