Ahead of the Open: Soybeans Seen Firmer on Better Demand; Wheat Remains Anchor on Corn

Posted on 03/01/2019 7:45 AM

Grain Calls

Corn: Steady to mixed

Soybeans: Up 5 to 7 cents

Wheat: Down 3 cents to up 3 cents

General Comment: Corn and soybeans may pare big February losses as wheat continues to struggle amid skepticism on the U.S./China trade talks and any deals that results in large ag commodity purchases. A lack of any major global weather threats has increased bearish sentiment the past month that U.S. exports will face continued strong competition into 2020. 
Robert Lighthizer, the lead American negotiator trying to hammer out a trade deal with China, sought to dial back market expectations that an agreement was imminent when he spoke to a congressional committee this week. Yesterday, U.S. Treasury Secretary Steven Mnuchin told CNBC that the two sides have made a lot of progress in recent talks and hope to make more progress in the weeks ahead. President Trump, who earlier in the week raised the prospects of a "signing summit" with Xi in March when he announced postponing an increase in Chinese tariffs on March 1. Some additional details are surfacing regarding the ongoing U.S./China talks, including a 150-page document being readied that includes China offering to strengthen their laws in several areas identified by U.S. officials. Meanwhile, under enforcement language pushed by the Trump administration, China would not be allowed to retaliate with tariffs if the U.S. reapplied tariffs on China due to trade agreement violations. But there has been no confirmation that China has accepted the U.S.-written enforcement language.

On another important trade front, U.S. Agriculture Secretary Sonny Perdue said on Thursday he is working hard to persuade President Donald Trump that the U.S. steel industry can be adequately protected by tariff rate quotas, rather than plain tariffs, on imports from Canada and Mexico.  The three North American countries on Nov. 30 signed the United States-Mexico-Canada Agreement (USMCA) pact that still needs to be approved by the U.S. Congress and Canadian and Mexican legislators before becoming law. 
The spring crop insurance prices of $4.00 for corn (up 4 cents from last year) and $9.54 for soybeans (down 62 cents from year-ago) equate to a new-crop price ratio of 2.39, which is neutral regarding any acreage impacts. Spring wheat insurance is $5.77 (down 54 cents from 2018) and curbing incentives for wheat planting.

The USDA's 24-hour export sales reporting service did not report any new large sales this morning.

Corn market seen steady to mixed as firmer beans and a small improvement in export demand is offset by the ongoing weakness in wheat.    

Soybean futures seen drifting higher on short covering. Weather remains positive for crops in South America with more rains the next two weeks but demand is improving.  U.S. soybean export sales in the week ended Feb. 21 were 2.196 million tons with China taking a majority of the sales. U.S. biodiesel production rose to 168 million gallons in December from 161 million gallons a month earlier, the U.S. Energy Information Administration said. Soybean oil remained the largest biodiesel feedstock, with 768 million lbs used in December, or about 60% of the total.

Wheat futures seen mixed and trading near 11-month lows with as supply from Black Sea region weighs on prices. Russia’s IKAR ag consultancy has raised its 2019 Russian wheat crop estimate from 77.6 MMT to 78.5 MMT. Russia, the world's top wheat exporter, still has a surplus of 4 MMT to 5 MMT of old-crop grain for export, a leading exporter of Black Sea grain cargoes said on Wednesday. U.S. exports have improved but still remain behind the pace needed to reach USDA’s annual export projection.  

Livestock Calls:

Cattle: Steady to mixed

Hogs: Steady to firm

Cattle futures seen about steady with support from higher beef prices on Thursday. There was little cash trade Thursday, with packers bidding $125 and feedlots asking $130. The market remains supported by improving exports. In the week ended Feb. 21, USDA said beef sales totaled 16,700 MT, pushing sales and accumulated shipments closer to the record 2018 pace after a slow start to the year. USDA’s Cattle Inventory Report showed there were 94.760 million head of cattle in the U.S. as of Jan. 1, up 0.5% from the previous year and an 11-year high. Herd growth is slowing and may be peaking.               

Hog futures are steady to firmer on firmer wholesale pork prices Thursday. Carcass prices rose 92 cents led by gains in loins and bellies. Movement was moderate. Slaughter remains elevated after several plants were closed Monday by adverse weather. Deferred futures are supported by hopes for stronger Chinese demand for U.S. pork. USDA reported Thursday that 27,900 MT sold last week, with Mexico buying 8,800 MT and China purchasing 5,400 MT. Shipments were also strong at 26,500 MT, including 4,100 MT sent to China.

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