Ahead of the Bell: Consolidation of Recent Strong Gains Continues in Grain, Soy Markets

Posted on 06/19/2019 8:04 AM

GRAIN CALLS:

Corn: Down 4 to 6 cents
Soybeans: Down 5 to 7 cents
Wheat: Down 5 to 10 cents

General Comment: After a strong start to the week, the grain and soybean markets continue to retreat, digesting the recent strong gains.

Widespread coverage of heavy rain affects the central U.S. through early next week (including both drier and wetter areas) as coolness across the northwest half continually battles with mildness across the southeast.  All areas turn and then remain much warmer but unlikely intensely hot starting June 25 as a new weather pattern begins.  Rains will be much less organized and less frequent during the June 25 - July 3 period, but soils will be moist from prior rains. The heavy rains this week slow the final soybean planting push, increasing the uncertainty about acres planted, like the corn market’s questions. Rarely by mid-June are the markets questions both acres planted and yield potential and that mean plenty of support should develop near current corn and soybean prices.  

Today’s conclusion of the Federal Open Market Committee (FOMC) meeting arrives with an unusual amount of uncertainty and speculation. While markets have been expecting two rate reductions from the U.S. central bank this year, market expectations are only at 25% that the Fed will cut rates at this week’s meeting, rising to 80% for July’s meeting. Attention will first be on the post-meeting statement and whether the Fed ends the use of “patient” in describing its monetary policy stance. Some expect that will be jettisoned to signal the Fed is closer lowering rates ahead. Markets have now priced in a major dovish shift by policy makers, and European Central Bank President Mario Draghi’s capitulation yesterday has done little to make the Fed’s life easier. Meanwhile, political pressure for a rate cut from President Donald Trump continues, even as he juices the stock rally thereby making a cut less urgent and the Fed’s decision much more difficult.  

The U.S. and China said their presidents will meet in Japan next week with lower-level talks expected to get under way as soon as today after a month-long stalemate. Sources say a plan for new high-level talks, along with a delay in imposing U.S. tariffs on the $300 billion in goods from China, is the best outcome of next week's sessions between the two leaders. Trump agreed to delay tariffs on $200 billion in imports from China after last year’s G20 summit in Buenos Aires, Argentina. Trump later imposed those duties and raised the level to 25% last month when the countries reached the current impasse.

Brazilian farmers will get $57.7 billion in financing for the 2019-20 crop, and interest rates will rise for the largest producers as the Brazilian government tries to curb its large deficit, Agriculture Minister Tereza Cristina Dias announced yesterday. Total financing will rise only 0.28% from last year, but interest rates will rise for larger producers with the annual interest rate increasing from 7% a year to 8%. The Agriculture Ministry said the government opted to charge more in the financing due to the need of balancing the federal budget.

 The CME Group said that force majeure is no longer in effect at Chicago Board of Trade corn and soybean shipping stations on the Illinois River and Mississippi rivers in place since May 2.

USDA daily export reporting service did not announce any new large overnight sales this morning.   

Corn: Prices head for a second straight decline despite the uncertainty about production. The Trump administration is looking to make further changes to ethanol rules after the president heard from farmers during a recent trip to Iowa that an initiative to boost sales of the corn-based fuel additive didn't go far enough. Possible remedies could include limiting waivers that help small oil refiners get around mandates that they blend plant-based fuels into gasoline and diesel. China's Ministry of Commerce said it will maintain anti-dumping and anti-subsidy tariffs on imports of U.S. distillers’ grains (DDGs), a by-product of ethanol production used in animal feed, after closing a review launched in April. In a statement, the ministry cited potential damage to domestic producers in its decision to retain anti-dumping duties of 42.2%-53.7% and anti-subsidy tariffs of 11.2%-12% on DDGS products from the United States. Meanwhile, U.S. ethanol producers are considering importing corn from Brazil, according to Geoff Cooper, the head of the Renewable Fuels Association (RFA). “I haven't heard that it is happening, but I have heard some chatter that there are people looking at it, because of the growing spread between U.S. and Brazil corn prices," he said in an interview at the Ethanol Summit 2019 in Sao Paulo.  

Soybeans: Soybeans are entering a corrective phase but holding above key near-term support. The markets could be choppy ahead of the June 28 USDA Acreage and Grain Stocks reports.

Wheat: SRW futures fell to a five-session low overnight on worries about demand and drier weather for a pick up in U.S. harvesting. Egypt seeks optional-origin wheat for July shipment this morning. Russia wheat offered at the lowest prices this morning, highlighting the uncompetitive U.S. prices. South Korean feed groups bought 180,000 metric tons optional-origin feed wheat.

LIVESTOCK CALLS:

Cattle:  Weak
Hogs: Lower

Cattle: Live cattle futures seen weak to start this morning after the wholesale beef cutouts fell on Monday. Choice dropped $1.27 and Select declined 71 cents on moderately active sales. Cash cattle are starting the week mixed with some strength in the north and weakness in the south. Friday’s USDA Cattle on Feed Report is expected to show on feed numbers on June 1 up 1.3% from a year ago despite the projected 4.1% drop in placements last month amid sharply rising corn prices, a Reuters survey shows. Marketings rose 0.8% last month.

Hogs: Futures seen defensive to start this morning amid record slaughter levels for this time of the year. The pork cutout value slid another $1.82 yesterday, but the price drop, led by bellies and ribs,  did encourage strong movement of 410.87 loads. Given aggressive slaughter tallies of late, strong product movement at home and abroad is essential. Cash hog bids softened 46 cents on Tuesday after rising 29 cents to start the week. An abundance of hogs has made it tough for the cash market to move higher.

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