Ahead of the Open: Grains, Soy Heading for Weekly Gains on Rising China Buying Expectations

Posted on 12/20/2019 7:45 AM

Grain Calls

Corn:  Steady to up a penny
Soybeans: Steady to up 1 cent
Wheat: Up 2 to 3 cents.

GENERAL COMMENTS:  Soybeans and grains seen trading in mixed trends today with underlying bullish technical signals and potential looming Chinese buying providing support.

China will make good on a pledge to purchase more than $40 billion per year of U.S. agricultural products under the recently agreed Phase 1 trade deal between the two countries, China's top agriculture consultancy Shanghai-based consultancy JCI said on Friday. JCI estimates China can buy a total of roughly $41.3 billion worth of U.S. farm products annually, including around $18.7 billion - or 45 million metric tons (MMT) of soybeans,  $2.073 billion worth of frozen pork and offal (1 MMT), $1.840 billion worth of DDGs (8 MMT), $1.760 billion worth of corn (8 MMT) and $1.425 billion worth of wheat (5 MMT)

USDA’s daily export sales reporting service said private exporters did not report any new large sales in the past 24 hours. That’s follows yesterday’s announcement of the sale of 126,000 MT of soybeans for delivery to China during the 2019-20 marketing year, the first since the trade deal was tentatively approved last week.

China Leader Xi Jinping isn't planning to attend Davos in January, but President Donald Trump plans to attend the confab. Beijing still plans to send its top trade negotiator, Vice Premier Liu He, to Washington to sign the Phase 1 deal in early January. U.S. Treasury Secretary Steven Mnuchin said on Thursday the United States and China would sign the phase one trade deal at the beginning of January.

Favorable crop weather could boost production in Argentina and Brazil, increasing global supplies and competition for export sales to buyers like China. Rains will ease dry conditions in southern Argentina and bring relief to drier areas of Brazil into the next 10 days. Forecasts are wetter and will limit rallies. Argentine soy planting advanced 8.9 percentage points over the last week, reaching 70.2% of expected sowing area thanks to rains that relieved excessively dry conditions, the Buenos Aires Grains Exchange said in a report on Thursday. Corn planting progress advanced 8 percentage points to 63% completed.

Corn: Futures are heading for a second weekly gain after falling to a three-month low earlier this month. The action is suggesting that major cycle low has formed. But upside remains dependent a significant increase in export demand.   

Soybeans: March soybeans are heading for a third straight weekly gain. Much of the buying has been funds buying back large net-short positions. Tonight’s’ weekly CFTC Commitments of Traders report will be closely monitored for the size of that buying.

Wheat: Futures are heading for a second weekly gains improved export demand. Competition will remain intense, but global buyers are looking to extend coverage with the recent price action hinting that cycle lows have formed.  Iran has reportedly bought up to 1 MMT of wheat in recent weeks, with origins expected to include Russia and several European Union countries. Japan’s ag ministry purchased 58,801 MT of food-quality wheat from the U.S., as well as 66,769 MT from Canada and 27,835 MT from Australia.

Livestock Calls
Cattle: Steady to lower
Hogs: Steady-weak

Cattle: Futures likely to remain under pressure from sliding beef prices. Both Choice and Select cutout values fell 58 cents on Thursday on light sales. Slaughter remain heavy this week and packers paid steady to firmer prices for cattle, an offsetting positive development. Trading will be quiet ahead of the USDA Cattle on Feed Report Friday after the close. Total Dec. 1 cattle on feed is expected to rise 2% from a year ago as placements rise 1.1 in November and marketing fall 2.2%, according to a Reuters survey of analysts.   

Hogs:  Market is likely to start weaker on lower cash hogs and wholesale pork prices on Thursday. Slaughter remains near a record pace this week, adding to the near-term supply concerns.  Underlying buying should develop on expectations for continued strong Chinese demand for U.S. pork.  On Monday, USDA will release the quarterly Hogs & Pigs survey. Traders surveyed by Reuters expected the hog herd advanced 3% on Dec. 1 from a year earlier as the number of hogs kept for breeding rose 1.6% in the quarter and market hogs rose 3.1%.  

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