Ahead of the Open: Grains Weaker on Weather, Soybeans Find Support on Meal Demand

Posted on 07/10/2018 8:11 AM

Grain Calls

Corn: Down 1-2 cents

Soybeans: Steady to up 2 cents

Wheat: Down 5-9 cents

 

General Comment: Global stocks indices remain near three-week highs on support from optimism that company earnings will continue to boost world economic growth despite the trade tensions. Commodity funds slowed their selling in Chicago-traded corn and soybeans last week, according to weekly data from the Commodity Futures Trading Commission on Monday. But, the negative attitude largely remains as U.S. crop prospects are positive and mutual tariffs between the United States and China have taken effect. Traders are also preparing for higher U.S. corn and soybean 2018-19 crops and inventories expected in Thursday’s USDA World Supply and Demand Report.

 

Corn will begin on the defensive amid high U.S. crop ratings and cooler temperatures forecast next week. Heat dominates the central U.S. until a cool front passes July 15 with increased chances for rain. Hot weather may be putting a drag on yield potential but with ratings above average it is difficult to spark short covering or new buying. Brazil’s corn crop seen at 82.92 million metric tons, down from 85 million MT forecast last month, crop agency Conab said today, which should provide some underlying support in early trading. USDA announced 113,000 tons of corn sold to Egypt in its daily reporting wire with 60,000 MT sold for 2017-18 delivery and 53,000 MT sold for new-crop. Also, USDA reported 152,000 MT tons of sorghum originally sold to Mexico for delivery in 2017-18 season were canceled.  

 

Soybeans seen steady to firm led to the upside by rising soybean meal futures. Conab estimated Brazil soybean production at a record 118.88 million MT, up from 118.05 MMT forecast a month ago. Still, that is a little smaller than some private forecasts have been signaling. U.S. soybeans are the cheapest origin for any non-Chinese buyers. Soybean crush margins remain very profitable at near $2 a bushel, boosting domestic demand for beans.  

 

Wheat futures will under pressure after French Farm Ministry cuts output less than private forecasters had been estimating. European wheat prices fell to a one-week low overnight after leading the Chicago rally last week. Russia, Kazakhstan and Ukraine are all hoping the U.S.-China trade spat will boost demand for their wheat. A rare cargo of Russia wheat is headed for Brazil this week and a smaller Chinese wheat harvest may boost demand for Black Sea grains.  U.S. spring wheat conditions unexpected improved this past week.  About 80% of the crop was rated “good” to “excellent” on July 8, more than double the 35% rating a year earlier and up 3 percentage points from a week earlier. The warm weather is speeding the crop along with 81% now heading, up from last year’s drought-reduced crop of 76%.  

 

Livestock Calls

Cattle: Slightly weaker

Hogs: Slightly lower

 

Cattle seen starting steady to lower after futures ended near session lows the past four sessions after August cattle rose July 2 to the highest since March 19. August will start the day near the 100-day moving average and that should offer some support.  Wholesale beef market also got off to a lackluster start this week, with Choice and Select values softening $1.11 and 9 cents, respectively. Packer margins remain very profitable and beef demand is strong at the lower prices.

 

Hogs seen slightly lower after a weak close Monday. August futures fell to the lowest since early April with October and December futures falling to new contract lows. The cash markets were slightly lower Monday with national average cash hogs down 18 cents and Iowa/Minnesota cash bids fell 50 cents. Wholesale pork prices slipped lower as weakness in loins, picnics and butts offsetting gains in bellies, ribs and hams. Loins are attractively prices for increased retailer offerings and improved sales and prices are needed to put a floor under the market.

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