Ahead of the Open: Grains, Soy Bounce Ahead of USDA Supply & Demand Report

Posted on 09/10/2019 7:58 AM

Grain Calls

Corn: Up 3 to 5 cents
Soybeans: Up 2 to 5 cents
Wheat: Mostly up 3 to 4 cents

General Comment: Corn is leading higher this morning after U.S. crop conditions unexpectedly declined. Wheat finally responded Monday to increased threats to the Southern Hemisphere’s crop potential. Soybeans are following higher amid worries about delayed development of this year’s U.S. crop and a dry start to the South American growing season.  USDA will release its next Crop Production Report on Thursday morning.

The condition rating of the 2019 U.S. corn crop declined 3% to 55% rated “good” to “excellent” as 10 of the top 18 producing states declined mostly across the southern and eastern areas.  The five lowest rated corn states are Indiana, Ohio, North Carolina, Illinois, and a tie between Michigan and Missouri. The condition rating of the. soybean crop held steady last week at 55% rated “good” to “excellent.”  Eight states indicated that the soybean conditions had improved last week while nine states indicated that that conditions declined last week, and one state was unchanged. As of last week, 14%, or about 10.7 million acres of soybeans has yet to begin setting pods, the most since 1991 and signaling lower yield potential or increased abandonment.  The five lowest rated soybean states are:  Indiana, Ohio, Illinois, Michigan, and Missouri. The weather last week was cooler and dryer than normal in the eastern and southern Corn Belt and wetter than normal in the northwestern Corn Belt.
However, the two-week outlook is frost-free and may limit gains. Still some growers are growing worried about too much rain. Drier weather across the Southeast and Delta will boost harvesting of corn and soybeans.

In Brazil, significant rainfall is not forecast away from Rio Grande do Sul over the next 14 days, limiting planting because widespread agricultural drought already exists.  Rains will also remain limited on dry Argentina sunflower and wheat areas, though some fell over the last 24 hours.

Rallies will be held in check by worries a trade deal with China may be tough to complete. Ted McKinney, President Donald Trump’s trade undersecretary at the Department of Agriculture and a former associate of Vice President Mike Pence, told a D.C. gathering of nearly 400 members of the National Farmers Union that the president of China is a “communist zealot.” “Let me just tell you what: Mr. Xi Jinping is a communist zealot. He sees himself very much in the spirit of Mao Zedong,” said McKinney. “We were negotiating very well” early in the year, McKinney told the National Farmers Union. “I hope to pick up where we last left off. But I’m only 50-50.”

Chinese trade data released over the weekend had already soured investor mood and that was compounded on Tuesday by weakening factory prices, signaling a worsening economic slowdown in the country that threatens to add to the deflationary pressures facing the global economy. It underlines too what economists have already been saying: that the government’s efforts to stimulate the economy are so far not boosting growth. The European Central Bank is set to unleash another stimulus measure later this week that will set the stage for other central banks to follow. 
Futures for Wall Street’s major indexes fell, along with European and Chinese stocks, as disappointing China factory data stoked recession worries. The Japanese yen held at a five-week low versus the greenback on firming government bond yields. Optimism that OPEC and other producing countries may agree to extend output cuts supported oil prices. Gold dropped to a near one-month low to hold below the key $1,500 pivot, hit by a stronger dollar.

Small gold miners that have been working on illegal pits in the Amazon rainforest blocked an important road for grains transportation in Brazil's Para state on Monday, protesting a crackdown by the government, police said. The miners, mostly habitants of Moraes Almeida, a district in the Itaituba municipality that is at the center of an environmental crisis due to widespread fires in the forests surrounding it, blocked the BR-163 federal road. The road is used by commodities traders to transport soybeans and corn from Mato Grosso farms to a port at the Tapajós river in Para.

USDA’s daily export sales reporting service announced private exporters sold corn, soybeans and soybean meal to Mexico in the past 24 hours after a large corn sale announced Monday.  Exports reported sales of 278,200 metric tons (MT) of corn for delivery to Mexico during the 2019-20 marketing year, sales of 138,000 MT of soybeans for delivery to Mexico during the 2019-20 marketing year; and 195,750 MT of soybeans to Mexico.  Of the total 155,000 MT is for delivery during the 2019-20 marketing year and 40,750 MT is for delivery during the 2020-21 marketing year.

Corn: Futures are rebounding from new lows set on Monday on worries about this year’s production. The market is severely oversold, and funds now hold substantial short positions heading into the USDA first field-based survey of yields on Thursday. The U.S. Grains Council has stepped up efforts to drum up demand for its ethanol exports across Asia after former top customer China imposed steep import tariffs on the fuel amid the Sino-U.S. trade war, shutting out sales; council representatives took a booth for the first time at the Asia Pacific Petroleum Conference (APPEC), the largest oil industry gathering in Asia, to promote blending the renewable fuel with gasoline.

Soybeans: November soybean fell to the lowest since May and closed unchanged on Monday. The market is building on Monday’s strength amid firming global vegetable oil prices. Palm oil rose overnight in Malaysia as inventories of the oil fell to a 13-month low amid higher exports and production nearing a seasonal peak.

Wheat: Futures are building on Monday’s strong and unexpected rally, signaling the global markets may near a seasonal bottom. South Korea bought 76,000 MT of various classes of U.S. wheat for delivery in December and January. Still, U.S. supplies face abundant global supply competition. France's farm ministry on Tuesday increased its estimate of the country's 2019 soft wheat harvest to 39.45 million tons from 38.2 million seen a month ago, confirming that the EU's top grain grower had gathered one of its biggest-ever wheat crops. The revised soft wheat production estimate was up nearly 16% compared with last year's volume and would be the second largest on record after 2015.

Livestock Calls

Cattle: Lower
Hogs: Lower

Cattle: Cattle futures seen extending Monday’s retreat in early trading as cash trade was active for a Monday at lower prices. Cash cattle are near a low but as long as producers continue to sell animals at lower prices the trend remains down. Dressed weights rose 3 lbs. last week to 815 lbs. from a week earlier but remain 12 lbs. under a year ago. Wholesale beef prices fell on Monday with Choice slipping another 36 cents to the lower to the lowest since Aug. 13. Prices have given back more than 50% of the rally after the Tyson plant fire in Kansas last month and should find support near current values.  Slaughter on Monday fell 4,000 head to 115,000 from a year earlier.

Hogs: Look for a weaker start after futures closed near session lows on Monday and cash hogs continued to weaken. The national average cash hog prices fell $1.42 yesterday and wholesale pork cutout values fell $1.41 with bellies falling to the lowest since early July. Pork sales were moderately active. Slaughter rose to 485,000 head, up from 458,000 a year earlier.  China's Ministry of Agriculture and Rural Affairs reported a new case of African swine fever (ASF) on a farm in the northwestern region of Ningxia on Tuesday. The farm, in a district of Yinchuan city, had 226 pigs and 13 had already died of the disease, it said.  That follows news Monday that the Philippines has confirmed its first outbreak of the deadly disease. China’s consumer price index (CPI) rose 2.8% over year-ago last month, driven by a 10% rise in food prices. Pork prices surged 46.7% last month as the country deals with pork shortages from ASF. prices of other meats in China also rose in August, contributing to the jump in food prices; beef, mutton and chicken prices were all up — between 11.6% and 12.5%

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