Ahead of the Open: Soy, Corn up on U.S./China Trade, Dry Brazil Weather

Posted on 01/07/2019 7:48 AM

Grain Calls

Corn:  Steady to up 1 cent
Soybeans:  Up 3 to 5 cents 
Wheat: Down 1 to 3 cents

General Comment: U.S. President Donald Trump said on Sunday that trade talks with China were going very well and that weakness in the Chinese economy gave Beijing a reason to work toward a deal. U.S. officials first day of meetings with their counterparts in Beijing seemed to get off to a positive start with Chinese Vice Premier Liu He unexpectedly attending what was meant to be a discussion between lower-ranking officials. While no breakthrough is expected at talks this week, they will lay the ground for possible senior-level discussions later this month, including and a possible meeting between President Donald Trump and China’s Vice President Wang Qishan Jan. 22-25 at the World Economic Forum in Davos, Switzerland.  The U.S. can reach a good settlement over immediate trade issues with China while an agreement on structural trade issues and enforcement will be harder, U.S. Secretary of State Wilbur Ross said on Monday morning.  

No resolution to the U.S. government budget shutdown and on Friday USDA officially announced the key, price-sensitive Jan. 11 reports are delayed until the government is funded. Traders will be focused on Brazil governments crop estimates on Friday where traders seem to be looking for a cut to the Brazil soybean crop to 117 to 119 million metric tons (MMT) and corn crop near 92.5 to 93.5 MMT. USDA last month forecast 122 MMT of soybeans and a corn crop of 94.5 MMT.

There were some showers and rain in center-west and central brazil during the weekend to ease dryness but only about 25% of key growing areas got beneficial showers. Below-normal rainfall and above-normal temperatures affect much of Brazil over the next two weeks as upper-level high pressure suppresses storms outside of the far-northern and far-southern areas. About 80% of Brazil was drier than normal over the last 30 days including 40% with less than half of normal, such that rain in recent days did not substantially reduce the coverage or intensity of dryness. Dryness will remain a concern because the coverage of 30-day dryness sharply increased in recent weeks and remains elevated. However, in Argentina it will remain wet. Waves of rain flow along the edge of the high and triggers storms every few days, increasing wetness in central and northern areas.

U.S. stock futures are pointing to mixed opening on Wall Street as optimism over U.S.-China trade talks continue to fight concerns about a slowdown the global economic growth. European shares fell, while Asian equities ended the day in the positive territory, catching up with strong U.S. rally on Friday. The dollar slipped for a third consecutive day, pushing the gold prices higher and lending a firm undertone to agricultural markets. Oil prices gained to the highest since Dec. 18, buoyed by OPEC supply cuts.

Corn is seen steady to firmer after average U.S. cash prices rallied more than a dime last week. The market is moving up into key overhead resistance as increasing dryness in Brazil threatens yields for the first-season crop and raising risks for the second-season corn planted after soybeans. Friday’s weekly ethanol production report showed a larger drop in production last week to a 36-week low and 2% below a year ago. Stocks rose 2.4%. Estimated gasoline demand rose only 0.5% in 2018 from a year earlier.

Soybeans seen rising for a fourth straight session on U.S./China trade talk progress and increasing concern about shrinking Brazil production.

Wheat futures seen pulling back from last week’s gains in early trading. Prices rose Friday to a one-week high after IEG Vantage said U.S. winter wheat seeding probably fell to 31.513 million acres, down from 32.535 million a year ago and the lowest since record began in 1909. With Argentina wheat harvest still slowed by rain, traders will be watching for any further indication of quality losses. Algeria rejected a wheat shipment from Argentina that was below contractual quality standards, Argentina’s ArgenTrigo wheat industry chamber said on Friday.

Livestock Calls

Cattle: Steady-weak

Hogs: Steady-mixed

Cattle futures seen adding to last week’s losses in early trade. Boxed beef cutout values were lower on light to moderate demand and heavy offerings as Choice cutout declined $1.98 per cwt from the day before to $214.51 on Friday, slightly lower than $214.41 a week earlier. The Select cutout declined $1.72 to $207.66, up from $207.52 last Friday. The reported boxed beef trade for the week was 362 loads, 31.6% higher than the 275 loads last week.

Hog futures seen steady to mixed but trying to build on last week’s bottoming action. Demand for hogs remains good. The national average cash hogs price rose 79 cents on Friday to $48.22, up $3.05 last week. Wholesale pork carcass prices fell 20 cents to $69.70 as declines in loins, butts, picnics and hams offset gains in bellies and ribs. Prices fell 76 cents last week. Slaughter was 2.262 million head last week, up 6.6% from 2.122 million a year earlier. Positive U.S./China trade talk progress this week increases chances for stepped up China buying of U.S. pork.

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