Ahead of the Open: Grains, Soy Seen Quietly Firm to End the Month; Weather Remains Favorable

Posted on Fri, 07/31/2020 - 05:09

GRAIN CALLS

Corn: Steady to up 1 cent
Soybeans: Up 3 to 4 cents
Wheat: Up 3 to 5 cents

GENERAL COMMENTS: It is the last day of July trading and some of the action overnight reflects position evening heading into August when weather will determine soybean yields and the size of corn kernels. The corn and soybeans markets have uncovered Chinese demand for U.S. supplies this month, including yesterday’s record one-day corn sales announcement. Total new-crop soybean sales commitments rose to 13.7 MMT as of July 23, the most since 2014.  The Chinese demand story will provide underlying support, but the current good corn and soybean crop conditions are sure to cap any serious rallies. Wheat is following higher and looking to extend its monthly gain on recent export sales improvement.

USDA’s daily export sales reporting program announced private exporters reported two large sales this morning but none to China. Mexico bought 114,300 MT of corn for new-crop delivery. The Philippines bought 222,000 MT of soybean meal for new-crop delivery.  The sales are unlikely to provide new support going into the weekend, but may be a sign that the stepped up Chinese buying of U.S. commodities will help to spur buying by other importers.

Archer Daniels Midland expects a groundswell of export demand in the second half of 2020, led by robust purchases by China, as the coronavirus pandemic fuels food security concerns around the world, the company said Thursday. After record export volumes from South American facilities helped ADM deliver a stronger-than-expected second-quarter profit, Brazilian soy stocks are nearly depleted, according to the company’s CEO on Thursday. The United States will be the prime supplier to the world, he added.   

China's Politburo met Thursday and announced that the Fifth Plenum will meet in October and will “assess the proposals for formulating the 14th Five-year (2021-2025) economic plan. China’s Xinhua news agency summarizing the Politburo meeting did not mention the U.S. directly, but hinted that China was not expecting an all-out conflict with Washington even though the “international environment is becoming increasingly complex ... Peace and development are still the themes of the times … but there will be changes in opportunities and challenges,”  the paper said. China President Xi Jinping called for a greater push on reforms to stimulate domestic demand and the economy to ride out mounting risks and challenges, saying conditions remain “complicated and grave,” the report said.  

Meanwhile, Hong Kong authorities barred a dozen pro-democracy candidates from seeking government offices and jailed four others over social media posts, in a show of Beijing's full power under the new security law.

Global stock markets were mixed overnight even as U.S. markets point to a stronger opening on the heels of strong earnings reports from the big tech companies. Gold and crude oil also trading higher into the end of the month. Amazon, Facebook, Apple, and Google saw their combined market value swell by $250 billion thanks to earnings that shocked even Wall Street. Apple especially trounced analyst forecasts, with locked-down consumers snapping up new iPhones, iPads and Mac computers to stay connected during the pandemic. Combined, Apple, Amazon, Google and Facebook now boast a market cap above $5 trillion, about a fifth of the entire S&P 500.

Meanwhile, just as the full scale of the pandemic's damage across economies from Spain to the U.S. shows up in GDP numbers, the virus is surging again. Millions of people in northern England returned to a partial lockdown. Italy, the original European epicenter, has also seen an increase in cases, along with France, Germany and Spain. The U.S. saw unprecedented deaths in Texas, Florida and Arizona, while California endured its second-deadliest day. The latest economic fallout: Spain’s economy shrank 18.5%, the deepest so far in Europe, data on Friday showed. France and Italy contracted 14% and 12%, respectively. Bad, yes, but not as dire as the record 32.9% downturn in the American economy in the second quarter.

The sense of apprehension toward the U.S. economy was evident in some of Federal Reserve Chair Jerome Powell's comments this week. A rally in U.S. bonds has now pushed benchmark yields through the bottom of the trading range they have been in since late March. The 10-year Treasury yield fell toward 0.53% early Friday, following weak U.S. GDP data. A close below the range opens up the door to a retest of March’s record low, when it plunged as far as 0.31%. Five-year yields are already at fresh lows. Meanwhile, the dollar continued its slide against major peers.  

Corn: December corn are just above monthly lows and the June contract lows to start trading this morning. The lack of a stronger price reaction Thursday after the record one-day sale to China has market bears looking to test contract lows. Nonetheless, the corn market in China continues to be hot despite the purchase of U.S. corn and active sales of government stockpiles.  The government has tried to cool the market with stricter requirements for the reserve auctions and releasing stockpiled rice for feed. Wheat feeding has increased as corn prices have gone above wheat prices in many markets, but corn still keeps rising.

Soybeans:  November beans are higher for the month but in the middle of the July price range. Look for prices to remain supported into the end the month. Monday afternoon’s USDA soybean crush report for June is expected to come in at 177.8 million bu., the largest June number on record and up from the previous high of 169.5 million bu. in June 2018. However, crushing will slip from 179.5 million bu. in May and would be the smallest monthly number since February.  

Wheat: December SRW wheat is heading for a higher monthly close after falling to new contract lows in June. The markets will remain choppy until there is more clarity on crop production across the Northern Hemisphere. Ukraine’s grain exports fell roughly 33% in July to 2.33 MMT, the country’s economy ministry reported today. That tally included 1.19 MMT of wheat, 424,000 MT of corn and 714,000 MT of barley. Ukraine harvested a record-setting crop of 75.1 MMT in 2019, but grain crop prospects are lower this season due to adverse weather. Argentine farmers have struggled to plant all their intended wheat acres due to dry weather, and frost in recent morning added stress to those acres that were planted into dry soils, the Buenos Aires Grains Exchange said in a weekly report yesterday.

LIVESTOCK 
Cattle: Steady-firm

Hogs: Steady-weak

Cattle:  Live and feeder cattle futures have rebounded from steady losses on Monday and are now positions to test the resistance at the July highs. Gains were powered in part by strong weekly beef exports, signaling the price drop in beef has caught the attention of overseas buyers. Meanwhile, Choice and Select boxed beef values climbed 69 cents and $2.01 on Thursday, with movement modest at 137 loads. Cash prices continue to edge higher, improvement futures trader sentiment even with the large premiums.

Hogs:  Futures slumped to four-week lows on Thursday and are poised for a low-range monthly close today without an unexpected rebounded today. Futures have worked to narrow their premium to the rising cash hog index this week, with the index now trading at a modest premium to August lean hogs. Meanwhile packer profit margins have fallen nearly $20 over the past week but remain solidly in the black at $37.65 a head.  Weekly pork export sales were impressive on Thursday, with USDA reporting sales rising 24% from a week earlier on larger sales to China and Mexico. But mounting tensions with China and rhetoric about a Cold War between the two countries offset the bullish news. Chinese hog prices recovered this week. There was a new report of African Swine Fever in the southwestern city of Chongqing, the first official report since early June.  China is pushing poultry consumption as the healthier alternative to pork according to the US Attaché to China. So much production growth has occurred in the vacuum created by the hog industry due to ASF that habits are shifting permanently to including more poultry in the Chinese diet. Poultry production expanded 8-17% depending on the official source from 2019 to 2020. The Attaché expects another 3% growth in poultry production in 2021.