Ahead of the Open: Mixed Trade Ahead of the Weekend in Consolidation of Thursday's Declines

Posted on 01/17/2020 7:35 AM

Grain Calls

Corn:  Up 2 to 3 cents
Soybeans: Down 1 to 2 cents
Wheat: Up 1 to down 4 cents

GENERAL COMMENTS:  Grain markets are mixed this morning after showing some upside correction in early overnight trading. Corn is bouncing after stumbling the most since August yesterday. However, the markets are going to need to see an improvement in Chinese buying once the new trade deal goes in affect in 30 days.

Improved exports from all sources are needed to turn the markets back to the upside. For the week ended January 9th, U.S. All Wheat sales are running 9% ahead of a year ago and shipments are up 20% with the USDA forecasting a 4% increase on the year. U.S. Corn sales are running 40% behind a year ago, shipments are 51% behind with the USDA forecasting a 14% decline.  Soybean sales are running unchanged versus a year ago, but shipments are 30% ahead, compared with the USDA forecasting a 2% increase on the year.  Soymeal sales  are 13% behind on the year, compared with USDA forecasting a 3% decrease.

South America weather leans negative. Rains fell again in northern Argentina and southern Brazil the past 24 hours. Rain is expected to increase in northeastern Brazil Tuesday through Friday of next week and provide beneficial moisture that will reduce crop stress from recent dryness. Occasional shower and thunderstorm activity will still occur in Argentina, much of which will be erratic. A band of showers and thunderstorms that will likely move from southern to northern parts of Argentina Monday into Tuesday with locally beneficial moisture.

China posts weakest growth in 29 years as trade war bites but ends 2019 on better note. GDP data released overnight showed growth stabilized at 6% in the final quarter of 2019 from a year earlier. Data also showed investment in the economy picked up for the first time since June, while retail sales rose 8%. The fourth-quarter number put the annual expansion at 6.1%, in line with the government’s target. The positive numbers coupled with increasing optimism after the signing of the phase-one trade agreement adds to a growing view that the world’s second largest economy will avoid a major slowdown.

The U.S.-China deal may bolster President Donald Trump’s theory that unilateral tariffs are a better enforcement tool than the World Trade Organization.

The European Union threatened a challenge to the World Trade Organization regarding whether a pledge by China to increase purchases of U.S. goods by at least $200 billion over the next two years is WTO-compatible. Some say the commitments may violate the WTO's most-favored nation (MFN) rules, which require WTO members to treat trading partners equally. U.S. Trade Representative Bob Lighthizer dismissed any potential violation when asked about it this week.

The U.S. Department of Agriculture’s daily export sales reporting service reported no new large sales by  private exporters this morning. 
 

Corn: March corn futures traded higher all night after plunging yesterday. Funds were estimated selling 40,000 to 60,000 contracts on Thursday with open interest rising almost 21,000 contracts.

Soybeans: Futures opened higher but did not make it back to the 50-day moving average and turned back to the downside this morning.  Argentina’s Buenos Aires grains exchange trimmed its estimate for 2019-20 soybean plantings by 100,000 hectares to 17.4 million hectares (43.0 million acres), citing dry weather. This follows a 200,000-hectare cut the week prior.

Wheat: Futures seen mixed. Worries prices have reached the winter highs continues to weigh on prices. Heavy fall rains limited French soft wheat sowings to 4.47 million hectares (11.05 million acres), the lowest level in nearly 20 years and a 10% drop from the year prior, according to a survey of French grain handling firms conducted by Sigma Conseil, a market-analysis firm. In contrast, France’s farm ministry most recently estimated soft wheat area would slide 5%, which many traders and analysts said was too light.  

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

Cattle:  Futures seen opening steady to weak after slumping on Thursday. Cash trade has been slow to develop with a few trades coming in about steady so far. Wholesale beef prices rose Thursday with Choice up 37 cents and Select jumping $1.80 on light sales. While it appears the beef market is bottoming, Choice probably needs to lead future gains to provide cash and futures support.

Hogs: Futures will be steady to weaker in followthrough selling to the disappointing closes on Thursday. The national hog price fell 58 cents on Thursday, paring this week’s gain. Slaughter rose 100,000 head the first four days of this week from a year ago and remains a negative factor. Future remain at significant premiums to futures and more strength is needed to bring buying back to the futures in anticipation of increased Chinese buying of pork. Other pork customers were active last week ahead of the signing of the U.S./China trade deal this week. Wholesale pork cutout values rose 80 cents on Thursday, but sales were slow. China's 2019 pork output plunged to a 16-year low, official data showed, as the fatal hog disease African swine fever killed millions of pigs in the world's top producer; China produced 42.55 million tons of the meat last year, down 21.3% from 2018, and the lowest output since 2003, according to National Bureau of Statistics (NBS) data.

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