Ahead of the Open: Soybeans Extend Rally to 4 1/2-Year Highs, Corn, Wheat Following

Posted on Tue, 11/17/2020 - 07:13

GRAIN CALLS

Corn: Up 1 to 4 cents
Soybeans:  Up 14 to 18 cents
Wheat: Mixed   

GENERAL COMMENTS: Soybean futures rose to their highest in more than four years overnight on record domestic demand and expectations of more U.S. exports. More than 2.2 million metric tons (MMT) of soybeans were inspected for export last week, mostly for China and the prior week’s tally was once again revised sharply higher. NOPA reported crush surged to a record 185.2 million bu. in October, more than 8 million bu. larger than pre-report estimates. Implied soybean oil use also was a record last month. Meal is retesting last week’s contract highs after the Argentine grain lobby Ciara-CEC said a lack of progress in salary negotiations with port and crush workers could lead to a nationwide strike. There is talk of unions blocking rail lines in Argentina and some grain inspectors in Argentina are also on walk out.

Nearly 815,000 MT of U.S. corn was also inspected for export last week, including almost 280,000 MT for China. The market also remains supported by hopes for more Chinese business following rumors of China shopping for April and May delivery on Monday.

Wheat continues to be a short leg against long corn and soybean positions amid sluggish demand for U.S. supplies.

The weekly CFTC Commitment of Traders report as of Nov. 10 held less-than-expected fund length, the agency said in a delayed report on Monday. This is not just a weather market in which fund liquidation occurs quickly after crop sizes are known. Traders are betting that speculative length will expand over the next 90 days until crops are known in South America.  The CFTC report showed that funds bought 10,000 soybean contracts last week, lifting their long position to 221,000. Money managers reduced their net long position in corn futures and options to 280,835 contracts from 290,080 a week earlier, when most expected a gain of 50,000 to 70,000 contracts. It was the first time in 14 weeks that funds sold. Commercial net shorts in corn rose to the largest since July 2019 and commercials shorts in soybeans rose to a new record. The combined commercial net-short positions are 17% larger than the prior record set in 2012.

Argentina was dry over the past 24 hours, with rains confined to western areas over the next five days but 6- to 10-day rainfall forecasts are looking much more widespread today. Brazilian rains were also scattered, with better coverage through Thursday but drying up again for the 6- to 10-day time frame across most areas    More rains will then be needed with the far south will be driest in week one of the outlook but wetter in week two.

Before the reopening, USDA announced one new large daily export sale today. Private exporters sold 195,000 MT of corn to Mexico for delivery this season. The sales will lend some additional support to corn but may disappointing the soybean bulls after the recent lull in new daily sales.

Reports continue to circulate that U.S. President Donald Trump’s administration will take tougher actions on China during the last weeks of the administration. Meanwhile, a top Chinese securities regulator said on Tuesday that he hopes Sino-U.S. relations will be much improved under a Biden administration. Ties between China and the United States are at their worst in decades over disputes ranging from technology and trade to Hong Kong and the coronavirus. Beijing has said it expects the incoming Biden administration to meet China halfway, manage differences and push for the advancement of Sino-U.S. ties on the right track.  

Corn:  December corn futures extended the rally overnight but ended near mid-range at the break. Prices still need to close above last week’s $4.28 to trigger new technical buying.  Implied volatility fell on Monday, a possible sign of underlying strength as traders continue buy calls. There was a big purchase of March $5.00 calls yesterday.  

Soybeans: Soybeans are surging, and January touched $11.72 1/4 overnight with bulls calling for a test of $12.00. Palm oil prices fell for a third consecutive session Tuesday as exports fell in the first 15 days of November after the recent rally curbed shipments.

WHEAT: Futures are trying to build on Monday’s rally. The CME raised its margin requirements for SRW and HRW futures yesterday by about $100.  As expected, the amount of winter wheat crop USDA rates “good” to “excellent” edged a point higher to 46%. But the amount of crop rated in the “poor” to “very poor” categories also climbed a point to 18%. Last year at this time 52% of the crop was rated “good” to “excellent” with 14% falling in the “poor” to “very poor” categories. Snow cover is expected to become widespread in Ukraine and much of Russia by the end of this month. Soil moisture will improve for crop use in the spring, but little improvement in crops will occur before then. Moisture going into the soil might help improve some root and tiller development, but the poor winter crop establishment may not change enough to lower the risk of winterkill.

LIVESTOCK 
Cattle: Steady to firm
Hogs: Steady to weak

France has detected a highly pathogenic strain of bird flu in the pet section of a shop in one of Corsica’s main cities, the country’s farm ministry said today. All birds in the shop have been euthanized and France will be put on high-alert status as of Tuesday. All poultry must now be kept indoors or protected by netting going forward. Just another reminder of the potential for disease to disrupt supply and demand.

Cattle: Cattle futures seen firm with stronger cash prices expected this week. Cattle traded at an average price of $109.62 last week, which was a $3.29 from the week prior. The front month is around a $1 above last week’s cash action. Feeder cattle saw some choppy action to start the week with corn and wheat prices again working higher. But reports of higher prices at an Oklahoma City feeder cattle auction helped the market to finish in positive territory. Choice and Select boxed beef values climbed 97 cents and $2.89, respectively, to start the week, with a modest 128 loads changing hands.

Hogs:  Packer profit margins have slipped nearly $8 over the past week, but at $28.75 a head, there is still plenty of incentive for packers to keep lines full. That is an easy task with market-ready supplies rising.   Cash hog bids were 45 cent lower on Monday, but the pork cutout value rose $1.01, with a solid 346.67 loads changing hands. It will be important to see futures catch a bid this week and halt the recent drop as charts have turned negative.