Ahead of the Open: Grains, Soy Firming Ahead of USDA Key Reports on Friday

Posted on Thu, 01/09/2020 - 07:54

Grain Calls

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

GENERAL COMMENTS:  The grain markets are firmer this morning in consolidation of recent losses tied to geopolitical tensions that have eased. Grain and soy futures and option volume expanded yesterday as prices tested underlying support and held. Traders were actively buying soybean and corn calls and buying SRW wheat puts and HRW calls. That looks like increased hedging of potential bullish surprises in Friday’s USDA reports on final crop production, Dec. 1 inventories and U.S. winter wheat planted acreage. Look for continue support in the futures today with traders looking for USDA to slightly reduced both its corn and soybean crop forecasts and a reduction in wheat plantings.

Finally, China confirmed that Vice Premier Liu He will travel to Washington next week to sign the phase one trade deal with the U.S. After that, there’s round-two to look forward to later this year. China has not confirmed any specific numbers about agricultural product purchases U.S. trade officials said China has committed to buying, including $80 billion of U.S. farm products over two years.  Meanwhile, China intends to open up oil and gas exploration to foreign companies, to ease commercial frictions with the U.S.

The prospect of war between the U.S. and Iran faded yesterday after President Donald Trump backed away from threats to launch further attacks, instead calling for a deal with Tehran to make “the world a safer and more peaceful place.” He said his administration would impose new sanctions on the Islamic Republic to push it back to the negotiating table. Markets cheered the de-escalation, with oil this morning trading at levels last seen before the killing of a top Iranian general last week. Global equity markets are extending yesterday’s post-Trump speech rally. Overnight the MSCI Asia Pacific Index climbed 1.3% while Japan’s TOPIX index closed 1.6% higher as the yen weakened. In Europe, the Stoxx 600 Index had added 0.4% with Germany’s DAX Index coming close to its January 2018 peak. S&P 500 futures pointed to another positive session, and gold continued its slide.

Meanwhile, the World Bank said that the global expansion will accelerate slightly to 2.5% in 2020, down from a previous 2.7% projection. In its latest Global Economic Prospects report the lender warned that conditions remain fragile as it lowered euro area and China estimates for this year. There was some good news from Germany this morning as industrial production rebounded, raising hopes the sector may be ending its protracted slump. 

Global food prices climbed 2.5% from November to December, with the Food and Agriculture Organization of the United Nations’ food price index climbing 4.4 points to 181.7 points. This is the third month in a row the index has increased. Strong rallies in vegetable oils, sugar and dairy markets pushed up the overall value of the Index to its highest level since December 2014, the FAO said today in a report.

The U.S. Department of Agriculture’s daily export sales reporting service did not announce any new large sales this morning. Traders will want to see daily sales increase relatively quickly after the Phase 1 deal is signed with China. 

Corn: March corn futures rose above the 100-day moving average at $3.86 3/4 overnight but have slipped back below that short-term resistance. Prices held the 40-day moving average yesterday and that has put a bid back in the market.  South Korea’s Nonghyup Feed bought 69,000 MT of corn today and U.S. is expected to be the origin. Corn is competitive into Asia out of the West Coast but some buyers remain nervous about the quality of corn originated from the western corn belt after this year’s adverse weather. Ethanol production dropped slightly for a second straight week but still above year earlier totals, government data Wednesdays showed. Inventories rose 1.428 million barrels to 22.462 million barrels.

Soybeans: March futures rose to the highest in four sessions. Prices are back near midrange and may move sideways into the USDA reports tomorrow.

Wheat: Wheat futures are supported by dry weather concerns. Little rain is seen in the driest U.S. areas of the Plains with too much rain expected in some SRW growing regions the next 10 days. USDA planting estimated tomorrow will help to define the magnitude of the weather concerns. Australia sees little rain the next two months and that will add to crop losses. Dryness and warm temperatures continue to expand in parts of Europe and the Black Sea region.  Egypt bought 300,000 MT for delivery in February on Wednesday, including 120,000 MT each from Russia and Romania, and 60,000 from Ukraine. Sales were made at prices $7 to $9 higher than the last sales in December. Japan bought 106,000 MT of wheat yesterday with 59,000 MT from the U.S.

Livestock Calls
Cattle: Steady to weak
Hogs: Mixed to weak

Cattle:  Futures likely to consolidate just below contract highs. Feeders rose to new contract highs in several contracts Wednesday. Wholesale beef prices inched lower again yesterday with Choice down 6 cents and Select sliding 29 cents. Sales were moderate. Light cash cattle trading at steady prices on Wednesday with slaughter running 6,000 head above a year ago so far this week. China will release 3,000 MT of frozen beef and mutton from its state reserves on Jan. 11, the China Merchandise Reserve Management Center said in a note.  Notice of the release comes in the run-up to the Lunar New Year holiday at the end of January, China's peak period for meat consumption.

Hogs: Looking steady to weaker. The national average cash hog prices fell 40 cents yesterday and wholesale pork cutout values slumped 75 cents, but sales were moderately active. Pork demand has been good this week from domestic and overseas buyers. But it needs to stay strong with slaughter is running 50,000 head above a year ago the first three days of this week.  Market will have to wait until Friday for the weekly export sales report. Earlier this week, USDA confirmed shipments in November rose 11% above the prior record and annual exports in 2019 are now points to top the record $6.65 billion sold in 2014. Look for pork to remain high on China’s shopping list once the trade deal is signed next week. China's consumer inflation rose by 4.5% from a year earlier in December as pork prices soared 97% from a year earlier, pushing up food prices 17.4%. Last month's increase in the consumer price index was flat from November, which was the highest since January 2012,