Ahead of the Open: Corn, Soybeans Retreat on Drier Midwest Weather and Export Demand Concerns

Posted on 06/06/2019 8:03 AM

Grain Calls 

Corn: Down 4 to 6 cents
Soybeans: Down 8 to 10 cents
Wheat: Steady to up 4 cents

General Comment: Grain and soybean prices are under light pressure today on forecasts for drier weather in the U.S. Midwest may provide farmers with an opportunity to get crops. Rain delays have been a major concern and could limit the amount of corn planted in the U.S. Midwest this season and may lead to more soybean acres. There is additional pressure on corn prices amid fears of a U.S. trade war with China and Mexico.

The U.S. Midwest weather forecast changed to significantly less rain over the next 5 days and the 6- to 10-day period is also a bit drier but temperatures are seen running average to below average. In the Southern U.S. Plains will see a continued wet pattern with above-average precip over the next 5 days but turns quieter for much of next week.

President Donald Trump threatened to hit China with tariffs on "at least" another $300 billion worth of Chinese goods but said he thought both China and Mexico wanted to make deals in their trade disputes with the United States. While Trump said on Thursday that talks with China were ongoing, no face-to-face meetings have been held since May 10, the day he sharply increased tariffs on a $200 billion list of Chinese goods to 25%, prompting Beijing to retaliate.

In Beijing, China's Commerce Ministry struck a defiant tone. “China does not want to fight a trade war, but also is not afraid of one,” ministry spokesman Gao Feng told a regular news briefing. “If the United States willfully decides to escalate trade tensions, we'll adopt necessary countermeasures and resolutely safeguard the interests of China and its people." The Commerce Ministry also issued a report on how the United States has benefited from years of economic and trade cooperation with China, saying U.S. claims that China has taken advantage in bilateral trade were groundless. Adding to concerns China may target U.S. companies in the trade war, the ministry last week said it was drafting a list of "unreliable entities" that have harmed Chinese firms' interests.

Chinese President Xi Jinping traveled to Russia yesterday for top-level talks and a three-day state visit. The two sides signed several documents that will enable Russia to significantly expand its exports commodities to the Chinese market. The country secured the right to export barley, soybeans, soymeal, rapeseed and other products to China and it expanded the list of wheat suppliers.

Meanwhile, Trump is in a box of his own making with Mexico by linking U.S. tariffs to stemming the flow of illegal immigration across the southern border. He's facing a backlash from Senate Republicans, who are threatening legislative action to thwart his plan to place 5% tariffs on all Mexican imports starting Monday. Should Trump back down, he risks looking weak on immigration and trade — two key issues with his base. U.S. and Mexican negotiators are set to resume talks today in Washington, after Trump tweeted last night that “not nearly enough” progress had been made so far.

The weekly export sales report for the week ended May 30 were slightly positive for wheat, neutral for soybeans and negative for corn. USDA reported 2019-20 wheat sales of 501,900 metric tons (MT), topping trade estimates. Old-crop sales of soybeans were 510,000 MT, also slightly above trade estimates and included 214,000 MT sold to unknown destinations while China took 72,300, most of which was switch from unknown. Soybean meal sales were at the low end of trade estimates. Old-crop corn sales showed a reduction of 8,800 MT as Nicaragua, Costa Rica, unknown destinations and the Dominican Republic cancelled more than other nations bought. New-crop sales were just 23,500, below trade estimates.

USDA daily export sales reporting service did not report any new large export sales.

Corn: Futures seen on the defensive amid weak demand and trade tensions. Mexican importers, who usually buy their corn from the United States, booked a 35,000-tonne corn cargo from Brazil, trader sources told Reuters.

Soybeans: Futures slipping with the drier weather outlook for improved U.S. planting progress and worries about export demand.

Wheat: futures seen up on dry weather that is expected to reduce yields in Russia, Canada and Australia. SovEcon earlier this week downgraded its forecast for Russia's 2019 wheat crop due to dry weather in May and could cut it further if the weather remains dry this month in contrast, the outlook for crops in western Europe has improved after recent rains  

Livestock Calls:

Cattle:  Mixed

Hogs: Steady

Cattle: Futures seen trading both sides of unchanged in early trading trying to build on two days of gains. Cash cattle prices strengthened a bit in the Iowa/Minnesota market on Wednesday to $116, but volume was still quite light, with Kansas seeing some additional sales at $113 and Nebraska at $114. Wholesale beef cutout values were lower Wednesday with Choice down 89 cents and Select down 3 cents, but sales were very good. USDA’s weekly export sales report showed net new sales of 16,700 MT, down 23% from a week earlier. However, shipments rose 32% last week to 17,900 MT from a week earlier. 

Hogs: Futures seen steady on weak domestic demand and better exports. USDA said exporters sold 33,800 MT of pork last week. That was down 38% from big sales a week earlier but still up 1% from the prior four-week average. China bought 17,400 MT and Mexico bought 6,200 MT. Pork export shipments last week fell 9% from the prior four-week average but Mexico and China were the top two destinations.  The national cash hog price climbed 31 cents but wholesale pork cut out values dropped 58 cents on continued weakness in ribs and bellies. Sales were light to moderate as slaughter continues to run above a year ago, up 78,000 head so far this week.

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