Ahead of the Open: Soybeans Lead Grain Rally on Demand, Money Flow and Weather Uncertainty

Posted on Wed, 11/18/2020 - 07:03

GRAIN CALLS

Corn: Up 1 to 3 cents
Soybeans:  Up 8 to 13 cents
Wheat: Mixed to mostly firmer

GENERAL COMMENTSSoybeans are setting new highs today with few changes in the overall bullish fundamental story that has been driving prices higher for three months. Corn and wheat are following to the upside as China is still boosting imports of multiple crops, from multiple countries, with U.S. beans the chief beneficiary. Money continues to flow into the broader commodity sector. However, agricultural markets are currently favored for now. The Thomson Reuters Continuous Commodity Index, which is more heavily weighted to the ag markets is trading at its highest level since June 2018 today.  The U.S. dollar index is testing long-term support this morning, helping to improve competitiveness of U.S. farm goods. The flow of money is moving away from money markets with low rates of return to stocks and commodities.  Pfizer Inc. is preparing to seek an emergency-use authorization for its vaccine from U.S. regulators after reaching a key safety milestone, Chief Executive Officer Albert Bourla said. Pfizer said the shots are 95% effective, have no serious side effects and work for older people, who are more vulnerable to developing severe Covid-19 and who do not respond strongly to some types of vaccines.

Before the reopening, USDA announced one new large daily export sale today. Private exporters sold 140,000 metric tons (MT) of corn to unknown destinations for this marketing year. That may provide additional support to the market and helps to support talk that China was shopping for U.S. supplies earlier this week.

The USDA is looking for a seventh straight record annual soybean crush figure in 2020-21. Exports are also seen rebounding to a record 2.2 billion bu., with total bean usage easily setting a record at more than 4.5 billion bu., more than 200 million above the previous high set in 2017/18. The U.S. Soybean Export Council is expecting calendar 2020 Chinese soybean imports at a record 100 MMT, up from the previous high of 95.54 MMT in 2017; imports already stand at 83.2 MMT from Jan-Oct, likely averaging in the 9 MMT range for November and December. Chinese demand for corn currently remains strong due to the high demand for animal feed and damaged supplies in China after storms and drought. However, ethanol-from-corn sales in Brazil and the U.S. remains a concern with Covid-19 inflections soaring.  

Green shoots of the global recovery are clearly reflected in surging freight rates from Shanghai to many regions including the U.S., Australia, and South America. Rates from North Asia to the West Coast of North America were $3,900 per 40-foot equivalent unit this week, more than double a year earlier, according to S&P Global Platts.

Good coverage of beneficial rain fell across large parts of central and northern Brazil Tuesday with dry conditions in far southern, northeastern, and northwestern Brazil locations. Showers and thunderstorms will continue today in much of Brazil and portions of Paraguay and most areas should be left with enough soil moisture to support crops when a nearly week of drier weather begins in most areas Thursday while portions of north-central and northeastern Brazil see additional rain. Planting should advance well when most western, central, and southern parts of Brazil see little rain from Thursday through Nov. 25 while showers and thunderstorms occur regularly in north-central and northeastern Brazil. A timely increase in rain will occur from far southern into central Brazil Nov. 25-28 and if this rain event occurs as forecast, then crops should have enough soil moisture to develop favorably through the remainder of the next two weeks. A part of northwestern Argentina got 1.54 inches of rain Tuesday while light rain scattered across several other locations across Argentina with most areas dry. Argentina will see a restricted rainfall pattern and good planting progress through most of the next two weeks and crops stress may increase in the drier parts of the country, but timely rain Monday into next Wednesday should buy most crops more time before serious stress evolves.

Corn:  December corn futures touched $4.23 1/2 last night, the highest since the Nov. 11 peak at $4.28. Momentum is starting to turn up and a close above that high is needed to bring in new buying like seen in soybeans this week.

Soybeans: Soybeans continue to set new contract highs and the highest since June 2016. Malaysian palm oil futures jumped 2% on Wednesday, ending a three-day losing streak, underpinned by expectations of tight supplies from heavy rains  Malaysia's Meteorology Department said heavy rains, storms and strong winds are expected to persist across the country until the end of December, state media Bernama reported. Palm oil's premium over gas oil is at its highest in a nearly decade, making the edible oil an unsustainable option for biodiesel feedstock.

WHEAT: Covid-19 shutdowns favor flour demand and that may provide further support. Otherwise, wheat finds itself in a difficult time of year when sustaining rallies becomes difficult without help from corn and/or soybeans. Dryness remains a very real threat in Russia, with cold temperatures settling in to push a very poorly established crop into dormancy.  French wheat exports to China in 2020-21 could surpass last season's large volume as France's status as one of the few approved suppliers allowed it to capture robust Chinese demand, trading firm Lecureur said on Wednesday.  But a sharp drop in French harvest production this year could lead to better demand for U.S. wheat.

LIVESTOCK 
Cattle: Steady to firm
Hogs: Steady to mixed

China's government on Wednesday defended anti-coronavirus controls that have disrupted imports of beef, poultry and fish from the United States, New Zealand, and other trading partners. The "reasonable and justifiable" curbs are intended to protect public health, foreign ministry spokesman Zhao Lijian said. Meanwhile, Maximo Torero Cullen, chief economist of the United Nations food and agriculture agency, said on Wednesday that there is no significant evidence of coronavirus being spread through food trade and such reports "need to be minimized.”

Cattle:  Nearly 1,000 head of cattle traded in the Iowa/Minnesota market at steady prices of $109 yesterday, with Kansas seeing lighter trade at $110 and Texas seeing nearly 1,900 head trade around $110. This could signal steady or better prices ahead. Today’s online Fed Cattle Exchange auction will provide additional clues. December futures are trading at roughly a $1 premium to the upper end of these early cash trades. Choice boxed beef values shot $6.77 higher on Tuesday with Select gaining $1.61 and movement picking up to 142 loads. That could help lift cash prices the remainder of the week.   USDA’s monthly Cattle on Feed Report on Friday is expected to show number up about 2% from a year ago.

Hogs:  Today’s is important session for market bulls after bouncing yesterday after touching two-month lows to start the week. Follow-through buying will have to come from optimism for lower pork prices to spur better pork demand after the pork cutout value dropped $2.55 on Tuesday, with bellies and picnics leading the decline. However, movement picked up notably on the price slide to 437.06 loads. Cash hog bids edged 24 cents lower nationally yesterday, with gains in the western Corn Belt and the Iowa/southern Minnesota market being offset by losses in the eastern Corn Belt. Export sales on Thursday will need to show continued solid new sales to China and Mexico. Beyond Meat Inc on Tuesday launched plant-based minced pork in China, as the faux meat maker seeks to tap into the growing demand for its products in the lucrative Asian market. The company said its latest product, Beyond Pork, will initially be available at five popular restaurants in Shanghai.