Ahead of the Open: Mixed Grain Outlook with Weak Exports Offsetting China Talks Next Week

Posted on 03/21/2019 7:23 AM

Grain Calls

Corn: Steady to up 1 cent

Soybeans: Steady-mixed

Wheat: Down 2 to 4 cents

General Comment: Grain and soybean markets have absorbed selling well this week. A high-range weekly close on Friday would signal larger seasonal recoveries are likely. Remember funds are holding excessively large net-short positions heading into the Northern Hemisphere’s growing season.
U.S. stock index futures are pointing to a lower open on Wall Street a day after the U.S. Federal Reserve abandoned projections for any interest rate hikes this year amid signs of an economic slowdown. The dollar index recovered from Fed-induced sell-off Wednesday when it hit two-week lows. The dollar appears to have reached a peak and that will help improve U.S. grain competitiveness on world markets.

President Donald Trump said he will keep the tariffs he imposed on China in place until he is sure Beijing is complying with the terms of any trade deal agreed between the world’s two largest economies. The comments, made at the White House yesterday, significantly dim hopes of an agreement soon, as Chinese negotiators had been pushing for the removal of the measures as part of a deal. Almost 60 U.S. farm groups in a letter to President Trump urge him to lift US tariffs on China. The group stressed that failing to lift these tariffs could negate the benefits of a new trade deal.  U.S. Treasury Secretary Steven Mnuchin and Trade Representative Robert Lighthizer are due to visit China on March 28 and 29, and Trump probably doesn’t want to risk weakening the American economy ahead of next year’s election. 

The European Union will discuss a more defensive strategy on China on Thursday, potentially signaling an end to the unfettered access that Chinese business has enjoyed in Europe, but which Beijing has failed to reciprocate. The deepest tensions lie around China's slowness to open up its economy, a surge of Chinese takeovers in critical sectors and an impression that Beijing has not stood up for free trade. But any new EU policies could prove complicated to implement, as EU capitals continue to court Chinese investment. Chinese President Xi Jinping starts a tour of France and Ital. An EU-China summit is schedule for April 9.

On the weather front, it is looking wet the next two week in the central and southern U.S. with three fronts moving through the area starting light showers March 23 to March 25 across the southern two-thirds of the nation. The Corn Belt is set for the wettest September to March period in 125 years of data, according to T-storm Weather. More than 240 river gauges are in minor to major flood from North Dakota to New Orleans.

USDA daily export sales reporting service said private exporters did not report any large new sales of U.S. commodities in the past 24 hours. Not a big surprise but does not provide support today.  

Corn market is seen slightly firmer on positioning ahead of next week’s rain and upcoming China talks. The market may trend sideways into the USDA acreage and March 1 quarterly inventory reports.  USDA’s weekly export sales report showed new sales of 855,900 metric tons (MT) in the week ended March 14.  That was in the middle of the 600,000 MT to 1.0 million MT expected. Another Chinese purchase of 65,000 MT of sorghum will keep the market support and hopeful for China buying of corn once a trade deal is signed.

Soybean futures are seen steady to firmer on trade talk support. China cut its value aged tariff for product processing from 13% to 10% and for agricultural imports from 10% to 9%. No mention was made if the tariff cuts were related to US/China trade negotiations. The cut will make soybean imports more profitable for China’s domestic crushers. China's pig feed demand in 2018-19 crop year (October-September) will fall 12 percent due to the outbreaks of African swine fever in the country, commodity trader Living Water Trade predicted on Thursday. Soymeal demand in China, the world's top consumer, may fall 5.5 percent year on year, Li Ning, general manager of Living Water Trade (Shanghai) Co Ltd, told a conference in Wuzhen. The weekly soybean sales were 399,500 MT including 142,600 sold to China last week. However, China cancelled 65,000 MT previously sold for 2019-20 season.

Wheat futures seen weaker on disappointing export demand. Prices may struggle today after USDA export sales showed exporters sold 298,600 MT last week for delivery before June 1. New-crop sales were also disappointing at 138,800.

Livestock Calls:

Cattle: Steady to firm

Hogs: Higher

Cattle futures seen steady to firm with a mixed to higher trend developing in the cash market. Still, wholesale beef slipped Wednesday with Choice down 66 cents and Select falling 83 cents. Sales were light to moderate.  Slaughter increased to 355,000 head the first three days of this week from 348,000 a week ago and equal to the same period a year ago. Friday’s March 1 Cattle on Feed Report is expected to show a 0.3% drop in feedlot inventories after placements fell 4% in February and marketings rose 0.8%, according to a Reuter’s poll.  Beef sold for export in the week ended March 14 rose to 18,625 MT, up from 12,811 MT a week earlier. Hong Kong was the biggest buyer last week.

Hog futures are seen opening firmer after limit-up surge yesterday and stronger cash hogs on Wednesday. The average national hog price rose $2.79 to $60.38 and up $15.66 this month, according to USDA data. The rally in fresh pork prices slowed yesterday with the cutout down 9 cents to $74.05 after reaching the highest since early November a day earlier. The market remains supported by speculation China will have to significantly increase pork imports to offset lost production from the outbreak of African swine fever. This morning’s weekly export sales showed 29,300 MT sold last week, including 3,000 MT to China. Mexico boosted its purchases by 15,5000 MT. China also shipped 4,600 MT last week.

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