Ahead of the Open: Corn, Soy Steady to Weak on Nonthreatening Weather; Wheat Firms

Posted on Wed, 07/29/2020 - 07:16

GRAIN CALLS

Corn: Steady to down 1 cent
Soybeans: Down 1 to 3 cents
Wheat: Up 4 to 6 cents

GENERAL COMMENTS: Corn and soybean futures are seen on the defensive amid rising U.S. crop conditions. There is little reason to add a weather premium with forecasts nonthreatening into August. Rising national yield forecasts will add to carryover inventories from current USDA forecasts. Wheat is rising on global crop concerns and big purchases by Egypt on Tuesday.  

Rains are developing in the northwestern Corn Belt this morning, building across the west and south today and lingering through the remainder of the work week. Amounts and coverage look heavy throughout the southern half of the Plains and Midwest the next three days, much lighter in the north. Rains are looking a bit lighter next week, but temperatures will be below normal in first week of the outlook before rebounding back to normal in the second week of the forecast.

USDA’s daily export sales reporting program did not announce any new large sales this morning. The lack of an announcement is not a surprise with little talk of new tenders this week. Nonetheless, the markets may see additional early pressure on the reopening.  

Chinese authorities have tightened screening of crew members on vessels arriving at ports after several cases of COVID-19 were confirmed on a single vessel heading from Brazil, a move that has raised concerns among buyers, sources told S&P Global Platts. Crew members on a Panamax vessel carrying soybeans from Rio Grande, Brazil, and heading to Yantai port in North China, were tested positive for COVID-19, sources said. While en route to Yantai, the vessel crew was replaced on July 19 in Manila, Philippines, after 10 confirmed cases were reported. On July 26, the vessel was asked to temporarily dock at Yantai port. As authorities tighten the health screening process of vessel crew members, cargo owners in China have come under pressure, while many crushers have also expressed concerns for their upcoming scheduled cargoes. China has been aggressively ramping up its purchases of US soybeans, with almost 3 MMT of daily sales reported so far in July. Brazilian old crop offers were trading 30 cents/bu. higher than U.S. export prices.

The fight in Congress over the next round of coronavirus relief legislation is shaping up to be a long one and that's bad news for the economy and the stock market. Assistance from the government and the Fed has been an integral part of the stock market's rally since March 23. With upwards of 32 million people receiving unemployment benefits and record bankruptcies and business closures expected as well as a possible wave of evictions from newly unemployed renters, the latest fight on Capitol Hill is unwelcome. 

The U.S. dollar fell to a two-year low against a basket of six currencies on Wednesday as pressure built on the Federal Reserve to strike a dovish policy stance at today’s press conference after its two-day meeting amid a surge in coronavirus cases. Investors will also be watching for any indications that the Fed will increase its purchases of longer-dated debt, implement yield caps or target higher inflation than previously indicated. The dollar has weakened more than 3% since the last Fed meeting as yields on benchmark U.S. Treasury debt have fallen more than 20 bps since then. U.S. consumer confidence fell more than expected in July, losing steam following two months of recovery, in another sign that rising COVID-19 infections are cutting into consumption

Oil prices rose on Wednesday after a surprise drop in U.S. crude inventories, but demand concerns amid record increases in COVID-19 infections in some U.S. states capped gains. Traders will be watching the latest U.S. ethanol production and inventory data at 9:30 a.m. this morning. The pandemic is keeping alive concerns about falling fuel demand causing an oversupplied market as record numbers of coronavirus infections are reported globally, including in the United States, the world's biggest consumer of oil.   

Corn:  December corn has bounced on either side of yesterday’s close at the $3.30 support level overnight. The slightly drier outlook next week across parts of the Midwest may help the market stabilized but no severe heat in the forecasts will limit rallies. The Ukrainian shipping company, Stark Shipping, has reported that Egypt and China were among the top buyers of Ukrainian grains in the 2019-20 season, accounting for 13.3 MMT between them, which equates to 23.5% of the 56.5 MMT of grain exported last season. Corn was reported to have dominated Ukrainian grain exports last season with almost 50% of the total.  With Ukraine expected to produce a bumper corn crop this year, that may curb a big expansion in U.S. shipments.   

Soybeans: November trade higher overnight but failed to hold the gains and are back near session lows and just above year’s low at the break. Brazilian farmers will likely plant a record-breaking 38 million hectares (93.9 million acres) to soybeans in 2020-21, which would be a nearly 3% increase from the current season, projects Rabobank. This could push production up to a historic 127.3 MMT, up 5.3% from the 2019-20 season. Some analysts’ soybean production projections have come in even higher, topping 130 MMT. Planting of the crop will likely begin mid-September.

Wheat: Futures are pushing higher after the Russian agriculture consultancy Sovecon said on Wednesday that it had reduced its forecast for Russia's 2020 wheat crop to 79.3 MMT, down from 79.7 MMT on declining conditions for spring wheat. Yesterday’s purchase from the Egypt of 470,000 MT of Russian and Ukrainian wheat was the largest purchase since October 2018. Purchases are now running 32% ahead of last season’s pace, reflecting the increasing demand for wheat from the world’s largest importer despite rising prices.  The French cooperative Axereal reported today that the quality of the 2020/21 crop should meet domestic and international requirements. The cooperative said yield swill fall   by 18% to 20% on average with some areas expected to see a decline of 40%.  Meanwhile, Australia’s three-year drought finally broke, prompting wheat producers to hike plantings and reviving the nation’s ag sector. Some analysts project this year’s crop could climb as high as 30 MMT if good rains fall in Western Australia over the next two months. The 10-year average crop in Australia is just over 24 MMT.

LIVESTOCK 
Cattle: Steady to firm
Hogs: Steady to weak

Cattle:  Cattle bulls stepped up and pushed prices higher Tuesday, partially negating the impact of the reversal-down action on Monday. Follow-through strength today would signal that recent pause is over and are back in a rally mode. Choice beef prices have found support above $200 on signs of improving retailer demand. Choice and Select boxed beef values diverged on Tuesday, with Choice rising 41 cents and Select falling $1.81, widening the spread between the grades to $14.64. Movement was decent at 124 loads. So far, there has just been a light cash cattle market test in Kansas $96 and In Texas at $95, steady with last week and traders are looking for a firmer tone to develop amid smaller showlists. Market weights remain high and a deterrent to cash market strength.  

Hogs:  Futures were mixed Tuesday as nearby futures struggle with large premiums to the cash market. Cash hog bids edged 2 cents lower nationally yesterday after a sharp rise on Monday, with softer bids in the western Corn Belt and the Iowa/Minnesota market offsetting gains in the eastern Corn Belt. Slaughter the first two days of this week if down 13,000 from a week ago but up 12,000 from a year ago. The pork cutout value tumbled $1.89 on Tuesday, but movement did pick up to 395.43 loads. A memorandum of understanding could be signed between China and Argentina in the coming weeks that could pave the way for China to invest in pork production in Argentina for export, Argentina's undersecretary of trade and investment promotion, Pablo Sivori, told Reuters. Argentina is already a major supplier of beef to China, but it is not a big pork producer or exporter, producing just 630,000 MT of pork in 2019, 34,000 MT of which it exported.