Ahead of the Open: Soybeans Extend Rally on China Demand, Drier Brazil Forecasts; Grains Follow

Posted on Fri, 11/20/2020 - 07:40

GRAIN CALLS

Corn: Up 4 to 6 cents
Soybeans: Up 15 to 20 cents
Wheat: Up 2 to 4 cents

GENERAL COMMENTSSoybeans are heading for a sixth consecutive gain after touching a new 4.5-year high on robust Chinese demand and a dry start to the South American growing season. Corn and wheat are following higher. While some rain has reached Brazilian and Argentine grain belts, more moisture is needed to complete soybean and corn planting and boost crop development. Drier forecasts into December spurred new buying in corn and soybeans overnight. Vegetative health maps this week showed crops are already displaying the impact of dry weather to start the season. USDA’s weekly export data yesterday reported better demand than expected for soybeans and corn. Most surprising was the ability of China to buy more than 1 MMT of soybeans last week without hitting the daily 100,000 MT reporting thresholds. There’s no indication that China’s imports will let up soon, given rapid hog herd rebuilding, the strong yuan against the dollar  and domestic corn prices at multi-year highs, Mark Jekanowski, chairman of USDA’s World Agricultural Outlook Board, said at the Geneva conference this week Rising demand will keep corn and soybeans well support until adequate South American crops can be projected, which will take until late this year for soybeans and probably not until April or May for the Brazilian safrinha corn crop. December corn, wheat and soy product options expire today.

Argentina was mostly dry over the past 24 hours, but forecasts look good for the next ten days, with rain chances moving from south to north for solid coverage throughout. Brazil saw some action in the north and chances remain there into early next week, shifting far south for the 6- to 10-day period, but the heart of the country’s crop areas look mostly drier going forward.

Argentine producers pushed soybean planting 16 percentage points ahead over the past week to 28.8% of the expected 17.2 million hectares, the Buenos Aires Grains Exchange said Thursday. It said that rains helped propel planting, though some areas remain much too dry. Progress now lags last year’s planting by 2.5 points. The exchange notes that the biggest advances occurred in “southern Cordoba, northern La Pampa and western Buenos Aires provinces, as well as the south-central part of the farm belt.” On the other hand, corn planting remains at a standstill at 31% complete, which compares to 45% planted last year at this time. The exchange also warned it may make additional cuts to its 16.8 MMT wheat crop estimate. It also reported harvest of the crop is 19.8% complete.

The Black Sea is set for a wetter week than Europe, with essentially the entirety of southern Russia forecast for rains with the heaviest volumes expected in the regions further south. The moisture will be beneficial for crops that will soon be heading into dormancy as temperatures begin to fall across Russia. Should rains or snow remain consistent in the weeks ahead, concerns over the previous dryness in the crop will ease.

In the U.S. Plains, rains move into southern and eastern crop areas over the weekend, lingering through the 6- to 10-day outlook. 

Before the reopening, USDA announced two daily corn sales. Private exporters sold 158,270 MT to Mexico and 131,000 MT to unknown destinations, both for delivery this marketing year. The new sales will provide additional support after the reopening and sales to unknow may confirm rumors earlier this week that China was shopping for U.S. supplies.

China’s State Council said there needed to be efforts to ensure the safety of cultivated land, and that farmland needs to be preserved and used to grow staples such as wheat, rice, and corn. It also told the ministries of agriculture and natural resources to monitor land use and make sure farmland wasn’t getting converted illegally to other uses. Takeaway: China cannot easily increase farmland, so the government is making sure it is not getting converted to other uses.

Corn:  March corn futures moved to new highs for the week and is approaching last week’s contract high at $4.35 ¾. The market is supported by near record Chinese domestic corn prices and expectations for new business. Drier Brazilian forecasts limited selling after reducing rainfall chances next week. The market gains have been contained by worries about fuel producer demand for corn after ethanol production fell unexpected this past week.  Meanwhile, retail fuel tracker GasBuddy estimates that only 35% of Americans will travel by car during Thanksgiving, down from 65% a year ago. The U.S. logged its highest number of newly reported Covid-19 infections in a day and reported record hospitalizations for the 10th day in a row.  The U.S. Centers for Disease Control and Prevention urged Americans not to travel for Thanksgiving and California issued a new, limited curfew.

Soybeans: Soybeans surged to the highest since June 2016 last night. Meal continues to hover just below contract highs set last week and probably need to make new highs to confirm the rally in soybeans. Soybean oil also jumped to new contract highs despite palm oil extended this week’s nearly 3% drop this week. Worries about slower demand from high prices in major consuming nations kept pressure on the palm oil market overnight.

Wheat:  Wheat prices rebounded after opening lower last night. Price gains also erased weekly losses tied to beneficial moisture forecasts in both the U.S. and the Black Sea region.  

LIVESTOCK 
Cattle: Steady to mixed
Hogs: Steady to mixed

Cattle: Fears about a repeat of U.S. spring processing disruptions from spreading Covid-19 infections sent cattle prices sharply lower despite bullish fundamentals.  The market fears it may just be a matter of time before processing plants again experience shutdowns, despite safety precautions and changes in procedures at those facilities. However, slaughter numbers did not reflect any downturn with this week’s kill up 6,000 head from a week ago on strong beef demand and better exports. Boxed beef values climbed again on Thursday to extend this week’s rally to the highest since June. Some additional cash cattle action occurred $108 in Iowa, from $109 to $110 in Nebraska and at $110 in Kansas and Texas. This afternoon, USDA will release its monthly Cattle on Feed Report, which is expected to show the number of cattle on feed up 1.8% from year-ago as of Nov. 1, with placements down 8.9% and marketings up 0.2%.

Hogs:  Rumors of processing disruptions also sparked long liquidation in the lean hog futures yesterday. Though slaughter numbers did not reflect any downturn as slaughter this week is up 32,000 head from last week. Meanwhile, the U.S. pork cutout value has stabilized over the past week and climbed $1.54 on Thursday, with sales good this week. Forecasts from Europe’s top pork producer that China will likely remain a pork importer for the next four to five years was largely brushed off. Danish Crown explained African swine fever is still hindering the country’s herd rebuilding efforts. Chinese pork prices edged higher over the latest reporting period. However, China continues to tighten measures on imported meat including testing, disinfection, and tracking. The strict measures threaten to slow imports and hurt consumer confidence in imported meat.