Ahead of the Open: Grains, Soy Seen Higher on Weather and Short-Covering Ahead of USDA Reports

Posted on Tue, 06/30/2020 - 05:47

GRAIN CALLS

Corn: Up 2 to 4 cents

Soybeans: Up 3 to 5 cents

Wheat: Steady to up 3 cents

GENERAL COMMENTS: Corn and soybean prices rebounded into the morning pause, erasing small overnight declines. The markets are supported by hotter weather forecast in parts of Europe and the Black Sea Region that may damage corn and oilseeds.  Technical buying and short covering also occurred ahead of the USDA’s Quarterly Grain Stocks and Acreage reports at 11 a.m. CT this morning and the end of the quarter today. The morning weather updates signal some warmer, drier weather ahead for the Midwest. Prices slumped overnight after USDA confirmed both U.S corn and soybean conditions improved in the week ended Sunday as some of the driest areas of got some timely rain. When USDA's weekly condition ratings are plugged into the weighted Pro Farmer Crop Condition Index (CCI; 0 to 500-point scale, with 500 representing perfect), the corn crop improved 3.5 points to 382.6 points and the soybean crop rose 3.3 points to 373.3 points. The corn crop is 8.5 points above the five-year average for the end of June, while the soybean crop is 13.7 points above normal. The spring CCI rating dropped another 7.8 points this week to 370.1 points. However, the spring wheat crop has dropped 21.7 points the past three weeks but is still 2.5 points above the five-year average for the end of June.

This morning’s daily USDA export sales reporting program did not announce any new private exporter sales of grains or soybeans. Traders will want to see some evidence that Chinese buying is picking up.

Crop stress will be rising in France and some neighboring unirrigated areas during the coming ten days. Drying and crop stress will also be significant from eastern Ukraine into Russia’s Southern Region and Kazakhstan. Good winter grain harvest conditions are likely, but dryness will be stressful to unirrigated summer crops in these drier areas. Good crop weather is expected from eastern Europe into western Russia.   

Drying in the next ten days will be most significant in parts of the eastern Midwest and in the southwestern corner of the Corn Belt. Rain in the northern Plains and Canada’s Prairies will be good for crops in those areas and perhaps in the upper Midwest as well. Rain will otherwise be greatest in the Delta and southeastern states leaving most areas in between in a net drying mode, despite scattered showers periodically over the next couple of weeks.  

U.S. natural gas futures jumped by more than 10% on Monday after hitting new contract low on warmer weather forecasts and are adding to gains this morning. It’s a very similar story to the corn market where funds established big short positions before the most volatile weather period of the year.

The USDA acreage and inventory report to close June have a history of producing major price moves that often set the price tone through summer. USDA is expected to trim corn plantings by nearly 1.8 million from March intentions to 95.207 million acres, with soybean acres likely to rise 1.206 million acres from March intentions to 84.716 million acres, according to analysts polled by Reuters. But the market tends to underestimate corn acres in this report. All wheat acres are expected to edge slightly higher to 44.718 million acres, with spring wheat acres of 12.551 million. Cotton plantings are expected to come in around 13.200 million acres, which would be a 500,000-acre retreat from March intentions. June 1 stocks are expected to be 4.95 billion bu. for corn, 1.39 billion bu. for soybeans and 980 million bu. for wheat. 

Equities across Asia rallied, and most major benchmarks closed sharply. In Europe, stock markets vacillated between gains and losses. U.S. equity futures signal a lower opening, paring best quarterly rally in more than a decade. Oil prices are lower on rising Covid-19 cases and a possible return of Libyan oil production, which has been down to a trickle since the start of the year. Still, oil prices have doubled in the second quarter.

Fresh data overnight pointed to a strengthening recovery for China's manufacturing sector. China today said manufacturing activity expanded in June with the official Purchasing Manager’s Index coming in at 50.9. Economists polled by Reuters had expected the official manufacturing PMI number to come in at 50.4. PMI readings above 50 indicate expansion, while those below that level signal contraction.

China’s top legislative body approved a landmark national security law for Hong Kong, seen as an attempt to quell dissent that risks U.S. retaliation and the city’s appeal as a financial hub. The Trump administration on Monday made it harder to export sensitive American technology to Hong Kong, suspending regulations allowing special treatment for the territory over dual-use technologies like carbon fiber used to make both missile components and golf clubs. “Sanctions will not scare us,” replied Hong Kong Chief Executive Carrie Lam, and China said it will impose a visa ban on U.S. citizens who interfere with the legislation. The official Xinhua News Agency will publish details of the law today, marking the first time the law will be fully disclosed to the public, the South China Morning Post reported.

Federal Reserve Chairman Jerome Powell will warn the path forward for the U.S. economy is "extraordinarily uncertain" in his prepared remarks for testimony before the House Financial Services Committee from 11:30 a.m. CT. Treasury Secretary Steven Mnuchin will join Powell in the House to discuss the fiscal and monetary response to the pandemic shutdown. Powell will make clear that the government measures to provide relief would need to remain in place "for as long as needed."

World Health Organization cautioned that the world is far from seeing the end of the pandemic, saying the worst is yet to come. In the U.S. more states took steps to scale back reopenings with Arizona closing bars and New Jersey halting plans for indoor dining. Australia imposed a four-week lockdown across parts of Melbourne, while in Iran 10,000 health-care workers have contracted the virus. The German infection rate remained below the key 1.0 threshold, while in the U.K. Prime Minister Boris Johnson will commit to infrastructure spending to rebuild the virus-ravaged economy

Meanwhile, A team of Chinese researchers is warning that a “G4” strain of H1N1 that affects Chinese pigs has become more infectious to humans and should be monitored because it has “all the essential hallmarks of a candidate pandemic virus.” Workers at pig farms show elevated levels of the virus in their blood, so “close monitoring in human populations, especially the workers in the swine industry, should be urgently implemented.” This new virus is a recombination of the 2009 H1N1 variant. The World Health Organization said it will read the Chinese study very carefully.

CORN:  The corn markets is back to key resistance and it may take a bullish surprise in today’s USDA report to sustain the rally.

SOYBEANS:  Futures are rebounding from new four-week lows yesterday.   

WHEAT: Wheat finding support from increased international tenders and purchases after recent steep losses.

LIVESTOCK

CATTLE: Mixed-firmer

HOGS: Mixed-firmer

China's General Administration of Customs has temporarily banned the import of meat from three plants in Brazil amid concern over the novel coronavirus, according to the agriculture ministry on Monday. The ministry declined to name the companies affected by the decision and said China had not given a formal reason for the suspensions. Chinese customs authorities have recently asked Brazil for information about some establishments exporting to China following reports in the Brazilian press about cases of COVID-19 among their workers, the agriculture ministry said. All the information requested has been provided, the statement added. According to a source familiar with the matter, a plant operated by Marfrig in the town of Várzea Grande was one of three suspended facilities. According to a database on the ministry's website, JBS' chicken plant in Passo Fundo was banned by China on Friday and a plant operated by privately owned Minuano in the town of Lajeado was suspended on Monday. Minuano could not be reached for comment. JBS and Marfrig, which owns National Beef, declined to comment. The Brazilian agriculture ministry said is trying to determine the reasons for the suspension of the three establishments and at the same time it has started negotiations so that the suspensions can be lifted.

Cattle: Cash cattle traded at an average price of $96.21 last week, down roughly $5 from the week prior and near in line with futures. Some gains in the product market last week gave the market hope beef prices may be working on a low. Action Monday added to such ideas, with Choice rising $1.19 and Select climbing $1.86. Movement was solid at 150 loads.

Hogs: Hog backlogs are estimated to top 1 million (possibly 2 million) signaling it will take several more weeks/months to work through the backlog, with USDA’s Quarterly Hogs & Pigs Report signaling slaughter could run 12% to 13% above year-ago levels through July. Monday’s kill was up 12,000 head from year-ago. But the surge in pork has been met with strong demand. The pork cutout value fell 74 cents to start the week, but movement held strong at 431.68 loads. Chinese pork prices climbed 2.4% to 46 yuan ($6.50) per kilogram on average from June 22 to 24, according to an index in 16 provincial level regions tracked by the country’s ag ministry. Slaughterhouses increased hog purchases leading up to the Dragon Boat Festival.