First Thing Today: Heavy Rains Threaten Australia's Wheat Crop

Posted on 12/01/2017 6:45 AM

Good morning!

Some buying interest returns overnight... Corn futures are trading high-range and up roughly a penny at week's end. Soybean futures are around 2 cents higher, which is off session highs. Winter wheat futures are steady to 3 cents higher, while spring wheat has rallied 2 to 6 cents. The U.S. dollar index is bouncing around unchanged, while crude oil futures are moderately higher.

Heavy rains threaten Australian wheat crop... Already heavy rains in eastern Australia are expected to intensify over the weekend, raising concerns about damaging or wiping out up to 4 MMT of the nation's 21.7 MMT wheat crop. Analysts report that while around 50% of the crop has been harvested in South Australia, Victoria and southern areas of New South Wales have only brought in around 30% of the crop. On Friday alone, Victoria is expected to receive nearly 12 inches of rain, according to the Bureau of Meteorology. Aussie producers were already facing reduced yield prospects as temperatures between June and September was the warmest on record and conditions were quite dry. Many grain storage facilities are also being forced to close due to the storm weather watchers label a "major weather event."

European Commission raises wheat and corn crop pegs... The European Commission upped its estimate of the bloc's 2017-18 common wheat crop by 1 MMT from last month to 142.5 MMT. The commission also hiked its corn crop estimate for the EU by 3.7 MMT to 62.2 MMT. Meanwhile, the French farm office reports 99% of its soft wheat crop had been sown as of Nov. 27, with 96% of the crop that has emerged in "good" to "excellent" condition -- steady with week-ago.

Cheaper overseas prices to encourage Chinese corn imports?... Early last year, China took big steps to reform its corn market and pare down its hefty corn reserves, including the elimination of price supports and stockpiling. But the shift to market-determined prices is now telling users that the better deal on corn comes from overseas. Over the past month, China has reportedly purchased up to 700,000 MT of corn, mainly from the United States. And between August and October its corn imports were 10 times bigger than year-ago, with an average import price that was down 26% from year-ago. And more big buys are likely ahead. It is roughly 300 yuan (16%) cheaper to import corn to Guangdong in Southern China than it is to make domestic purchases. Ukraine and the U.S. are China's top suppliers. But high Chinese corn prices could also boost corn planting in 2017, counteracting its efforts to reduce its corn supply.

Tax reform bill update... Barring any last-minute glitches, GOP Senate leaders think they have made the changes needed to garner enough votes. However, several hurdles remain and it's unclear whether a final vote will take place late today or take additional time. If the bill clears the Senate, as we expect, the next step is to work out differences with the House version. The goal remains to get a final bill to President Donald Trump before Christmas. Find more details here.

Perdue: Trump wants a NAFTA deal, knows what he's doing... USDA Secretary Sonny Perdue in remarks Thursday to the Agricultural Retailers Association in Phoenix said the U.S. ag sector must understand that Trump is a tough negotiator who may take the North American Free Trade Agreement (NAFTA) talks to the brink to get a deal. But Perdue stressed that Trump understands the importance of the farm economy and won't hurt it. "I do believe the president wants a deal. He's a tough negotiator, and if you read his book, The Art of the Deal, he goes right to the brink sometimes. So, there may be some nervous times between now and when we get the deal," Perdue said, adding that Trump "knows who voted for him, and who didn't, and he wants to make sure we have a healthy, thriving, growing farm economy."

Pruitt pledges final WOTUS by mid-2018... Environmental Protection Agency Administrator Scott Pruitt will deliver remarks to farmers and biofuels groups today in Nevada, Iowa. During a speech to the Kentucky Farm Bureau Thursday, Pruitt promised a final replacement to the waters of the U.S. (WOTUS) rule by mid-2018 that he said would focus on "navigability," according to a video posted by WHAS. He also met with Kentucky Governor Matt Bevin.

House GOP to propose short-term spending bill... House Republican leaders today will propose a short-term patch to keep the government funded through Dec. 22 while they work on a detailed, two-year budget deal, GOP aides and lawmakers said Thursday. Meanwhile, the Congressional Budget Office said Thursday that the Treasury would exhaust all of its borrowing capacity by "late March or early April" of next year once the debt limit gets reinstated on Dec. 9. Just four weeks ago, the Treasury estimated it might exhaust its borrowing capacity by the end of January.

China's private and official PMI readings diverge... China's private Caixin Purchasing Manager's Index (PMI) that focuses on small and medium-sized firms slipped 0.2 points from October to November, to stand at 50.8 points, a five-month low. New orders slipped while export orders held steady. This is in contrast to the official PMI that is more focused on larger firms, which climbed 0.2 points in November to a reading of 51.8 points. Both figures are above the 50.0-point level that separates contraction from expansion in this gauge of manufacturing activity.

China will reportedly approve imports of French pork soon... China is ready to approve more imports of French pork, processed meat and infant formula, French Finance Minister Bruno Le Maire said while in Beijing. This comes after China agreed to publish the results of plant inspections carried out two years prior. This data must be published before China can give the green light for imports. China is the world's top pork importer, bringing in around 1.6 MMT of the meat in 2016, and demand is growing rapidly.

Negative reaction to higher cash cattle trade... Cattle trade got underway in earnest between $120 and $121 on Thursday, up from last week's average price of nearly $119 but a bit less of a gain than traders hoped. Futures ended Thursday just under the low end of this week's cash range. Meanwhile, boxed beef prices continue to slide, but this has sparked strong movement. Yesterday, 190 loads changed hands.

Traders watching cash hog index... While cash hog bids have strengthened this week, the cash hog index has yet to rise. Therefore, traders are hesitant to push futures too far above the index. And after a mixed day of trade, lean hog futures softened at the close Thursday, signaling the market could see followthrough selling today.

Overnight demand news... Taiwan purchased 81,780 MT of milling wheat from the United States. South Korea reissued tenders to buy 55,000 MT of non-GMO yellow soybeans. Japan purchased 57,430 MT of food-quality wheat from the U.S., as well as 69,642 MT of the grain from Canada and 24,781 MT from Australia.

Today's reports:

 

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