Ahead of the Open: Corn, Soy and Wheat Seen Defensive Ahead of USDA Reports This Morning

Posted on 08/12/2019 7:53 AM


Corn: Down 3 to 5 cents
Soybeans: Down 4 to 7 cents
Wheat: Down 1 to 5 cents

General Comment: Corn and soybean futures are sliding lower on Monday as traders squared positions ahead of a U.S. supply-demand report at 11 a.m. CDT, although losses were limited by some concerns over dry weather curbing yields across the U.S. Midwest.

This morning’s USDA report in addition to updating yield forecasts will include highly anticipated revisions to rain-hit U.S. corn and soybean planted and harvested acreages. 

Grain markets were supported last week by dry weather in corn and soy production areas of the U.S. Midwest, which could dent yield prospects after excessive spring rains that delayed or prevented many farmers from planting. Last week, December corn rose 8.25 cents, November soybeans gained 23.25 cents and December wheat gained 10.75 cents/bu. In the week ended Aug. 6, managed funds trimmed net-long corn positions a larger-than-expected 32,445 contracts to 79,507. That’s the smallest net-long positions since early June when they switched from a net-short positions. Funds net-short soybean positions rose more than 19,000 contracts to nearly 73,000. In wheat, funds cut longs almost 8,200 contracts to +6,219 futures and options.

Traders are looking for USDA’s weekly Crop Progress report after the close today to show steady to lower corn and soybean crop ratings from a week ago. Traders and farmers are concerned how the USDA's eastern Midwest state yields and late maturing crops across the country will provide reliable yield data this morning.  The USDA announced last Thursday that they have declared an agricultural disaster in all 102 counties in the state of Illinois in response to July 3 request by Illinois Gov Pritzker.

The markets still have a lot of weather to trade, but today’s report will have long-term consequences and the main reason is the potential acreage shifts. There will probably get some minor changes moving forward, but the lion’s share should be done with this report. Weather leans negative after portions of western & southern growing areas benefiting from weekend rains. More rain expected the next two days with very active storms with high winds, some hail and rain. While 60% 5-day Midwest rainfall coverage limits dry areas to less than 1/3 of Midwest next 2 weeks. Given higher closes last week in all ag markets—the market will require bullish USDA data to extend those gains amid weekend rain and more in the forecast the next two days.

The economic outlook has deteriorated worldwide as the trade dispute between the United States and China escalates, a survey showed on Monday. Germany's Ifo economic institute said its quarterly survey among nearly 1,200 experts in more than 110 countries showed that its measures for current conditions and economic expectations have both worsened in the third quarter. "The experts expect significantly weaker growth in world trade," Ifo President Clemens Fuest said, adding that trade expectations hit the lowest since the beginning of the tariff conflict last year.

U.S. President Donald Trump said on Friday he was not ready to make a trade deal with China and even called a September round of talks into question, raising fresh doubts in financial markets that the dispute is unlikely to end anytime soon. In addition, China is unlikely to face serious consequences from the Trump administration's decision to label it a currency manipulator given the apparent lack of G7 and IMF support for the move, former and current U.S. and G7 officials said. The U.S. Treasury last week put the designation on Beijing for the first time since 1994, roiling financial markets and escalating a bitter tit-for-tat tariff war between the world's two largest economies.

Argentina’s President Mauricio Macri unexpectedly lost a primary vote by 15 percentage points to Alberto Fernandez, the main opposition candidate who has Cristina Kirchner as his running mate. Investors are running for the exits in the wake of the larger-than-expected defeat for market-friendly Macri, with the peso and bonds set to be hit hard in trading. Should the primary results over the weekend be replicated in October’s vote, there would be no need for a run-off. Argentina markets are seen falling sharply today. Brazil real fell to the lowest since late May this morning.

In controversial move late Friday, EPA granted 31 SREs under the RFS for the 2018 compliance year. The agency received 40 requests for the 2018 compliance year and prior to Friday (Aug. 9), data showed two had been withdrawn/declared ineligible. The data now show that 31 have been granted, six denied and three were withdrawn/declared ineligible. This move will limit ethanol demand.

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

Corn: December futures are seen opening near session lows after rising to touch the 20-day moving average on Friday and closing lower. It will be quiet this morning until the fireworks go off at 11 a.m. and the USDA releases its reports.  Meanwhile, Armyworms in China have spread more than 3,000 km (1,865 miles) north since migrating from neighboring Myanmar seven months ago, reaching 21 provinces and regions in China and posing a grave threat to grain output.

Soybeans: November futures are opened steady and tried to rally above the 20-day moving average before retreating overnight. In addition to the U.S. crop production data, the market will also key in on USDA forecasts for China’s soybean import forecast amid recent downgrades by the USDA attaché and the Chinese government.

Wheat: Futures seen slinking this morning after failing to hold gains above the 20-day and 100-day moving average earlier last night. The market will follow the lead of the corn futures once USDA releases its crop report this morning.  Russia's IKAR agriculture consultancy has lowered its wheat production forecast for this year to 75 MMT from a previous estimate of 75.5 MMT it said on Monday. 


Cattle: Sharply lower to limit down
Hogs: Lower

Cattle: Futures seen limit down to sharply lower after a Friday night fire at the Tyson plant in Holcomb, Kansas, shuttered the plant indefinitely and is expected to take Tyson out of the cattle market for an unknown period of time, reducing demand for live animals. Plant capacity is about 6,000 head, according to the Kansas Department of Agriculture. Cash cattle were already under pressure on Friday with packers buying animals $1 to $2 lower.  Beef trade was mixed Friday on light sales as estimated slaughter rose 19,000 head above a week earlier.

Hogs:  Lean hog may follow cattle lower. Cash hogs were lower Friday and last week, adding to the negative undertow. However, fresh pork prices moved higher on strength in hams and bellies. Slaughter was up 3,000 above a week earlier last week and 13,000 head larger than a year ago.

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