Ahead of the Open: Firmer Grains on Bullish Sentiment, Chart Patterns Heading into 2021

Posted on Wed, 12/23/2020 - 07:50

GRAIN CALLS

Corn: Up 1 to 3 cents
Soybeans: Up 7 to 10 cents
Wheat: Up 3 to 6 cents

GENERAL COMMENTS After trading weak early last night, both corn and soybeans pushed higher overnight, hitting new contract highs. Wheat followed early this morning, also erasing small losses.  The USDA’s final 2020-crop production estimates and updated global supply and demand forecasts are three weeks away and market bulls see market weakness as fresh buying opportunities. South American weather impacts on crops there remains uncertain and added to a general lack of selling interest despite recent rains and more in the forecast. Stalled wage talks between Argentine workers and oilseed processors in a near two-week-old strike have hampered grain exports from the world's top soymeal and soyoil oil supplies. Malaysian palm oil futures reversed course to jump over 3% on Wednesday. The market was torn between expectations of weaker output and concerns about Malaysia's move to raise export taxes on the vegetable oil. 

Argentina was dry again over the past 24 hours. Spotty rains are possible in into the weekend across the northwest region and again north and south in the 6- to 10-day time frame, but conditions remain dry overall. Scattered rains fell far in northern Brazil yesterday and are forecast to move from north to south over the next ten days, bringing some relief to drier southern crop areas. The frontal boundary in Argentina will then likely move into far southern Brazil in the middle part of next week and help enhance the rain.

Before the reopening, USDA failed to announce any new large daily sales this morning.  

Grains and soybeans rallied into the weekly USDA Export Sales report this morning and were disappointed with both corn and soybean sales in the week ended Dec. 17 falling to new lows for the marketing years. Corn sales last week fell 59% below the prior four-week average to 651,100 MT, with no new large sales announced to China. Soybeans sales fell 47% to 352,800 MT from the prior four-week average and well below the lowest trade estimate. Increases primarily for China but 396,000 MT of the 526,400 reported sold to China were switched from prior sales to unknown destination. Wheat sales were at the low end of trade estimates and fell 34% below the prior four-week average at 393,7000.

China will lower import tariffs on more products in high domestic demand for next year, including medical equipment, raw materials for baby powders, high-tech equipment and some commodities, the finance ministry said on Wednesday. For 2021, China will implement temporary import tariffs, which are lower than the most-favored-nation tariffs, on 883 products, up from 859 products taxed at temporary rates in 2020. The tariff changes are made to satisfy domestic demand and boost the technology development of Chinese industries so that a "great circulation" of the domestic economy would be formed, said the ministry. Facing hostilities from the United States, Beijing has unveiled a "dual circulation" strategy for the next phase of its economic development, in which it would rely mainly on "domestic circulation" - the internal cycle of production, distribution, and consumption, supported by innovation and upgrades in the economy.

Investor reaction to the possibility that President Donald Trump may derail the Covid-19 stimulus package has been fairly muted so far as traders look forward to the holidays. Global stocks rose overnight, Europe is higher this morning and the U.S. stocks index futures point to a steady to firm opening on Wall Street. The dollar is slightly weaker this morning, oil futures are slightly higher and copper is trading near contract highs, providing a tailwind to the grains and livestock markets this morning. Investors have shrugged off Trump's threat to not sign a COVID-19 stimulus bill and instead focus on the distribution of vaccines and forecasts for a global economic recovery in 2021. Market bulls are counting on a weakening dollar to boost rallies in everything from U.S. stocks to emerging markets and commodities. Record-low U.S. interest rates, massive financial stimulus and a growing appetite for risk are among the catalysts that contributed to the dollar’s 6% drop against a basket of its peers year-to-date, putting it on track for its weakest year since 2017. ​

CORN: March touched $4.47, a new contract high overnight before pausing after the weekly export sales data before the break. Futures opened lower and tested uptrend line support near $4.41 and rebounded to new highs overnight.

SOYBEANS:  Beans, meal and oil all scored fresh contract highs overnight, erasing small losses overnight. The markets continue to rise on speculative buying, a lack of farmer sales from South America or the U.S. and speculation China will continue to be record buyer of global soybeans throughout 2021 to feed its growing hog herd.    

WHEAT: Wheat futures pushed lower for a seven session and found buying interest overnight with prices pushing back new key overhead resistance. Since July 1, Russia has exported around 29 MMT of grains, including 24 MMT of wheat, according to the head of the Union of Grain Exporters in the country. That total is up 20% from the same period last year. Russia will cap grain exports at 17.5 MMT from Feb. 15 to June 30. Two waves of snow and rain will move across Ukraine and the northwest half of Russia’s Southern Region during the coming week bringing much needed moisture to parts of the region. Kazakhstan and southeastern parts of Russia’s Southern Region will not get meaningful moisture, but other areas will, and that moisture should be available to crops in the early spring.

Cattle: Steady to mixed
Hogs: Steady to firm

Cattle: Feedlots are asking roughly $2 higher prices for cash cattle in both the southern and northern markets compared with week-ago levels. However, packers have yet to establish bids. With markets trading an abbreviated schedule this week due to Christmas, there will likely be some movement on cash negotiations today, though active trade may not be seen until next week. December live cattle futures suggest traders are anticipating slightly higher cash prices. Boxed beef cutouts were mixed on Tuesday with sales only moderate. USDA reported weekly exports sales of 6,000 MT of beef sold for 2020 delivery and 7,200 MT sold for 2021. Sales were on the light side and shipments were 27% below the four-week average.

Hogs:  Lean hog futures may get an early boost from USDA weekly export sales report. Pork sales for 2020 were light but shipments continued strong, up 2% from the prior four-week average with Mexico and China taking the bulk of the shipments. Sales for 2021 were 23,400 MT with China buying 7,700 MT. Much of today’s price activity will consist of final positioning ahead of USDA’s Hogs & Pigs Report at 2 p.m. CT. Traders expect the report to show the Dec. 1 hog inventory down 1% from the record a year ago. Market hog numbers also expected to be down 1% and the breeding herd down 1.8% from year-ago levels. Much of the reports’ focus will be on fall farrowings, along with winter and spring farrowing intentions, all of which are expected to be down from year-ago levels. Traders are also anticipating downward revisions to past data as slaughter numbers have been lighter in the fourth quarter than USDA’s September report indicated. Average direct hog prices rose 60 cents on Tuesday. USDA also reported average hogs weights in Iowa/Minnesota fell 1.7 lbs. to 288.7 lbs. in the week ended Dec. 19 from the prior week but were still above the 285.9 lbs. on average a year earlier. Meanwhile, the fresh pork market continued weak with the cutout value falling $4.18, led by declines in hams and bellies. Sales remained light to moderate. Some support will come from USDA reporting Tuesday that pork in frozen storage fell to the lowest since August 2010 and were the tightest November inventory in 23 years.