Ahead of the Open: Grains, Soy and Livestock Seen Rising Amid Rising Demand, U.S. Aid Plan

Posted on Wed, 03/25/2020 - 04:59


Corn: Up 1 to 4 cents
Soybeans: Up 1 to 4 cents
Wheat: Up to 2 to 5 cents

GENERAL COMMENTS: Soybeans are heading for a seventh straight gain as corn rose on speculation demand may as overseas buyers build strategic reserves. Wheat rebounded with U.S. stocks and a drop in the dollar’s international value after the Senate approved a massive new aid package to stem the economic impact of the coronavirus pandemic. However, prices have drifted down from session highs waiting for the final details of the plan. Corn and soybeans continue to find support from increasing concerns about supply disruptions in Brazil and Argentina from reduced trucking movement from the Covid-19 restrictions popping up across some areas.

This morning’s daily USDA export sales reporting service announce new corn and soybean oil sales.  USDA said private exporters sold 138,000 metric tons (MT) of corn for delivery to unknown destinations during the 2019-20 marketing year and; sold 20,000 MT of soybean oil for delivery to South Korea in the marketing year that end Sept. 30.  

The U.S. reliability as a global grain exporter is improving. A growing number of countries are signing pledges to resist export controls and other barriers to the movement of food and other necessities during the Covid-19 pandemic. But some countries are leaning in the other direction. Kazakhstan, one of the world’s biggest shippers of wheat flour, just banned exports of that source of flour along with others, including carrots, sugar and potatoes. Vietnam’s customs department reportedly orders to halt new orders for rice exports to ensure domestic food security. Serbia has stopped the flow of its sunflower oil and other goods. Russia, the biggest player on the global grain market, is leaving the door open to shipment bans and said it’s assessing the situation weekly.

Early this morning, Republican and Democrat Senators reached a deal with the White House on a stimulus package that is set to unleash more than $2 trillion in spending and tax breaks to bolster the U.S. economy and fund the effort to combat the coronavirus outbreak. The package includes $500 billion in loan guarantees, $350 billion to aid small businesses and direct payments of $1,200 to people who are not high earners. The bill, which is still being drafted, was described by Senate Democratic leader Chuck Schumer as an “outstanding agreement.” The Senate is expected to vote on it later today, before it goes to the House, and then on to President Donald Trump for his signature.

Meanwhile, the Group of Seven foreign ministers meet today via teleconference after an in-person summit in Pittsburgh was canceled.

Right now, the only piece of economic news the markets are interested in is tomorrow’s weekly jobless claims, with economists suggesting the number could be as high as 3 million. The oil and ethanol markets get an update on U.S. inventories at 9:30 a.m. central time.

In the U.S., the Covid-19 situation in New York seems to be worsening as the city has become a major center of the outbreak. The administration warned that people leaving there should self-isolate for 14 days after arrival in their destination to control the spread of the virus. California Governor Gavin Newsom suggested that the state may have to remain in shutdown for “eight to twelve weeks,” distancing himself from President Trump’s comments that the U.S. economy could reopen by Easter. Elsewhere, India entered a three-week lockdown, Singapore tightened measures, and the U.K. announced the closure of Parliament.  

Several academic laboratories and medical companies are rushing to produce blood tests, which can quickly identify disease-fighting antibodies in people who already have been infected but may have had mild symptoms or none at all. This is different from the current, sometimes hard-to-come-by diagnostic tests that draw on a nasal swab to confirm active infection. Ultimately, this test might help determine who can go back to work and start the economy running again. 

Trump will stop saying “Chinese virus” amid signs the U.S. and China are seeking to cool a spat over the pandemic. The president said that while it’s generally known the virus emerged in China, his use of the term was provoked by a Chinese official suggesting that U.S. soldiers had spread it. Trump, who faces an election in November, has previously blamed China as the outbreak threatens to push the world into recession. There are also reports that the Trump administration is debating whether to give importers a three-month break from paying tariffs on some imported goods to help them cope with the trade disruptions.

While output elsewhere is grinding to a halt, China is slowly resuming production at factories and restoring flights. Employees are returning to work, with original outbreak epicenter Wuhan set to end its lockdown on April 8. Chinese subway traffic increased 21% last week, while online sales of large appliances rebounded, say analysts at Sanford C. Bernstein.

Corn:  Futures are moving on reports of more China purchases of U.S. supplies. China may have booked another 250,000 MT of U.S. Gulf corn yesterday afternoon, a source told Pro Farmer. This would take total recent purchases to 1.0 MMT. Apparently, this is reduced tariff/TRQ business and would fill initial 1.O MMT duty-free obligation. Question now is when additional duty-free corn tariffs will be issued by China. Some predict total package will be 2-2.5 MMT for old crop and like amount for new crop. EPA does not appear to have filed any motion or challenge relative the 10th Circuit Court ruling that invalidated three small refinery exemptions (SREs) issued for the 2016 compliance year under the Renewable Fuel Standard (RFS). Reuters reported that its review of a case docket through the public electronic access service for court records indicated no filing had been entered as of early today. Indications are a group of small refiners have appealed the 10th Circuit court ruling, but it appears the administration will not be joining, clouding the outlook for their appeal. Indications are that very few refiners would qualify for exemptions if the court decision is applied nationwide, with some suggesting only two or three would qualify.

SOYBEANS: May soybeans are building on recent strength amid potential better demand for U.S. meal and oil. Soybean deliveries to crushing plants have been severely cut in Argentina, the world's top supplier of soymeal, as the country reacts to the coronavirus pandemic. More than 70 municipalities throughout the country are enforcing anti-coronavirus measures by controlling the movement of farm produce through their jurisdictions, according to data provided by the CIARA-CEC export chamber. There has a been a "strong reduction" in truck deliveries of raw soybeans to the giant crushing plants that dot the banks of the Parana River, Argentina's grains superhighway, Gustavo Idigoras, head of the chamber, told Reuters. China imported 6.101 MMT of soybeans from the United States in January and February, a dramatic surge from imports of just 1.044 MMT in 2019 when the trade war was underway. On the other hand, China’s imports from Brazil dropped 26% over the two-month span to 5.14 MMT. The U.S./China Phase 1 Agreement took effect Feb. 14, with the country waiving tariffs on U.S. soybeans and other goods March 2. The start of harvest in Brazil signals China will focus its procurement efforts there for the next few months, though shipping disruptions due to coronavirus and weather have already spurred some purchases of U.S. soybeans.

WHEAT: Futures remain supported by surging global demand for bread and pasta amid increasing quarantines. That has increased demand for wheat to make more flour and noodles and refill strategic food reserves. Iraq's trade ministry said on Wednesday it had advised the cabinet that it needed to import 1 MMT of wheat and 250,000 MT of rice for its food rationing program and to boost strategic stocks in the coming months. The trade ministry said on Saturday it needed more money from the budget to build three months' supply in its strategic wheat and rice stockpiles in the face of the country's growing coronavirus problem. The country needs between about 5 MMT of wheat a year to supply its food rationing program. It mixes local grain with supplies from Australia, Canada and the U.S.

CATTLE: Higher
HOGS: Higher

Cattle: Futures seen extending two days of limit up gains with daily limits remaining at $4.50 for live cattle and feeders at $6.75. CME announced raising trading margins overnight amid the increased market volatility. Direct cash cattle trade activity remains relatively quiet with prices on a few traded up $5 to $8 and asking prices much higher. Wednesday’s Fed Cattle Exchange has an offering of 5,886 head and could be what’s needed to kick-start this week’s business. Boxed beef trade took a breather after a record advance. Choice rib and chuck cuts were steady to firm while loin and round cuts were lower. Choice cutouts fell $1.01 and Select closed 34 cents higher.

Hogs: Futures will follow cattle lead with stronger pork sales driving cash hogs higher. Supplies of slaughter-ready barrows and gilts are ample, but, at the same time, packers continue to aggressively move hogs forward in order to meet consumer demand for pork.  There’s also a silver lining as it relates to the global demand picture as the U.S. looks to fill the holes left in the global protein supply due to the African swine fever outbreak.  The national daily hog price rose $1.56. Pork cutout values closed lower – down $1.46 at $82.05 on big sales.  Bellies dropped $10.90 Tuesday with additional losses in picnics, hams, and loins.  Butts and ribs closed sharply higher.