Ahead of the Open: Grains, Soybeans Retreat in Consolidation of Recent Steep Gains

Posted on Thu, 01/07/2021 - 08:03

GRAIN CALLS

Corn: Down 3 to 5 cents
Soybeans: Down 12 to 15 cents
Wheat: Down 3 to 7 cents

GENERAL COMMENTS The upward thrust in soybeans, corn and wheat futures slowed and reversed. Corn, soybeans fell after the latest 6-1/2-year highs on Wednesday while wheat eases further from 6-year top on a firmer dollar. The U.S. Dollar Index put an end to its bear phase yesterday and is continuing higher this morning. But the index does remains below 90, and trading below earlier highs, which helped grain markets pare early declines. The union representing Argentine port-side grain inspectors said on Thursday it had ended a month-long wage strike after reaching a contract deal with export companies that will allow international soy, corn and wheat shipments to return to normal.

Weather is leaning negative. Rains were scattered through the northern half of Brazil over the past 24 hours, with strong coverage of rain forecast the next ten days. Argentine rains are still confined far north and south in the near-term but looking a bit better in the 6- to 10-day outlook.

The markets are betting on smaller U.S. and world supply estimates from USDA’s slew of reports on Jan. 12.  Traders surveyed by Reuters look for USDA to estimated corn production last year at 14.47 billion bu. on average, down from the last forecast at 14.507 billion. But the range of estimates is large at 14.319 to 14.997 billion bu. Soybean production is seen slipping to 4.158 billion bu., down from 4.17 billion estimated in November. The range is also large at 4.084 to 4.260 billion. U.S. carryover estimates are expected to be lowered. Corn ending stocks estimated on average to fall to 1.599 billion bu. from 1.702 billion estimated in December, soybeans carryover seen down at 139 million from the previous USDA estimate of 175 million and wheat stocks may slip to 859 million from 862 million. The Dec. 1 Grains Stocks Report is expected to show soybean stocks fell 10.2% to 2.92 billion bu. from a year ago and represent the smallest total in four years. The average trade estimate for corn stocks on Dec. 1 is 11.951 billion bu., up 5.5% from a year earlier and a three-year high. Wheat inventories are seen falling 7.9% to 1.695 billion bu. in December.

USDA will also release its first winter wheat acreage estimate next Tuesday. The average trade forecast calls for plantings to rise 31.528 million acres, up from 30.415 million last season.  

Before the reopening this morning, USDA announced private exporters sold 213,350 MT to unknown destination for delivery in 2020-21 and another 130,000 MT of beans sold to unknown for delivery in the new-crop marketing year. That may add some support to soybeans this morning.  

The weekly USDA export sales data in the week ended Dec. 31 released this morning helped to push grains and soybeans back near session lows into the break. USDA said private exports sold a net 37,000 MT of soybeans last week, a new low for the marketing year. Increases to China were 369,000 but that included 462,000 MT switch from unknown destination, 66,000 switched from South Korea and reductions of 346,800 MT. New crop sales were light at 79,800 MT with China reported buying 63,000 MT. Corn sales last week fell 39% below the prior four-week average during the holiday week to 748,900 MT. That was in the middle of the range of pre-report estimates. Wheat sales fell 47% below the prior four-week average at 275,300 MT with China buying 55,400 MT. Sales were at the low end of the range of pre-report traders estimates.

Global stock markets are showing resilience after a day of violence rocked the U.S. Capitol, with investors firmly focused on the prospect for more economic stimulus and the likelihood that calm will prevail as Joe Biden takes the presidency. S&P 500 futures were up 0.1% and most stock benchmarks across Asia and Europe were in the green this morning. There are risks to the rally though. Japan declared a state of emergency in Tokyo to try and stem the spread of Covid-19 cases, while a Chinese city of 11 million people to the south of Beijing has been shut off. That follows tougher restrictions in Germany and the U.K. earlier in the week.

The 10-year Treasury yield held above 1% and the yield curve is steepening. Federal Reserve officials probably won’t mind a rise in longer-term interest rates as long as the higher borrowing costs don’t put too much pressure on the stock market. The dollar strengthened against all its major peers. In a sign that traders are still willing to pile on risk, Bitcoin shot above $38,000 to another record high.  Oil edged higher as a drop in U.S. crude stockpiles and Democrat victories in Senate elections in Georgia added impetus to a rally spurred by Saudi Arabian output cuts. Futures in New York traded near $51 a barrel.

Biden was formally recognized by Congress as the next U.S. president early Thursday, a day after demonstrators overpowered police and stormed through the Capitol building in a scene of unprecedented turmoil in Washington. Present Donald Trump released a statement pledging “an orderly transition” after Congress certified the results. Despite the disruption, markets showed little sign of worry and trading throughout the day was normal. Bullish themes, such as the prospect for more U.S. stimulus spending in a Democrat-controlled Congress and the vaccine rollout, have dominated investor attention.

China seized upon the chaos at the U.S. Capitol as an opportunity to drive home a narrative of American hypocrisy, with state media casting the incident as “karma” and “retribution” for Washington’s support of global protest movements including those in Hong Kong. Chinese Foreign Ministry spokeswoman Hua Chunying said Thursday that some people in the U.S. needed to reflect upon the fact they had reacted differently to the violence in Washington compared with the pro-democracy demonstrations that rocked Hong Kong in 2019. The Communist Party’s Global Times newspaper posted memes and cartoons contrasting the U.S. response to Wednesday’s events with American support for sometimes violent protests in Hong Kong. 

Global food prices climbed for the seventh month in a row in December, with dairy products and vegetable oils leading the charge, the Food and Agriculture Organization of the United Nations (FAO) reported today, citing its food price index. The spike threatens to push up broader inflation, making it harder for central banks to provide more stimulus to shore up economies, while stirring memories of food-price crises a decade ago. It’s bad news for consumers whose incomes have been hurt by the Covid-19 crisis and adds to concerns about global food security that’s being affected by conflicts and weather shocks. Commodities priced in dollars -- often seen as a hedge against inflation -- should remain supported as the greenback falls further this year, said Abdolreza Abbassian, a senior economist at the FAO. Plus, an economic recovery in some parts of the world will probably fuel consumer spending and food demand, with weather risks and export restrictions from some grain suppliers aiding prices in the short term, he said.

CORN: March corn opened steady and moved lower last night. But prices pared a portion of the losses into the break. Yesterday’s 6 ½-year high at $5.02 ¾ is key resistance but market bulls would see a weekly close above $5.00 as positive. The market is overbought and due for at least some consolidation ahead of the USDA reports amid wetter forecasts in South America.

SOYBEANS: March soybeans opened steady to firm last night but never made a run at yesterday’s 6 ½-year high at $13.78 3/4 and turned lower. Prices are near session lows at the break.  A U.S. attaché  report from Brazil still estimates the country’s soybean crop at 131.5 MMT. The post comments, that while dry weather delayed this season’s sowing by as much as six weeks in some areas of the country may herald trouble for the 2020-21 crop, “it is too early to re-assess the yield forecast.”

WHEAT: Futures are lower but above the session lows. The weather in the week ahead looks to be dryer across most of western Europe, with very light rainfall across the vast majority of France, Germany and the south of the United Kingdom. Eastern Europe is set for some heavy rains which will be beneficial for crops following a period of extended drought in major wheat producing nations such as Romania. The Black Sea is also set for some much-needed moisture, particularly in Southern Russia while most of Ukraine is set for moderate volumes.  

Cattle: Steady to weak

Hogs: Steady to weak

Smithfield Foods, the world’s largest pork processor, indicated it is actively preparing for Covid-10 vaccine distribution to its employees and has medical capabilities at its U.S. plants. It did not provide details regarding those plans, noting circumstances vary by state. The company owned by China’s WH Group is one of the first in the U.S. to say it is readying to vaccinate workers.  

Cattle: After plummeting Monday and rebounding sharply Tuesday the market closed with small gains yesterday but below key resistance. Cash trade is light with most trade about steady with last week’s tops.  Choice and Select boxed beef values softened another 63 cents and 41 cents, respectively, at midweek, but this spurred strong movement of 204 loads. Stimulus cash in consumer pockets is a positive for red meat demand and thus live cattle futures. But rising feed costs have limited buying in feeder cattle.

Hogs: Early gains evaporated, and futures closed sharply lower on Wednesday. Average hog weights in the Iowa/southern Minnesota market jumped 3.3 lbs. the week ending Jan. 2, with weights now 2.7 lbs. above year-ago. Elevated weights have kept a damper on cash prices, with bids sliding 41 cents yesterday. The pork cutout value climbed 2 cents at midweek, and a strong 421.31 loads changed hands.Tyson Foods Inc. has resumed slaughter at a Columbus Junction, Iowa plant, three weeks after idling the pork processing facility due to a mechanical malfunction. When it initially closed the facility Dec. 16, the company indicated it would only be idle for a few days of repairs and would shift production to other facilities. The plant slaughters around 10,100 pigs per day, representing around 2% of the country’s slaughter capacity.