Ahead of the Open: Grains, Soy Firming into the Weekend on Weather, Demand

Posted on Fri, 10/16/2020 - 07:24

GRAIN CALLS

Corn: Up 3 to 5 cents
Soybeans: Up 4-8 cents
Wheat: Up 4 to 8 cents

GENERAL COMMENTS:  Grains are building on Thursday’s strong rallies and soybeans are pushing near contract highs set last week. Corn rose to the highest in more than a year overnight while most-active SRW wheat futures touched the highest since December 2014 and HRW wheat pushed to the highest since August 2018. New highs have curbed selling interest in the grains and keep the bulls looking to buy on any weakness.  Wheat remains the leader on dry Russian and U.S. weather. Rains forecast for Brazil the next week are limiting gains in soybeans as Chinese buying continues to lift values.

This morning’s weekly export sales report added support to wheat and soybeans before the break but did not provide any bullish fodder for the corn market. Wheat sales rose to 528,500 metric tons (MT), up 23% from the prior four-week average and near the top end of trade estimates for 200,000 to 600,000 MT and included one cargo sold to China that was switch from unknown destinations. Soybeans net sales were 2.631 MMT in the week ended Oct. 8, 18% higher than the prior four-week average and topping trade estimates for 1.5 to 2.2 MMT. Sales to China were a net 1.593 MMT but included 529,000 MT switch from prior sales to unknown destinations and reductions for 95,200 MT. Corn sales fell 63% below the prior four-week average, with a net 655,200 MT sold last week. That was at the low end of trade estimates for 600,000 MT to 1.2 MMT. China was a small buyer.

Before the reopening, USDA made several new export sales announcements. Private exporters reported 175,000 MT of soybeans sold to unknown destinations and 128,000 MT of corn sold to Mexico. USDA also reported 216,150 MT of soybean sales were reported during the reporting period for delivery to unknown destinations.  The sales announcements will lend light support to corn and soybeans.

Cash corn prices continue to rally in southern China as traders and processors are aggressively purchasing new-crop corn, and farmers are reluctant sellers. China’s spot soybean crush margins have jumped but forward margins remain negative and well below a year ago.  In an editorial in People’s Daily the head of the grain reserve bureau stressed the importance of self-sufficiency in grain   

Brazil rainfall will be limited in center-west crop areas, especially Mato Grosso, through the coming week and then will begin receiving more rainfall, supporting planting and establishment of soybeans and other crops in the last week of this month. Brazil rain will fall more routinely in some center south crop areas over the next two weeks and suggest the wet season may be starting. Argentina will get some needed rain early next week with a little follow up rain late next week and into the following weekend.

Today’s outlook for eastern Ukraine, Russia’s Southern Region and Kazakhstan has not changed for the coming ten days. Some showers are expected, but only a few locations will get enough moisture to support better winter crop establishment. The outlook is not promising to get crop planted and established prior to dormancy

The Brazilian government is set to discuss on Friday a proposal that would temporarily eliminate tariffs on corn and soy imports from countries outside the Mercosur trade bloc, a source with direct knowledge of the matter told Reuters. The possible tariff exemption comes amid record high prices for both grains in Brazil, squeezing Brazilians whose incomes have already been hit hard by the coronavirus pandemic. Brazil's Economy Ministry decided in early September to cut tariffs on rice imports to zero through the end of the year, amid record high prices for that grain.

Corn:  December futures pushed out above its January and 2020 high overnight. The contracts have never cleared its January high in the last quarter of the year after trending lower since the beginning of the year. That means tonight close and next week’s price action is key to market direction after recent strong contra-seasonal gains and prices at long-term historical resistance. 

Soybeans:  November beans and December soymeal must close above recent highs at $10.79 ½ and $372.10, respectively to maintain upside momentum. NOPA soybean crush once again beat trade expectations and once again set a record for the month, with September reported at 161.5 million bu., up from 152.6 million last year and the record figure of 160.8 million in Sept 2018. That was nearly a 6% year-over-year increase after one month, with the USDA looking for less than a 1% annual crush increase in 2020-21. Malaysian palm oil futures pared its weekly loss to 1.4% on Friday. Prices retreated on slowing exports as demand from top buyer India dwindled. India's palm oil imports in September fell 27% from a year earlier on declining demand from hotels and restaurants, but soyoil purchases jumped 28%, a leading trade body said on Friday.

Wheat: The Paris wheat prices continue to lead higher on increasing demand. The Egyptian Cabinet has announced this morning that strategic wheat reserves are sufficient for seven months. The French soft wheat sowing campaign is 12% complete as of Oct. 6, according to Agrimer. That’s an increase from 6% a week ago but is still a drop of 4 points from last year. Recent wet weather has provided a good seed bed for crops but delayed the pace of drilling.  The vice president of the Russian Grain Union said during an online conference today that the plan for a six-month grain quota in the second half of the 2020-21 season is spurring a rapid push in exports to beat any quotas.   

LIVESTOCK 
Cattle: Mixed-weak
Hogs: Steady-mixed

Cattle: Recent action suggest the market is trying to complete a corrective swing lower but onerous is on the bulls to produce strong gains to pare this week’s losses today. Slaughter is rising as beef demand remains strong. This week’s kill is up 14,000 head. Boxed beef prices continued to march lower Thursday with Choice down 66 cents and Select down $2.77. But sales were big, with 236 loads sold as lower prices attracted increased grocer demand. USDA said 13,400 MT of beef sold in the week ended Oct. 8, down 31% from the prior four-week average.

Hogs: The December hog contract closed just above its winter high on Thursday. A Friday close above that peak at $69.90 extends potential upside into the $80 area.  The national average hog price moved up 65 cents on Thursday and Iowa/Minnesota gained $1.51. The wholesale pork cutout values jumped $4.85 on Thursday to the highest since late may and over $100 and up from $63.18 late-June low and $91.37 at the end of September. Meanwhile the slaughter this week is running 15,000 head below the same period a week ago, suggesting USDA underestimated the amount of herd reduction during the pandemic earlier this year. Pork sales slowed last week, with USDA reporting 26,800 MT sold. That’s down 43% from the strong prior four-week average. China bought a net 5,200 MT, including a reduction of 1,400 MT. Germany has received some "cautious, positive signals" during talks with Asian nations about easing a ban on German pork imposed after African swine fever (ASF) was found in the European country, the agriculture minister said on Friday. China and other Asian buyers imposed the ban in September after Germany confirmed its first ASF case, driving down German pork prices.