Ahead of the Open: Grain, Soy Markets Retreat as Coronavirus Fears Rekindled

Posted on 02/13/2020 5:48 AM

GRAIN CALLS

Corn: Down 1 to 2 cents
Soybeans: Steady to weak
Wheat: Mixed; Up 1 to down 2 cents.

GENERAL COMMENTS: After a strong performance Wednesday, grains and soybeans are retreating this morning as fund buying yesterday stalls after China adopted a new testing method and announced a big jump in coronavirus outbreaks and more deaths. The rising virus toll boosted worries China is hiding more details. Traders are more skeptical whether China can or will meet is ag buying commitments in 2020. After spending much of this year wringing their hands over export demand for U.S. agricultural products, traders are slowly reverting their attention back to abundant supplies with South America starting collection large crops and weather threats to the Northern Hemisphere remain minor at this point.

The spike in coronavirus numbers came a day after markets were cheered when China reported its lowest number of new cases in two weeks, bolstering a forecast by the country's senior medical adviser that the epidemic could end by April. China has yet to inform Washington of any delays or reductions to planned purchases of U.S. agricultural goods under the Phase 1 trade deal due to the coronavirus, USDA Under Secretary of Trade Ted McKinney said on Wednesday and gave the markets their lift.

Nonetheless, Treasury Secretary Steven Mnuchin said yesterday that the implementation of the Phase 1 trade deal “to a certain extent slowed down” as a result of the ongoing coronavirus outbreak. But he said it would take another two to four weeks of data to evaluate the impact of the epidemic on the Chinese economy. Traders continue to speculation that Chinese officials sometime in March will ask for consultations on delaying, not canceling, purchase commitments of the Phase 1 agreement.

A reclassification of how cases of the coronavirus are counted led to a jump of almost 15,000 in China. The total number there is almost 60,000, with the total death toll at 1,367. A sharp rise in the number of coronavirus deaths and infections unnerved world markets on Thursday, as traders halted the rally in stocks and retreated to the safety of government bonds and gold. 
Excluding cases confirmed using the new methods, the number of new cases rose by only 1,508, the official data showed, though for markets the net result was more uncertainty about how long problems are likely to persist. Meanwhile, the two most senior Communist Party officials in the region hardest hit by the outbreak were replaced as authorities try to ease mounting domestic anger. There was also a shakeup in the Chinese agency that oversees Hong Kong with Xia Baolong, a close ally of President Xi Jinping, newly appointed. How Xi reacts to pressure for greater openness will be crucial to the global battle to defeat the disease.

USDA’s weekly export sales report for the week ended Feb. 6 showed wheat sales at the top end of trade estimates, corn in line with a wide range of trade estimates and soybeans falling at the low end of expectations. Wheat exports sales rose 90% from a week earlier to 643,100 metric tons (MT). That was also up 10% from the prior four-week average. Corn export sales fell 22% to 968,800 MT from a week earlier and were 9% below the prior four-week average. Soybean next export sales fell 8% to 644,800 MT last week from a week earlier but up 2% from the prior four-week average. China was the top buyer of 132,000 MT last week. Soymeal exports rose 10% from a week earlier and were in the middle of trade estimates.  

This morning’s daily USDA export sales reporting service did not report any new large grain or soybean sales. That may add to the negative tone.

 

Corn: After closing near session highs Wednesday, prices are slightly lower and well contained inside of yesterday’s range. The market probably needed a strong weekly export sales report to sustain the rally. U.S. ethanol production for the week ended Feb. 7 averaged 1.033 mil barrels per day, down 4.4% versus a week ago, up 0.4% versus a year ago. Ethanol stocks totaled 24.358 mil barrels, up 3.8% from a week ago and up 3.8% versus last year.  Corn use for the week was 103.7 million bu., above the 102.9 million bu. needed to meet USDA projections.

Soy: Futures rose to the highest price this month last night, an 11-session high and turn lower on the China virus news. The market is holding relatively firm despite worries about Chinese demand and big South America crops. The Malaysian Palm Oil market fell 3.1% as virus cases surge, raising concerns about import demand. Meanwhile, India’s vegoil imports fell 6% in January from a year ago

Wheat: Wheat prices in the European Union could decline from the spring as the prospect of a bumper harvest in Russia and ample feed grain supplies offset an expected fall in EU wheat output, consultancy Strategie Grains said. The French firm reduced its forecast for this year's EU soft wheat harvest to 138.6 MMT from 139.8 MMT as it continued to factor in rain-disrupted sowing in parts of western Europe.The new forecast pegged 2020 output 5.1% below last year's level. The consultancy projects Russia's 2020 harvest at 82 MMT, although it cautioned weather conditions could change that outlook in the coming months.

LIVESTOCK

CATTLE: Steady to weak
HOGS: Steady to weak

Cattle: Futures likely to start on the defensive with cash cattle trading about $2 lower this week and beef prices lower than a week ago. Wholesale cutout were mixed yesterday with Choice down $1.52 and Select rising 77 cents. The Choice/Select spread narrowed to $1.01, a sign that feedlots are still not current. Slaughter this week is down 4,000 head from the same 3-day period a week ago but up 13,000 head from a year ago. Weekly beef export sales were 17,492 MT, down from 18,730 but no new sales to China. Japan and South Korea were the top buyers and shippers of U.S. beef last week.

Hogs: Lean hog futures saw mixed trade on Wednesday as the market was relieved to see new reports of coronavirus in China sliding and Chinese officials signaling the situation had not yet prompted them to seek a reduction in their Phase 1 purchase agreements. But a change in China’s diagnostic procedures that led to a surge in the number of cases could rattle the market today. The pork cutout value was able to climb 31 cents on Wednesday, but movement was again modest. Cash hog bids tumbled an average of $1.53 yesterday. Pork export sales slipped to 28,585 MT last week from 29,455 MT a week earlier. China bought 3,700 MT, the third biggest buyer after Mexico and Japan last week. Shipments remain active at 42,900 MT last week with Mexico taking 13,100 MT and China shipping 13,000 MT. China's state reserve will release 20,000 tons of frozen pork on Feb. 14, according to a notice published by the government. Chinas 1.4 billion population is hungry, and more imports will be needed and that should continue to provide underlying support to the futures after the recent sharp price drop.

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