Ahead of the Open: Mixed Grain Trade on Export Demand, Logistic Concerns; Weakening Ethanol Output

Posted on Thu, 03/26/2020 - 08:02

GRAIN CALLS

Corn: Steady to down 2 cents
Soybeans: Mixed to firmer
Wheat: Mixed to firmer

GENERAL COMMENTS: Wheat and soybeans pared recent gains overnight but rebounded from session lows heading into the morning break. Corn continues to be pressured by slowing U.S. ethanol production and renewed weakness in oil prices this morning. Underlying support is building from concerns remain over logistics and export competition from global suppliers amid the coronavirus pandemic. Stocks levels are expected to be a bit tighter year-over-year, but acreage and production are expected to rise with no major weather concerns currently expected across the Northern Hemisphere.

This morning’s weekly USDA Export Sales Report showed better sales for corn, soybeans and wheat. Exporters sold 740,000 MT of wheat in the week ended March 19, up 73% from the prior four-week average and topping trade estimates for 200,000 to 500,000 MT. New-crop wheat sales were 366,400. China was the top buyer of both old- and new-crop wheat last week. Corn sales rose to a marketing year high of 1.814 MMT, up 81% from the four-week average and above the 900,000 MT to 1.8 MMT expected. Increases to China were 756,000 MT already reported in the daily USDA reporting service. Soybean sales rose 43% to 904,300 MT from a week earlier. More than 400,000 MT sold to unknown destinations with almost 200,000 MT sold to China. Soymeal sales rose 39% above the prior four-week average.  

This morning’s daily USDA export sales reporting service did not announce any new large grain or soybean sales. 

U.S. unemployment claims exploded to a record 3.283 million last week, the Labor Department reported this morning. That’s double the median estimate of economists for 1.6 million with forecasts running as high as 4 million. Getting benefits out from the emergency stimulus bill is now critical to supporting workers and reducing the risks they will try to go back to work to buy food and pay other bills.

The U.S. Senate approved a historic $2 trillion rescue plan last night, putting pressure on the Democratic-led House to pass the bill quickly and send it to President Donald Trump for his signature. The massive legislation passed on a 96-0 vote just before midnight Wednesday after days of intense negotiations and is now set for a House vote on Friday. Note that U.S. and European equity futures retreated this morning, though, as investors focus on the mounting human impact of the outbreak. Oil prices fell on Thursday, ending three-days of gains as global movement restrictions to contain the coronavirus destroy demand amid a glut of oil supply and overshadows the emergency stimulus will bolster economic activity.
Jonathan Parker, professor of finance at MIT, said during a virtual briefing with reporters Wednesday that the plan “should not be thought of as a stimulus bill — this should be thought of as social insurance in a disaster state of the world for the most hard hit. The idea is to freeze time for a month or six weeks and let people emerge with not a huge amount of debt — not starving, not being evicted.”  This would ideally produce "a V-shaped recovery where people find themselves roughly where they were when we went in,” Parker said.

Federal Reserve Chairman Jerome Powell says the central bank still has plenty of ammunition in an interview on NBC's "Today" show this morning. The Treasury market is getting back to normal after the Fed's massive bond-buying announcements earlier this week that could reach $4.5 trillion.

Elsewhere, Spain’s virus crisis is deepening by the day. Stories from one of Madrid’s biggest hospital’s paint a grim picture as intensive-care wards overflow and new rules dictate that older patients miss out on treatment to younger people with a better chance of surviving. Spain’s death toll has already overtaken China’s and authorities reported another 738 people had lost their lives Wednesday, a new high. Over in Italy, the country with the most deaths, new coronavirus cases fell, as did fatalities, of which there were 683 in 24 hours, compared with 743 on Tuesday. As the U.S. death toll topped 1,000 yesterday, Presidents Donald Trump’s vision of putting Americans back to work by Easter has set him on a collision course with some other global leaders and the heads of U.S. cities and states who are imposing lockdowns to stem the contagion.  

Corn:  Futures bounced off overnight lows on this morning export sales news, but prices continue to be pressured by slowing ethanol production which is offsetting better export sales. Valero Energy Corp. is declaring force majeure in at least two of its biofuel plants as the spread of the coronavirus hits gasoline demand globally. The second-largest U.S. oil refiner won’t comply with contracts to purchase corn at its Albert City, Iowa facility, according to Bloomberg. Nor will it deliver supplies of dried distillers grains, used for animal feed, from its plant in Albion, Nebraska. DOE weekly total fuel ethanol production fell to its lowest level since October, at 1.005 million barrels per day (BPD) but still 30,000 BPD above the comparable week last year. Cumulative output since September 1 fell slightly to 1.033 million BPD, still in between last year’s pace and final figures.

SOYBEANS: May beans fell back to the 20-day moving average and found buying interest. Look for prices to try the upside at some point today. The town of Canarana, Mato Grosso, Brazil announced yesterday they amended their decree that halted operations in most industries, now allowing global trading companies to ship grains out of the city. Meanwhile in Argentina, anti-coronavirus measures are slowing the transport of grains to the country’s export hubs, and farmers are starting to hang on to corn and soybeans as infrastructure clogs and domestic prices drop below year-ago and Jan 1 levels. All Brazilian ports are working normally with the flow of trucks and barges carrying agricultural products also running normally into all ports, according to Cargonave Group. Brazilian bean prices slumped yesterday amid reduced fears of logistic problems, putting pressure on U.S. markets overnight after the recent rally. Tight soybean supplies in China continues to push up futures prices in Dalian but meal prices pulled back after strong gains that sharply boosted crush margins and demand for soybeans. Soybean supplies in China fell to 10-year low this week.

WHEAT: Futures seen retreating from two-month highs on profit taking. The market remains supported on rising demand and worries logistics and supplies.

LIVESTOCK
CATTLE: Steady to mixed
HOGS: Steady to higher

 

Cattle: Futures should find buying interest on any followthrough selling to Wednesday’s defensive close. Futures remains deeply discounted to cash prices and worries about a slowdown in demand are overblown. Weekly USDA beef export sales were down 12% from the prior four-week average at 14,500 MT, led by new sales to South Korea. Boxed beef closed lower on light to moderate demand and offerings.  Select and Choice rib and chuck cuts firm to higher.  Choice round cuts lower while select was higher.  Choice loin cuts were higher while Select was lower.  Choice closed $1.01 lower at $255.30 and Select closed $2.39 lower at $243.09.  Cash cattle trading developed across the three major feeding areas.  Live deals are ranging from $118 to $120, mostly at $120, which is about $10 higher than last week’s weighted averages. 

Hogs: Futures are seen steady to firm on better weekly export sales. USDA said 38,600 MT of pork sold for export last week, up 8% from the previous week with Mexico and China the top buyers. Shipments rose to a new high. Up 12% from the prior four-week average at 48,600 MT with China taking 23,000 MT.  Futures slipped lower on Wednesday after pork cutout values fell $3.02 at $79.03.  Butts dropped $18 and bellies closed $12.52 lower.  Ribs and picnics were also lower.  Loins were sharply higher.  Hams closed firm. The national hog price was down 19 cents.  The market will be watching for insights into hog supplies. USDA’s Hogs and Pigs Report after the close today is expected to show all hogs up 3.4% from a year ago on March 1 as the number of market hogs rose 3.5% and hogs kept for breeding rising 1.4%. The number of pigs per little seen up another 2.5% in the December-February quarter.  Farrowing intentions may rise 0.6% and June-August up 0.4%.