Ahead of the Open: China Trade Deal Pessimism Depresses Ag and Financial Markets

Posted on 11/13/2019 7:48 AM

Grain Calls

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

General Comment:  Grain and soybean lack much follow-through strength to Tuesday’s recovery amid worries about China trade, better weather for U.S. harvesting and South American crops and worries about rising competition for U.S. grain exports. The lack of an announcement on trade progress in President Trump’s speech yesterday continues to weigh on markets. Trump also highlighted the need for fairer trade deals. Details regarding US-Chinese trade progress, including the signing of a Phase One agreement, were absent. However, China’s Foreign Ministry said that the two sides have agreed to remove tariffs in stages once an interim deal is signed, and both sides are working on finalizing the details of the agreement, according to the South China Morning Post. The report said once the deal is finalized, then the two sides would decide how many of the tariffs would be removed.

Traders will be gauging market risks as hearings to determine whether President Trump abused his office and should be impeached begin this morning. The point of these hearings isn’t to learn new things. The House intelligence committee will be bringing out witnesses who have already been interviewed behind closed doors. So, this is about making a case in public. 

USDA said nearly 28 million corn acres in the field. Corn harvest advanced 14 percentage points to 66% complete as of Sunday, which was two percentage points lighter than expected. That’s still well behind 85% harvested for the five-year average. It also means a lot of fall fieldwork will have to wait until spring. About 15% of the bean crop left to combine. Soybean harvest moved 10 points ahead over the past week to 85% complete as of Nov. 10, whereas analysts surveyed by Reuters expected harvest to come in at 87% complete. The five-year average puts the usual pace at 92% complete at this point in the season. That implies that around 11.3 million acres were still in the field as of Sunday. 
Ninety-two percent of the U.S. winter wheat crop had been planted as of Sunday before an arctic blast hit the country’s midsection, possibly causing some winterkill and bringing planting efforts to a halt. The key producing state of Kansas had 96% of the crop in the ground. As of Sunday, 78% of the crop had emerged, which is three percentage points behind the five-year average. USDA unexpectedly shaved three points off the amount of crop it rates “good” to “excellent,” dropping that figure to 54%. That’s steady with last year at this time. 

Meanwhile, Brazil’s USDA equivalent Conab now expects the country’s 2019-20 soybean crop to hit a record-high of 120.86 million metric tons (MMT), a 460,000-MT increase from October. It stuck with its 72 MMT export forecast for the oilseed. Conab’s corn production estimate edged 30,000 MT lower to 98.4 MMT. Again, the statistics agency maintained its export forecast at 34 MMT. Conab’s estimate of Brazil’s wheat crop was increased 130,000 MT to 5.28 MMT.

USDA daily export sales reporting services said private exporters sold 106,000 metric tons (MT) of soybeans for delivery to unknown destinations during the 2019-20 marketing year. 

 

Corn: December corn opened lower and is near session lows ahead of the trading pause. The market continues to be pressured by worries about exports. For the first 10 months of 2019, Brazil has exported 34.7 MMT of corn, topping the previous record for the period by a dramatic 60%. On the other hand, the U.S. exported around 36.2 MMT of grain during this 10-month span, a 40% drop from the previous season. Brazil had a record-breaking crop to market, lowering prices. Meanwhile, drought in Argentina and U.S. trade battles with countries like Mexico reduced competition. In addition, an especially late and challenging growing season has kept U.S. supplies out of the pipeline longer than usual.


SoybeansJanuary beans opened steady last night and rallied above Tuesday’s high before retreating. The weak charts have limited new buying interest despite talk that China purchased up to seven cargoes of U.S. soybeans this week.  Competitive U.S. prices and good crush margins have prompted Chinese commercial crushers to buy up to seven cargoes of American soybeans this week for shipment in December and January, according to two trade sources cited by Reuters. This comes despite continued confusion about payments of extra duties on U.S. shipments booked under a tariff-free quota system and backlogs at Chinese ports. Up to 2 MMT of American ships are waiting to offload at Chinese ports as the country’s ag agency seeks storage.

Wheat: Futures failed to build on Tuesday’s strong rally on worries that may slow overseas demand for U.S. wheat.  FranceAgriMer raised is forecast for French soft wheat exports outside the EU by 300,000 MT from last month to 12.0 MMT. This would be a 24% increase from last season and a 1 MMT increase from its initial forecast in September.

Livestock Calls
Cattle: Steady to firm
Hogs: Steady to firm

Cattle:  Cattle are expected to start firmer and test last week’s highs basis December futures. February and April cattle already extended rallies to the highest since April. The market remains supported by the strong beef market.  Choice beef prices rose $1.91 and Select gained 2.54 on light sales. Trimmings market remains very strong for hamburger. Most are looking for further strength in the cash market this week with slaughter the first two days of this week down 3,000 head from last week and equal to a year ago. Slaughter weights last week estimated at 822 lbs. dressed, unchanged from a week earlier and 4 lbs. less than a year ago.

Hogs:  Lean hog futures seen added to gains recorded Tuesday. Cash hog prices were mixed Tuesday with the national average price up 10 cents. Wholesale pork cutouts rose $2.19 to the highest since August, led by strong gains in hams and bellies. Hams rose to the highest in nearly five years yesterday on reports of increased shipments to China. Slaughter remains heavy and up 12,000 head from a year ago. The U.S. pork price rise of recent weeks is “extremely unusual” and is probably the first time African swine fever has significantly affected the U.S., according to Tyson CEO Noel White. “Since the product is being produced for export today, we are seeing product prices move higher,” White said.

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