Ahead of the Open: Grains, Soy Add to Friday's Sharp Retreat on Light Trade Ahead of Jan. 10 USDA Reports

Posted on 01/06/2020 7:48 AM

Grain Calls

Corn:  Steady to down 1 cent
Soybeans: Down 1 to 3 cents
Wheat: Down 2 to 4 cents

GENERAL COMMENTS:  We had a big break on Friday off the stronger dollar after the U.S. assassination of a top Iranian general, breaking the upward chart momentum on all the grains and soy charts. Open interest went up in everything but the beans on Friday, and the weather looks favorable for South America.

The reverberations from the U.S. airstrike that killed a powerful Iranian general continues as stocks are weaker, gold is sharply higher at new six-year highs, oil prices are up more than 1% and the dollar is weaker against a basket of currencies. 
Iran’s defense minister warned of consequences for all those siding with the U.S. and Iran has said it’s not bound by its nuclear deal. U.S. President Donald Trump said the U.S. has 52 targets in Iran and said he was prepared to hit Iran in a “disproportionate manner” should any U.S. targets be hit. Yesterday, Iraq’s parliament voted to pursue the removal of U.S. troops from the country -- something President Trump reacted to with a threat of sanctions against the American ally.  There are also fears that the escalating tensions between the U.S. and Iran won’t have consequences for other relationships or global trade. They could well contribute to the revival of trade conflicts especially with Europe with meetings next week plans with the EU trade officials.

Meanwhile a Chinese trade delegation is planning to travel to Washington on Jan. 13 for the signing of the U.S.-China Phase 1 trade deal, the South China Morning Post reported on Sunday citing a source briefed on the matter. The trade delegation, led by Vice Premier Liu He, had originally planned to set off earlier in the month but had to change plans.  After a full afternoon’s discussion, the Chinese side decided to revise their plan to support Trump’s announcement last week that there would be a signing on Jan. 15 at the White House.

Grain markets have plenty of questions in front of us to start the week. Later today the CFTC will release the delayed Commitment of Traders report. It is expected small selling in the corn and small buying in the wheat and the beans. There were some hopes for increased fund buying of grains and soybeans after record gain in stocks left them overvalued. If funds are increased buyers this week, Friday’s steep declines will be quickly forgotten. But if they turn more bearish that may increase talk that grains and soybeans have seen seasonal tops amid improving South America crop potential and a sharp increase in U.S. planted acreage of corn and soybeans as lost acres to prevent planting insurance come back into production.

The average wire service survey estimates are due later today for the Jan. 10 USDA production, Dec. 1 inventory and winter wheat acreage reports. We are looking for small corn and soybean crop reductions but expected the survey to show a big range guesses in the production guesses.

Weather leans negative in South America with generally good crop and field conditions and more rain coming in the next 10 days. The weekend saw rains over the northern Brazilian ag areas Saturday and showers over the northeastern ag areas Sunday, mostly dry over Argentina Saturday with showers over Buenos Aires, Cordoba and parts of La Pampa on Sunday.  Rains are expected over almost all the Brazilian ag areas over the next week, and rains over the far northern and central ag areas of Argentina over the next week. The international 6- to 10-day forecasts call for below normal precipitation for the Australian grain areas with above normal temperatures, normal precipitation for the Brazilian grain areas with normal temperatures, below normal precipitation for the southern Argentine grain areas with above normal temperatures for the north.

The U.S. Department of Agriculture’s daily export sales reporting service did not report any new large sales this morning, but none were expected. Traders will want to see sales increase relatively quickly after the Phase 1 deal is signed with China. 

Corn: Futures formed an outside week down reversal last week turning charts and momentum negative while export demand remains quiet.

Soybeans: Soybeans futures touched a 10-week high and closed unchanged for the week. The close was more than 20 cents below the highs and will keep the market defensive until prices close above last week’s highs. Malaysian palm oil futures fell for a second session, as rising Mideast tensions stoke concerns about export shipments and traders squared off positions ahead of the Malaysian Palm Oil Board industry performance report due Jan. 10. The benchmark palm oil contract 2.3%. The contract ended last week 1.4% higher to clock its third weekly rise, also hitting its highest since January 2017 on Friday.

Wheat:  March futures spiked to a new six-month high last week and closed lower. Prices are looking for fresh export demand. Weather leans a bit positive with dryness concerns expand in Europe and the Black Sea region. Warmth and dryness to continue for most EU wheat producing areas. Persistent warmth expected for dormant winter crops in the Black Sea and remaining areas of Russia though the next two weeks, maintaining winterkill risks low for the time being, but reducing snow cover should temperatures take a plunge.

Livestock Calls
Cattle: Steady to weak
Hogs: weak

Cattle: Futures seen mixed to weaker to start this week.  Choice boxed beef values edged 24 cents higher on Friday and Select jumped $2.76, narrowing the spread between grades of beef to a very narrow $3.10.   Cash cattle action picked up between $126 and $127 in Iowa/Minnesota on Friday, at $124 in Kansas, and between $124 and $125 in Nebraska on Friday. This represented a gain $1 to $2 from the week prior and a sign that cash markets are bottoming with slaughter levels expected to shrink into February.

Hogs: Looking for a lower start after futures dropped sharply to as much as the daily $3 limit on Friday. Funds bailed on long positions with futures trading at wide premiums to the cash market on fears the U.S.’s assassination of Iran’s No. 2 leader could prompt China to buy less pork from the U.S. Relations between Iran and China have recently warmed. China did cancel 13,300 MT of pork that was sold for delivery in 2019 in last week’s weekly USDA report on Friday. Time ran out on shipping the sales. The situation is not expected to compromise the signing of the Phase 1 trade deal between China and the U.S., but China could buy more pork from other global supplies. Limits expand to $4.50 today. Cash hogs inched higher last week but pork cutout values were lower.  

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