Ahead of the Open: China Deal Optimism Jumps, lifting Grains, Livestock

Posted on 03/04/2019 7:40 AM

Grain Calls

Corn: Up 3 to 4 cents

Soybeans: Up 5 to 7 cents

Wheat: Down 1 to mostly up 2 cents

General Comment: An eight-month trade war looks like it’s nearing an end, and not necessarily because China is ready to bow to U.S. President Donald Trump’s demands. Global stocks are higher, energy prices are rising, and grains are trying to build on a very strong recovery on Friday.
Both sides are close to a deal that could lift most or all U.S. tariffs if Beijing follows through on pledges ranging from protecting intellectual-property rights to buying a significant amount of American products, including farm goods. Grains are waiting for more details how and when China will buy farm products given that big crop from South America are already getting harvested. Many details still needed to be worked out, including the terms of an enforcement mechanism to ensure that Beijing follows through on pledges to make changes to policies to better protect U.S. intellectual property, end forced technology transfers and curb industrial subsidies. Trump and Chinese President Xi Jinping could seal a formal trade deal at a summit around March 27 given progress in talks between the two countries, the Wall Street Journal said Sunday.
U.S. trade negotiators have asked China to reduce tariffs on ethanol but it is unclear if Beijing is willing to agree, according to  USDA Secretary Sonny Perdue. In a statement on Saturday, China said it welcomed the tariff increase delay. China plans to cut the value-added tax (VAT) rate that covers the manufacturing sector by 3 percentage points, Bloomberg reported on Monday, citing a source familiar with the matter. Premier Li Keqiang will outline the government’s targets for the economy, as well as its policy direction at the annual meeting of parliament starting on Tuesday. China has said it will pursue a more proactive fiscal policy this year as the world's second-largest economy further slows. Policy insiders previously said they expect the government to cut the VAT, which ranges from 6% for the services sector to 16% for manufacturers.

The USDA's daily export sales reporting service showed no new Chinese purchases but new corn sales to Colombia. Private exporters reported export sales of 100,500 metric tons (MT) of corn for delivery to Colombia during the 2018/2019 marketing year. 

Corn market seen extending Friday’s reversal pattern to the upside. Further gains this week would help to cement Friday’s low as the winter low. On Friday, USDA said corn used to produced ethanol fell to 444 million bu. in January from 462 million bu. in December and 476 million last year. The CFTC Commitment of Traders report on Friday showed funds increased net shorts to 86,275 futures and options as of Feb. 19, up from a net-short of 14,693 contracts. That’s the biggest bearish bet for this time of year since 2016 and well above the 45,000 to 50,000 short position expected. Commercials hold the smallest net short position since 2009 as of Feb. 19. Corn  

Soybean futures seen rising on speculation China will boost purchases of U.S. soybeans. USDA reported Friday that the January crush was 182.8 million bu., up from 174.7 million bu. a year ago and about as expected. Soyoil Stocks were 2.004 billion lbs., below pre-report estimates calling for 2.046 billion lbs. and down from 2.240 billion last year. Funds increased short position more than expected in the week ended Feb. 19 and probably added to those positions last week. Funds were net-short 42,810, up from 10,038 net-short a week earlier. 

Wheat futures seen firming on speculation the drop to an 11-month low last week will spur export sales. Wheat from the U.S. was offered at the lowest price in Iraq's state tender to purchase a minimum 50,000 MMT of hard milling wheat which closed on Monday. U.S. Senators Pat Roberts (R-Kan.) and Jerry Moran (R-Kan.) are pushing U.S. Trade Representative Robert Lighthizer to work on resolving a long-standing trade barrier for U.S. wheat shipments to Brazil. Fund net-short position in HRW wheat expanded to 30,786 futures and options in the week of Feb. 19, the most since the end of 2016

Livestock Calls:

Cattle: Steady to firm

Hogs: Steady to firm

Cattle futures seen steady to firm after cash cattle on Friday sold $2 to $3 higher and wholesale beef rallied with Choice up $1.34 and Select rising $1.52. However, sales were slow. Slaughter rose to 603,000 head last week, up from 577,000 a week earlier and down from 611,000 a year ago. Dressed weight last week estimated at 816 lbs., down from 822 lbs. a week earlier and 825 lbs. a year ago.            

Hog futures are steady to firmer. A move above Friday’s high will generate new buying interest.  Cash hog bids strengthened 33 cents on a national average basis on Friday while the wholesale pork carcass jumped $1.43 on strength in most cuts. However, sales were slow. Slaughter last week was estimated at 2.449 million head, down 1.8% from 2.494 million a week earlier and up 1.2% from a year ago.

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