First Thing Today: Plot Thickens in Brazil

Posted on 05/19/2017 6:44 AM

Corrective bounce overnight... Corn futures are up 1 to 2 cents, while soybeans are 6 to 8 cents higher amid as of 6:30 a.m. CT. These markets are enjoying some corrective short-covering in the wake of Thursday's selloff. Wheat futures are also higher, with HRW wheat up 5 cents and SRW and HRS wheat up 2 to 3 cents. The U.S. dollar index is under pressure, while crude oil futures are enjoying solid gains.

Plot thickens in Brazil... Yesterday Brazil's currency and stocks plunged on news Joesley and Wesley Batista, the billionaire brothers at the head of JBS, said that Brazil's president had condoned paying off a witness in a corruption probe in a plea bargain. The supreme court has approved an investigation on the matter. Meanwhile, CVR, Brazil's securities regulator, is looking into whether the Batistas made trades to take advantage of the currency and stock break their statements triggered. The Batistas' group of companies acquired a U.S. dollar position that may have exceeded $1 billion in the local currency market just hours before news of the plea deal broke, according to Valor Economico newspaper. CVR is also examining recent sales of JBS shares by its controlling shareholders. A string of high-profile politicians have also been pulled into the various and intertwined scandals rocking Brazil.

Mexico makes deal to bring in some corn from Brazil... Mexico plans to bring in a record amount of corn from Brazil this year after a livestock delegation secured deals to import corn at lower prices on a trip to the country last week. Alejandro Vazquez, a government official who was part of the delegation, details Mexican livestock companies negotiated directly with suppliers, bypassing traders like Cargill and Louis Dreyfus that normally arrange shipments. Normally, Mexico bypasses South American corn as U.S. prices are much lower and have shorter shipping times. But the direct deals have made the Brazilian corn much more competitive. Even so, the 300,000 MT of corn Mexico agreed to buy from Brazil represents just a fraction of the 12.75 MMT it imported from the U.S. last year.

Some agriculture spending could be cut as part of House budget action... The House Budget Committee is considering making its first major attempt in years to rein in welfare programs, with a spending blueprint that could call for trimming $500 billion from entitlement programs over the coming decade, including food stamps and agriculture subsidies. House Ag Chairman Mike Conaway (R-Texas) asked for agriculture to be spared from what is called reconciliation instructions, adding he does not know what the Budget Committee will do. Meanwhile, President Donald Trump’s fiscal year 2018 budget proposals out May 23 are expected to include proposed cuts in crop insurance and other ag-related subsidies. Some possibilities include a means test on crop insurance, capping premium subsidies at $40,000 per farmer, and eliminating subsidies for the harvest-price option.

Rains could cause late-season problems with Argentine bean crop... Rains next week in Argentina could delay soybean harvest and cut into yields, warns the Buenos Aires Grains Exchange. Southern and eastern areas of the country that are already saturated from precip earlier in the year could face flooding if the forecast plays out as expected. The exchange details that soybean harvest is around 75% complete, meaning around 4.6 million hectares of soybeans have yet to be harvested across Argentina, 30% of which was in the northern part of the country and 35% of which is located in areas dealing with excessive moisture, the exchange explains.

China sells nearly all of the corn up for auction... China sold 989,630 MT of 2011 and 2012 crop state reserve corn at its latest auction for an average price of 1,225 yuan ($177.74) per metric ton. This represented an impressive 98.7% of the 1.0 MMT of corn offered.

French wheat ratings slide, again... French soft wheat crop conditions declined another point the week ending May 15 to 75% good to excellent, reports the farm office FranceAgriMer. This followed a welcome uptick in ratings last week that brought an end to a string of downgrades. A dry, cold April caused problems early in the growing season, but that has since given way to warmer, wetter weather. The market is still assessing how much rain fell on dry areas the past week.

Japan curbs use of corn in feed rations... Japan's use of corn in animal feed dropped 0.2 percentage points from February to 45.7% in March, according to preliminary data from its ag ministry. This was down 0.5 points from year-ago levels. Interestingly, Japan's use of sorghum, wheat and barley held steady in March relative to the month prior at 2.3%, 1.9% and 3.4%, respectively.

AWP up sharply; upland cotton import quota established... The Adjusted World Price (AWP) for cotton shot up to 72.44 cents per pound, effective today, up from 68.69 cents per pound the prior week and highest since the AWP was 73.81 cents per pound the week of April 4, 2014. This ended two weeks of declines in the AWP. Also, USDA announced special import quota #4 for imports of 13,588,518 kilograms (62,411 bales) of upland cotton. The quota will be established as of May 25, 2017, and will apply to upland cotton purchased not later than Aug. 22, 2017, and entered into the U,S. not later than Nov. 20, 2017.

More lower cash cattle trade... After a light test Wednesday, more active cash cattle trade got underway on Thursday between $133 and $134. While this was down from last week's trade at $138 in all locations except Iowa, where trade topped $140, it is still well above where futures are trading. This could lift the market to close out the week. And, at the very least, it should limit pressure on futures.

Friendly fundamental factors for hogs.. Pork prices continue to climb, with the pork cutout value at its highest level in nearly a year. Yesterday, the pork cutout value rose another 73 cents amid decent movement of 284.28 loads. Cash hog prices also strengthened at reporting locations yesterday. And this week's kill is running a bit behind week-ago levels. This combination of factors should help lean hogs to finish the week strong.

Overnight demand news... Turkey bought around 180,000 MT of corn. Tunisia purchased around 92,000 MT of soft milling wheat from optional origins. South Korea bought around 55,000 MT of soymeal, likely from South America. Venezuela has signed phytosanitary and trade agreements to purchase 60,000 MT of wheat per month from Russia.

Today's reports:

Add new comment