Ahead of the Open: Weak Undertone Seen in Quiet Trade on China Trade Uncertainty

Posted on 03/06/2019 7:49 AM

Grain Calls

Corn: Steady-weak

Soybeans: Down 1 to 2 cents

Wheat: Down 2 to 5 cents

General Comment: Grain prices are meandering lower on light volume amid a lack of conviction a trade deal will be able to turn around the prevailing bearish sentiment. The key is how fast China starts buying U.S. farm commodities. Prices also under pressure because no big changes are expected in Friday’s USDA’s U.S. or global supply and demand forecasts that will signal significant tightening in inventories that warrants higher prices.

President Donald Trump is pressuring U.S. trade negotiators to cut a deal with China soon in hope of fueling a market rally, as he grows increasingly concerned that the lack of an agreement could drag down stocks, according to people familiar with the matter, Bloomberg reported overnight. As trade talks with China advance, Trump has noticed the market gains that followed each sign of progress, said the people, who requested anonymity to discuss internal deliberations. Trump, who met with his trade team Monday, has expressed interest in hosting Chinese President Xi Jinping for a signing ceremony on a deal as soon as this month. His enthusiasm for a pact could shape crucial decisions such as balancing Chinese pressure to lift tariffs immediately against trade hawks’ arguments to initially maintain duties as leverage to assure good behavior by Beijing. 
That could provide an opening for China to seal a deal without giving major ground. “China’s concessions probably won’t be very big because a lot of their demands are what we already plan to reform,” former finance minister Lou Jiwei said in Beijing on Wednesday, calling some U.S. demands for change "unreasonable."

Gregg Doud, chief U.S. agricultural negotiator at the U.S. Trade Representative's office, said Tuesday it was unclear whether the U.S. and China would be able to reach an agreement to end the trade war, despite recent reports a deal was close. “I don’t know what to expect,” but there was “ample room” for the U.S. to increase its agricultural exports to China, because the country imported about $125 billion of farm goods from all sources in 2018 and imposes a number of barriers to U.S. farm exports, Doud said at the Virginia Governor’s Conference on Agricultural Trade.  
However, China's Sinopec Corp. will make arrangements to purchase liquefied national gas (LNG) from the U.S. as soon as they are ordered to do so by the government, Sinopec President Ma Yongsheng told Reuters on Tuesday.  As part of the deal, there would be an $18 billion purchase of natural gas from Houston-based Cheniere Energy Inc LNG.A, Wall Street Journal reported last weekend. There have been rumors state-run China grain companies have been asking for quotes or placing bids below the current market prices on farm product imports in the past week but no confirmed buying.     
China is reporting that it has found hazardous pests in Canadian canola that was shipped from Richardson Grain. The Chinese claimed that their suspension of trade is reasonable/legal and aimed at protecting the safety of Chinese citizens. Canada’s Ag Dept says it has also carried out tests and has not found any pests or bacteria of concern. China’s move is probably politically motivated against the extradition of high-level Chinese business CFO to the U.S.

The USDA's daily export sales reporting service showed no new large sales in the past 24 hours.

Corn market are called narrowly mixed to start after a very quiet overnight session that saw prices stuck in a range of less than 1 ½ cents. As of Feb. 26, funds increased net-short positions to 100,517 futures and options, the most since late September and the most for this time of the year since 2016.

Soybean futures seen slightly lower on advancing Brazilian harvests and beneficial rains in Argentina to boost yield potential. Funds trimmed net-short positions to 35,982 futures and options as of last week, down from 42,810 a on Feb. 19. Funds increased net-shorts in soybean meal to the largest since June 2017 and the most for this time of year since records began in 2006.

Wheat futures seen weaker on forecasts for larger harvests in European, Russia, Ukraine this year as well as doubts U.S. exports are set to improve. However, funds increased net shorts to 58,567 futures and options in SRW market as of Feb. 26 from 42,718 contracts a week earlier. That is the biggest bearish bet since last April.  Funds are now holding a record net short of 41,557 contracts in the HRW market as of last week.

Livestock Calls:

Cattle: Mixed

Hogs: Steady to weak

Cattle futures seen mixed waiting for cash trade to develop that will likely have to wait until Friday with USDA set to release the monthly freezer inventory report on Thursday and monthly Cattle on Feed Report on Friday.  Feedlots are holding out for higher money this week as beef prices this week are the highest since last June. However, sales have slowed from earlier this year. Funds were net-long 122,157 futures and options contracts on Feb. 26. That is the biggest bullish bet since November 2017 and the most for this time of the year since 2014. 

Hog futures are steady to weak after failing to hold early gains on Tuesday. On Tuesday cash prices slid another 36 cents. Meanwhile, the pork cutout value slipped 17 cents on Tuesday, but that did trigger strong sales of 472.07 loads. Funds cut net-short positions last week to 5,490 contracts, down from 9,148 a week earlier as prices rebounded. Commercials further reduced net-short hedges to the smallest since December 2015 ahead of the 2016 price rally.

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