Ahead of the Open: More Corn Sold to China; Global Weather Concerns Ease

Posted on Thu, 03/18/2021 - 07:23

GRAIN CALLS

Corn: Mixed
Soybeans:  Down 5 to 10 cents
Wheat: Down 3 to 6 cents

GENERAL COMMENTS:  It was a defensive overnight trade in corn, soybeans and wheat on improving global weather and worries about Chinese demand despite large purchases of corn announced earlier this week. Trading is also subdued by a stronger U.S. dollar. The Chinese Agricultural Ministry has launched a campaign to lower the content of corn and soymeal in animal feed in search of alternative grains such as rice, wheat and other grains. Another headline that could imply reduced demand from China for corn and soybeans. Soymeal and corn futures on the Dalian Commodity Exchange fell overnight.

Before the reopening USDA flashed a daily sale of 696,000 MT of corn was sold by private exporters to China. That follows the announcement of 1.124 MMT yesterday and 1.156 MMT on Tuesday of corn sold to China. That brings total sales to China to nearly 22 MMT this season. The sales announcement will provide early support to the market.

USDA’s export sales report for the week ended March 11 was generally in line with pre-report estimates for wheat and soybeans but stronger for corn. Corn sales last week rose to 985,000 MT with 624,800 MT reported to China, but 612,000 MT was switched from unknown destinations. Still increase sales were announced to Mexico, Colombia, South Korea and Japan and sales topped trade estimates for 300,000 to 750,000 MT. New-crop sales were 240,900 MT, in the middle of trade estimates. Wheat sales rose to 390,000 MT, up 40% from the prior four-week average with new-crop sales reported at 139,000 MT. China was the top buyer for both marketing years but most of the old-crop business was switching of sales made previously to unknown destinations. Soybean net sales were 202,400 MT, down 31% from the prior four-week average and a sign of a switch to supplies from Brazil. Weekly soybean meal sales were down 10% from the prior week but 1% better than the prior four-week average with USDA reporting 234,600 MT sold in the week ended March 11.

Weather concerns are in retreat, weighing on grain and soybean prices. In Argentina, occasional periods of meaningful shower and thunderstorm activity through the end of March will help to further reduce crop stress and improve overall crop conditions. In Brazil, showers this week give way to a drier trend r through this weekend with the exception of the far south. Much of the nation will become drier-biased which will be beneficial for soybean harvesting, safrinha corn planting, and late season crop development.

The storm system responsible rains moving through the eastern Corn Belt today will be followed by another round of significant rain across the central and southern Corn Belt tonight into Thursday with a small area of notable snow in eastern Kansas and western Missouri. More rain is forecast into the end of the months.

Meanwhile in Europe precipitation will be limited for the next ten days, although enough will occur to maintain status quo on soil moisture in the continent.  Rain increases in France, the United Kingdom and Germany March 28-April 2 leaving Spain and Portugal with limited rainfall.   Soil moisture will remain favorably poised for early season crop development and spring planting.  Occasional periods of light rain and snow in the Black Sea region during the two weeks will maintain moisture abundance in many areas.  Any moisture increases that occurs in Russia’s Southern Region and eastern Ukraine would be beneficial and welcome since long term moisture deficits remain high in these areas.

China's agriculture ministry has launched a campaign to lower the content of corn and soymeal in animal feed, according to a document issued this week. The document, sent to animal feed producers and other government departments, outlines a plan for nutrition experts to draw up guidelines by the end of this month on ways in which corn and soymeal could be replaced by alternative grain, three industry sources with knowledge of the matter told Reuters. The document comes amid a growing deficit of corn in China, which has pushed prices of the grain used largely in animal feed to record highs and triggered a surge in imports. Customs data on Thursday showed corn imports in the first two months of the year rose 400% to 4.8 MMT.  The country also imported 990,000 MT of wheat during February, a 189% surge from year-ago, with year-to-date exports of the grain now at 2.48 MMT, up 265% from 2020 at this time. That represents a quarter of the country’s 9.636 MMT TRQ for wheat in 2021. The country’s cumulative imports of sorghum (1.4 MMT) and barley (1.32 MMT) have also soared 366% and 79%, respectively, relative to last year at this point.  

Beijing is seeking a meeting between Presidents Joe Biden and Xi Jinping next month if the first high-level U.S.-China talks in Alaska starting Thursday are productive, according to Bloomberg citing people familiar with the situation. The Biden-Xi meeting as envisioned by Chinese officials would be organized around Earth Day on April 22 to show both leaders are focused on combating climate change, one of the people said. Biden is already set to gather global leaders together on that day to push the world for greater ambition in curbing greenhouse gas emissions.  Both the U.S. and China have played down expectations for the talks in Alaska, which are set to run Thursday and Friday. Secretary of State Antony Blinken and National Security Advisor Jake Sullivan will represent the U.S., while Foreign Minister Wang Yi and Politburo member Yang Jiechi will speak for China.  

The yield on the 10-year Treasury hit 1.75% this morning as market reaction to yesterday's Fed decision and press conference from Chair Jerome Powell continues. The bank signaled no rise in rates through 2023 and Powell again emphasized that policymakers would wait for clear evidence the U.S. economy has fully healed from the pandemic. With the Fed risking allowing policy to fall behind the curve, investors are showing signs they are worried about inflation. There is a clear divide in global markets this morning between investors bullish on growth and those worried about rising yields. Overnight the Asian markets rallied and this morning European stocks are higher. However, it is a different story in the U.S. where S&P 500 and Nasdaq futures pointed to a drop at the open. Oil was lower and gold slipped.

CORN:  May corn futures were well contained inside of Wednesday range after prices touched $5.58 ½ yesterday. Stronger resistance is at $5.59 1/4 this morning and then the contract highs at $5.72.  Corn has a bullish potential on yield risk for the Brazilian winter corn, strong US weekly export loadings and American drivers returning to pre pandemic gas consumption rates.    

SOYBEANS:  May soybean futures pushed lower overnight, touching a three-session low. Prices are below the 20-day moving average at $14.12 1/2 with much stronger support at the 40-day moving average at $13.89. Malaysian palm oil futures fell 3.6% overnight, the biggest drop in a month as production is expected to rebound sharply the next two months. China’s Dalian most-active soyoil contract fell 1.7%, and the palm oil contract was down 0.2%.  

WHEAT: Futures extended Wednesday drop overnight and is poised to challenge key support at the 100-day moving average. Strategie Grains lowered its forecast for 2020-21 soft wheat exports from the European Union and Britain to 25.2 MMT, a 900,000 MT drop from its outlook last month.  Export demand is sliding on slower Chinese demand for French wheat. The shift pushed its ending stocks forecast up around 1 MMT higher to 11.3 MMT, with the consultancy saying further wheat price increases seem unlikely. Looking ahead to 2021-22, Strategie Grains expects the EU’s soft wheat crop to climb to 129.6 MMT, which would be a 10.3-MMT increase from the current season.  Ukrainian wheat prices have fallen roughly $10 per MT so far this week, thanks in part to improving crop prospects in the U.S. and the Black Sea region after recent moisture. The attractiveness of European grains has also improved, contributing price pressure. So far, Ukraine has exported 13.9 MMT of wheat, representing 79% of its 17.5 MMT import quota for the marketing year ending June 30.

CATTLE: Steady-firm
HOGS: Steady-firm

Cattle Cash cattle trade got underway around $114 in Colorado, Kansas, Texas, Nebraska and Iowa, marking the seventh consecutive week of trade near that price level. Choice boxed beef values climbed $1.54 at midweek while Select fell $1.18, with movement moderate at 129 loads. Choice values are now up $1.18 for the week, but Select values are down $2.23. Traders are watching for moves higher for both grades and a pickup in movement to the 150-load area as a signal a seasonal turnaround is underway. Tomorrow’s USDA Cattle on Feed Report is expected to show all U.S. cattle on feed as of March 1 at 11.976 million head, up 1.4% from last year with placements in February falling 2.4%. Beef exports jumped to 25,900 MT last week, up 39% from the prior four-week average with Japan, South Korea and China the top three buyers.

Hogs: Hog futures rallied to yet another round of contract highs yesterday, with summer contracts pushing even farther above the $100 per cwt. level. Nearby lean hog futures are at their highest levels in 6 ½ years. Be aware that when rallies start to steepen after extended moves it time to watch for exhaustions. This morning’s weekly export sales report showed pork sales in the week ended March 11 rose to 39,700 MT, up 5% from the prior four-week average. Mexico bought 18.2000 MT and China was a net buyer of 5,800 MT. Shipments remains an active 40,600 MT, 5% above the prior four-week average.  U.S. cash hogs Wednesday were up 42 cents. Market weights in the Iowa/southern Minnesota market held steady at 286.8 lbs. the week ending March 13, up 1.1 lbs. from year-ago. The pork cutout value edged a dime lower on Wednesday, with a light 289.05 loads changing hands. Futures are signaling the market is increasingly suspicious China isn’t being truthful about its hog situation. China's sow herd grew 34.1% in February from the same month a year earlier and 1% from the prior month, the Ministry of Agriculture and Rural Affairs said on Thursday, providing a rosier outlook than estimated by many analysts. Chinese customs data released today showed the country imported 320,000 MT of pork during February, a 60,000 MT decline from Reuters’ estimate of January imports and a 28.3% jump from year-ago. Two months into the year, China has imported 700,000 MT of pork, a 26.2% rise from 2020 at this time.