Ahead of the Open: Soybeans Extend Rally on China Buying, Grains Following on Dollar Weakness

Posted on Thu, 06/04/2020 - 05:14

 

GRAIN CALLS

Corn: Up 1 to 2 cents
Soybeans: Up 2 to 4 cents
Wheat: Up 3 to 7 cents.

GENERAL COMMENTS:  Soybeans futures were extending this week’s gain reaching a new three-week high fresh demand from China this week continued to spur buying interest. Wheat is seen rebounding for a second session as hot weather forecast in U.S. and Russian growing belts despite beneficial rain in Europe kept attention on harvest risks. Recent strength in the euro, Brazilian real, Russia ruble, Canadian and Australian dollars and most emerging market currencies against the dollar boosted export optimism.  The trade seems more willing this morning to add in some weather risk premium, or at least curb new selling at current bargain levels, until U.S. crops develop further. The next month is always a crucial one as late planting finishes, corn pollination weather forecasts become clear, and the USDA updates its acreage figure and reports on quarterly inventories at the end of June.

The weekly USDA export sales report for the week ended May 28 showed disappointing corn sales with soybeans and wheat in line with trade estimates. Old-crop corn sales were 637,500 MT, up 49% from a week earlier but down 19% from the four-week average. New-crop sales were just 27,500 MT. Final old-crop wheat sales were 179,500 with new crop sales slipped to 437,300 MT.  Soybeans sales for old-crop delivery fell 23% from a week earlier to 495,200 MT last week. China was the top buyer with a net 201,000 MT, including decreases of 66,000 MT. New-crop sales rose to 607,400 MT with 329,000 MT sold to unknown destinations and 264,000 sold to China. Soybean meal sales surged to 558,900 MT, the most since mid-January, led by purchases from the Philippines, already announced in the daily USDA reporting service.

The daily USDA export sales reporting service announced private exporters sold 120,000 MT of soybeans to unknown destinations this morning, evenly divided between old-crop and new-crop delivery. That follows 186,000 MT of soybeans sold to unknown yesterday and 132,000 MT sold to China on Tuesday. The unknown sales are likely Chinese buyers and confirms most of the reports of new buying earlier this week.

Dalian soybean meal was higher on the day with the September contract up about 1.3% after touching the highest level since late April. U.S. origin soybeans are cheaper than Brazil supplies for delivery after July. There was a report in Wall Street Journal yesterday that state-owned companies delayed purchases of 23 US-origin shipments, although WSJ errantly tweeted these were canceled. Meanwhile, the China-run Global Times said that sales of U.S. soybeans to China announced this week are proof that there has been no halt in the purchases. They quoted Zhang Xiaoping, country director for China at the U.S. Soybean Export Council, as saying Chinese firms are still buying U.S. soybeans in line with market rules, unaffected by diplomatic tensions between the two sides.  

Meal and oil on the Dalian have been strong lately which has helped crush margins and we should see some increased buying of U.S. supplies. Chinese food inflation eased in the second half of May; the National Bureau of Statistics data showed. Between mid-May and the end of May, prices for rice were down 0.4%, wheat was down 0.9%, corn was down 1%, soybeans were down 0.6%, soybean meal was down 0.1%. However live pigs were up 4.6%.

The global stock rally powered by optimism for a speedy economic recovery from the pandemic are trying to rebound from overnight losses after the European Central Bank beefed up its bond-buying program this morning, its latest effort to support a euro zone economy pummeled by more than two months of shutdowns due to the coronavirus pandemic. The ECB increased the size of its emergency aid program to 1.35 trillion euros ($1.52 trillion) from 750 billion euros and extended it until June 2021. Europe was slow to provide aid in the 2008 financial crisis and today’s move boosted bullish sentiment for a quicker global recovery.     

Oil prices dropped on Thursday on doubts over the ability of global producers to agree to extend record output cuts, heightened by worries over a build in U.S. fuel inventories.  Gasoline stocks rose by 2.8 million barrels, nearly triple what analysts had expected. Distillate stocks rose by 9.9 million barrels, nearly four times more than expected. Russia and Saudi Arabia have reached a tentative deal to extend OPEC+ production cuts of 9.7 million barrels per day by one month in July. However, the upside momentum in Brent crude prices came to a grinding halt in yesterday’s session after Russia and Saudi Arabia took a hardline stance against the consistent quota cheats within the organization. Russia and Saudi Arabia added that the meeting on June 10 may not occur unless serial offenders Iraq and Nigeria make firm assurances to adhere to the agreed quotas.  

Almost 20,000 new coronavirus cases were identified yesterday in the US, even as states are working toward fully reopening. Wednesday also saw almost 1,000 more deaths, pushing the death toll in the US past 107,000. However, Dr. Anthony Fauci has said keeping schools closed in the fall -- once thought to be a strong, if reluctant possibility -- may not be necessary for all communities. Meanwhile, the virus is still surging overseas. Brazil and Mexico both announced record numbers of Covid-19 deaths, and Pakistan has now recorded more cases than China, where the virus originated.
Meanwhile, the Trump administration has selected five companies, including Moderna, AstraZeneca and Pfizer, as the most likely candidates to produce a vaccine for the novel coronavirus, the New York Times reported on Wednesday, citing senior officials. 

CORN: July and December corn are extending the late strength seen Wednesday. The large short position held by speculators limited new selling as traders assessed Midwest growing conditions and recovering ethanol demand as lockdowns to counter a coronavirus epidemic are eased. DOE total fuel ethanol production continued to rebound this past week, up for the fifth straight week to 765,000 barrels per day (bpd), compared to 724,000 a week earlier and the 537,000 bpd at the late April bottom. However, output is still below 1.044 million bpd on the same week last year. Cumulative output since September 1 is now down to 936,000 bpd, the lowest average on this date since the 2013-14 season.

 SOYBEANS: Prices are breaking out to the upside this morning and will need to see continued Chinese buying to sustain rallies with U.S. weather seen as beneficial for the early crop development.

 WHEAT: Markets are rising on a weaker dollar that should increase traditional Latin American buyers covering summer demand with U.S. supplies given the tightness of stocks in Russia. While there have been some very good rains seen in Russia during May, the pattern does look to be shifting now to more of warmer, drier as we move into mid-June. History has shown that June through July is the most important time for determining Russian wheat yield potential. High humidity levels have slowed the Oklahoma wheat harvest. Early reports points to yields in the 30s to 40s, good test weights and mixed on protein. The market can little afford to harvest a low-protein crop when world buyers are looking for higher quality supplies.

LIVESTOCK

CATTLE: Steady-weak
HOGS: Steady-firm

Labor prosecutors filed a petition with a local court demanding the closure of a JBS SA pork plant in Brazil’s Rio Grande do Sul due to an outbreak of Covid-19 there. The company reported 21 of the plant’s 1,700 workers have tested positive for the disease, two of whom are hospitalized. A decision is still pending.

Cattle: Processing numbers continue to improve, with slaughter hitting 114,000 head on Wednesday, just 6,000 head under year-ago levels. Meanwhile, cash cattle action is once again taking place in a wide range, but even the lowest end of trade ($113) is sharply above where futures are trading. Boxed beef values continue to retreat from record-setting levels, which may prove to be positive for improving consumer demand. Choice fell $22.83 to $295.90 but that is still up from $223.20 a year ago. USDA said beef export sales rebounded 7% from a week earlier last week but shipments were down 15%. China was a small buyer and destination for beef exports last week.

Hogs: Futures may be pressured in early trading from slow weekly export sales. Pork sales last week were down 16% from a week earlier at 17,300 MT, with China buying a net 3,400 MT, including decreases of 1,400 MT last week. Shipments last week were 14% below the four-week average with China taking 13,200 MT of the 31,300 MT total. Wednesday’s kill of 429,0900 head was just 47,000 head under year-ago levels and an 8,000 head improvement from year-ago levels. Many in the industry had expected Covid-19 to limit processing to around 90% of pre-outbreak levels. Yesterday’s kill equated to 90.1% of year-ago levels. So now the watch is on to see how much more improvement is possible. Wholesale pork cutout values rose 64 cents to $75.01 on Wednesday on continued very strong sales. Also encouraging, hog weights in the Iowa/southern Minnesota market retreated 0.5 lb. the week ending May 30 to 291 lbs., which is still 3.8 lbs. above year-ago levels. Head counts for the market were down by more than 100,000.