Ahead of the Open: Gains, Soy Quietly Consolidate Before USDA Reports on Thursday

Posted on 09/11/2019 7:44 AM

Grain Calls

Corn: Steady to down 1 cent
Soybeans: Down 1 to 2 cents
Wheat: Down 2 to 3 cents

General Comment: Corn and soybean futures are slipping lower ahead of the USDA’s first field-based estimates of this year’s U.S. crops and update world supply and demand projections on Thursday morning.

Weather leans slightly negative amid warmer temperatures and some rain to help crops reach full yield potential the next 10 days. Colder weather looks like it may develop after Sept. 22 with chances for freezes and frost in the Dakotas, Minnesota and northwest Iowa.

Concerns about dry weather will slow grow the next two weeks but timely rains in October will limit the impact on planting and early crop development. Rains are still needed in western Argentina, impacting sunflowers and wheat.

China is seeking to ease the impact of the trade war by exempting certain U.S. goods from the 25% tariffs put in place last year, although the move won’t help corn, soybean and pork producers, who are all left off the tariff list. The exemptions will apply to U.S. goods including some anti-cancer drugs and lubricants, as well as the animal feed ingredients whey and fish meal, the Ministry of Finance said in a statement on its website on Wednesday.  Beijing said in May that it would start a waiver program, amid growing worries over the cost of the protracted trade war on its already slowing economy. The exemption could be seen as a Chinese gesture of good will towards the U.S. ahead of negotiations in October but is probably more a means of supporting the economy. An exemption list of just 16 items will not speed the two sides toward a new deal.  The announcement put new pressure on grain and soybean prices after rebounding Tuesday when the South China Morning Post that China was expected to buy more agricultural products in hopes of a better trade deal with the United States.
Meanwhile, the Asian nation is finally allowing soy meal imports from Argentina after two decades of talks.
China, the world's top pork consumer, will secure sufficient supplies of the meat for upcoming holidays, including the Lunar New Year in late January, said an official on Wednesday, as concerns grow over a looming shortage and soaring prices. Peng Shaozong, a manager in the pricing department of the National Development and Reform Commission, however, told reporters that supplies will be sufficient for this week's Mid-Autumn festival, as well as for the upcoming October holidays and Lunar New Year, which falls in January next year.  Peng sought to allay growing fears about the rocketing prices, saying the government had the "confidence and capability" to secure enough meat and stabilize the market.

USDA’s daily export sales reporting service announced no new large sales this morning after increased business announcements with Mexico the past two sessions.

Corn: Futures are giving back some of the recent gains. Yesterday’s rally was accompanied by a gain in open interest, a sign of new buying rather than just short covering. September has a history of making yearly lows. Prices need to close making new weekly highs on Friday to signal the market is trying to bottom. South Korea has been buying more South America corn this week, adding to the weak demand outlook for U.S. Corn.

Soybeans: Soybeans and soymeal futures need to close above the August highs to improve the overall chart picture. Overnight weakness has held above the 20-day moving average in both markets. Key resistance is about a dime higher in soybeans and $4 higher in soybean meal. China will allow the import of soymeal livestock feed from Argentina for the first time under a deal announced by Buenos Aires on Tuesday, an agreement that will link the world's top exporter of the feed with the top global consumer. Argentina had tried for years to break into the Chinese market, the biggest consumer of the meal which it uses to feed its hog herd. China, with its own crushing industry to protect, had steadfastly resisted.  

Wheat: Futures are retrenching from two days of solid gains. Markets are trying to carve out seasonal lows but only a high-range weekly close on Friday after USDA report tomorrow would improve the overall technical outlook. The market continues to struggle with worries about stiff global competition for export market share.

Livestock Calls

Cattle: Steady to lower
Hogs: Steady to weak

Cattle: Cattle futures seen starting defensive, giving back some of Tuesday’s late-session rally. Cash cattle continue to trade weaker this week and wholesale beef prices were lower on moderate sales Tuesday. Choice cutouts remain at more than a $24 premium to Select, up from about $8 last year and signaling marketing remain very current, a positive.

Hogs: Look for a weaker start to test the strength of Tuesday’s recovery on Chinese buying optimism. The average national direct cash hog price dropped another $1.72 Tuesday. While packer margins are deep in the black, packers are having no problems securing needed slaughter supplies, even with lower cash prices. Through Tuesday, weekly estimated hog slaughter was running 40,000 head (4.3%) above the same period last year. Wholesale pork cutout values rose 8 cents on Tuesday on very active sales. Pork demand may give the market some underlying support ahead of the weekly USDA export sales report on Thursday.

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