Ahead of the Open: Cold Temperatures, Firmer Oil Prices Lift Grains Ahead of Tuesday's WASDE Report

Posted on Mon, 05/11/2020 - 07:45

GRAIN CALLS

Corn: Up 1 to 3 cents.
Soybeans: Up 2 to 5 cents.
Wheat: Steady to up 2 cents.

GENERAL COMMENTS: Corn and soybeans are trying to add to last week’s late week gains in quiet pre-report trading amid weekend cold weather. Crude oil erased earlier loses and turned higher after Saudi Arabia announced it will cut oil production an extra 1 million barrels per day in June to reduce the oversupply. The rally added some support to the corn and soybean markets ahead of the morning break. Frost and freezing temperatures occurred from the heart of Saskatchewan and Manitoba, Canada southward through the Dakotas, Minnesota, Wisconsin and Michigan to northern Kansas, central and interior southeastern Iowa, central Illinois, northeastern Tennessee and portions of North Carolina May 8-10. Overall losses probably will be light, but uncertainty continues this morning with some agronomist reporting more corn was injured than soybeans in Illinois. Temperatures did not get close to damage levels for wheat. Traders are looking for weekly USDA Crop Progress Report to show corn planting advanced to 70% to 75% done and soybeans about 40% to 45% completed. The forecast the next week is warmer and accompanied by rain and showers, a good mix for early crop development and wheat grain fill.

The two big items on the agenda this week will the USDA Supply & Demand Report on Tuesday and President Trump expected to let us know whether he feels China is living up to the Phase I trade deal. The upside risk is that the Chinese ramp up buying of U.S. agricultural commodities to start the week to show good faith in meeting purchase commitments. China made a large purchase of U.S. corn last week, which helped ease some of the market fears about a resurgence of trade tensions between the two countries.  China also bought some American soybeans last week, though total U.S. sales are still critically short of USDA’s full-year target. Early on Friday, top trade officials from both countries pledged to press ahead with implementing the Phase 1 trade deal, despite the United States’ displeasure with China’s handling of the coronavirus outbreak.

The daily USDA export sales reporting service said private exporters did not report any large new grain and soybean sales since Friday.     

World stocks are lower, and the dollar rallied on fears about a second wave of coronavirus infections with several countries reopening economies. Selling of stocks and oil increased after Germany and South Korea reported a surge in COVID-19 cases after easing lockdowns. Chinese authorities reported what could be the beginning of a new wave of coronavirus cases in northeast China, with one city in Jilin province being reclassified as high-risk. More than 90% of hospital beds secured for COVID-19 patients in Tokyo have already been occupied, underscoring the pressing need to curb the further spread of the virus.  Some analysts have warned of another selloff as macroeconomic data gets worse, foreshadowing a deep and lasting global recession.

After financial markets began pricing in negative U.S. interest rates for the first time ever last week, all eyes will be on Federal Reserve Chair Jerome Powell's outlook on the economy at a webcast event on Wednesday. China’s central bank said it will step up counter-cyclical adjustments to support the economy and make monetary policy more flexible to fend off financial risks. The central banks actions echo sentiments expressed by Federal Reserve Bank of Minneapolis President Neel Kashkari who predicted that the worst is yet to come or the U.S. economy.

The CFTC Commitments of Traders Report on Friday showed large specs to be net sellers of corn, the opposite of expected buying, and showed a record large spec short in Minneapolis wheat. Money managers boosted their net-short corn position to 190,152 contracts in the week ended May 5, up from 160,975 contracts in the previous week. It is funds’ most bearish corn view in about a year ago when it reached near 282,000 contracts. The latest corn move resulted mostly from the addition of new shorts, but longs retreated to just about 118,000, the fewest since April 2009. Funds increased their net long in soybean futures and options to 8,908 contracts from 4,392 a week earlier. That was primarily due to new longs entering the market.  Funds significantly reduced their net long in SRW wheat through May 5 to 3,840 futures and option contracts from 15,975 in the previous week. However, funds modestly extended their net long in Kansas City wheat futures and options to 7,834 contracts from 5,474 a week earlier. But they established a record net short position in Minneapolis wheat futures and options of 23,893 contracts, up from 20,597 in the prior week

CORN: July corn opened higher and stalled just below Friday’s high at $3.23 overnight. A move above that level could trigger additional fund short covering ahead of the USDA supply and demand updates tomorrow. The trade is looking for USDA to forecast ending stocks next season will surge to nearly 3.4 billion bu., the most since 1988.

SOYBEANS:  July soybeans opened higher and moved up to the 10-day moving average near $8.57 ½. The market will be watching for increased Chinese demand. Meanwhile over the weekend, a landslide collapsed the bed of the Parana River near km 390, causing major backlogs of ships along the river that was already dealing with historically low water levels. Ships moving cargo from Argentina’s main Rosario grain hub through the Parana River are having to reduce cargoes. Efforts to dredge the river to restore necessary depth are underway, but as of Sunday there was no estimate as to when this will occur. U.S. meal prices have firmed overnight. U.S. and Brazil export prices are close for delivery China, but Brazil is once again seeing its currency do the work of motivating its producers to sell after almost touching 6 to 1 ration on Friday.  

WHEAT:  Wheat is seen trying to build a base of support.  SRW futures and spring wheat put an end to their losing streaks posting their first weekly gains in four weeks with HRW futures closing lower for its fourth consecutive week. The markets are waiting to hear more updates about the impact of weekend cold temperatures.  Still, concerns continue that the drop in global tourism has and will considerably dent global wheat demand, especially now that the panic buying period is mostly over. Global wheat stockpiles will reach record levels by the end of June, and traders will be carefully watching the agency’s predictions on Tuesday for the upcoming year in order to further assess the potential demand impacts. The Balkan Countries and portions of southern Ukraine may not receive much rain in the coming ten days raising concern over returning crop stress as temperatures trend warmer over time. Worry over net drying in the Black Sea region and across the North and Baltic Sea coastal areas will continue until greater rain falls in each of these areas.

LIVESTOCK 
CATTLE: Steady to weak 
HOGS: Steady to weak

The Sioux City Journal reports Tyson’s giant beef plant in Dakota City, Nebraska has postponed its reopening as the company awaits complete results of Covid-19 tests for its workers. The plant had been scheduled to restart production. Testing uneven, or nonexistent, at meatpacking plants with Covid-19 outbreaks, according to an article in the Minneapolis Star Tribune. Of note, at least 10,000 hogs a day were being euthanized last week in Minnesota because of a lack of slaughterhouse capacity. South Dakota GOP Governor Kristi Noem held calls with Smithfield employees on Thursday and Friday as the pork plant where hundreds of employees were infected reopens after being shuttered for more than three weeks. Noem's spokesman Ian Fury said she spent about two hours speaking with employees in total and that the governor's office had reached out to every employee at the plant. But an organization advocating for Smithfield employees disagreed. South Dakota Voices for Justice said in a statement that employees who were invited to the call were "handpicked by corporate HR." After the Department of Health held a mass testing for Smithfield employees and their family members this week in Sioux Falls, officials reported a spike in confirmed cases of coronavirus on Friday with 239 new infections.

Cattle:  Futures seen steady to weak on uncertainty about the reopening of slaughter plants. In addition, Friday’s jobs report showed the U.S. economy lost 20.5 million jobs during April, the biggest plunge since the Great Depression. And while the drop was a bit lighter than anticipated, it brought attention back to the very real economic toll of the Covid-19 outbreak and what that might mean for the beef market. Beef prices have climbed to historic price levels, topping previous records by roughly $200. But cash-strapped consumers who are still on edge about social gatherings are likely to return to restaurants slowly and favor cheaper poultry and pork for at-home meals.

Hogs: Futures seen steady to weak. Hog futures tumbled on Friday as the market recognized backlogs of hogs will take weeks to work through, which will likely pressure the cash hog market for weeks to come. June futures are now below the CME Lean Hog Index that has pushed more than $21 higher over the past three weeks. Pork processors are reopening, but not at full capacity. USDA estimates that last week’s kill was up 15.3% from the week prior but still 24.2% behind year-ago levels.