Ahead of the Open: Grains, Soy Trying to Stabilize at Key Support Amid China Virus Concerns

Posted on 01/28/2020 7:48 AM

Grain Calls

Corn: Steady to firm
Soybeans: Down 1-3 cents
Wheat: Down 2 to 5 cents.

GENERAL COMMENTS:  Soybeans are seen heading for a sixth straight decline with the market trading near its weakest since mid-December on speculation and fears that the coronavirus outbreak in China will curb demand. Wheat is slightly lower, erasing overnight gains after a strong close at session high on Monday. Corn seen inching higher but still lacking news to resume last week’s rally to multi-month highs.

USDA daily export sales reporting service announced private exporters sold 124,355 metric tons (MT) of corn for delivery to Mexico during the 2019-20 marketing year.  That will add support to the corn market after unknown sales announcement last week. U.S. export demand is improving.  

A tentative recovery in global financial markets developed in European stock markets this morning and Wall St. is headed for a higher opening. Several commodity markets have turned higher, erasing overnight declines.  The ag sector is still questioning what impact the virus has had on crushing plants and meal production in Hubei, which in turn has impacts for pig and poultry feed consumption. One source asked whether this could cause China to start importing soymeal and/or grain rations with meal to fly into animal production facilities. The market is also worried this virus could give China a valid excuse not to follow through on its Phase 1 purchase commitments. 
In the latest moves to stop the spread of a deadly virus, China has announced it will stop individual travelers to Hong Kong and close some border checkpoints. The move comes as the death toll from the illness climbs to 106, with confirmed cases in China rising 60% in the past day to more than 4,500 cases. The chief of the World Health Organization (WHO) is heading to China to assess the country’s response to the coronavirus as the death toll continues to rise, new cases keep being found and with concerns that it is being spread before sufferers start showing symptoms.

Keep in mind that actual damage (in financial or human terms) is still minimal in the greater scale of things, though the death toll from the virus continues to rise, as do the number of confirmed cases. But the damage that would be involved in a realistic worst-case scenario, or even a nightmare scenario, is truly impossible to quantify. Thus, for the time being it would make sense for investors to adjust prices to each new piece of information — which at this point probably means dialing down risk somewhat. The SARS epidemic of 2003 may be most similar to what we now confront with the coronavirus. The current situation is not as grave as SARS became, but this epidemic could yet be even worse. In 2003 SARS outbreak, the moment of peak press interest, and the low for Hong Kong’s Hang Seng index, came at the end of April as SARS made the cover of The Economist, more than two months before the WHO announced the global outbreak was contained, Peter Atwater of Financial Insyghts told Bloomberg News.

Weather in South America leans slightly negative. In Argentina, forecasts showed little to no changes with the expected erratic shower and thunderstorm activity that will occur in the region through next Monday. Some of the heaviest rain will occur Wednesday in the north. Most of the meaningful rain that occurs in the region in the next seven days will be localized though with net drying in portion of central and southern Argentina. Next week rains will still be localized, and some dry pockets will remain. In Brazil, conditions will continue to be favorable for crop development in much of the nation. But, the far south such as Rio Grande do Sul may be a little too dry in the next couple of weeks.
Brazilian farmers have harvested 4.2% of their planted area through Jan. 23, less than the 13% seen in the same year-ago period because of planting delays, AgRural said in a statement on Monday. In the prior week, harvesting of the 2019/2020 crop had reached 1.8% of the area. The work is most advanced in Mato Grosso state, Brazil's largest grain producer, despite rains that sometimes cause harvesters to stop field work. AgRural estimates Brazil's 2019/2020 soybean output at a record 123.9 MMT. Next month, that estimate will be revised, the statement said.  
India will begin culling chickens and destroying eggs after samples collected from the poultry breeding and research farm of a veterinary college in Odisha state tested positive for the H5N1 bird flu, the government announced today. No human cases of the virus have been reported in India since at least 2003.  Brazil and the U.S. have both been pushing India to lower tariffs on chicken and chicken products, with demand for poultry rocketing higher within the country. President Donald Trump hopes to travel to India soon in hopes of securing a mini-trade deal.


Corn: March futures chart story has turned negative. Corn flipped from multi-month highs last Thursday to retesting key support at the 100-day moving average and near new six-week lows.   Short-term support is $3.74 ½ with resistance at $3.88 and $3.94.  International feed production dipped 1.07% to 1.126 billion metric tons in 2019, the first decline in nine years, according to the 2020 Alltech Global Feed Survey. The group explains the decline is largely due to African swine fever (ASF) and the decline of pig feed in the Asia-Pacific region. The survey shows that pig feed production fell 11% in 2019, with Chinese hog feed production plunging 35%.

Soybeans: Futures opened steady to firm last night and quickly fell to retest Monday’s lows. Prices are midrange at the break and a move back above the downside gap left Monday at $9.00 ¾ to $9.00 would be positive today. A break below Monday’s lows will trigger new selling. Strong meal prices today after falling to new contract lows on Monday is a positive technical signal if prices can close at weekly highs on Friday. Much of the meal strength is more related to spreading against soyoil than outright new buying, which is a concern.

Wheat: Futures opened steady to fractionally higher. The rally fizzled when European traders returned to their desks. Some of the weakness is tied to rain forecast for drier spots of Europe and the Black Sea region this week. Weakness in European wheat futures also limited buying in U.S. markets.

Livestock Calls
Cattle: Steady to weak
Hogs: Steady to weak

Cattle:  Futures seen opening on the defensive Tuesday after closing sharply lower to limit down, which will increase daily trading limits to $4.50 in live cattle and $6.75 in feeder cattle. Cash cattle averaged $124.30 last week, and traders are looking for packers to bid lower this week after four weeks of averaging near $124.00. Wholesale beef prices were lower on light sales with Choice down 90 cents and Select sliding 20 cents. 

Hogs: Futures seen weaker to start after closing Monday sharply lower to limit down with daily price limits expanding to $4.50 today. Wholesale pork cutout values fell only 12 cents on Monday as declines in picnics and bellies offset gains in ribs, loins, butts and hams. However, the national average cash price rose $1.16 on Monday and limited losses in February futures. Slaughter rose 26,000 head above last year on Monday after surging 237,000 last week above a year ago. Record slaughters remain a negative factor unless Chinese imports increases quickly. Brazil meatpacker JBS SA said it had signed a memorandum of understanding with Hong Kong's WH Group to supply up to $717 million of fresh beef, poultry and pork per year to the Chinese market. the first shipments under the agreement are expected to take place in the first quarter of 2020.

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