Ahead of the Open: Rebounding Ahead of Two-Days of U.S./China Trade Talks

Posted on 01/30/2019 8:06 AM

Grain Calls

Corn:  Up 2 to 3 cents
Soybeans: Up 2 to 4 cents
Wheat: up 2 to 5 cents

General Comment: The next round in the trade war between the U.S. and China begins in Washington today with fresh negotiations. Both sides have until March 1 to come to a lasting truce to avoid further escalation of tariffs. Hopes remain for solid progress in the two-day meeting, although a breakthrough may not happen immediately because of U.S. demands to protect American intellectual property rights and end policies that Washington says force U.S. companies to transfer technology to Chinese firms. However, Xinhua News reports that China's parliament will likely pass in March a new foreign investment law that will ban forced technology transfer and illegal government "interference" in foreign business practices. The National People's Congress (NPC) Standing Committee convened a special two-day session this week to conduct a second review of the draft law. This may be a significant concession.

The Federal Open Market Committee is widely expected to hold interest rates unchanged when it announces its latest decision at 1:00 p.m. CT today. Economists expect both the statement and press conference to emphasize “patience” in raising interest rates, especially as the U.S. government shutdown has left policy makers without much of the latest economic data ahead of today’s decision. 

Brazil’s weather forecast has good rains for the northwest growing area over the next 3 days with limited rainfall elsewhere. The weekend and first half of next week forecast sees close to average rains in most areas. Argentina’s weather forecast has good rains over the northern two-thirds of Argentina over the next few days. The 6-to 10-day forecast has below average rainfall for most of the growing areas.

Corn is seen posting a small rebound on optimism for progress on China trade talks and potential new commitments to buy U.S. corn. A South Korean feed group bought 60,000 metric tons (MT) of optional origin corn while Indonesia bought 150,000 MT South American corn.

Soybeans seen higher this morning after two days of quiet consolidation. China trade talk optimism and mixed South America weather forecasts provide underlying support.   

Wheat futures will follow corn and soybean to the upside after falling near a two-week low on Tuesday.   Egypt bought 360,000 metric tons (MT) of  French and Romanian wheat on Tuesday, the first French purchases since 2017. Despite the lowest FOB offers coming from the U.S., shipping costs kept American supplies out of the shopping basket, a sign that U.S. wheat is not as competitive as thought.

Livestock Calls

Cattle: Steady-firm

Hogs: Steady-mixed

Cattle futures seen opening with a firm undertone after wholesale beef prices moved higher. Although, sales were light to moderate. Slaughter is up 3,000 head from a year ago during the first two days of this week. Packers may need to bid a bit more aggressively to maintain active slaughter schedules.  Stronger beef prices at the end of the month, bodes well for further gains in February and confirms strong consumer demand.

Hog futures seen mixed as packers have already cancelled operation today in parts of the Midwest because of the cold weather. Any time slaughter is curbed by weather that usually causes a backlog in marketings. Wholesale pork carcass values rose 17 cents on Tuesday on moderate demand. The National Pork Producers Council is asking the U.S. and China to quickly resolve their trade differences and for the Asian nation to make a minimum $3.5 billion purchase of U.S. pork over the next five years.

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