Ahead of the Open: Grains, Soy Seen Extending Weekly Corrective Bounce

Posted on 08/09/2019 7:55 AM

GRAIN CALLS:

Corn: up 1 to 2 cents
Soybeans: Up 4 to 6 cents
Wheat: Up 1 to 4 cents

General Comment: Corn, soybeans and wheat are seen higher and extending the first weekly gains in four weeks as traders reduce positions ahead of the USDA’s reports on Monday that may provide some clarity on planted and harvest acreage and yield trends for this year’s row crops. Solid weekly U.S. wheat exports lent some support to wheat futures on Thursday, encouraging investors to shrug off news that Saudi Arabia will relax its import rules on bug damage, opening the door to Black Sea origins including more Russian wheat imports.

Near- to below-normal temperatures linger over the next week, followed by a warmer period as upper-level high pressure forms near the central U.S. The rainfall setup is ambiguous, but it will be leaning drier, especially from Iowa to Ohio where dry conditions are raising crop stress.  Showers are needed in several spots soon to prevent permanent damage. Rains in the west and north will provide beneficial moisture to both corn and soybeans.

A rebound in energy prices provided some support although there remained ongoing concerns in the markets about the impact of a protracted trade war between Washington and Beijing. Still, China bought small amounts of U.S. soybeans, wheat, sorghum and pork last week, according to U.S. government data issued on Thursday, in what may be the last such sales to China before this week's suspension by Beijing of purchases of U.S. farm goods as tensions with Washington escalate.

The White House is delaying a decision on licenses that would allow U.S. companies to restart business with Huawei Technologies Co. after China said it was halting further purchases of U.S. farm goods, according to Bloomberg News. Huawei – which continues to try to reduce its reliance on American companies – unveiled HarmonyOS today, designed to potentially replace Google’s Android as the operating system in the company’s handsets.

China's factory gate prices shrank 0.3% in July, the first monthly drop time in three years, stoking deflation worries and adding pressure on Beijing to deliver more stimulus as the economy sputters amid an intensifying trade war with the United States. With demand slowing at home and abroad, Chinese manufacturers are having to cut prices to keep market share, depressing profit margins and discouraging the fresh investment needed to get the economy back on its feet. Producer inflation in other major economies such as the United States and Germany has also been tepid lately, raising questions about the durability of global demand as the year-long U.S.-China trade war looks set to get longer and costlier.

USDA daily export announcement service said private exporters reported no large new export sales in the past 24 hours.

Corn: December futures extended this week’s gain back above $4.20 but fell short of resistance at $4.20 ½ to $4.22 ½. An estimated 60% of French corn crops were rated “good” or “excellent” in the week ending Aug. 5, down from 61% in the previous week and below a year-earlier score of 62%, FranceAgriMer said in a weekly cereal crop report. That marked the sixth consecutive week that ratings have fallen. The decline was more marginal than in previous weeks, however, suggesting an easing in temperatures and showers last week may have brought some relief to crops.  

Soybeans: November futures are up against resistance near $8.90 this morning with strong resistance at $9.00. Futures are following the lead of the soybean oil, with reached the highest since April 15 overnight.

 Wheat: Futures seen firming on technical buying after bouncing away from the 100-day moving average last week and rising through the 20-day moving average this week. SRW futures are still about 6 to 7 cents below their 200-day moving average.

LIVESTOCK CALLS:

Cattle: Mixed
Hogs: Steady to weak

Cattle: Futures seen trading another mixed session, trying to pare this week’s declines, Wholesale beef prices mixed on Thursday with Choice up another 39 cents and Select slipping 34 cents lower. The spread is now at $24.51, signaling very tight supplies choice and prime grading beef cattle. That will continue to lend support to the cash market, but packers refuse to share the profits.  Slaughter this week is down 1,000 head from a week ago and up 3,000 head from a year ago, so packers are tapping captive supplies or pulling animals ahead.

Hogs:  Lean hog may slip in early trading after the national average cash hog prices fell another $1.52 on Thursday.  Slaughter this week is estimated at 1.852 million head, up from 1.778 million a year ago. However, wholesale pork cutout values rose 29 cents, led by gains in Loins and bellies. Sales were sluggish. Lithuania's State Food and Veterinary Service (VMVT) reports that this week, two new cases of the African swine fever (ASF) have been detected in non-commercial pig farms in Antanavas and Kazlu Ruda. Both farms had kept only one pig each. ASF continue to be confirmed wild and hunted boars. A federal judge on Thursday dismissed antitrust lawsuits accusing several large U.S. pork processing companies of conspiring to limit the supply of pork in order to inflate prices and their own profits at the expense of consumers and other purchasers. The defendants included Hormel Foods, JBS USA, Smithfield Foods, and Tyson Foods, among others.

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