Ahead of the Open: Quietly Mixed Overnight Waiting on March 31 USDA Reports

Posted on Mon, 03/22/2021 - 08:17

GRAIN CALLS

Corn: Down 1-3 cents
Soybeans: Steady-firm
Wheat: Down 2 to 5 cents

GENERAL COMMENTS: Wheat is extending its nearly a month-long slide to start out the week with no major production problems developing across the Northern Hemisphere amid light seasonal export trade. Soybeans and corn lost ground after last Friday's rally but are holding well above support. The trade will be closely watching USDA’s weekly export inspections on tap this morning, especially the pace of corn shipments.  After the close the USDA will release a few southern states corn planting progress and winter wheat condition updates. We also have the International Grains Council supply and demand report on Thursday. But the markets are likely to be choppy waiting for the March 31 planting intentions and March 1 stocks reports from USDA.

The weekly CFTC Commitments of Traders report once again showed funds were net sellers in soyoil instead expected buyers. Funds were also net sellers of 3,561 contracts in soybeans, reducing their net-long position to about 156,000 contracts. In corn, funds were net buyers of almost 14,400 futures and options, pushing the net long to almost 371,000, the largest since mid-January. Funds cut net longs in wheat by 10,051 contracts to 17,525 futures and options, the largest reduction since mid-October.  since mid-January although this was accompanied by small losses in prices.  

The U.S. dollar held near a four-month high on Monday after Turkey's President Tayyip Erdogan stunned investors over the weekend by replacing the hawkish central bank governor, sending shockwaves through global currency markets.    Turkey's move comes against a backdrop of investors turning increasingly bullish on the prospects of the greenback in the short-term following rising U.S. Treasury yields and reinforces the safe-haven appeal of the greenback.  

A busy week for Fed Chair Jerome Powell kicks off this morning at the Bank for International Settlements' Innovation Summit. He will join Treasury Secretary Janet Yellen in congressional testimony tomorrow and Wednesday. While bond investors will be interested in what is said as policy makers continue to be confident there will not be a rapid breakout of inflation, the market will also keep a close eye on Thursday's $62 billion auction of seven-year debt after last month’s auction was greeted with disappointing demand.

It will be another wet week in the U.S., starting off on the warm side, but then cooling off to the end of the week, which should keep early corn planting under wraps across the Midsouth and Delta. Meanwhile, the dryness continues across the Northern Plains, Pacific Northwest and Canadian Prairies. South America weather is changing, with rains over the south of Brazil, and some showers due next weekend over the north of Argentina, but the longer-term outlooks are for a warm and dry April. Precipitation was very widespread across Brazil over the weekend, with action shifting south for the work week, then drying up overall into the 6- to 10-day period. Limited rains should aid fieldwork for central/northern crops in the near-term. The Brazilian beans are now 60% in the bag, as they have made some impressive progress on harvesting, and they are doing better job of planting safrinha corn.  

Before the reopening USDA did not flash any new sales this morning after almost 3.9 MMT of corn were announced sold to China during the last four days of last week.

Cumulative U.S. corn export sales to China this marketing season were officially at 19.4 MMT as of March 11 plus another 3.9 MMT of daily sales last week.  That grand total is 23.2 MMT, or 915 million bushels. But through March 11, only 7.77 MMT (306 million bu.) has actually shipped. That means weekly corn shipments to China must average about 620,000 MT to China each week through August to clear the unshipped sales. 

China's soybean imports from Brazil fell sharply in the first two months of 2021 compared with the same period last year, customs data showed on Saturday, as rain delayed some shipments from the top exporter. China brought in 1.03 MMT of the oilseed from Brazil in Jan-Feb, down nearly 80% from 5.14 MMT a year earlier, data from the General Administration of Custom showed. Shipments from the U.S. to China in Jan-Feb totaled 11.9 MMT, nearly double the volume in the previous year. China's total imports of soybeans in the first two months of 2021 fell 0.8% to 13.41 MMT. Fresh cases of African swine fever in recent months, however, have cast doubts on the country's pork production, and stirred worries over demand for soymeal.   Brazil shipped 3.36 MMT of soybeans this past week.

 Meanwhile, China-U.S. relations also remained a point of focus for investors. U.S. President Joe Biden "will be good for the relationship" between China and the United States, even though both sides might have "started a little on frosty side" last week in two days of talks in Alaska. 

Canadian Pacific Railways agreed to buy Kansas City Southern for $25 billion in the largest takeover deal this year. The transaction which sees CP take over the smallest of the seven Class 1 railway operators that dominate a significant share of freight activity in the US, is the biggest in CP’s history and will create a 20,000-mile rail network including the first U.S.-Mexico-Canada railroad.

CORN:  May corn futures tried to rally overnight but ran into some profit taking after last week’s rally. Corn has a bullish potential on yield risk for the Brazilian winter corn, Chinese demand, strong U.S. weekly export loadings and American drivers returning to pre pandemic gas consumption rates.    

SOYBEANS:  May soybean futures pushed slightly Friday’s high but have stalled. Prices rebounded after holding above support at the 40-day moving average last week. Key support is at $13.90.  Malaysian palm oil futures rebounded 1.3% overnight, reversing last week’s 10% decline on stronger March exports. China’s Dalian most-active soyoil contract dropped 0.2%, and the palm oil contract was rallied 1.0%.  

WHEAT: Futures are just above last week’s low and trending lower.  Weekend precipitation was lighter than expected in the NW belt and Plains, but mixed action is picking up this morning in the southern Plains, kicking off an active week of rains for most U.S. crop areas. Strong amounts are expected for all but the far NW belt and northern Plains. Forecasts are looking a bit drier past that, very dry for the 6-10 day and mixed for the 11–15-day period. Temps are moving a bit closer down towards normal for the next ten days, rebounding again to above normal for the 11-15 day and beyond. Russian wheat export prices fell for the third time in a row last week as global wheat prices slid and demand for Russian supplies has been cut by new export taxes. The ag consultancy SovEcon reports rains in Russia’s southern regions and warm temperatures should melt remaining ice crust, which “is a good setup for plants that started to break dormancy recently.”   Ukrainian crop is forecast to potentially hit a record high, again reflecting the lower than anticipated damage to crops. The improving sentiment surrounding the Black Sea crop comes alongside good expectations for the European wheat crops, which will be easing concerns over supply availability in the upcoming season.

CATTLE: Steady-weak
HOGS: Steady-weak

Another USDA update on what’s stored in the nation’s freezers at end of February will be released today. On average over the past five years, frozen beef stocks have fallen 27.2 million lbs. from the end of January to the end of February. Frozen pork stocks, on the other hand, typically climb 30.6 million lbs. over the period.

Cattle: April futures showed some resiliency last week amid firmer cash bids, but summer futures closed with weekly reversals to the downside. Limiting losses early this week would suggest just a normal correction after hitting new contract highs. USDA on Friday reported there were around 12.0 million head of cattle on feed as of March 1, a 1.6% gain from year-ago and just a bit higher than analysts expected. Placements came in a bit higher than expected at 98.1% of year-ago levels, while marketings were a bit lighter than expected at 97.6% of year-ago. The data should little impact on futures today. 

Hogs:  Lean hog futures continued the surge last week before running into some profit taking on Friday. The CME lean hog index hit its highest level since July 2017 last week, with the pork cutout value hitting its highest level since May 2020. But the pork cutout value did drop a dramatic $3.81 on Friday. Traders will watch for any signals the futures rally is faltering, with USDA’s Quarterly Hogs and Pigs Report Thursday a major focal point. There’s been a lot of talk about hog slaughter falling short of what USDA signaled in its last H&P Report, but the drop in kills over the past month seems tied to producers pulling marketings forward during January. This week’s H&P Report should provide a better picture regarding the supply picture. Meanwhile, Chinese authorities are investigating scores of dead pigs found along a section of the Yellow River, according to a state-backed media report. Local authorities are investigating the source of the pigs and checking if they carried any disease, in addition to disinfecting the area. The latest discovery comes as China’s hog herd is recovering from the ravages of African swine fever.