Ahead of the Open: Soy, Meal Hit New Highs on Weather Risks, Strong Demand; Corn Follows but Wheat Lower

Posted on Tue, 12/22/2020 - 07:59

GRAIN CALLS

Corn: Steady to up a penny
Soybeans: Up 3 to 7 cents
Wheat: Down 5 to 7 cents

GENERAL COMMENTSSoybeans and corn are rebounding from overnight weakness this morning as beans, meal and corn are hit new contract highs. Funds are returning to the buy side of the market with the Jan.12 WASDE report in the market’s sight and traders are betting the agency further tighten the U.S. and world supply and demand balance sheets. Meanwhile the risk in South American weather remains supportive until the first-season crops are made in January and February and the start of the Brazilian safrinha corn season begins. 

Dollar bulls are finally bringing the fight to market bears, after yesterday short squeeze showed the upside risks. The dollar index rocketed to 91.022 Monday, then nosedived in choppy trade. This morning it is currently trading slightly higher near 90.149. A close above 90.226 would end the bearish chart pattern and further consolidation toward the 21-day moving average at 90.943 could follow. 

The South America weather outlook for most production regions is little changed. A few more showers should be thrown into Argentina’s forecast for next week, but no generalized rain is likely.  Overall, Argentina will continue on a 10-day bout of restricted precipitation and rising crop stress that may threaten production potentials if not checked soon. Brazil crop weather will remain good across the center west to center south during the next couple of weeks with net drying in the far south and in a few far northeastern crop areas.  Meanwhile, a Paraguay trade group estimates farmers will harvest 9 MMT of soybeans in the 2020-21 season—a 1 MMT decline from the previous year.

Before the reopening, USDA failed to announce any new large daily sales this morning.  

On Tuesday, China sold all 103,455 MT of corn offered from the state reserves. The corn was from the 2014-15 harvest and Heilongjiang will offer around 1 MMT of corn on Thursday. Chinese government sale are the first time in years the government is selling during the highest seasonal time for farmer sales. In the past two weeks, 1.3 MMT was sold to refineries and feed mills in Jilin and Heilongjiang

The Chinese government sold 59,201 MT of imported soybeans from its reserves. The soybeans were imported in 2019. China is expected to import more than 100 MMT soybeans in 2021, a record high, said an executive with leading state-owned grains trader COFCO on Tuesday, as rebuilding of the country's huge hog herd boosts demand for the protein. The country is expected to crush 92.6 MMT of the beans this year, Zhou Jishuai, deputy general manager of the hedging and trading department of COFCO Oils and Oilseeds, a unit of COFCO Group, told a conference in Guangzhou. Zhou said soymeal demand will remain strong this quarter and into the first quarter of next year. Demand for soybean oil is also set to rise more than 6% this year, thanks to increasing use of the oil in biodiesel and animal feed.

The global marketplace is still edgy following the weekend news of a newly discovered and more easily transmissible strain of Covid-19 in the United Kingdom. More than 40 countries have banned travel from the country. The World Health Organization tried to calm fears, saying the new strain was not out of control, contradicting Britain’s health minister. Some health experts said they believe the current Covid vaccines could be effective on the new mutation of the virus. Aside from the United Kingdom, the variant has been detected in Denmark, Belgium, the Netherlands and Australia. Pfizer and Moderna are now testing their vaccines to see if they work against the UK variant, though experts have said they still expect the vaccines to be effective.  

Congress finally approved the long-awaited $900 billion Covid relief package after months of partisan gridlock. It now goes to President Donald Trump's desk for signature. The package includes direct payments of up to $600 per adult, enhanced jobless benefits of $300 per week, roughly $284 billion in Paycheck Protection Program loans, $25 billion in rental assistance, an extension of the eviction moratorium and $82 billion for schools and colleges.  

CORN: March corn hit a new high at $4.42 overnight after uncovering buying interest on early market weakness. The contract is back above the uptrend line off the August lows with daily momentum pointing higher.

SOYBEANS:  On Monday, soybeans rallied over 20 cents by the end of the session after having a wide-ranging session overnight which included high volume breaks. China’s soybean market was “on fire” for a second day.  Between the strikes in Argentina, various interpretations of South America weather the next 10 days, and rumors of China buying, the market had its reasons to justify the higher moves overnight. Argentina’s port workers strike has now impeded 100 ships lined up for ag goods.  

WHEAT:  March SRW rose to $6.15 ½, above the down trend and the highest since Dec. 14 and retreated overnight. The failure to build on Monday’s rally was disappointing and triggered some fund profit taking overnight. U.S. export inspections remain slow and the season’s pace is behind pace to reach USDA’s export forecast.  While total sales commitments imply a larger program, actual loadings have yet match the pace. China sold another 600,000 MT of the 4.0 MMT offered from state reserves at stable prices near $9.75 a bushel. Ukraine's government does not plan any change in its grain export rules, deputy economy minister Tartas Vysotskiy said on Tuesday. The UGA traders union said on Monday the government had assured market players that it would not impose additional grain export limits for the 2020/21 July-June season.   

Cattle: Steady to firm
Hogs: Steady to firm

CDC guidelines give meatpacking workers priority for receiving Covid-19 vaccinations. The first round of vaccines went to health care works and residents of long-term care facilities. The next round is for the elderly ages 75 and up and front-line essential workers. Workers at meatpacking plants are part of the front-line essential workers category. While the CDC is prioritizing these processors for the vaccine to reduce risks, food service restrictions are hurting demand, creating concerns for managed money to build new long positions in the livestock markets.

Cattle: Wholesale beef trade started the week on a strong note with prices up $2.29 in Choice cuts and $2.99 for Select on movement of 110 loads. If boxed beef prices give further signals of a short-term low, it would improve chances for cash cattle prices to build on last week’s average price of $106.12, which was down 63 cents from the week prior. But packers may be reluctant to raise cash bids until assessing slaughter needs after the holidays.

Hogs:  Lean hog will be choppy the next two session ahead of the USDA’s Cold Storage Report tonight after the close and the Quarterly Hogs & Pigs Report on Wednesday afternoon. The pork cutout value firmed 90 cents on Monday and movement was strong at 377.90 loads at the higher prices. But strength was not widespread across the carcass, with three of the six cuts lower on the day. Plus, the average national direct cash hog price was 26 cents lower on Monday. Traders likely need to see widespread strength in the pork cutout market and firmer cash prices.