Ahead of the Open: Corn, Soy Seen Drifting Lower on Cool Weather, Wheat Struggles on Slow Exports

Posted on 07/30/2019 7:53 AM

GRAIN CALLS:

Corn: Down 3 to 4 cents
Soybeans: Down 4 to 5 cents
Wheat: Down 2 to 4 cents

General Comment: Corn and soybeans are giving back Monday’s gains amid less threatening weather. Plenty of issues remain for this year’s delayed crops but summer weather has not added to those problems. The Midwest forecast is drier than normal the next 10 days, but temperatures will average below normal as well. The lack of heat is keeping bulls sidelined and funds liquidating long positions.

USDA now rates 58% of the U.S. corn crop in “good” to “excellent” condition, a one-point uptick from week-ago but 14 percentage points under last year. As of July 28, just 58% of the crop is silking, which compares with 83% for the five-year average and 90% last year. Most key producing states lag normal development by 20 percentage points or more. USDA once again rated 54% of the U.S. soybean crop in good to excellent category, with one percentage point shifting from “good” to “excellent.” This was in line with market expectations. But the amount of crop falling in the “poor” to “very poor” category also ticked up a point to 13%. As of Sunday, USDA reports that 57% of the crop was blooming and 21% was setting pods. That compares with 79% and 45% on average, respectively. Many of the top producing states are running 30 percentage points or more behind the five-year average on pod setting.

U.S. delegates including Treasury Secretary Steven Mnuchin and Trade Representative Robert Lighthizer are in Shanghai for meetings with their Chinese counterparts, with both sides expected to dine together today before spending tomorrow in talks. Market expectations remain low for a breakthrough as neither side seems eager to make a deal. In fact, the two sides are further apart than they were three months ago, when talks broke down into mutual recriminations.  China’s territorial ambitions in the South China Sea will come into sharp focus as diplomats descend on Bangkok for a summit of southeast Asian economies this week. It’s where smaller countries like Vietnam and the Philippines get to vent about a Chinese power grab in a critical shipping route that also is a talking point in U.S. talks.

USDA data on Monday showed exports of soybeans to China shipping the most in five months last week ahead of trade talks between the two countries in Shanghai, although the shipments were for beans bought months ago and new purchases have proven elusive. China has yet to make the large agricultural purchases U.S. President Donald Trump and other top officials say were promised when Trump and Chinese President Xi Jinping met at the G20 summit in Osaka, Japan a month ago to restart stalled trade talks. USDA said Monday nine bulk U.S. soybean shipments carrying about 600,000 metric tons (MT) were inspected for export to China in the week ended July 25, the most for a single week since mid-February. One corn cargo was also shipped last week, the data showed.

The Fed’s two-day policy meeting begins in Washington this morning and there is a Democratic presidential candidate debate in Detroit later tonight. The dollar is fractionally higher and near two-month highs, oil prices are stronger and U.S. stocks are seen opening lower this morning. It’s tough to see how a stronger dollar is positive for global trade, as the negative effects through financial channels likely outweigh any benefits to net exports outside the U.S. Certainly, the first-order effect of a stronger greenback is to soften inflation, all else equal. The Federal Reserve has been talking about the negative impact of the global trade slowdown on global growth and business uncertainty. Latest data shows that business fixed investment and export growth seriously weakened in the second quarter.

USDA daily export announcement service said private exporters did not report no new large sales overnight. That may add to the negative tone this morning when prices reopen. 

Corn: Futures are set to open near Monday’s lows and just above key support at $4.20. Today may prove to be an important test of bears’ strength and willingness to sell at two-month lows amid how far behind this year’s crop is relative to normal and crop ratings that are well below average.

Soybeans: November futures may open at last week’s low at $8.98 with additional support seen at the early July low at $8.90 ¼. December meal held support at $308.90 overnight but expect another test today.

Wheat: Futures are well contained inside of Monday’s range with leaning lower, following the corn market weakness. Slightly lower spring wheat crop ratings and increasing dryness across parts of the Canadian Prairies are providing some support this morning, But Ukraine wheat crop may reach 70% million quality, up from 55% a year ago and increasing the potential export competition.

LIVESTOCK CALLS:

Cattle: Steady to firm
Hogs: Steady to firm

Cattle: Wholesale beef cutout values rallied Monday with Choice up $1.09 and Select gaining $1.42. Still, sales were light, and slaughter rose to 119,000 head on Monday, up from 114,000 a week ago. Marketing remain very current and cash cattle should trade lower as packers need some inventories.   

Hogs: After tumbling $3.60 on Friday and paring last week’s gain to more than $7, the national average cash hog markets rebounded $3.37, led to the upside by a $6.88 gain in the Iowa/southern Minnesota market. However, hams led the wholesale pork cut out value lower, losing 34 cents on light overall pork sales on Monday.  Slaughter on Monday was estimated at 457,000, down from 473,000 head a week earlier and up from 441,000 from a year ago.  

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