Ahead of the Open: Firm Grain, Soybeans Ahead of USDA Reports on Jan. 12, Mixed Weather Forecasts

Posted on Mon, 01/11/2021 - 08:01


Corn: Steady to up 2 cents
Soybeans: Up 5 to 9 cents
Wheat: Up 4 to 7 cents

GENERAL COMMENTS Corn and soybean markets are higher this morning ahead of USDA reports on U.S. and South American production, supply and demand and Dec. 1 inventories Tuesday that traders expect will show tightening inventories. March soybeans rose to new 6 ½-year high overnight and March corn climbed above $5.00 but did not test the high at $5.02 3/4. Wheat is moving higher with the recent strength in corn and soybeans and Russian wheat prices.    

Before the reopening this morning, USDA announced daily corn and soybean sales. Private exporters sold132,000 MT of soybeans to China for old-crop delivery. That follows Friday’s announcement of 204,000 MT of soybeans to China. USDA also reported 108,500 MT of corn sold to Colombia for old-crop delivery this morning. The sales will add support to the corn and soybean markets after the reopening. 

Today, China indicated it was readying to approve another genetically modified (GMO) corn variety as well as a GMO soybean that are both produced by Beijing Dabeinong Technology Group Co Ltd. Last year, China approved three domestically designed GMO crops, its first such approvals in a decade. China does not permit the planting of GMO soybeans or corn, but it does allow the import of such products for use in animal feed. But the government is pushing the use of biotech breeding to boost food security, with the industry expecting progress toward commercialization in the coming year. The latest approvals are notable as China’s corn imports have jumped to a record because the domestic hog population is rebounding faster than expected from African swine fever. That’s jolted the government into action, including resuming state corn sales and pledging to expand domestic crop production.

Friday afternoon’s CFTC Report showed fund buying was substantially less than expected, and in the case of beans and meal, showed up as selling instead of the expected buying. Of course, this is the eighth straight report of this phenomenon. This is all going to come down to how traders and funds want to pre-position going into the USDA reports on Tuesday. Managed money funds added about 18,000k net corn and 11,900 net Chicago wheat on the week ended Jan. 5, both much less than expected by daily trade estimates. Funds cut longs by slightly more than 20,000 contracts instead of increasing them by 40,000. Producers and merchants covered a net 46,600 short positions in corn and 13,600 shorts in SRW wheat futures, and increased soybean shorts by almost 22,300 contracts. Still, the dichotomy between commercial shorts and fund longs remains near historical record increasing the importance of how prices react to USDA data tomorrow.

The dollar gained broadly on Monday as widening U.S. Treasury yields and expectations of more fiscal stimulus lifted the greenback against its rivals, with the euro falling to a two-week low. President-elect Joe Biden, who takes office on Jan. 20 with Democrats able to control both houses of Congress, has promised "trillions" in extra pandemic-relief spending. Ordinarily, the extra spending plans would force investors to worry about rising inflation and its detrimental impact on the U.S. dollar in a weak economy, but the currency has been supported in recent weeks thanks to rising U.S. yields. Measured in inflation-adjusted terms, U.S. 10-year real Treasury yields are rising faster other nations. The nominal yield on benchmark 10-year U.S. note is up more than 20 basis points to 1.1187%  

World shares came off record highs on Monday as caution over rising coronavirus cases saw some profit-taking from investors. Worldwide coronavirus cases surpassed 90 million on Monday, according to a Reuters tally. Last week, Wall Street bankers warned of toppy stock markets and a looming retreat after exuberance from unprecedented economic stimulus had led to "frothy" asset prices.  

Weather is mixed this morning. Concerns are rising about dryness in Argentina especially in the southwest where rainfall is expected to be lightest and least frequent. The entire nation will dry down next week making this week’s rain extremely important. Not much of this dry region received rain during the weekend, but rain today and Monday will offer some temporary relief with a better distribution of rain in portions of this region Friday into Saturday. Whatever area does not get adequate relief from dryness will be faced with more serious stress next week. It will be imperative that dry weather from Saturday of this week through Jan. 22 is followed by substantial rain. Without it, crop stress will likely start robbing the nation’s crops of yield once again. However, Brazil’s weather outlook looks very good for the coming ten days with all crop areas in the nation getting rain at one time or another. Some of the model forecasts are too great with rainfall in the interior southern parts of the nation. Crop development should advance favorably even though there will be some pockets of moisture stress for a little while early this week.

Meanwhile, after talks with farm groups and the ag ministry, Argentina announced it would suspend its temporary ban on corn exports and instead cap shipments at 30,000 MT a day. The agreement guarantees the domestic supply of corn and cushions local prices against fluctuations in international markets, according to the ag ministry. Farmers had planned on launching a 72-hour strike today over the now lifted corn export ban through March 1.

Mainland China saw its biggest daily increase in COVID-19 cases in over five months, the country's health authority said on Monday, as new infections in Hebei province surrounding Beijing continued to rise. The surge comes as the World Health Organization's team of investigators probing the origins of the COVID-19 pandemic are set to arrive in China on Thursday.  

Chinese equity markets fell the most in three weeks, led by consumer shares and commodity producers, amid concern valuations for the most popular stocks were stretched and as metal prices slumped. Jitters are appearing in China’s $11 trillion equity market after the gauge surpassed its bubble peak in 2015. While overall valuations are lower than back then, the gauge of consumer staples now trades at a heady 11 times price to book.  

The outgoing U.S. Trade Representative told the Wall Street Journal that tariffs get results. His advice to the Biden administration: stay the course. “We changed the way people think about China,” Lighthizer told the WSJ. “We want a China policy that thinks about the geopolitical competition between the United States and an adversary — an economic adversary.” Lighthizer views the Biden trade policy plan with alarm, saying it could let other nations slow or veto U.S. actions and tie up the U.S. in endless, pointless discussions with China.

CORN: March corn opened steady and then traded both sides of unchanged in directionless dealings but underlying demand on market breaks. Key resistance remains the $5.02 3/4 high, then $5.19. Mexican officials and producers will meet this week to decide whether their GMO corn ban, issued on December 31, will apply to imported feed corn. The country is trying to phase out corn imports to achieve food production self-sufficiency but is the largest importer of U.S. corn.  

SOYBEANS: March opened opened higher and hit new highs overnight before trading slowed into the market break. Malaysian palm oil futures ended 0.9% lower on Monday after rising 6% last week. Prices fell on data from the Malaysian Palm Oil Board showed the world's second-biggest producer imported record levels of the oil in December while exports in first 10 days of January have plunged 35%from a month earlier.  The Board also reported that Malaysia's December palm oil end-stocks slumped 19% in December from the prior month to hit 13-year lows, while production fell 10.6%. Soyoil on China’s Dalian Exchange fell 0.9% while its palm oil contract was down 1.6%.

WHEAT: Futures started lower overnight before rebounding. The wheat market cannot afford to allow wheat to become a feed grain,” says industry analyst Richard Crow. He notes “the EUY is already feeding wheat and in time that will limit some wheat exports.  The next round of North Africa business for wheat will be interesting.”  The strengthening dollar helped to push price lower before rising Russian wheat prices lifted SRW and HRW futures higher this morning.  The Federal Center of Quality & Safety Assurance for Grain and Grain Products estimated Russian exports at 26.9 MMT, with exports totalling 1.8Mt in the past two weeks and 21% ahead of last year’s pace. This coincides with rising export prices in Russia ahead of the implementation of the export tax next month, with prices up about 20% from a year ago, which suggests the market continues to price in the heightened prices in Russia due to the tax, with further support added from the soybean and corn complexes. China sold 2.1 MMT of wheat or 52.2% of the total offered in its most recent auction of its state reserves. Soaring corn prices are being attributed to increasing purchases of wheat from state reserves following a decline in the past few weeks.  

Cattle: Steady-mixed
Hogs: Steady to mixed

Cattle: Cash cattle trade ranged from $110 to $112 last week, in line with price action the week prior but several bucks under February live cattle futures. Cattle futures stabilized last week after some big technical-driven price swings early in the week, with traders encouraged by aggressive retailer buying of beef and strong packer profit margins. Cattle futures are pausing and bulls need to take control this week to sustain last week’s rebound. Traders in the feeder cattle market will keep an eye on the feed market, but stable live cattle prices should keep a floor under the market.  

Hogs:  Hog slaughter and pork production hit records last week, with processors ramping up production after two weeks of holiday-interrupted schedules and the reopening of a Columbus Junction, Iowa pork plant after repairs. Aggressive kills helped the cash market to strengthen late last week. Followthrough this week would signal a seasonal low has been put in place.  Pork cutout values moved up to a seven-week high to end last week. On their second day of trade, China’s new live hog futures contract tumbled their daily limit (8%) to 26,030 yuan (4,019.95) per metric ton. This came after a 13% dive on its trade debut. Analysts note that Chinese live hog prices are elevated, and the market is hedging on the short side in anticipation of a sharp drop in pork prices this year as China’s hog herd grows.