Ahead of the Open: Soybeans Rebound on More China Purchases

Posted on Wed, 09/16/2020 - 08:04

GRAIN CALLS

Corn: Steady to 1 cent lower
Soybeans: 4 to 7 cents higher
Wheat: 1 to 3 cents lower

GENERAL COMMENTS: The case is building for higher Chinese corn imports in 2020-21. Domestic supplies were already tight and three typhoons since August that brought high winds and heavy rains to China’s main corn producing region in the northeast have stoked speculation about the extent of crop damage. Some of our China watchers have corn import estimates of 15 MMT to more than 20 MMT for China. If so, USDA’s 7 MMT import projection for China would be one of its biggest misses and signal a reassessment of China’s future corn needs is needed. 

APK Inform says weather conditions for sowing of winter grain are the worst in the past decade due to severe drought across most of Ukraine. The consultancy says, “As of Sept. 10 ... the area with absolutely dry and almost dry arable soil layer increased up to 60%-70% (of the total area). At the same time, the soil layer 0-10 cm was almost dry on 70%-80% of the area.” As a result, APK Inform says “mass winter crop sowing in areas with such a low moisture is impractical."

On the economic front, the conclusion of the Federal Open Market Committee (FOMC) meeting today at 1:00 p.m. CT will bring the post-meeting statement and updated forecasts from Fed officials. Those updated forecasts are looked to paint an improved picture of the U.S. economic outlook — likely a less-negative U.S. economic outlook for 2020 but potentially a less-positive set of forecasts for 2021. The post-meeting statement will be combed for whether the Fed updates it forward guidance in light of the recently adopted long-term strategy which indicated the Fed will be okay with letting inflation run beyond its 2% target. But there may not be as many specifics in terms of that forward guidance just yet. That is why the updated forecasts from Fed officials may be the most important forward guidance. Other areas of focus will be on whether the Fed adjusts their bond buying effort and shift toward more longer-dated securities in the mix.

USDA announced daily soybean sales of 327,000 MT to China for 2020-21. Chinese demand for U.S. soybeans remains price-supportive.

Corn: Futures mildly favored the downside overnight. Price action the next couple days will be critical in determining if the recent upside breakout was the start of the next leg higher on the price rebound from the August lows or a bull trap. Key support for December futures on a closing basis will be the July double-top at $3.63, the 10-day moving average around $3.62 1/2 and the 200-day average at $3.60 3/4.

 

Soybeans: Futures rebounded overnight from the poor close on Tuesday. Key near-term levels for November soybeans will be whether bulls can find sustained buying above $10 and Monday’s high at $10.08 3/4. The overnight low of $9.85 stopped shy of the January high at $9.82 3/4, which is key support on a closing basis.

 

Wheat: Uptrends from the August lows have been violated and futures are looking toppy. Unless corn and soybeans provide support, the pullback in wheat appears likely to extend. Wheat doesn’t have fundamental support to attract buying unless there’s a surprise purchase of U.S. wheat by China.

 

LIVESTOCK
 

Cattle: Mildly firmer
Hogs: Weaker

 

Cattle: Live cattle futures rebounded to close high-range on Tuesday, despite the premiums they hold to the cash market. That suggests traders anticipate higher cash cattle trade this week. As a result, we expect a mildly firmer tone in futures to start today’s session. But given the premiums traders already have built into futures, buyer interest will be light and we can’t rule out some selling. The market should get an indication of the cash trend in the online Fed Cattle Exchange auction later this morning. Given significantly lower showlist numbers this week and strong packer margins, we expect the cash market to at least stabilize and maybe trade higher.

Hogs: Aside from the October contract, lean hog futures were unable to sustain corrective gains into the close Tuesday, finishing low-range and lower for the day. That leaves the market vulnerable to a weaker open this morning. If bulls don’t step up to defend recently added long positions and futures fill last Friday’s gap or leave a three-day island top with a gap-lower start, selling pressure could build. Fundamental support could come from strength in the cash and product markets. The average national direct cash price firmed 72 cents Tuesday after trading slightly lower in the morning. The pork cutout value was $4.92 higher as all cuts gained and packers moved a strong 420.58 loads at the sharply higher prices.