Ahead of the Open: Quietly Defensive Ahead of Wednesday's Key USDA Reports

Posted on Tue, 03/30/2021 - 06:43

GRAIN CALLS

Corn:  Steady to down 2 cents
Soybeans: Down 4 to 8 cents
Wheat: Down 4 to 6 cents

GENERAL COMMENTS: Corn futures slipped lower in quiet trading but held above Monday’s lows overnight while soybeans drifted lower for a fourth consecutive session as expectations of higher U.S. plantings this year and uncertainty about March 1 inventories limited new buying interest and encouraged fund long liquidation. Wheat also retreated after closing higher for the last two sessions. Corn and soybean prices have remained relatively stagnant in recent weeks compared with the steep rallies in the last few months of 2020 and early 2021. Chart watchers are talking about market tops forming with grain and soybean price falling below moving averages and betting funds may further cut large long positions without some fresh bullish fundamental news.

Before the reopening USDA announced 100,800 MT of corn were sold to unknow destination for old-crop delivery. This should help to keep a floor under futures this morning. 

Wednesday’s survey-based acreage numbers from USDA, along with quarterly grain stocks, are expected to provide clearer market direction. On average, analysts peg U.S. corn plantings at 93.2 million acres, which would be a five-year high and up 2.6% on the year. Soybean area is seen at 90 million acres, the second-largest on record and up 8.3% from 2020. The March 1 grain stocks data tomorrow will likely have greater impact on immediate price trends. Traders expected corn inventories to fall to 7.767 billion bu. from 7.852 billion bu. a year ago. Soybean stockpiles expected to tumble to 1.543 billion bushels from 2.255 billion last year. Wheat stocks seen falling to 1.272 billion bu. from 1.415 billion last year.   

The Midwest and Plains were dry over the past 24 hours with a thin strip of snow reaching from the central Plains up through the northern belt this morning. The five-day precipitation forecasts are dry for the bulk of crop areas, heaviest moisture seen in the Ohio River Valley, Delta and Southeast. Extended maps are now bringing some precipitation into the north and northwest, right into mid-April initial corn planting dates, with overall month-of-April forecasts still warm as well.

Argentina was dry yesterday with rain chances mostly confined to fringe crop areas over the next ten days. That should aid crop dry down and fieldwork into mid-April. Brazil saw some isolated rains central and eastern areas the past 24 hours, but showers look limited mostly to fringe areas through the first week-plus of April. Drier weather will aid first-crop corn and soybean harvesting and help to finish second-crop corn planting, though keep some stress on safrinha corn in western crop areas will need to be watched.

There was a mix of improvement and degradation on winter wheat ratings last week despite rain and snow. Following are weekly and monthly updates to the amount of crop rated “good” to “excellent” (G/E) and “poor” to “very poor” (P/VP) as of March 28. USDA’s official crop condition updates will resume April 5.

  • Kansas: 50% G/E and 19% P/VP (vs. 45% G/E and 21% P/VP the week prior)
  • Oklahoma: 61% G/E and 15% P/VP (vs. 62% G/E and 10% P/VP last week)
  • Texas: 28% G/E and 31% P/VP (vs. 29% G/E and 29% P/VP last week)
  • Colorado: 28% GE and 32% P/VP (vs. 33% G/E and 29% P/VP last week)
  • Nebraska: 38% G/E and 17% P/VP (34% G/E and 22% P/VP last month)
  • South Dakota: 31% G/E and 21% P/VP (vs. 41% G/E and 16% P/VP last month)
  • Illinois: 70% GE and 10% P/VP (vs. 46% G/E and 3% P/VP last month)
  • Montana: 54% G/E and 16% P/VP (vs. 57% G/E and 19% P/VP last month)

The dollar gained against major currencies on Tuesday and climbed to a one-year high against the yen, as accelerating U.S. vaccinations and plans for a major stimulus package stoked inflation expectations and Treasury yields. The dollar index rose above the 93 mark and was last up around a quarter of a percent at 93.122, its highest level in four months. The yen is vulnerable to higher inflation expectations in the U.S. than Japan and a rise in long-term U.S. yields.  U.S. 10-year Treasury yields rose to 14-month highs on Tuesday, the day before President Joe Biden is set to outline how he would pay for a $3 trillion to $4 trillion infrastructure plan.  China's yuan weakened to a four-month low against the dollar on Tuesday, with the U.S. currency drawing support from prospects of a solid economic recovery. The yuan is heading for its worst monthly performance since August 2019.

CORN:  Buying continues to be restrained and increasing the importance of the often-volatile USDA reports on Wednesday. The unpredictability of both the March 1 inventory and prospective plantings reports has funds trimming bullish bets this week. But the stockpiles of corn, as well as soybeans and wheat are declining.  Meanwhile, ethanol prices fell sharply in Brazil's largest consuming market during the last week as the adoption of lockdowns to fight a persistent coronavirus outbreak hurt demand for the mostly sugar-based fuel, Cepea/Esalq, a research center at the University of Sao Paulo, said on Monday. Ethanol prices in Sao Paulo state, the largest market for the fuel in the country, fell 16% last week.    

SOYBEANS:  May soybean futures are back testing Monday’s four-week lows this morning and trading below the key 40-day moving average.  Soyoil is reversing yesterday’s rally amid lower world vegetable oil prices. May soymeal futures are rebounding on unwinding of short legs against long soyoil spread trades. The 20-day moving average crossed below the 100-day moving average on March 26 with key support remaining near $395.00. Malaysian palm oil futures dropped to a five-week lower on Tuesday, tumbling 4.6% on reduced demand from top buyers India and China. China’s Dalian most-active soyoil contract fell 1.8%, while the palm oil contract was down 1.4%.  

WHEAT: World cash wheat prices are drifting lower again this week on talk Russian wheat will be available by June to world buyers.  With improving supply prospects for this season there is reduced incentive to secure old-crop supplies, especially with the significant premiums at this stage. Recent sharp declines in Black export quotes are also a significant bearish factor. Despite the implementation of export taxes quotes have fallen sharply in recent weeks, touching the lowest since November.  With demand evidently subdued at the recent highs recorded towards the end of February prices have had to come off to attract demand.

CATTLE: Steady-firm
HOGS: Mixed

CATTLE:  Cattle futures enjoyed follow through buying on Monday, with summer contracts pushing to new contract highs. Optimism about continued cash market gains and strong summer beef demand is providing support to futures, with today’s big drop in temperatures likely to stress animals. Boxed beef values continue to climb, with Choice rising $1.87 on Monday and Select soaring $4.73. But a slowdown in movement on the price surge is concerning. Just 96 loads changed hands to start the week.

HOGS: Following strong gains to new contract highs, hog futures slipped lower Monday on fund profit-taking but closed nearer the session highs. The daily chart gaps remain open for several contracts and the trend of the market remains to the upside. But the gaps may be warning of exhaustion, if prices finish below them this week. The pork cutout value edged 31 cents higher on Monday, and while movement wasn’t especially impressive, it was the highest load count in four days. Cash hog bids edged 43 cents higher to start the week. Use of illegal African swine fever vaccines by some Chinese hog producers last year reduced output of hogs and will support prices in 2021, an executive from leading pork processor WH Group said on Tuesday. But use of unapproved vaccines in a bid to protect against the disease had the opposite effect and ended up killing pigs, said Ma Xiangjie, president of Henan Shuanghui Investment and Development, WH Group's domestic unit.  "Since the second half of last year some pig producers in China, especially south of the Yangtze river, used some immature pig vaccines and caught African swine fever again," said Ma, after the company released its annual earnings.