First Thing Today

Posted on Tue, 12/10/2019 - 06:36

Good morning!

Quiet overnight session as trade readies for USDA reports… Corn futures are favoring the upside in narrowly mixed trade after holding to just a penny-wide trading range overnight. Soybeans also saw a quiet overnight session, with most contracts currently enjoying gains around a penny. Winter wheat futures are 1 to 2 cents lower, while spring wheat futures are steady to a penny lower. The U.S. dollar index and crude oil futures are both notching slight losses.

USDA’s December crop reports out later this morning… USDA will not update its corn and soybean crop estimates this month, but it will adjust domestic usage forecasts and ending stocks. Based on the average pre-report estimates from a Reuters survey, traders expect ending stocks to rise 9 million bu. for corn and 1 million bu. for soybeans, while wheat carryover is expected to decline by 4 million bu. from last month. The other focus will be USDA’s global production and demand forecasts.

Conab’s corn and soybean crop estimates for Brazil edge higher… Conab, Brazil’s USDA equivalent, raised its estimate of Brazil’s soybean crop 232,000 MT from November to 121.092 MMT, a notable gain from the previous season’s 115.030-MMT crop. But Conab left is export forecast for the oilseed at 72 MMT for 2019-20, a 2-MMT rise from last year. Brazil’s total corn crop will likely total 98.409 MMT, according to the statistics agency, a 43,000-MT rise from its outlook last month and down from last year’s 100.046-MMT crop, according to Conab. The agency maintained its forecast for Brazil to export 34 MMT of the grain, which would be 5 MMT under its 2018-19 shipments.

Cordonnier stays the course with Brazil crop pegs… South American Crop Consultant Dr. Michael Cordonnier made no change to his Brazilian soybean crop estimate of 123 MMT this week, and his bias is neutral going forward. “The rains in Brazil continue to be concentrated across the central part of Brazil with lesser amounts in northeastern Brazil and far southern Brazil. The forecast is calling for a continuation of the same pattern with the heaviest amounts in central Brazil,” Cordonnier explains. He notes weather watchers say rain will generally be adequate this month, but weather in January could be dry. He also stuck with his Brazilian corn crop estimate of 102 MMT, and his bias is neutral going forward. Cordonnier says weather has “generally been favorable” for the full-season corn crop.

Consultant makes cuts to Argentine corn and bean crops, citing adverse weather… Cordonnier lowered his Argentine soybean crop estimate 1 MMT this week to 53 MMT, and his bias is neutral to lower going forward. He chalked the cut up to dryness concerns, especially in the southern half of the country. He also lowered his Argentine corn crop estimate 1.5 MMT to 47.5 MMT. He explains, “The weather in Argentina has never really gotten ‘on track’ thus far this growing season. In the core production areas, the weather has been good, but in the southern and western areas, the rainfall amounts have been below average and the coverage has been uneven.” In addition, the near- and longer-term forecasts are both calling for sub-par rainfall and warm temperatures.

France expects nearly a 5% drop in soft wheat area for 2020… In its first planting estimate for 2020, France’s farm ministry is calling for a notable 4.8% year-over-year drop in soft wheat area to 4.73 million hectares (11.5 million acres). This would be down 5.6% from the five-year average. “For 2020, winter cereal sowings are expected to show a general decline in a context of severe weather," the ministry explained. Very wet weather this fall disrupted planting. France is the EU’s largest producer of the grain.

France to restrict use of glyphosate weedkillers… France’s health and environment agency, ANSES, announced yesterday it would withdraw marketing licenses for 36 glyphosate-based weedkillers, which means they would no longer be authorized for use after the close of 2020. Those included in the ban account for nearly 75% of all glyphosate products sold last year in France. ANSES also rejected applications for four new glyphosate-based products. Glyphosate is the active ingredient in Bayer’s Roundup herbicide. In its explanation for the ban, ANSES said there was insufficient data to exclude health risk. Many have attempted to link the herbicide to cancer, though scientific evidence to support such claims is lacking.

ABARES slashes wheat export forecast… Australia will likely export A$61 billion ($41.4 billion) worth of ag goods during 2019-20, a 3% decline from the previous season, according to the Australian Bureau of Agricultural and Resource Economics and Sciences (ABARES). This would mark the third year in a row where that figure has dropped, something that last occurred 60 years ago. Three years of drought have had a major impact on the country’s ag sector. “The effects of the continuing drought are becoming more pronounced with falling production and high input costs presenting serious challenges in many regions, especially in New South Wales and Queensland," ABARES said in a statement. ABARES lowered its projection for wheat exports to 9.22 MMT, a 1.65-MMT drop from its September forecast. The Aussie ag and weather bureau raised its beef production forecast by 210,000 MT to 2.26 MMT as dried up pastures prompt herd liquidation. ABARES also trimmed its milk production forecast by nearly 2% to 2.3 billion gallons.

Chinese inflation still climbing… China’s consumer price index jumped 4.5% in November, accelerating from the 3.8% level in October. Pork prices doubling helped feed the increase in consumer prices to their highest level in eight years. However, the producer price index fell 1.4% compared with year-ago, a slight improvement from the 1.6% decline in October as the trade war with the U.S. likely subdued prices at the manufacturing level.

China opens its doors to rapemeal from Ukraine and rice bran and palm meal from Thailand… China’s customs office announced it has approved imports of rapeseed meal from Ukraine (effective yesterday) and imports of rice bran and palm meal from Thailand. China has been working to expand its list of suppliers of protein-rich meals as it works to lessen its dependence on the United States.

USDA to decide in January on third installment of MFP 2; others believe decision has already been made but just not announced… USDA won’t decide until January whether to issue the third tranche of payments under the 2019 Market Facilitation Program (MFP 2). But most believe even if the Trump administration were to reach a Phase 1 trade deal with, that wouldn’t necessarily stop USDA from releasing the money. “We recognize that even if we have a trade agreement and things really get moving, we know that the farm income situation has been affected and can’t be turned around overnight. So there still is a great need for those payments, particularly this year,” Deputy Agriculture Secretary Steve Censky told members of the Illinois Farm Bureau meeting in Chicago on Monday.

Progress on USMCA… “I think we’re doing very well on USMCA,” President Donald Trump said Monday. “I’m hearing a lot of strides have been made over the last 24 hours… “If they put it up for a vote, it’ll pass,” he said. Trump secured approval for the U.S.-Mexico-Canada Agreement from a key U.S. labor leader, according to Trump administration officials, clearing one of the final hurdles for the deal to get a vote in the House by next week. Richard Trumka, the president of the AFL-CIO, will support a compromise deal on the trade pact worked out in lengthy sessions between U.S. Trade Representative Bob Lighthizer, House Speaker Nancy Pelosi (D-Calif.) and the Mexican government, the officials said. Lighthizer and presidential adviser Jared Kushner will travel to Mexico City today to finalize the addendum with the changes, Mexico Foreign Minister Marcelo Ebrard said on Twitter Monday night. Canadian Prime Minister Justin Trudeau also spoke with Trump Monday, according to Trudeau’s office. Canada’s Deputy Prime Minister Chrystia Freeland is also heading to the Mexican capital. Pelosi won’t consider the deal final until Congress writes the bill to implement the trade agreement. It appears USMCA could at least pass the U.S. House before the December holiday break, and possibly the Senate, but that vote could be bumped to early 2020.

Impeachment vote could come ahead of Christmas… Judiciary Committee is likely to vote on articles of impeachment by the end of this week, recommending their adoption by the full House. That would set up a vote before Christmas to impeach Trump, and a Senate trial early next year over whether to remove him from office. Most observers expect the House to have the votes for impeachment, but not enough in the Senate, which needs a two-thirds majority and very few Republicans if any likely voting to impeach. Democrats are expected to draft at least two articles of impeachment. A third article on obstruction of justice is also being considered.

WTO now feeling the pain for not reforming its dispute settlement process... For many years, trade policy experts who supported the World Trade Organization (WTO) said it simply too considerably too long to get a final resolution through the trade body. After the Trump administration took office, its rather aggressive views on the WTO’s dispute resolution framework clashed with the views of other members, including the European Union and China. On Wednesday the dispute court will no longer have enough judges to rule on big trade disputes between countries. By blocking all new appointments to the WTO's dispute-resolution court, Trump has allowed it to decline from seven members to three. After two more terms expire today, the court will be left with just one remaining judge. That's not enough for the court to issue a binding ruling. Efforts to modernize WTO rules for challenges such as China’s market-distorting state capitalism have repeatedly failed.

China to auction off more pork from its reserves… China announced it will sell 40,000 MT of frozen pork from its state reserves on Dec. 12 as part of its ongoing effort to ensure adequate supplies ahead of its Lunar New Year festivities in late January. The country’s previous three sales of pork reserves were each for just 10,000 MT. But this is still a small amount relative to the country’s shortage that’s estimated at around 13 MMT for 2019. African swine fever has left China with a major shortage of pork, shooting prices higher and fueling inflation.

Waiting for cash cattle signals… Price action was quiet in cattle futures Monday as traders waited to form cash cattle expectations for the week. The average cash price firmed another 71 cents last week, but there’s a growing sense a short-term top may be close after an extended runup. Unless that attitude changes, it’s unlikely traders will build premiums in live cattle futures, even though the December contract finished Monday only $1.255 above last week’s average cash price.

Hog traders waiting on a trade deal… Hog futures were under pressure to start the week as traders wait to see if the U.S. and China will sign a trade deal or if U.S. tariffs on Chinese goods will increase on Dec. 15. While Beijing reportedly exempted some U.S. pork from tariff waivers, Monday’s price action signals they will be reluctant to push futures any further in front of the cash index.

Overnight demand news… South Korea’s largest feedmaker purchased around 60,000 MT of feed wheat to be sourced from optional origins. Japan is seeking a total of 171,045 MT of food-quality wheat from the United States, Canada and Australia in a regular tender. Egypt tendered to buy an unspecified amount of wheat from global suppliers; France has the lowest offer.

Today's reports: