Ahead of the Open: Corn Bouncing on Chinese Buying; Favorable Weather Continues

Posted on Thu, 07/30/2020 - 06:13

GRAIN CALLS

Corn: Up ½ to 2 cents
Soybeans: Down 2 to 4 cents
Wheat: Down 1 to 4 cents

GENERAL COMMENTS: Corn is holding near long-term support, halting a four-day drop, as Chinese corn prices continues to rise and spur speculation that shortages are developing, and imports will rise. China has sold almost all the corn auctioned from the 2014 and 2015 harvests and stored in state silos this year with prices climbing with each new sale since May. China again sold 100% of the total offered in this morning’s state corn reserve auction of 4 MMT at an average of 2,037 yuan/MT, or about $7.39 a bushel. USDA did announce new large sales to China this morning but no new soybean business.

Gains may be capped by the overall favorable crop conditions despite dryness in Iowa and other parts of the Midwest. Soybeans were slightly lower, pressured by few weather problems in the U.S. and concerns that elevated tensions between Washington and Beijing could curb China's appetite for U.S. supplies of the oilseed. With nearly seven months gone, an ambitious $36.5 billion target for Chinese imports in 2020 may not be quite out of reach, but it's looking like a rising hurdle.  While orders for soybeans have started to pick up, sales to China will need to be active. Wheat continues it recent choppy trade with prices moving lower this morning after rebounding yesterday.

USDA’s daily export sales reporting program announced private exporters reported two large sales of corn this morning and give corn some added support this morning and signal prices have reached levels to spur improved demand. China bought 1.937 million metric tons (MMT) of U.S. corn for new-crop delivery. In addition, another 130,000 metric tons (MT) of corn were sold to unknown destination for new-crop delivery.

U.S. export sales in the week ended July 23 were stronger than expected for wheat and soybeans but disappointing for corn. USDA reported this morning that net old-crop soybeans sales fell to 257,800 MT, down 45% from the prior four-week average and below trade estimates. However, new-crop sales jumped to 3.344 MMT with China buying almost 2.0 MMT and unknown destination accounting for 1.23 MMT. Wheat last week rose 10% to 676,600 MT from a week earlier and were nearly 30% higher than the four-week average. Old-crop corn sales were a net reduction of 29,300 MT as light new sales were offset by reduction primarily to Canada, Mexico, Panama and El Salvador last week. Traders were looking for sales in the 400,000 MT to 1 MMT range. New-crop corn sales were also disappointing at 638,700 MT, well below the 1.5 to 3.0 MMT expected by traders surveyed by Reuters.   

The first look at second-quarter GDP, which was forecast to plunge an annualized 34.5% collapsed 32.9%, the most on record going back to the 1940s. Though activity starting to improve in May, momentum has slowed amid the resurgence in the Covid-19 outbreaks. Already this morning Germany reported a record 10.1% slump in the quarter. The U.S. merchandise trade gap unexpectedly narrowed in June for the first time in four months as exports jumped by the most on record, signaling the downdraft in global commerce is stabilizing. The overall balance shrank to $70.6 billion last month from $75.3 billion, Commerce Department data showed Wednesday.

Continuing worries about coronavirus and some disappointing earnings are helping push global stock indexes lower this morning.  Gold and crude oil are both trading lower and the dollar is slightly stronger, adding a slightly negative backdrop to the grain markets this morning.

Fatalities from Covid-19 passed 150,000 in the U.S. as Texas, Florida and California reported record daily deaths. Germany is seeing a new spike in cases and Tokyo saw a record number of infections. Health officials bracing for a new onslaught of cases when summer is over are alarmed by what Australia is experiencing as winter sets in. The health and economic damage from the crisis in the U.S. could lead to a stop-gap bill from Congress to extend federal unemployment insurance and protections against evictions as Democrats and Republicans remain far apart on a full stimulus package. A $600-a-week federal unemployment benefit that has helped keep tens of millions of Americans afloat is likely to expire on Friday, without agreement among the White House and Congress about whether to extend it.

Fed Chairman Jerome Powell didn't make much new news yesterday. There were no programs unveiled. No changes to asset purchase plans. No changes to rate policy or updates on forward guidance or Yield Curve Control or anything like that.  And yet markets surged anyway. The takeaway is that the Fed is going to be on hold for an extremely long period of time, regardless of what happens in the real economy. And everyone understands that the Fed is committed to this. That's because until the economy genuinely starts to resemble the pre-crisis economy, in terms of employment and wages and prices, they're not going to change policies.

Corn:  December is sitting about 4 cents above the contract low at $3.22, which is long-term support.

Soybeans: November beans moved down near support at $8.80 overnight and rebounded into this morning break after the USDA weekly export sales report.

LIVESTOCK 
Cattle: Steady to weak
Hogs: Steady to weak

Cattle:  Cattle futures extended Tuesday’s recovery yesterday and now are set to test swing highs left on the charts on July 27 and July 16. A close above those highs should increase upside momentum. But futures’ premiums to cash bids remain a ceiling on gains. Some additional cash cattle sales took place yesterday in Colorado at $98, in Iowa from $101 to $102, and in Kansas and Texas from $96 to mostly $97. This was up from a light test early in the week and from last week’s action that ranged from $96 in the Southern Plains to $100 in the Western Corn Belt. Yesterday’s trade was active in southern areas but lighter to the north, where backlogged numbers are smaller. Wholesale beef trade was active yesterday with prices mixed. Choice cutouts fall $1.85 and Select cutouts were up $1.17. This morning’s export sales data for the week ended July 23 showed sales jumped 81% from the prior four-week average to 29,500 MT, a new marketing-year high. South Korea and Japan dominated sales and USDA reported sales of 1,400 MT to China last week.

Hogs:  Futures were on the defensive yesterday but closed well off early session lows. That makes Wednesday’s low a key short-term support. Friday’s close to end July trading will have an important directional impact on August trading.  Cash hog bids slipped 37 cents at midweek, paring this week’s small gains. The pork cutout value fell $1.50 on Wednesday, with hams leading the decline. Movement slowed to 335 loads. Export sales last week rose to 39,600 MT, up 12% from the prior four-week average. China bought a net 17,800 MT and Mexico purchases 15,400 MT. Weekly pork shipments slowed to 31,500, down 3% from the prior four-week average.