Ahead of the Open: Grains Seen Mixed as Traders Wait More Details on U.S./China Trade Truce

Posted on 12/04/2018 7:41 AM

Grain Calls

Corn: Mixed   
Soybeans: Mixed
Wheat: Down 2 to 4 cents

General Comment:  It was a choppy session of trade overnight and more of the same is expected today. Markets bounced off session lows late in the overnight session after Treasury Secretary Steven Mnuchin told Fox Business, "we expect to make a lot of progress" on trade negotiations within the first 90 days," and agricultgure will be first up in talks with ChinaTrade deal confusion dominates markets Tuesday as traders look for more details about what both China and the U.S. officials agreed to accomplish in the next 90 days. Yesterday, there was confusion over when the timing of the tariff truce, which the White House clarified last night as Dec. 1, not Jan. 1. The Chinese response has been largely absent with bureaucrats from various government offices in Beijing awaiting the return of President Xi Jinping to the country before commenting or taking any action. Trump named U.S. Trade Representative Robert Lighthizer, a China hard-liner, to lead negotiations with Beijing. The move signals Trump will pursue a tough stance in upcoming talks. Chinese leadership wanted to deal with Treasury Secretary Mnuchin, who had led initial rounds of talks, but failed to resolve prior disputes. U.S. officials said that Beijing had promised to buy an unspecified but "very substantial" amount of agricultural, energy, industrial and other products, with purchases of farm goods to start "immediately". China ag tariffs are still in place and U.S. officials are uncertain if they can be eliminated. That makes it tough for Chinese grain buyers to increase purchases of U.S. supplies. The dollar is sharply lower and oil prices are high, slightly positive developments and providing underlying support.

Corn is seen mixed to begin trading testing the support from the large upside gap left on the daily and weekly charts on Monday. The inability to hold much of Monday’s strong gains has put the corn market on the defensive.  U.S Corn used to produce alcohol was 513 million bushels in October, up 3% from September but down 2% from a year earlier. Corn used to make fuel alcohol was 462 million bushels, up 4% from September, but down 2% from October 2017.

Soybeans are expected to reopen with mixed trends this morning. Prices pared a large portion of Monday’s early surge following news of the U.S./China trade truce. Still, futures are holding above the upside gaps left on the daily, weekly and monthly charts. If those gaps remain open, the trend remains higher.  The U.S. soybean crush in October was 183 million bushels, up from 175.9 million bu. a year earlier.  Brazil’s weather forecast shows average rainfall in the north over the next week to ten days with little rainfall in the rest of the growing regions. Drier weather in the south could begin to lead to some moisture deficits especially if rains do not fall by the second half of next week. Argentina’s weather forecast had no major changes as limited rainfall is seen into Monday of next week for advancing planting progress before some light to moderate rainfall eases moisture stress by the middle of next week.

Wheat futures are seen lower on amid a lack of a major improvement in U.S. export sales and shipments. Until exports sales improve, the market will run into selling on rallies, as it did yesterday when prices jumped the highest since Oct. 29 and pared much of the gains by the close.  Wheat exports from the EU are running 30% behind last year amid drought-reduced supplies.  Australia government yesterday cut the official wheat crop forecast to 16.95 MMT from 19.1 MMT in September.

Livestock Calls

Cattle: Steady to higher

Hogs: Firmer

Cattle futures seen steady to firmer amid firming wholesale beef prices. Choice rose 47 cents and Select gained 77 cents on Monday. Sales were 139 loads, a good start to the week. Market remains supported by the stronger cash cattle bids that showed up last Friday. Packers are quiet to start this week but may need some cattle to fill beef orders for this month.  

Hog futures seen steady to firmer recovering Monday’s unexpected retreat. National average cash hogs were down 26 cents on Monday amid plentiful supplies after recent plant and weather disruptions. Slaughter Monday rose to 476,000 head, up from 446,000 a week earlier.  Pork carcass cutout values jumped $1.53 to 70.65, the highest since Nov. 13. It looks like the November trough in wholesale prices marked an important secondary bottom.  

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