Ahead of the Open: Corn, Soy Drift Lower as Rains Boost U.S. Ratings

Posted on 08/27/2019 7:43 AM

GRAIN CALLS:

Corn: Down ½ to 1 ½ cents
Soybeans: Down 5 to 8 cents
Wheat: Mixed to up 2 cents

General Comment: Corn and soybeans slipping lower overnight on higher U.S. crop ratings from USDA on Monday. Plentiful rain in many locations last week boosted expectations for corn and soybeans yields but still down from a year ago. Cool temperatures and wet soils will not aid development which is far behind average. No frost is indicated, but a lasting period of well-above normal temperatures is desired. But more sunshine will be beneficial. Rains last week helped corn condition ratings to edge a point higher to 57% “good” to “excellent.” While a rise at this time of the year runs counter to the seasonal trend, the uptick was in line with trade expectations. But as of Sunday, USDA reports 71% of the crop was in dough and 27% was dented, which is 16 and 19 percentage points behind the five-year average, respectively. Rains also lifted the number of soybean fields rated “good” to “excellent” two percentage points to 55%. The market had anticipated a one-point increase. USDA reports 79% of the crop was setting pods as of Aug. 25, which is 12 percentage points behind the norm. 
USDA now rates 69% of the spring wheat crop “good” to “excellent,” a one-point dip from last week and below the 74% USDA put in the top two categories last year at this time. Harvest was much more aggressive than traders anticipated over the past week. USDA reports 38% of the crop had been cut as of Sunday, which was a 22-point surge for the week whereas analysts had expected just a 13-point advance on average. That’s still behind the usual pace of 65% complete, however.

Financial and commodity markets are still in a state of confusion to the whims of President Donald Trump’s latest trade threats. Yesterday’s rally was driven by optimism following comments made by the president at the G-7 meeting, where he said that China called looking for a deal. That hope is fading today as it is becoming increasingly unclear whether any call from China happened over the weekend at all. Regretfully the U.S. has announced its decision to add new tariffs on Chinese products. Such maximum pressure will hurt both sides and is not constructive at all,” Foreign Ministry spokesman Geng Shuang said at a briefing Tuesday. Meanwhile, China’s yuan is headed for a record monthly plunge. That’s sure to be a sore point for U.S. officials who complain that Beijing suppresses the value of its currency to gain an export advantage. The back and forth political posturing make trading difficult. Yet, there is no nearby US/China deal on the horizon. Look for continued choppiness into the Sept 12th WASDE report.

The one deal that seemed secure came under doubt, with Japan insisting it wanted the U.S. to end the threat of new tariffs on autos before finalizing an agreement on agriculture. Trump and Japanese Prime Minister Shinzo Abe announced an agreement on the core principles of a limited trade deal on Sunday, with Tokyo making concessions on agriculture and Washington maintaining its current auto tariffs of 2.5% on passenger vehicles and 25% on pickup trucks instead of raising them as Trump has threatened to do. Details of what was agreed have not been released.

The Farm Journal Pulse shows farmer support for President Donald Trump is eroding. Its survey of 1,153 farmers this week shows 71% of them approve of the job Trump is doing. In July, 79% of farmers supported the president. Of the farmers who currently support the president, just 43% strongly approve, which is down 10 percentage points from July.

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

Corn: December futures were stuck in a narrow range overnight with contract lows set in May at $3.63 ¾ just four cents away. The market may have to test that support to put in motion a stronger recovery into the Sept. 12 USDA crop production update.

Soybeans: The market opened lower and its near session lows ahead of the break. Initial support is Monday’s low at $8.55 and then $8.45 ½.

Wheat: Futures seen in a holding pattern waiting for detail from today’s Egyptian tender with spring wheat futures slightly firmer as wet, cool weather may hinder U.S. and Canadian harvesting. Egypt's General Authority for Supply Commodities (GASC) set a tender on Monday to buy an unspecified amount of wheat from global suppliers for shipment from Oct. 1 to 10. GASC Vice Chairman Ahmed Youssef said the authority was seeking to buy cargoes of soft and/or milling wheat from the United States, Canada, Australia, France, Germany, Poland, Argentina, Russia, Kazakhstan, Ukraine, Romania, Bulgaria, Hungary, Paraguay and Serbia. Ukrainian grain exports from seaports during the week of Aug. 17-23 remained at a high level of around 1.4 MMT, preliminary data from APK-Inform consultancy showed on Tuesday. Wheat exports rose to 1.16 MMT from 1.09 MMT the previous week, the consultancy said.

LIVESTOCK CALLS:

Cattle: Steady to firm
Hogs: Higher

Cattle: Futures seen following up on Monday’s gains. Friday’s Cattle on Feed Report came in on the friendly side of expectations and U.S. and Japan are working toward a new deal that would improve the competitive position of U.S. beef in Japan. With futures trading at a discount to last week’s average cash price of $107.12, which was up slightly from the week prior, the market is well supported. Record-setting packer profit margins have packers processing as many animals as possible, helping to make up for the downed Tyson plant. Funds hold the smallest net-long position in six years, signaling plenty of buying power on the sidelines.

Hogs:  Lean hog futures seen building on expanded limit gains scored on Monday, but the key is if the market can add to those gains the remainder of this week. Limits remain expanded to $4.50 today.  On average, cash hog bids dropped $1.21 to start the week, though bids did strengthen 85 cents in the Iowa/Minnesota.  Pork cutout values fell 66 cents Monday. Led lower by bellies and hams amid tepid daily sales. Chinese pig producer COFCO Meat Holdings Ltd. posted a loss of 276 million yuan ($38.9 million) for the first half of the year as sliding hog prices and spending to protect against the disease whittled away its profits. Nevertheless, the company plans to expand the number of sows to take advantage of the tight supply of hogs in China due to African swine fever.  

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