Ahead of the Open: Consolidating in Quiet Trade Awaiting Fresh Developments

Posted on 08/28/2019 7:47 AM

GRAIN CALLS:

Corn: Steady-weak
Soybeans: Up 1 to 3 cents
Wheat: Steady to down 5 cents

General Comment: Corn and soybeans are trading in mixed trends with weather a mixed factor. Rains seen aiding kernel and pod filling, but cool temperatures remain a problem for pushing maturity. As of Sunday, 26 million acres of corn had yet to enter dough development and about 16 million acres of soybeans had yet to start filling pods with beans.

The newest production uncertainty is about harvested acreage. The August Crop Production Report’s acreage figures for corn and soybeans surprised traders, and questions only grew after the initial release of certified acreage data from the Farm Service Agency The Office of the Chief Economist on Tuesday released an update noting that the level of planted and failed acres as of Aug. 22 increased by 821,000 for corn and 783,000 for soybeans. The National Ag Statistics Service uses the failed acreage data as a “minimum measure of acres abandoned” for determining harvested acres.  The largest unknowns for this year will be whether NASS accounted for enough of the planted cover crop acres in their harvested estimates. Also, the MFP likely encouraged a higher percentage of total acres to be certified this year. 

Wall street futures seen pointing lower after the previous day's fall. European shares fell as deepening inversion of the U.S. bond yield curve ramped up fears of recession. Asian equities ended in the red amid uncertainty over U.S.-China trade dispute. The Japanese yen rose against the dollar, and gold prices edged up as investors turned focus to safe-haven assets. Oil prices gained after data showing a fall in U.S. crude inventories. ​ The Chinese yuan fell to the lowest since February 2008 against the dollar this morning. Baltic Freight Index jumped 2.1% to the highest in 5 ½ years. 

One of the key obstacles to a breakthrough on trade talks has become President Donald Trump’s credibility, according to Bloomberg citing Chinese officials familiar with the talks. His comments over the weekend that China had called looking to restart negotiations is still causing some confusion in Beijing as nobody there seems to have contacted the U.S. negotiators. All the uncertainty is having real-world effects for Chinese exporters, with toymakers there already losing out on Christmas orders in what should be their busiest quarter, while governments in the region are following monetary policy moves with fiscal stimulus of their own.
Around midday yesterday, Hu Xijin, editor in chief of the Chinese and English editions of the Global Times, tweeted that “China on Tuesday issued 20 directives to boost consumption, in an effort to further tap domestic market, not putting so much emphasis on trade talks. China's economy is increasingly driven internally, it's more and more difficult for the U.S. to press China to make concessions. “This adds to ideas China is unlikely to give in anytime soon and points to a protracted trade war. The tweet weighed on stock prices and got into the bond market today. This added to the negative tone in soybean futures.

U.S. moves to implement tariff increase on Chinese-made consumer goods. A Federal Register notice on Friday will confirm a tariff rise from 10% to 15% on $300 billion of goods from Sunday. The countermeasure follows China’s decision to impose retaliatory tariffs of between 5% and 10% on $75 billion worth of American products. Because Sept. 1 (when the next round of tariff increases are due to take effect) is a Sunday and Monday is the Labor Day public holiday, the U.S. Trade Representative (USTR) notice needed to be made before the weekend.

The main drag on prices amid worries about crop maturity is the sluggish new-crop sales. Through Aug. 15, some 9.94 million metric tons (MMT) corn and soybeans have been sold to foreign buyers for shipment in 2019-20, down 55% from both a year earlier and the five-year average for the date. That is the smallest amount since 2005, when just 5.66 MMT had been booked. Soybean sales are down harder than those for corn and stand at a 13-year low. New sales total 5.26 MMT, down 58% from a year earlier and 62% from the five-year average. Corn sales as of mid-August were 4.68 MMT, a 14-year low and down 52% on the year and down 44% from the recent average, USDA data show.

USDA daily export announcement service said private exporters reported no new large sales during the past 24 hours.

Corn: December futures fell to the lowest since May 13 overnight, touching $3.65. Some of the pressure on corn stems cash sales that must be priced by the end of this month. The market is finding marginal support from President Trump pushing new trade agreements and programs to boost biofuel usage to temper farmer criticism of his trade policies. The push is on to complete a mini trade accord with Japan and begin talks with other countries. Meanwhile, Trump plans to unveil a package of biofuel-related programs at a White House ceremony next week. The package would leave the Renewable Fuel Standard waivers in place, while slightly increasing federal mandates for production of corn-based ethanol and biodiesel and allowing vehicles that use high-ethanol blends of gasoline to qualify for special EPA credits

Soybeans: The market is locked inside of Monday’s range for a second day waiting for fresh news on the trade front, weather and exports news.

Wheat: Futures are slightly defensive but may get a boost from a smaller Canadian crop estimate this morning. All-wheat production seen down 2.9% to 31.25 MMT from a year ago and below the 32.3 MMT expected. France will need to export 20.1 MMT of soft wheat this season after harvesting its second-largest crop in history, French consultancy Agritel said on Wednesday. France, the European Union's largest wheat producer and exporter, has only reached that level of exports three times before.

LIVESTOCK CALLS:

Cattle: Steady to weak
Hogs: Steady

Cattle: Futures seen following a steady to weaker cash cattle trade on Tuesday and lower wholesale beef prices. The wide spread between Choice and Select values continues to reflect tight supplies of well-finished cattle and bullish factor going forward.

 Hogs:  Lean hog futures continue to be choppy with Thursday’s weekly export sales widely awaited. Pork bellies plunge, pulling down the pork cutout value. The weakness in pork and failure to hold yesterday’s early gains will put initial pressure on prices this morning. Developments on the China front have not been encouraging, weighing on the lean hog market again yesterday. Futures have been unable to find buyers outside of tentative bouts of short covering. Cash hog bids fell $1.14 on Tuesday and the pork cutout value plunged $4.15. A $26.57 plunge in belly prices drove the steep drop.

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