Ahead of the Open: Corn Seen Bouncing from Oversold on Oil Rally, Wheat is on the Defensive

Posted on Thu, 04/02/2020 - 07:23

GRAIN CALLS

Corn: Steady to up 2 cents
Soybeans: Steady to down 3 cents
Wheat: Down 7 to 10 cents.

GENERAL COMMENTS: Corn ticked higher overnight following recent steep declines after a sharp rebound in crude oil lifted gasoline prices and may slow the selling pressure in ethanol. Soybeans have traded both sides of unchanged overnight with some support coming from stronger crush demand and concerns about shipping logistics in South America. Wheat continues its pullback from the two-month highs hit last week with underlying support expected to develop from lower U.S. planted area and drier weather in the Black Sea region. Trading remains tentative and light amid uncertainty about the impact of global pandemic on global food and biofuel demand.

Crude surged more than 12% on Bloomberg reports that China is set to take advantage of low prices and start buying for its strategic reserve. The news, though welcome for oil producing nations, comes with a sting in the tail as the cost of shipping the commodity around the globe has sky-rocketed recently. It now costs $10 a barrel to move crude from the U.S. to China. President Donald Trump met with executives from the country’s oil industry yesterday as he steps up efforts to intervene in the rout which threatens to wipe out tens of thousands of jobs in the shale industry.

Thailand's rice prices have reached the highest in seven years as Thai exporters anticipating more sales, as their main competitors battle domestic coronavirus outbreaks. However, the pandemic could lead to longer lasting changes in the grain market. Countries that rely on imported grains to feed their populations may build larger strategic food reserves and become less reliant on a just-in-time stream of imports.  Meanwhile, global food prices dropped 4.3% from February to March, according to the United Nations’ Food and Agriculture Organization (FAO) food price index.

This morning’s weekly USDA Export Sales Report showed disappointing U.S. wheat sales, good corn sales and better-than-expected soybeans sales. Wheat sales fell to a marketing-year low of 72,900 metric tons (MT), 86% below the prior four-week average. However, China did buy 60,000 MT for new-crop delivery. Corn sales were 1.075 MMT. That was 13% below prior four-week average but still at the pace to reach to the USDA annual projection. China did buy more sorghum last week. Soybean sales rose 6% to 957,400 MT from a week earlier and were 75% above the prior four-week average. China bought 131,000 MT.  

This morning’s daily USDA export sales reporting service did not announce any new large private exporter sales during the past 24 hours. Daily sales are key to stabilizing further weakness developing this month if plantings get off to a good start.

The number of Americans filing claims for unemployment benefits last week shot to a record high for a second week in a row - topping 6 million - as more jurisdictions enforced stay-at-home measures to curb the coronavirus pandemic, which economists say has pushed the economy into recession. Initial claims for unemployment benefits rose to 6.65 million in the latest week from an unrevised 3.3 million the previous week, the U.S. Labor Department said on Thursday. The outbreak has spurred an unprecedented surge in Americans seeking government assistance. They have already outstripped applications for unemployment benefits that peaked at 665,000 during the 2007-2009 recession, during which 8.7 million jobs were lost.

More deterioration in U.S.-China relations will remain a cap to futures rallies and potential next grain export business.

China is said to have concealed the scale of the coronavirus outbreak in the country, under-reporting both the number of cases and deaths. The report, based on information from three U.S. officials, is likely to add to criticism of China’s role in the virus’s spread, particularly given the pressures the U.S. is facing.  China has rejected a U.S. intelligence claim that the country concealed the extent of the coronavirus outbreak there. Foreign Ministry spokeswoman Hua Chunying said that China had been open and transparent in its actions, accusing U.S. officials of wanting to “shift the blame.” The Trump administration is tightening rules to prevent China from obtaining advanced U.S. technology for commercial purposes and then diverting it to military use, several sources told Reuters.  

China's main grain supplies are sufficient for domestic demand and will not be in shortage even without any imports, an official from the commerce ministry said; China's ending stocks of wheat, corn and rice in 2019 totaled more than 280 million tons, while yearly consumption on average is more than 200 million tons

CORN:  Futures  may see a small bounce away from contract lows but rallies will be labored with ongoing shutin of ethanol production and weakness in cash bids.  

SOYBEANS: USDA's February soybean crush was pegged at 182 million bu. above the trade estimate for 177 million bu. and well above 163 million last year. Soyoil stocks rose to 2.420 billion lbs., above trade estimates and 2.149 billion a year ago. Argentine grains shipments brought 6.9% less export dollar revenue into the country last month compared to March 2019, as they locked themselves down because of the coronavirus pandemic, the CIARA-CEC export chamber said; disruption of grains shipments from Argentina could throw off global trade flows as European and Southeast Asian importers look to rival exporters Brazil and the United States to fill the supply gaps.  The association that represents the Brazilian soybean exporters announced yesterday that it will provide truck drivers with snack kits in the country´s highways that do not have a restaurant or cafeteria structure for the duration of the isolation measures for control of the spread of the Covid-10.  The organization states that it has mapped the services offered in its associates' 158 yards and has drawn up an action plan aimed at providing better working conditions for drivers who continue to circulate in Brazil bringing products that guarantee food security for millions of Brazilians. Malaysian palm oil futures reversed early gains on Thursday, as heightened concerns over demand and forecasts of better production eclipsed worries that the coronavirus pandemic could choke off global supplies of the vegetable oil.  

WHEAT: Futures seen sliding on fund liquidation and the lack of new export business. Russia will now sell up to 1.5 MM% of grain from its state reserves, of 83% of their total stockpile, to meet the needs of the flour and baking industry. Egypt's state grains buyer, the General Authority for Supply Commodities (GASC,) will require suppliers bidding in its upcoming wheat tender to replace contracted wheat of any origin with other cargoes should any coronavirus shutdowns block delivery of contracted cargoes. GASC will require suppliers to bear the difference in freight price and costs resulting from the potential change of origin.

LIVESTOCK 
CATTLE: Lower
HOGS: Lower

An employee at a Mountaire Farms chicken processing plant in southern Delaware has tested positive for Covid-10, the company announced. Foster Farms, Perdue Farms and Tyson Foods have also announced cases of the virus in plants over the past week, with JBS USA sending some workers home for “flu-like” symptoms. But so far, no broad plant disruptions have occurred. Tensions between workers and employers at such processing plants are on the rise and slaughter capacity concerns continue to lend pressure to cattle and hog futures.

Cattle: Futures seen lower amid weakening beef and cash cattle prices.  Cattle traded at an average price of $113.00 for one to nine-day delivery at the online Fed Cattle exchange auction yesterday, with just 18% of the nearly 4,700 head offered moving. That represents nearly a $7 drop from action the week prior, which set the market trend. So far, there has just been some light trade in Kansas and Texas between $112 and $113. After a brief reprieve from selling Tuesday, traders once again pushed the live and feeder cattle markets limit lower at midweek. Today, expanded limits of $4.50 remain in place for live cattle and feeder cattle will see limits expand to $6.75. Choice boxed beef values plunged $7.98 on Wednesday and Select dropped $3.83. Sharply lower prices have not inspired strong movement. Weekly export sales this morning showed beef exports rose 10% above the prior four-week average and shipments rose 3% above the four-week average.

Hogs: Futures seen lower in follow-through selling to limit down losses Wednesday. Daily limits expand to $4.50 today.  Weekly pork sales totaled 38,200 MT last week, down 1% from big sales last week with China buying 18,900 MT. Shipments continues active with 40,200 MT moved offshore last week, including China taking 16,200 MT. Packer profit margins have slipped to just $16.10 a head as of Wednesday, nearly a $24 plunge from the week prior, amid sliding pork prices. The pork cutout value dropped another $2.99 at midweek and cash hog bids tumbled $4.63 yesterday Average hog weights in the Iowa/southern Minnesota/South Dakota region slipped 0.8 lbs. the week ending March 28 to 285.4 lbs., which is 0.7 lbs. under year-ago levels. China has confirmed two cases of African swine fever in northwestern Gansu province, the Ministry of Agriculture and Rural Affairs said on Thursday. One outbreak occurred in a co-operative that had bought piglets from another province, while the second case was detected in a truck transporting piglets from elsewhere.