Ahead of the Open: Corn, Soy Slide on Crop Conditions, Weather Forecasts

Posted on 09/17/2019 7:57 AM

Grain Calls

Corn: Down 3 to 5 cents
Soybeans: Down 6 to 8 cents
Wheat: Down 2 to 5 cents

General Comment: Corn and soybeans are seen drifting lower after USDA reported better U.S. crop conditions in a weekly report Monday after the close. USDA conditions plugged into the weighted Pro Farmer Crop Condition Index showed corn improved 1.2 points to 348.3, while the soybean crop rose 0.6 points. The CCI rating is now 28.4 below the five-year average for corn and 24.4 points below for soybeans. But crops remain behind in development. As of Sunday, USDA reports 93% of the U.S. corn crop was in dough, 68% was dented, and 18% was mature—5, 19 and 20 percentage points behind their five-year averages at this point in the season, respectively. About 95% of the U.S. soybean crop was setting pods (100% on average) and 15% was dropping leaves (38% on average).

Weather trends are neutral for price direction with the U.S. expected to be warmer than normal and slightly wetter. For some areas that got excessive rains during the past week, the moisture is not welcome for pushing crop maturity but will aid crops that have been dry. In South America, there is little rain of significance expected for the next two weeks. More rains are needed in many areas to aid wheat and improve soil conditions for corn and soybean planting.

Deputy-level U.S.-China trade talks are scheduled to start in Washington on Thursday, the U.S. Trade Representative's office said, paving the way for high-level talks in October aimed at resolving a bitter, 14-month trade war.

 Meanwhile, despite European efforts to avoid an escalation in trade tensions with the U.S., a tit-for-tat tariff battle over illegal aircraft subsidies is in the offing, according to the European Union’s chief trade negotiator. Cecilia Malmstrom told reporters in Brussels Monday that the World Trade Organization will formally authorize the U.S. to impose retaliatory tariffs on European goods as soon as Sept. 30 over a dispute involving illegal state aid for Airbus.   

Oil dropped on Tuesday after jumping about 15% on Monday. Although the market remains on tenterhooks over the threat of a military response to attacks on Saudi Arabian crude oil facilities that cut the kingdom's output in half and sent prices soaring by the most in decades. The Saturday attack raised the prospect of a major supply shock in a market. Investors are waiting for more clarity on when production will be back online in Saudi Arabia, the world's top oil exporter.

Stock and bond market focus shifts from the oil markets to the Federal Reserve’s two-day meeting on policy that starts today. Deep disagreements within the Federal Reserve over the economic outlook and how the U.S. central bank should respond probably won’t l not stop policymakers from cutting interest rates this week. While an oil price spike after attacks on Saudi Arabian oil facilities over the weekend added to the list of risks facing an economy already slowed by ongoing trade tensions and global weakness, the deep divide evident around the Fed's policymaking table means further rate cuts could be far from a done deal.

USDA’s daily export sales reporting service announced private exporters sold 260,000 metric tons (MT) of soybeans for delivery to China during the 2019-20 marketing year.  That’s the third straight daily sales announcement of soybeans to China. Traders are still looking for additional sales but the size of those sales is highly debated.

Corn: Futures are back near last week’s close, erasing much of Monday’s advance. If prices hold above last week’s close that would be a positive technical development. It looks like China may be developing a structural corn deficit. China seems unlikely to follow through on a plan announced in 2017 to implement a nationwide mandate for all of the country’s gasoline to be made with a 10% blend of ethanol by 2020. China’s state stockpiles of corn have dropped from 200 MMT in 2017 to around 56 MMT, according to Wu Tianlong, a deputy researcher with the Rural Economy Research Center under China's Ministry of Agriculture and Rural Affairs. The plan would require around 15 MMT of the biofuel annually, which equates to around 45 MMT of corn and requiring corn it  Thus, the policy would require using some of China’s new crop and the country is already facing around a 20 MMT supply deficit, according to Wu. Further, China lacks the ethanol production capacity to realize its target. Meanwhile, China's agriculture ministry said on Tuesday the period of danger from the fall armyworm pest was over for this year's crop and there was no longer a threat to the country's major corn production area in the northeast for now.

Soybeans: Soybeans are slumping on technical selling and profit taking. But demand is improving and may lend a firmer undertone at these lower prices. U.S. soybean crushings topped trade expectations for a second straight month in August as processors notched their seventh largest crush for any month on record, according to National Oilseed Processors Association (NOPA) data released on Monday. In addition, soybean oil inventories fell to a 21-month low despite the increased crush.

Wheat: Futures are sliding on worries the recent rally will slow U.S. export demand. Soft wheat exports from the European Union in the 2019-20 season that started on July 1 had reached 5.1 million tons by Sept. 15, 34% above the volume cleared by Sept. 9 last year, official data Tuesday showed.  U.S. Winter wheat crop insurance prices have been set with HRW at $4.35, down 25% from $5.74 last year and SRW at $4.94, down 16% from $5.72 last year. That does not provide much incentive to plant wheat, which USDA estimated was 8% completed as of Sunday, behind the 12% average pace the past five years. Spring wheat harvesting continued to slow with too much rain with USDA estimated 76% of the crop was collected as of Sunday, up from 71% a week earlier and 96% harvest on average the past five years.

Livestock Calls

Cattle: Steady to weak
Hogs: Firmer

Cattle: Cattle seen opening steady to lower, testing the strength of last week’s rally. Cash trade was about steady last week after starting weaker and coming back late week. It could be a slow start to packer bidding this week. Wholesale beef cutout values fell Monday on light sales with Choice down 26 cents and Select falling $2.03. The $24.05 premium Choice trades to Select continues to show the current supply of market-ready animals, a supportive feature to the cash and futures trade. Slaughter rose to 117,000 head Monday from 113,000 a year ago, suggesting improving beef demand.  

Hogs: Look for a steady to firm start. Wholesale pork cutout value rose 45 cents on moderately active sales on Monday after plunging $5.11 last week. Cash hog prices in Iowa/Minnesota rebounded 23 cents yesterday after falling $9.75 last week. Cash hogs are due for a short-term low and will need to lead a futures rally. South Korea has raised its animal disease alert to the highest level after discovering its first outbreak of deadly African swine fever at a pig farm in Paju, a town near its border with North Korea, the agriculture ministry said on Tuesday. The case was reported less than four months after North Korea reported its first outbreak in late May. Kim Hyeon-soo, South Korea's agriculture minister, told reporters on Tuesday that in addition to raising the alert level, nearly 4,000 hogs would be culled to prevent the spread of the virus. Meanwhile, China announced it will auction 10,000 MT of state pork reserves on September 19. That is a little more than the weekly amount of pork U.S. exporters have been shipping to China in recent week.

Add new comment