Ahead of the Open: Consolidation Continues as Traders Wait on Trade, U.S. Yield Updates

Posted on 10/16/2019 7:37 AM

Grain Calls

Corn: Down 1 to 2 cents
Soybeans: Steady to up 2 cens
Wheat: Steady to down 2 cents

General Comment:  Grain and soybean futures continue a second day of consolidation of recent gains tied to smaller U.S. crop outlooks and a verbal U.S.-China trade deal.  The lack of fresh news to signal further reductions in U.S. corn and soybean production and uncertainty what the final written China deal may look like after another several weeks of negotiations have curbed new trading interest.

The latest flare-up in trade talks came after the U.S. House unanimously passed a package of measures yesterday to support protesters in Hong Kong, including a bill that would provide for sanctions against Chinese officials. Beijing reacted with the usual thunder, threatening “strong” — but unspecified — countermeasures if the legislation’s enacted into law because it’s unclear if Trump would sign it.

Hong Kong Chief Executive Carrie Lam was forced to suspend her policy speech in the face of pro-democracy protests, including a pledge to curb Hong Kong home prices amid the unrest. On home ground, China also unexpectedly pumped cash into its financial system ahead of data coming Friday likely to show a further slowdown in its economy and it unshackled daily yuan fixing by the government, suggesting there may be some flexibility on its currency in the future. China will remove business restrictions for foreign banks, securities companies and fund management firms, a cabinet meeting chaired by premier Li Keqiang on Wednesday said, according to state television. China will not allow forced technology transfers by foreign firms, the report said. The lack of detail on what counter measures China may talk to any U.S. support for Hong Kong protesters fits a similar pattern. Beijing has in recent weeks issued similar warnings over U.S. moves to blacklist Chinese tech firms and sell weapons to Taiwan, without following through. And Xi likely knew the Hong Kong bill would pass when he sent his top trade envoy to Washington last week to advance talks with Trump. That’s because Xi, like Trump, needs to get some sort of result to keep the economy on track and prove this costly trade war was worth it.  

Despite a Chinese promise to buy more U.S. farm products, questions remain over how much, the time frame for purchases, and what the U.S. might have to give in return. Beijing is pushing the U.S. to drop plans to impose new 15% tariffs on $156 billion in consumer goods starting Dec. 15 and could use the farm purchases as leverage. Chinese negotiators continue to say purchases must be based on actual demand and at fair-market prices.

It'll take some time to grasp the full impact of the weekend blizzard that hit northern US Farm Belt states, but USDA researchers continue to see crops well behind their normal pace after bad weather badly delayed planting last spring. Twenty-two percent of the corn crop had been harvested as of Sunday, which compares to 36% on average and expectations for harvest to come in at 24% complete. Mature or not, the growing season came to an end for many crops in the western Belt after a big temperature drop late last week and early this week.  As expected, the amount of corn rated “good” to “excellent” (G/E) edged a percentage point lower to 55%.  About 26% of the soybean crop had been harvested (49% average), which was a point more advanced than anticipated. Wet, cool weather continues to slow efforts across most major producing areas. USDA details that Illinois has harvested 27% of its crop (55% on average), with Indiana at 30% (47%), Iowa at 17% (43%), Minnesota at 19% (62%), Missouri at 15% (27%), Nebraska at 28% (47%) and South Dakota at 13% (57%).

U.S. Midwest forecast is wet this weekend and another storm system by the later part of October producing moderate to heavy rain and snow. Harvest will make progress in between the two storm and traders will be focus on harvest results. In South America, the two-week outlook has from eastern Mato Grosso and northeastern Mato Grosso do Sul into Minas Gerais and Bahia to see little to no rain through Saturday before a timely increase in rain occurs Sunday into next week. Argentina will see regular rounds of showers and thunderstorms through the next ten days with a mix of light to moderate rain most days.

USDA’s daily export sales reporting agency said U.S. exporters sold 228,600 metric tons of corn for delivery to Mexico.  Of the total, 137,160 metric tons is for delivery during the 2019-20 marketing year and 91,440 metric tons is for delivery during the 2020-21 marketing year. 

Corn: December corn reached a two-month high and the 200-day moving average on Monday and is consolidating the five-week rally this week. Prices are holding support at $3.88 to $3.92 ¾. A close Friday above this support would be positive.   

SoybeansNovember futures opened lower and tested support at $9.30 and bounced overnight. The market is waiting for clarity on China and more data on recent adverse harvest weather.  U.S. soybean crush was well below trade expectations in September after tumbling 9.2% from the previous month, according to National Oilseed Processors Association (NOPA) data released on Tuesday. Soybean oil stocks at the end of September rose for the first time in five months to 1.442 billion pounds, from 1.401 billion in August and 1.531 billion in September 2018

Wheat: The wheat market is testing 100-day and 200-day moving average in the December SRW futures again this morning with additional support at $5.00. Record inventories continue to weigh on the market but firming world cash markets, specifically in Russia will underlying support to the market. Egypt is tending for wheat for delivery Nov. 21-30 with Russia and France likely to get much of the business. But prices will be higher than the last tender. U.S. spring wheat harvest advanced three percentage points over the past week to 94% complete as cold, wet weather once again limited efforts. Harvest is usually complete across five of the top six producing states. Winter wheat planting was 65% complete as of Sunday, which is a point slower than anticipated and right in line with the five-year average. Emergence is also on track, with 41% of the crop out of the ground versus the usual 40%.

Livestock Calls

Cattle: Steady-higher
Hogs: Steady-higher

Cattle: Futures seen extending Tuesday’s rebound amid high beef prices and firmer, but quiet bidding for cash cattle Tuesday. Choice beef prices rose 80 cents on Tuesday to the highest in almost four weeks while Select jumped $2.15. USDA reported dressed weight rose to 823 lbs. in the week ended Oct. 12, up 2 lbs. for the week but still 8 lbs. less than a year ago and another sign that marketing remain current and cash cattle can work high with the beef market.

Hogs: The market’s surge on Tuesday came amid China saying it has bought 700,000 metric tons of U.S. pork. That is far above officially reported business and suggest another big week of sales in Friday’s USDA weekly export report. Wholesale pork cutout value rose 12c to the highest since Aug. 26 on moderately active trade. Hams led the rally Tuesday and still look inexpensive relative to other pork cuts and meats. The national average hog price jumped $1.08, adding to the positive undertone to start this morning. Slaughter is up 8,000 head from a week ago and 41,000 head from a year earlier during the first two days of this week.

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