Ahead of the Open: Grains, Soy Bounce Ahead of USDA Supply & Demand Report

Posted on 03/08/2019 7:46 AM

Grain Calls

Corn: Up 1 to 2 cents

Soybeans: Up 1 to 2 cents

Wheat: Up 2 to 3 cents

General Comment: Quiet ahead of the USDA World Ag Supply & Demand Report later this morning and little clarity on U.S./China Trade front. The Chinese government's top diplomat, State Councillor Wang Yi, said on Friday that talks had made substantive progress, and that the two countries' relations should not descend into confrontation. But the New York Times reported that Chinese officials are leery of continued discussions and don't want to commit China to structural changes in its economy. The Wall Street Journal quotes U.S. Ambassador to China Terry Branstad as saying because no trade is imminent, no summit date between President Donald Trump and Chinese leader Xi Jinping has been set.

China’s Shanghai Composite Index tumbled 4.4 percent overnight, as $345 billion was wiped off the value of the country’s stocks. The selloff came after the nation’s largest brokerage issued a rare sell rating, which investors viewed as an indication that the government wants to slow the recent rally after two lenders were fined for illegally channeling money into the stock market. With the equity market posting gains for the past eight weeks, an $1.8 trillion rally since January, signs of overheating had emerged in all of the country’s major benchmarks.

There were also worrying signals for the wider global economy from China, with exports slumping 21% to a four-year low in February. Even though this data is somewhat skewed by the Chinese New Year, aggregating January and February figures still show a 5 percent decline. German factory orders dropped 2.6 percent in January, where a gain had been expected, with the fall caused by weak demand from outside the euro area. It all adds to fears that U.S. trade policy may be doing permanent damage to the world economy. On Wednesday, the U.S. reported its goods trade deficit with China surged to an all-time high last year, underlining one of the key sticking points.

The USDA's daily export sales reporting service showed private exports sold 664,000 metric tons (MT) to China for delivery before Sept. 1. Yesterday, China was rumored to have bought between 500,000 MT to 2.5 MMT of U.S. soybeans yesterday for delivery from June to October. Market participants ignored China buying rumors yesterday and today’s announcement may lend only light support. Market also ignored the news that China bought sorghum for the first time in months last week with U.S. sales of 65,000 MT. The sorghum and soybean purchases still hint that the U.S./China trade talks are making progress with a possibility for a deal signing later this month.

Corn market are called slightly higher in a rebound from sharply losses earlier this week after funds piled into an already large net-short position.  Open interest jumped another 23,000 contracts yesterday.  

Soybean futures seen slightly higher, bouncing off chart support.  Watch soybean meal as U.S. supplies are cutting into Argentina market share and new tax policies increase raw soybean exports and curb soymeal exports. Argentina crushing plans are idled because of the U.S. market gains.  

Wheat futures seen slightly higher after falling to a 1-year low and heading for a fifth straight weekly decline. Prices are down 16% during this losing streak and funds are record short positions in HRW futures and options and large short bets in SRW futures. Yesterday’s weekly export sales report showed an improvement in exports and that should have been a bullish surprise but negative chart signals kept funds selling. Algeria bought about 300,000 MT of optional origin durum wheat which likely included some U.S. supplies.

Livestock Calls:

Cattle: Steady to firm

Hogs: Steady to firm

Cattle futures seen steady to firm with beef prices extending this week’s rally to the highest since June and early cash trade this week coming in steady to firm. Traders and packer are waiting for Feb. 1 Cattle on Feed Report this afternoon. Most are looking for a minor 0.2% increase on cattle held in feed yards as placements fall more than 7% in January from a year earlier as marketing rise about 2% from a year earlier. USDA’s Cold Storage Report on Thursday showed that beef stocks declined contra-seasonally during January. Beef stocks at the end of January totaled 510.1 million lbs., down 14.4 million lbs. from December and 8.3 million lbs. from last year. The 10-year average shows a 12.2-million-lb. increase in beef stocks during the month.

Hog futures are steady to firmer as improving pork demand should support a bottom in cash hogs. The national average cash price was down 8 cents on Thursday but wholesale pork carcass values rose $1.19, led by stronger bellies and hams. Pork stocks at the end of January increased less than the 10-year average. Pork stocks totaled 562.7 million lbs., up 57.4 million lbs. from December but down 18.0 million lbs. from January 2018. The month-over-month increase in pork stocks was less than the 10-year average of 67.9 million lbs., despite slaughter that was up nearly 5%. Chicken inventories in storage also declined from both the prior month and year ago.  African swine fever has spread to two new provinces in northern Vietnam—Hoa Binh and Dien Bien—bringing the total number of infected cities and provinces.

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