First Thing Today

Posted on Tue, 01/14/2020 - 05:46

Good morning!

Choppy action as market anxiously awaits Phase 1 trade agreement details… Corn futures are narrowly mixed after a choppy overnight session. Soybeans also saw two-sided action and are currently a penny higher in most contracts. Winter wheat futures are up 3 to 5 cents, while spring wheat futures are fractionally to 2 cents higher in most contracts. The greenback is slightly higher, as are crude oil futures.

SCMP: China to make huge purchases of U.S. goods as details of Phase 1 deal revealed… The South China Morning Post, quoting sources, said that China has committed to purchasing $200 billion of American goods as part of the Phase 1 trade deal. The purchase target for manufactured goods is around $75 billion, with China also committing to buy $50 billion worth of energy, $40 billion in agriculture and $35 billion to $40 billion in services, the paper said, citing three people. The figures are reportedly on an annual basis. Meanwhile, signing of the U.S./China Phase 1 trade deal won’t impact trade with other nations, Zou Zhiwu, deputy head of General Administration of Customs, said at briefing in Beijing. Also, China is reviewing applications for tariff exemptions on U.S. goods worth $60 billion, according to the government. Meanwhile, U.S. Trade Representative Bob Lighthizer said, “we are going to make [the Phase 1 text] public on Wednesday before the signing.” Get more of his comments.

Chinese soybean imports jump to close 2019… Chinese soybean imports surged to 9.54 MMT in December, a dramatic 67% increase from year-ago and a 19-month high. Monica Tu, an analyst with Shanghai JC Intelligence Co Ltd., explains the figure was inflated as “some delayed cargoes cleared customs, including U.S. shipments.” She added that China also booked “quite a lot of South American beans, which arrived en masse.” China imported 88.51 MMT of soybeans for all of 2019, a slight improvement from 2018’s 88.03 MMT, but still down from levels before African swine fever slashed the country’s hog herd.

China’s imports of pork and beef surge during December… China imported 375,000 MT of pork during December, nearly quadrupling last year’s imports of 95,384 MT for the month, according to Reuters’ calculations of customs data released today. This is also up sharply from shipments of 229,707 MT in November. China ramped up its pork imports preceding its peak Lunar New Year consumption period. For all of 2019, China imported 2.108 MMT, a 75% surge from year-ago. China’s beef imports also soared 80.6% from year-ago to 189,000 MT, a marginal increase from November. The country’s beef imports for 2019 stand at 1.66 MMT, nearly a 60% rise from 2018.

Customs minister says China bought $2 billion of U.S. ag goods last month… China’s Zou says the country’s imports from the U.S. rebounded in November and December as warming relations between the country boosted companies’ confidence. In December, Zou says China imported 14.1 billion yuan ($2 billion) worth of U.S. ag goods, with soybeans and pork imports up notably for the month. China’s overall exports to the U.S. fell 12.5% from 2018 to $418.5 billion, while its imports from the U.S. fell 20.9% from year-ago to $122.7 billion for all of 2019, resulting in a trade surplus with the U.S. of $295.8 billion last year. That’s down from a record $323.3 billion in 2018.

Analyst calling for a fairly quick rebound in Chinese soybean demand… Chinese soybean demand could climb to 90 MMT in 2019-20, a 9% (7.46 MMT) gain from the year prior and a 6% (5-MMT) increase from USDA’s latest forecast for this season, according to S&P Global Platts Analytics. The country’s hog production has been recovering rapidly, laying a solid foundation for better soybean demand in 2020. Large pig farming companies have started to consolidate and most small and medium-sized operators were wiped out altogether. Large farms are better equipped to manage pig inventories and biosecurity. It typically takes around six months for soybean demands to pick up after sow herds begin to recover.

USDA's next WASDE will be key regarding China... Reason: Until the Phase 1 trade accord with China is announced, USDA analysts could not assume any purchases under the accord. But with Wednesday's expected official announcement of the Phase 1 deal, that sets up the Feb. 11 WASDE as key decision time for USDA analysis regarding China import forecasts.

U.S. lifts currency manipulator label on China… The U.S. will remove China from a list of countries considered currency manipulators, a decision five months after the Treasury Department formally made the designation. “China has made enforceable commitments to refrain from competitive devaluation, while promoting transparency and accountability,“ Treasury Secretary Steven Mnuchin said in a statement, ahead of the scheduled signing of the Phase 1 trade deal on Wednesday. Treasury came under heavy criticism for labelling China a currency manipulator in the first place, with former U.S. officials saying it was a political move to punish Beijing and put pressure on its trade negotiators. Treasury kept China on its "Monitoring List" of trading partners whose currency practices deserve close attention.

Cordonnier trims his Brazilian corn crop estimate… South American Crop Consultant Dr. Michael Cordonnier lowered his 2019-20 Brazilian corn crop estimate 1 MMT to 100 MMT and he has a lower bias going forward. Heat and dryness in Rio Grande do Sul have taken a toll on crops, though welcome rains did fall over the weekend. Cordonnier held his soybean crop estimate for the country at 122 MMT. Soybean harvest is just getting started in Brazil. Cordonnier maintained his Argentine soybean and corn crop estimates of 52 MMT and 47.5 MMT, respectively. His bias toward both crops is neutral going forward.

Russia’s wheat exports running well behind year-ago, talk of a grain import quota for 2020… From January through November, Russia has exported 29.2 MMT of wheat, a 27% drop from last year’s 40.2 MMT at this point in the season, according to official customs data released today. This season’s crop is down notably from the year prior, curbing shipments. A rise in the country’s currency has also limited exports in recent history. Of note, Russia’s ag minister plans to set quota limiting grain export volumes to 20 MMT for the first half of 2020, according to Interax news agency, which cites a draft of the ministry’s proposal.

U.S./EU/Japan trilateral trade policy talks today… USTR Lighthizer will hold trilateral talks with EU Trade Commissioner Phil Hogan and Japanese Minister of Economy, Trade and Industry Hiroshi Kajiyama this morning. Hogan will meet one-on-one with Lighthizer on Thursday regarding sensitive trade issues, including U.S. threats to impose retaliatory duties on $2.4 billion worth of French goods in a dispute over that country’s new digital services tax and to increase retaliatory duties on $7.5 billion of European goods in a separate dispute over subsidies for Airbus. The White House is in the final stages of deciding if it will slap 100% tariffs on $2.4 billion’s worth of French wine and luxury goods. The tariff threats are the White House’s answer to a French tax of 3% on the digital service revenues of giants like Apple, Facebook and Google. The European Union has said it stands with France and “will respond” if the U.S. follows through.

Iowa hosts Democratic presidential candidate debate tonight... Six Democratic presidential candidates will debate — Joe Biden, Pete Buttigieg, Amy Klobuchar, Bernie Sanders, Tom Steyer, and Elizabeth Warren. The event will take place at Drake University in Des Moines, Iowa, at 8 p.m. CT. CNN and the Des Moines Register are hosting the event with Wolf Blitzer, Abby Phillip, and Brianne Pfannenstiel moderating. Ahead of the debate, Warren and Sanders clashed over Warren’s statement that Sanders told her in 2018 that a woman couldn’t defeat President Donald Trump. The next Democratic presidential debate will take place in New Hampshire on Feb. 7, four days after the Iowa caucuses.

Near steady cash cattle trade has trade on watch for a near-term top… Cash cattle traded at an average price of $124.47 last week, a gain of just 26 cents from the week prior, and trader are concerned the cash market run-up may be ending. Packer profit margins have narrowed to just $7.35 a head as beef prices faltered and cash continued to climb, which will likely have packers exercising more caution in bidding this week. Choice and Select boxed beef values strengthened on Monday, though movement was light at 118 loads.

Hogs struggling, despite impressive export data… Profit margins have narrowed a bit for hog packers as well over the past week, but at $38.55 a head, they’re still giving processors plenty of incentive to keep kill lines full. An abundance of hogs means processors have been able to pad margins and keep pressure on bids. The market’s inability to rally in November on record-shattering pork export sales has the market worried about what it will take to fuel a rally in the market and whether Chinese demand will be enough. How the market responds to Chinese trade data signaling aggressive Chinese pork purchases during December could be telling.

Overnight demand news… Egypt is seeking an unspecified amount of wheat from global suppliers. The country is also seeking at least 3,000 MT of soyoil and 2,000 MT of sunflower oil. Turkey’s state grain board tendered to buy 550,000 MT of red milling wheat. Turkey’s state grain board also purchased about 100,000 MT of durum wheat to be sourced from optional origins in a series of tenders. Algeria tendered to buy 15,000 MT of feed barley, 15,000 MT of corn and 20,000 MT of soymeal. Japan’s ag ministry is seeking 117,831 MT of food-quality wheat from the U.S., Canada and Australia in a regular tender. Jordan tendered to buy 120,000 T of wheat.

*Note: Yesterday, USDA’s daily reporting service announced a 137,000 MT daily corn sale to optional origins for 2019-20.

Today's reports: