Ahead of the Open: Choppy, Mixed Holiday Trade Waiting for China Deal Signing Date

Posted on 12/31/2019 7:54 AM

Grain Calls

Corn:  Steady-firm
Soybeans: Steady to down 1 cent
Wheat: Up 1 to 2 cents

Markets close at the regular time today and will be closed on Wednesday in observance of the New Year’s holiday.  Trading will reopen on Thursday morning.  Pro Farmer wishes you and your family a prosperous and healthy 2020.

GENERAL COMMENTS:  Wheat and corn were steady to slightly higher overnight after yesterday’s retreat, but soybeans were steady to fractionally lower in quiet, holiday trading. Few traders want to take on new risk heading into the new year. Look for better volumes on Thursday and Friday.
Oil prices fell on the last trading day of the year on Tuesday but are heading for the biggest annual gain since 2016. Prices have risen on deeper production cuts by OPEC and hopes that a U.S./China trade deal could jumpstart global growth. Stronger oil prices into 2020 may provide underlying support to biofuel demand. The U.S. dollar is down against the Group of 10 currencies for a fourth straight day. A weaker dollar will help to reduced costs for overseas buyers of U.S. grains and soybeans, but competition will remain.

Monday afternoon’s CFTC Commitment of Traders report for the week ended Dec. 24 showed smaller fund buying in corn but active fund short covering in soybeans. Funds cut net-short positions almost 10,000 contracts to 84,906 futures and options, less than the 15,000 net buying expected. In Soybeans, funds bought more than 46,100 futures and option contracts last week, cutting their net short positions to 33,156 contracts. Funds trimmed almost 5,600 net longs in SRW wheat and remain net-long 19,149 contracts. Funds bought 3,775 contracts in HRW wheat to trimmed net-short positions to 5,138 contracts.

Grain markets are waiting for some details and new Chinese buying once a trade deal is signed. White House trade adviser Peter Navarro, in an interview on Fox News adviser on Monday said the U.S.-China Phase 1 trade deal would likely be signed in the next week but said confirmation would come from President Donald Trump or the U.S. Trade Representative. Navarro cited a report that Chinese Vice Premier Liu He would visit Washington starting this weekend to sign the deal but did not confirm it.  Neither the U.S. nor China have confirmed a signing date. 

Manufacturing activity in China expanded for a second straight month in December as seasonal demand and signs of progress in trade talks with Washington boosted factories' output and order books. The slightly better-than-expected readings suggested some recovery in the world's second-largest economy this month. Production rose at the fastest pace in over a year while growth of total new orders was only a notch lower than a recent high hit last month.

Solid rains fell in Argentina and northwest Brazil the past 24 hours, but drier weather is returning. Rainfall in the next ten days will be sufficient in most of Brazil to support normal crop development. The exceptions may be in southern Brazil from Rio Grande do Sul into southern and western Parana and Paraguay along with a few southwestern Mato Grosso do Sul locations. These areas could be missed by some of the greatest rainfall and dryness that has already been evolving in the region may prevail for a while. Totally dry weather is not expected, but the rain that does evolve in some areas will prove to be more of a tease than of much use to crops. Overall conditions are generally good and soybean harvest in Brazil has begun and will ramp up by late January.

The U.S. Department of Agriculture’s daily export sales reporting service did not report any new large sales this morning, but none were expected. Traders will want to see sales increase relatively quickly after the Phase 1 deal is signed with China. 

Corn: Futures are back above the 100-day moving average after testing last week’s lows and finding some light buying interest. After moving to a seven-week high on Monday, the market will need to close above yesterday’s swing high to trigger new buying and fund short covering.  Brazil has never produced as much ethanol as it did in the current season, an all-time high around 35 billion liters, and yet available stocks may not be enough to meet demand. Monthly hydrous ethanol sales in the center-south surpassed 2 billion liters for the first time, in October, as owners of flex-fuel cars turned to cheaper ethanol to escape higher gasoline prices. The shortfall may help to boost U.S. export sales in 2020.

Soybeans: Soybeans lack an incentive to push higher to close out 2019. Soybean oil prices are tumbling, following overseas vegetable oil prices. Palm oil futures fell on the last trading day of 2019 on profit taking after prices rose near a three-year high on Monday. Still, palm oil prices jumped the most in a decade on lower production and higher use in fuel. Soybean oil is expected to see active fund profit taking on record long positions.

Wheat:  March is stuck inside of Monday’s reversal down action. The market is looking for something positive on the export front to support a rally extension.

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

Cattle: Futures seen opening steady to firmer wholesale beef prices rose on Monday on modest sales. Traders are looking for another steady to higher week for cash cattle this week after small gains last week. Slaughter rose to 116,000 head on Monday, up from 113,000 a week earlier. Packers still may need some inventory to finish out this week’s schedule. Cattle need to close out above the recent swing highs in the next week to keep the bull moving higher. Funds increased net-long positions 454 contracts to 88,517 futures and options as of Dec. 24, CFTC data on Monday showed.  

Hogs: Looking for follow-through buying to end the year after the national average cash hog prices rose 70 cents with Iowa-Minnesota cash hogs rising $1.04. The wholesale pork cutout value fell 29 cents on weakness in bellies and hams. Sales were moderately active. Funds flipped to a net-long position of 6,890 futures and options contracts last week, buying a net 7,951 contracts last week. Swine inventories were only 5% to 20% of normal in 7 of 10 Chinese counties an economic blogger says after visiting China this month. This and other surveys reveal the degree to which hog numbers were decimated by African swine fever and the real challenges facing recovery in pork production. “Facts on the ground are in sharp contrast to propaganda about rebounding production being trumpeted by Chinese news media,” concludes Dim Sums: Rural China Economics and Policy.

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