Ahead of the Open: Consolidating Weekly Declines, Watching Political, Trade Issues

Posted on 08/16/2019 7:35 AM

GRAIN CALLS:

Corn: Up 1 to 3 cents
Soybeans: Up 3 to 5 cents
Wheat: Up 1 to 3 cents

General Comment: Corn futures are paring their biggest weekly loss in three years for a second day after USDA forecast a larger crop than expected this week. Soybeans are also paring this week’s decline with wheat futures seen slightly higher. The U.S. Midwest weather forecast hasn’t changed much for the near term with rains favoring the northern two-thirds of the region versus the southern areas the next five days. The models for the 6- to 10-day period remain mixed with warmer temperatures the next several days before returning cooler late next week and into the following weekend. Drier weather may return next week, increasing the important of coverage and amounts the next several days across the Midwest.

Financial markets have fully priced in a 25-basis-point rate cut at the U.S. central bank's Sept. 17-18 policy meeting. The Fed lowered its short-term interest rate by a quarter of a percentage point last month, citing the acrimonious U.S.-China trade fight and slowing global economies. Global stocks are rebounding but still heading for a weekly loss. China said overnight it was planning to roll out stimulus to halt the economic slowdown. Investors are also looking for the European Central banks to cut interest rates to fight softening growth.

While investors busied themselves discussing inverted yield curves and possible recession, the trade war not-so-quietly came roaring back into focus. China said it was preparing retaliatory countermeasures to the new set of tariffs slapped on their goods by the U.S. and said it wants the U.S. to meet it in the middle in the negotiations, a suggestion President Donald Trump was ready to acknowledge. He did say overnight that he would have a phone conversation with President Xi Jinping relatively soon.

President Trump is increasingly putting pressure on allies on issues ranging from Iran to rejecting cooperation with Chinese technology companies such as Huawei to urging Israel to ban the visit of U.S. lawmakers. That risks creating a tangle of smaller disputes and undermining broader global interests such as security and trade. 

Voters in Argentina face at least 10 more weeks of uncertainty to see if the market meltdown in the wake of Sunday's primary. Campaigning is under way for the first round of the presidential elections on Oct. 27, and few believe incumbent Mauricio Macri or Alberto Fernandez — who led strongly in the primary — will work together to allay the risk of more turmoil. The upshot is no immediate end in sight to Argentina’s parlous economic and financial situation. But that has not slowed China investment in Argentina agriculture. China state-owned construction giant CCCC is preparing a bid to dredge the Parana River, Argentina’s main cargo superhighway that takes soy and corn from the farm belt to the shipping lanes of the south Atlantic Ocean. 

USDA daily export announcement service said private exporters reported export sales of 296,500 metric tons (MT) of soybeans for delivery to unknown destinations during the 2019-20 marketing year. This will provide a modest lift to the market this morning.

Corn: December futures are seen moving slightly higher, but trading will be sluggish ahead of the Pro Farmer Midwest Crop tour next week.  Thursday’s USDA sales report showed U.S. corn export sales are running 17% behind a year ago and shipments 11% behind last year compared with the USDA forecasting a 14% decline on the year

Soybeans: The market remain in consolidation with a slightly smaller USDA crop forecast offset by sluggish export demand. China can do without supplies from the United States in the fourth quarter and can rely on imports from South America instead, said Zhang Liwei, a senior analyst at the China National Grains and Oils Information Center. China's Commerce Ministry said earlier this month that Chinese companies had stopped buying U.S. farm products in the latest escalation of the trade war between the world's two largest economies. China reportedly buying Brazilian cargoes for fall delivery this week.  Markets will find light support from a strong crush last month. The NOPA U.S. soybean crush in July topped most trade estimates and surged from a 21-month low in June to the sixth highest for any month on record. Soybean oil stocks fell by more than expected in July to a 20-month low of 1.467 billion pounds, a sign of strengthening demand with the record crushing pace last month. U.S. Soybean sales as of Aug. 8 are running 17% behind a year ago with, shipments 20% behind compared with the USDA forecasting a 20% decline on the year. Soymeal sales are 3% behind on the year with shipments 5% behind last year’s pace compared with USDA forecasting a 3% decline.

Wheat: Futures seen following corn but lack much of a supply story to extend gains. Demand is perking up as bargain buying has emerged.  Egypt was a buyer of 295,000t Russian, Ukraine wheat on Thursday. For the week ended Aug.8, U.S. All wheat sales are running 18% ahead of a year ago, shipments up 27% with the USDA forecasting a 4% increase on the year.

LIVESTOCK CALLS:

Cattle: Steady to firm
Hogs: Steady to firm

Cattle: Futures seen steady to firmer. Some additional cash cattle trade took place yesterday at prices ranging from $105 in the South to nearly $109 in the North, which was basically in line with more active trade earlier in the week. While down from last week’s $112 cash action, the drop was not as steep as some feared. And the combination of softer cash prices and soaring boxed beef values have pushed packer profit margins to $297.55 a head, according to HedgersEdge.com LLC. That’s giving plants plenty of incentive for aggressive weekly and weekend kills, which should help to offset the impact of the downed Holcomb, Kansas meat plant.

Hogs:  Lean hog futures may trade higher. December Lean hog futures have posted a series of higher lows in the days since the Aug. 5 tariff-inspired plunge. But the market has struggled to push above near-term levels of resistance, as pork prices have slipped a bit over the past week, including a 67-cent slide in the pork cutout value yesterday. But cash hog bids did climb $1.08 on Thursday, reversing recent losses. China's pig herd shrank by 32.2% in July from the same month a year ago, as African Swine Fever continues to spread through the country. The year-to year drops represent an acceleration from June when the overall pig herd slid 25.8% and the number of sows dropped 26.7%. We have been saying the biggest drop will likely come from August forward. The situation has pork prices at new records, with the national average price standing at 23.49 yuan ($3.34 per kg.) this week.

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