Ahead of the Open: Grains Soften, Soy Steady Ahead of the Weekend; Hogs Higher

Posted on 10/18/2019 8:00 AM

Grain Calls

Corn: Down 2 to 3 cents
Soybeans: Steady to firm
Wheat: Down 1 to 3 cents

General Comment: The wheat rally is stalling after a six-week run. Corn and soybeans are also running into U.S. harvest pressure to close the week. However, look for both corn and soybeans continue find some underlying support from expectations for smaller U.S. production forecast when final combine results are tabulated.

Corn and soybean harvesting should make good progress the next few weeks. The Central US forecast looks to be stable with seasonable temperatures into early November. A couple of relatively quick-moving storm fronts will pass through the Midwest bringing brief warmups ahead of their passage with light to modest before cooler air behind the front takes hold.

Brazilian forecast is consistent with rains of half an inch to 2.5 inches forecast for the dry regions of Mato Grosso and Parana from this weekend into midweek next week. The Brazilian rains have already started and will persist on a near daily basis for the next 2 weeks. The wet season has arrived just in time for the Brazilian soybean seeding to accelerate. Argentina looks to hold their recent weather pattern with rain chances low. The Buenos Aires Exchange yesterday said wheat yield losses of 40% are expected in the heart of the production belt. Corn planting advanced 5 percentage points to 29% completed this week. The Exchange left its corn crop forecast unchanged at 50 million metric ton (MMT), in contrast to the Rosario Exchange cutting its forecasts last week to 47.5 MMT from 50 MMT previously. The corn and soybean trade will pay more attention to Argentina dryness if it remains a feature during November.

The U.S. on Friday is putting new tariffs on $7.5 billion worth of European Union products, a move allowed by the World Trade Organization but one that avoids the negotiated settlement that Brussels has sought for months. As the disputes abound, the wheels of justice are about to grind to a halt. The World Trade Organization’s appellate body, the panel that settles disagreements, may lose the capacity to issue new rulings in December, sending global commerce back to what one official told Bloomberg is called the “law of the jungle.”

China’s gross domestic product increased 6% in the quarter ended Sept. 30, the slowest pace since the early 1990s, and below consensus forecast. A slowdown in investment was the main driver for the lower-than-expected number. Investors are looking to a meeting of the Communist Party’s top leadership, due in the coming days, for a possible review of stimulus measures. There is a feeling, however, that officials are allowing growth to run a little slower as they seek to clean up the financial system and deal with rising and excessive debt following previous easing cycles, which have sent housing prices sharply higher. The country’s benchmark Shanghai Composite Index closed 1.3% lower in the wake of the data. 

World stocks slipped after China posted its weakest growth rate in nearly three decades, while the dollar was set for its worst week in almost four months having been pummeled by pound and euro Brexit rallies.  U.S. dollar rose this week as hopes that a Brexit deal between Britain and the European Union could prevent an economic recession in the euro zone. A weaker dollar is a net positive for the grain markets.

This morning’s weekly USDA export sales report showed another week of sluggish grain demand and improved soybean sales. Wheat sales were 395,100 MT in the week ended Oct. 10. Down 24% from the prior week and in the middle to trade estimates. Corn sales improved from a week earlier to 368,600 MT but was still 48% below the prior four-week average and below the low end of trade estimates. Soybean net sales rose to 1.7 MMT last week, up 24% from a week earlier and 8% larger than the four-week average. China bought 850,500 MT tons last week. Soymeal meal sales were 152,900 MT, below the low end of trade estimates.

USDA’s daily export sales reporting agency said U.S. exporters did not report any new large sales in the past 24 hours.

Corn: December futures opened lower last night and tried to rally. Failing to take out Thursday highs triggered fresh profit taking and light new selling as prices push back toward Thursday’s session lows. Key support today will be Wednesday’s low at $3.87 ½.

SoybeansNovember futures also opened lower last night after prices gave back much of yesterday’s gains by the close. Prices then rebounded but could not rally above yesterday’s high. Prices are slightly higher but in the bottom third of today’s trading range. A move outside of Thursday’s price range of $9.27 ¼ to $9.40 ¾ will attract new order flow today.

Wheat: The wheat market is due for a pause of surge the past two session to the highest since July in the SRW December contract. Overseas markets are also slightly lower this morning.

Livestock Calls

Cattle: Steady-higher
Hogs: Steady-higher

Cattle: Futures seen poised for quiet consolidation session after recent gains. Wholesale beef trade was mixed on Thursday with Choice down 17 cents and paring this week gain while Select jumped $1.23 to extend a second weekly gain. Trade volume was moderate. With beef prices on the rise, packers will want to keep chain speeds high to boost revenues.  With slaughter weights down from a year ago, beef production this year is up just 0.1% through Oct. 12 despite slaughter running 264,000 head above a year. However, the back end of the futures market is under pressure from talk of large October placements. This morning’s USDA weekly export sales report showed just 13.000 MT of beef sold for export last week, down noticeably from the prior week.

Hogs: The hog markets should open higher on strong weekly export sales. USDA said 292,000 MT of pork sold for delivery in 2019, a marketing year high with Mexico buying 132,400 MT and China taking 94,000 MT. Shipments were also a marketing year high of 210,900 MT with Mexico taking 135,800 MT, Japan shipping 39,400 MT and China taking 13,800 MT. Sales for delivery in 2020 were 58,900 MT with China buying 58,600 MT. Slaughter this week is up 10,000 head from last week and 66,000 head greater than a year ago and remains a negative drag on premium-priced futures to the current cash market. The national average cash hog price fell 81 cents on Thursday with Iowa/Minnesota bids sliding 44 cents on average. Wholesale pork cutout values declined $1.44 on continued weakness in bellies, ribs, hams and butts. Hams and ribs are still up for the week but not enough to prevent a drop in the cutout.

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