Ahead of the Open: Grains, Soy Retreat on Demand Worries; Livestock Sharply Higher

Posted on Tue, 03/24/2020 - 08:02

GRAIN CALLS

Corn: Down 2 to 4 cents
Soybeans: Down 6 to 12 cents
Wheat: Down 6 to 12 cents

GENERAL COMMENTS: Grain markets are in retreat this morning. Futures are falling on worries about demand despite efforts to control the Covid-19 pandemic and provide record emergency monetary liquidity and fiscal stimulus around the world.  With oil prices cut in half this year, the energy component in corn and soybeans remains a drag on prices. Weather leans a little negative amid some drier U.S. forecasts and some erratic rains in parts of South America. The market is also worried about the potential for acute problems to develop in grain transportation logistics.

This morning’s daily USDA export sales reporting service did not report any new big sales of grains this morning after major sales announcements of corn and wheat to China late last week.   

Global equities rebounded almost 2% on Tuesday, off near four-year lows, and the dollar slipped as investors pinned hopes on unprecedented stimulus steps by the U.S Federal Reserve and other policymakers to ease strains in financial markets. Other countries are unveiling their own measures - South Korea's ravaged market climbed 8.6% after the government doubled a planned economic rescue package $80 billion. In China, mainland stocks posted their biggest gain in three weeks with a rise of almost 3% while Japan's Nikkei soared 7%, its biggest daily rise since Feb 2016. Oil prices have cut in half an earlier 5% gain on Tuesday and the dollar weakened against other currencies. U.S. stock futures are seen opening sharply higher.

While the measures such as the Fed's offer of unlimited bond-buying won't immediately mitigate the economic devastation inflicted by the coronavirus outbreak, they will launch more dollars into world markets, allowing companies, funds and banks to access cash to pay creditors, supplier and end-investors. The Fed will not only buy unlimited amounts of assets but also expand its mandate to corporate and municipal bonds and backstop a series of other measures that analysts estimate will deliver $4 trillion-plus in loans to non-financial firms.  

Not everyone is optimistic the buoyant mood will last, noting that global coronavirus infections now top 350,000 with scores of countries in lockdown. China too posted a rise in new infections brought in from abroad.  More people are testing positive for coronavirus without displaying any symptoms, complicating efforts to contain the virus worldwide, scientists say. In Iceland, which says it's tested a higher proportion of residents than any other country, about half of those with the virus showed no symptoms of Covid-19. Even in Wuhan, China, which recently reported no new infections for the first time since the pathogen emerged, asymptomatic but contagious people are still being found.

There are also signs of progress in Congress on a $2 trillion U.S. stimulus deal, which Treasury Secretary Steven Mnuchin hoped was "very close". Senator Chuck Schumer, the minority leader, said he expected to have an agreement this morning with Treasury Secretary Steven Mnuchin on a nearly $2 trillion economic package to respond to the coronavirus pandemic. Democrats blocked action on the plan on Monday, demanding stronger protections for workers and restrictions for bailed-out businesses.

Corn:  Futures will continue under light pressure from worries about ethanol demand. Major U.S. ethanol producer Poet said they suspended corn purchasing at “a number of locations” due to weak demand and negative margins. They did not officially “idle” production at any plants, only stopping corn purchases to “reevaluate” output levels with falling gasoline demand.  Some plants plan to take their Spring shutdowns early and then remain idled for an extended period to fend off grinding at a 35 cent/gallon loss. Gasoline futures dropped yesterday to the lowest in 20 years. China’s Heilongjiang province-the country’s top grain region-said they will raise subsidies for corn growers in 2020, after raising them in 2019 as well.

SOYBEANS: May futures may give back some of Monday’s gain after the Brazilian government data pegged cumulative March soybean exports through yesterday at 7.2 MMT, already above the 5.0 MMT exported in February. If exports continue at this pace, they would exceed last year’s 8.5 MMT. Brazil soybean basis started the day quietly but rallied later in the morning. The market remains sensitive to plans issued by the Argentina and Brazil governments that could, but not yet, disrupt the flow of soybeans. Governments are looking to prevent the spread of COVID19 and thus putting restrictions on commerce and travel that extend to the ports. Brazil’s port workers threatened a strike but called it off today. Rondonopolis, Mato Grosso ordered industrial facilities to close due to COVID19 measures.

WHEAT: Futures seen consolidating recent gains on improving U.S. crop conditions. Weekly USDA wheat ratings improve across southern U.S. Plains states. Wheat rated “good” to “excellent” rose 2 points in Kansas to 48% of the crop, up 13 points in Texas, up 10 points in Oklahoma and 9 points in Colorado.  In Arkansas, where farmers grow soft red winter wheat, the USDA rated 43% of the state's wheat in the top two categories, up from 39% a week earlier. Monday’s USDA export inspections were disappointing at the low end of the range coming as 12.8 million bu. shipped in the week ended March 19, down from 17 million bu. a week earlier. Marketing year inspections now running about-2% behind the pace needed to reach the USDA projection for the season, with HRW lagging the most.

LIVESTOCK 
CATTLE: Higher
HOGS: Higher

Cattle: Futures seen extended Monday’s limit up rally with daily limits expanding to $4.50 and feeders rising to $6.75. CME announced emergency expansion of the trading limit to $10 in the March feeder futures through expiration on March 26.  Beef cutout values jumped again on Monday on strong sales to refill empty meat cases across the country. Choice rose $3.57 and Select gained $4.97. Consumer retail food buying is expected to continue to be aggressive for weeks as the realization grows that eating at home will be the primary source of nourishment for several weeks. Beef destined for food service has already been resold to retailers. CME cattle futures are severely discount to cash prices. With expanded limits today, April cattle can rise to $106.15, still $15 below where this week’s cash price is expected. Volume has soared the last two weeks amid limit moves in both directions, but opening interest has plunged to the lowest since late 2016. That’s a sign of a major low forming. 

Hogs: Futures will follow cattle higher, but cash fundamentals are also improving. Daily limits expand to $4.50 today after the limit up close on Monday. The national average hog prices rose $1.08 and the pork cutout value jumped $3.47 led by strong gains in loins. Slaughter was 497,000 head on Monday, unchanged from a week ago and up 18,000 head from a year ago.