Ahead of the Open: Corn, Soy Bounce from Support; Big Corn Sales to China for a Fourth Day

Posted on Fri, 03/19/2021 - 06:11

GRAIN CALLS

Corn: Up 2 to 4 cents
Soybeans: Up 3 to 7 cents
Wheat: Down 1 to 3 cents

GENERAL COMMENTS: Soybean futures are on track for their second weekly decline on Friday, as improved crop weather in South America and expectations for a large increase in U.S. planted area this year increased fund selling of large net-long positions. Corn is holding small weekly gains on Friday morning amid huge sales announced to China this week. Still, the rally has been tepid relative to the sale announcements of nearly 3.9 MMT of U.S. corn to China, a sign that much of this business was already anticipated in the cash market as government grain firms avoid USDA daily reporting requirements by using U.S. trading arms to complete deals with the intention of eventually transferring ownership. Wheat is headed for lower weekly closes after beneficial rains and stronger crop ratings in several exporting nations weighed on the market.   

Before the reopening USDA flashed a daily sale of 800,000 MT of corn was sold by private exporters to China. That follows the announcements of 696,000 MT yesterday, 1.124 MMT Wednesday and 1.156 MMT on Tuesday of corn sold to China. The sales announcement will provide early support to the market but the close may be important after the sales earlier this week failed to attract as much new buying as would have been expected.

Some still see the timing of the big corn sales announcements were politically motivated as high-level U.S. and Chinese officials met in Alaska for an exchange of views yesterday with those talks continuing today. Tensions were high between the US and China following yesterday’s meeting where the 2 sides exchanged pointed criticism. The U.S. criticized China for actions in Xinjiang, Hong Kong, and cyber attacks among other things. China representatives in turn criticized the U.S. and said the comments were unwarranted accusations and condescending.  Relations remain tense and that’s unlikely to change. While trade had recovered, China will continue to want to diversify away from U.S. supplies. Both sides have domestic incentives to exude strength. The Biden administration wants to prove it won’t go easy on Beijing, while China’s diplomats must show President Xi Jinping they are on an equal footing with the U.S. The best sign of progress today would be an agreement for President Joe Biden to meet with Xi Jinping around Earth Day next month to discuss climate change agendas. If that doesn’t happen, the fireworks in Alaska may just be a taste of what to expect over the next four years.

Meanwhile, relations with Russia look equally rocky. Biden and Russian President Vladimir Putin traded barbs this week and the U.S. is considering new sanctions in order to block the Nord Stream 2 gas pipeline.

South American crop forecasts look a bit less widely beneficial than they were yesterday, but the trade remains confident enough in Brazilian soy and corn supplies overall that the global markets will avoid a disaster heading into summer. In Argentina, the forecasts are showing a notable reduction in rainfall across the southern half of the nation late next week after beneficial rains this week. In Brazil, much of the nation is still expected to trend drier into next week with the exception of the far south. This will still benefit soybean harvesting and safrinha corn planting.  

Workers at the Argentine grains port hub of Rosario will start a 24-hour strike on Friday morning to protest layoffs at one of the companies in the sector, an official with the local CGT labor umbrella group said on Thursday. The workers say they will strike over what they consider low compensation for employees in the sector who have been laid off.

 U.S. stock futures are pointing to a rebound as 10-year Treasury yields retreated from 14-month highs yesterday that triggered widespread selling of stocks and commodity.  A calmer tone is ending a volatile week in which Federal Reserve Chair Jerome Powell fanned inflation fears by messaging he’s willing to run the economy hot to help it recover from the fallout of Covid-19, and he’s not unduly concerned by rising yields. However, traders are bracing for quadruple witching Friday, a major expiration of stock options and futures contracts that can exacerbate swings in asset prices. The dollar was slightly firmer this morning against major peers. But the ruble gained against the dollar after the country’s central bank unexpectedly raised its policy rate and signaled further tightening. Brazil and Turkey delivered larger-than-expected rate increases this week in contrast to the easy monetary policy signaled by the U.S. Fed.

CORN:  May corn futures held above Thursday’s low overnight, bouncing up from the 20-day and 40-day moving averages. The contract is up about 9 cents for the week. Futures remain inside of the weekly range from February for a fifth consecutive week.  Corn has a bullish potential on yield risk for the Brazilian winter corn, Chinese demand, strong U.S. weekly export loadings and American drivers returning to pre pandemic gas consumption rates.    

SOYBEANS:  May soybean futures pushed slightly below yesterday’s low but have rebounded after holding above support at the 40-day moving average at $13.89 ½.  May soymeal futures held above Thursday’s low overnight and are also in the green this morning. Soybean oil is trending lower today after hitting new contract highs earlier this week. Malaysian palm oil futures fell 2% overnight, extending their weekly crop to 10% on rising palm oil production forecasts. China’s Dalian most-active soyoil contract dropped 2.7%, and the palm oil contract was down 1.6%.  

WHEAT: Futures extended weekly declines with May SRW heading for a third straight weekly drop on improved soil moisture ahead of key yield development. Exports are sluggish.  

CATTLE: Steady-firm
HOGS: Steady-firm

Cattle: Futures tumbled Thursday, forming bearish daily reversals after some contracts touched new contract highs. The general commodity selloff spilled over into cattle. It would not be surprising to see the market stabilize as cash markets are trying to form a seasonal bottom this week. Cash cattle bids are mostly steady to firmer and boxed beef prices have bounced off support this week. Beef exports also improving.  Today, traders will shift their attention to USDA’s monthly Cattle on Feed Report, which is expected to show a 1.4% year-over-year rise in the number of cattle on feed as of March 1, but a 2.4% slide in placements and a 1.9% drop in marketings.

Hogs: Hog futures retreated on fund profit-taking Thursday after rising to new contract highs. Limiting follow-through weakness today would be encouraging. Some welcome the pullback as a welcome correction for a market that has been accelerating higher at a faster pace.  The product market continues to soar, with the cutout value jumping $6.00 on Thursday, amid strong gains in picnics, hams and bellies. The price surge did sharply curtail wholesale movement. Retailers probably have stocking up, fearing even higher prices and tightening supplies ahead. Cash hog bids jumped $1.42 yesterday. Focus will remain on exports after sales rebounded slightly in the week ended March 11.