Ahead of the Open: Grains, Soy Defensive Ahead of USDA Reports

Posted on 06/10/2019 7:25 AM

Grain Calls 

Corn: Down 2 to 3 cents
Soybeans: Down 5 to 7 cents
Wheat: Down 3 to 8 cents

General Comment: Grain and soybeans opened weaker than expected on a lack of incentives for funds to buy or cover more shorts with charts starting to roll over. The U.S./Mexico trade truce should have more positive implication for beef and pork than the grain markets as U.S./China trade tensions continue. It should be a quiet sessions ahead of the weekly USDA crop progress reports and Tuesday’s monthly world supply and demand report.

President Donald Trump saw that the Senate would override his tariffs proposals on Mexico and did the logical thing; he declared victory and suspended the threatened 5% tariff. Both countries agreed to finalize the terms of additional provisions within 90 days. White House still have more work to do to get the new North America trade deal pass by Congress. Chinese imports tumbled 24% in May while exports unexpectedly rose, suggesting weakness in the domestic economy combined with signs that manufacturers are front-loading shipments ahead of threatened new U.S. tariffs. The trade war is causing all manner of corporate moves to head off the tariff impacts. Vietnam said Sunday it had discovered dozens of fake product-origin certificates and illegal transfers by Chinese companies trying to sidestep U.S. levies. The exports in question cover everything from agriculture to textiles and steel, and it’s one of the first times an Asian government has publicly alleged such misbehavior this year. China's soybean and pork imports from the United States fell heavily while those from other countries posted significant growth, the Ministry of Commerce said last week. Treasury Secretary Mnuchin said Saturday that Trump and Chinese President Xi Jinping would meet at the end of this month, but few expect a breakthrough on settling the trade war.  

Following on from the perceived dovish turn of the Federal Reserve and the ECB’s dovish-but-maybe-not-dovish-enough messaging last week, the Bank of Japan joined the monetary easing parade on Monday when Governor Haruhiko Kuroda told Bloomberg TV the central bank can delivery more big monetary stimulus is necessary. But alongside the messaging from his peers, it seems clear that central banks are getting nervous as the U.S.-China trade war drags on. But the real question is how much ammunition do they have left to fight a downturn?

Weekend weather was wetter over the eastern belt than had been expected, the weather for the week ahead has showers moving across the northern tier of the corn belt. The U.S. Midwest weather forecast has close to average rainfall over the next10 days with some rainfall systems intermittently but, not to the extent that has been seen over the past couple months---temps will be running average to below average. The Southern Plains sees above average rainfall occurring over the next 10 days---temps will be running below average during the period.  USDA progress report tonight should show corn planting advance to 80% to 85% completed as of Sunday, up from 67% a week earlier, The first U.S. corn conditions report may show 60% to 65% of the crop rated in “good” and “excellent” condition, compared with about 73% on average the past five years. Soybean planting progress probably advance to 53% to 57% done, up from 39% a week earlier.  In general, the trade thinks that Tuesday’s monthly U.S. and world supply and demand forecasts will come up well short of most trade estimates on U.S. planted acres and yield reductions but could trim U.S. corn and soybean export projections based on the current slow pace and rising global competition. Few major changes are expected in the wheat estimates.  

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

Corn: Futures gapped lower overnight but held above last week’s lows—a positive sign. In the week ended June 4, hedge funds switched to a net long position in corn futures and options of 87,243 contracts from their net short of 20,736 contracts a week earlier, according to data from the CFTC on Friday. In the three weeks to June 4, funds bought a net 370,161 corn futures and options contracts. That is easily a record for a three-week stretch, topping the old record of 297,269 contracts in the period ended July 14, 2015. The rally in 2015 topped at $4.38 ¼ and that was the end of the weather-scare rally. This year’s front contract rally stalled at $4.38, increasing the importance of that price levels for confirming any new rallies.

Soybeans: Argentine soybean exports may reach 10 to 12 million metric tons (MMT) in the 2019-20 season that began April 1, compared with 3.84 MMT last season, according to German analyst Oil World. U.S. soybean exports are estimated at only 45.8 MMT this year, down from 57.95 MMT last year and below the USDA current estimate of 48.3 MMT, Oil World said Friday. Funds reduced their net short in soybean futures and options to 93,356 contracts from 129,994 a week earlier, largest weekly net purchase of soybean contracts in six months. Meanwhile, funds flipped to a bullish stance in soybean meal through June 4 of 2,163 futures and options contracts, compared with a net short of 20,361 in the prior week. Mealy position change was larger than expected.

Wheat: futures Friday’s action in wheat is “dangerous” for bulls. They must step up immediately – as a bear market may resume.  Russia will likely produce a 79 MMT wheat crop in 2019-20, nearly 7 MMT higher than the year prior thanks to an increase in planted acres and lower rates of winterkill, a U.S. attaché in the country notes. The post expects the country’s exports to climb 3.0 MT to 37.5 MMT. This would make Russia the world’s biggest wheat exporter for the third year in a row. USDA disclosed late Friday that some Roundup-resistant wheat plants have been discovered growing in an unplanted field in Washington state. A Bayer Crop Science spokeswoman said the latest finding may have occurred on the site of a former field trial. Money managers reduced their net short in SRW wheat futures and options to 13,348 contracts from 23,780 in the previous week. That is significantly less bearish than their net short of 82,146 contracts just four weeks earlier. Funds reduced their net short to 24,080 contracts in HRW futures from 39,469 a week earlier. Speculators’ bearish bets in K.C. wheat had been at record levels since late February.

Livestock Calls:

Cattle:  Mixed

Hogs: Steady to weak

Cattle: Futures seen mixed after trade issues with Mexico were resolved offset by mixed to lower wholesale beef prices amid very light Friday sales. Cash cattle finished lower last week but on a recovery trend by Friday as numbers proved tighter than packers expected, and feedlots were holding out for better bids after USDA reported a big drop in market weights.  In the week ended May 25 steers fell 7 lbs. to 842 lbs., down 7 lbs. from a week earlier and 6 pounds lower than a year ago. That’s a new low for the year and should see Choice leading the beef market rally.

Hogs: Futures seen steady to weak after futures posted sharp losses to limit declines on Friday, which may lead to followthrough selling today. The national cash hog price fell 73 cents, but cutout values did rise 18 cents on strength in loins and picnics. Plus, hog weight data shows rising tonnage amid expanding slaughter. Last week’s kill rose to 1.893 million head, up 107,000 head from a year ago. Pork export sales for the week ending May 30th were 33,800 MT, compared with the average of the previous four weeks at 32,750 MT. Pork sales to Mexico were lower than previous weeks. Pork sales to China were 17,400 MT, down from the last two weeks.  

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