Ahead of the Open: Mixed Grain, Soy Trade Expected Amid China Trade Uncertainty, Weather

Posted on Thu, 05/28/2020 - 07:19

GRAIN CALLS

Corn: Steady to firm
Soybeans: Down 1 to 3 cents
Wheat: Up 1 to 3 cents.

GENERAL COMMENTS:  Soybean rose to a two-week high overnight but turned back lower ahead of the morning break on reports China has been buying more Brazilian soybeans this week for shipment as late as October, the prime U.S. shipping period. Corn is finding light end-of-the-month short covering amid worries about hot, dry weather next week that will result in net-drying across the Midwest. The heat and dryness are just what the crops need in some wet areas. The fear is that the drier, warmer trend will continue because longer-range forecasts have been very inaccurate, leaving traders uncertain about the future. Wheat prices are finding support this morning from short-covering activities.

Rain amounts were mostly scattered and light in the southern Corn Belt over the past 24 hours, absent in the Plains, heavier south and southeast of U.S. growing areas. Rainfall has picked up this morning with another round of rains swirling through the heart of the country, lasting through the next 24 hours before drier weather settles in. Next week remains drier into the 6-10-day and 11-15-day time frames, save for some northern precip chances all the way up through the middle of June. Temperatures remain above-normal throughout.

Argentina is looking a bit wetter over the next ten days, possibly aiding wheat dryness there, with most major global growing areas receiving some beneficial precip in the next week as well, particularly Europe and the Black Sea region. Australian wheat areas look beneficially wetter this week, but rain chances look slimmer in the west during the 6-10-day time frame.

China has bought over 10 cargoes of Brazilian soy this week, as its trade tensions with the United States continue to rise causing Beijing to look towards securing supplies, Bloomberg News reported, citing people familiar with the matter. The development comes amid increasing tensions between the U.S. and China over the handling of the coronavirus outbreak and the Chinese move to impose national security laws in Hong Kong.

The daily USDA export sales reporting service did not announce any new large grain or soybean export sales this morning.

Global investors remain tilted towards optimism on reopenings, with the stimulus plans in Europe and Japan outweighing fresh U.S.-China tensions. Overnight the MSCI Asia Pacific Index added 0.8% while Japan's Topix index closed 1.8% higher. In Europe, the Stoxx 600 Index is up more than 1% this morning and U.S. stock index futures point to a higher opening on Wall Street despite more gloomy economic news this morning on rising jobless claims and falling durable goods orders.  

Covid-19 deaths hit 100,000 in the U.S., giving it the world's highest death toll from the virus. Plans to reopen continue apace across Europe. The Netherlands is accelerating the lifting of restrictions and opening gyms earlier than anticipated, while Ireland is staying cautious but is ready to fire up efforts to revive growth. Italy, already relatively far into its reopening, has seen new cases increase each day this week, similar to what's been seen in South Korea. In the U.K., criticism continues over the government's handling of the controversy involving the Prime Minister's top aide despite Boris Johnson asking people to "move on." In Russia, the lockdown in Moscow will be eased as new infections slow.

Meanwhile, the tensions between China and the U.S. continue to increase. The U.S. said that it can no longer certify Hong Kong's political autonomy from China, a move that could have far-reaching consequences for the special trading relationship the city currently enjoys. Adding to the mounting tensions between the two countries, China blocked a U.S. call for a UN Security Council meeting on Beijing's plans in Hong Kong. At the same time, a body that advises the U.S. Congress warned of increasing risks from China's banking system and questioned Wall Street's push into the nation as its capital markets open. Underlying this in currency markets, the yuan was testing the weakest levels on record, though China arrested this with a stronger-than-anticipated fixing.

Chinese lawmakers approved a proposal for sweeping new national security legislation in Hong Kong. The move, which bypasses the city’s Legislative Council, comes despite a threat of retaliation from President Donald Trump. Authorities in Washington said yesterday they could no longer certify Hong Kong's political autonomy from China, a move that could have far-reaching consequences for its trading status with the U.S. Adding to the tensions which pose mounting risks to the global economy was the House vote authorizing sanctions against Chinese officials for human rights abuses against Muslim minorities.

CORN: July corn is near its overnight high at the break, just a penny below Monday’s high at $3.23 and about 3 cents below strong resistance at $3.25 ½. The market will have to wait until Friday for the weekly export sales report, but weekly ethanol production and inventory data is scheduled for 9 a.m. CT this morning. That report should provide early direction after the reopening.  

SOYBEANS:  Limited followthrough suggests soybeans are seeing the last gasps of seasonal rally attempts. That can change with solid closes above Wednesday’s highs. Yet, the new contract lows in soymeal on Wednesday heavily favors the bears. Loading of grains and other products at the port of Paranaguá, Brazil's second largest, resumed normally on Wednesday after a case of COVID-19 paralyzed work in berth 214 for about 24 hours, according to the port authority. The brief interruption in loading sparked concern that grain shipments could be disrupted amid the pandemic. Yet so far Brazil's soy exports have not been affected, with local oilseeds traders registering record monthly shipments. Shallow water in Argentina's Parana River will slow exports and hurt the country's soy crushing margins at least through September, officials said, as more cargo ships are needed to carry the same amount of commodities. Drought has pushed the Parana to its lowest level in decades, complicating transportation and soymeal production. Some ships are running aground.  

WHEAT: Futures are trying to rebound, ignoring Paris wheat futures falling to a one-week low this morning as widespread rain expected in Black Sea exporting countries Russia and Ukraine eased concerns about dry weather damage to wheat crops. However, dry, hot weather in France this week kept some attention on drought risks after recent downward revisions to production forecasts for Russia and Ukraine. 

LIVESTOCK

CATTLE: Steady to firm
HOGS: Steady to weak

Meat processors continue to work on keeping plants open. The Brazilian food company BRF SA warned that if the Covid-19 “contagion worsens and authorities see the need to close units, it is mathematically impossible to ensure production levels. Currently, none of its facilities are closed. BRF is working to hire 5,000 new workers to offset worker absenteeism and to make up for those unable to work due to the virus. Meanwhile, at least 400 workers at Tyson Foods’ pork and turkey plants in Storm Lake, Iowa have tested positive for Covid-19, which accounts for the bulk of Buena Vista County’s nearly 700 cases. Tyson is testing workers and will release results once testing is complete. The facilities remain open.

Cattle: Cattle futures look poised to continue to climb after rising to the highest in 11 weeks on Wednesday. The market has will remain supported by a steady cash cattle market this week, leaving futures at a large $15 to $18 discount. Wednesday’s kill of 110,000 head was also encouraging, as this was just 12,000 head under year-ago levels. Choice and Select boxed beef values fell $7.72 and $9.82, respectively, on Wednesday, and movement held strong at 175 loads. Packer profit margins have soared to more than $1,009 a head, according to the latest update from HedgersEdge.com.

Hogs: Futures failed to hold gains yesterday and may open on the defensive this morning.  Still, hog processing numbers continue to improve by the day, with Wednesday’s kill rising to 415,000 head, just 46,000 head under year-ago levels. the pork cutout value tumbled $8.62 on Wednesday, but this did encourage strong movement of 403.70 loads. the sharp drop was driven by a nearly $24 plunge in ribs after active featuring for the Memorial Day weekend. Cash hog bids fell $1.57 nationally at midweek, with margins climbing to more than $111 a head, according to HedgersEdge.com. Traders are waiting for Friday’s USDA weekly export sales data after two weeks of Chinese cancellations. Wens Foodstuffs Group Co. Ltd., China’s largest hog producer, built nine new pig farms during the first quarter of the year, despite challenges related to the Covid-19 epidemic.  The recently completed farms will produce 1.2 million pigs a year, and another 79 projects with capacity to produce 7.75 million pigs and 260 million chickens a year are under construction, Chairman Wen Pengcheng told Reuters.