Ahead of the Open: Grains, Soy Seen Mostly Higher on U.S. Planting Delays and Renewed China Deal Optimism

Posted on 04/15/2019 7:50 AM

Grain Calls

Corn: up 2 to 3 cents

Soybeans: up 4 to 5 cents

Wheat: Mixed; down 3 cents to up 3 cents

General Comment:  Slowed U.S. spring planting amid the budding hope for a US/China trade deal in coming weeks should underpin grain and soybean prices today. Confidence that China and the U.S. will narrow their differences on trade is growing while talks between others get underway. The European Union this morning gave negotiators the green light to begin discussions with the U.S. on eliminating tariffs on industrial goods while an ongoing dispute over aircraft manufacturer subsidies threatens the imposition of new tariffs by both sides. This week in Washington, a delegation from Japan begins bilateral trade talks as Prime Minister Shinzo Abe seeks to avoid becoming the next China for Trump.

Treasury Secretary Mnuchin said the Chinese trade talks are nearing their final round, which still isn’t fast enough for grain traders. Mnuchin told reporters Saturday. He said administration officials, including U.S. Trade Representative Bob Lighthizer, would have a pair of conference calls this week with Chinese negotiators to clear up the remaining issues and that they were “discussing whether more in-person meetings are necessary.” Mnuchin cautioned that despite making progress, he wanted to “be careful ... this is not a public negotiation ... this is a very, very detailed agreement covering issues that have never been dealt with before.” He declined to elaborate on what had been agreed to. “I don’t want to get into the details of the negotiations, specifically on tariffs,” he said

China is reluctant to relinquish control over its domestic grain stockpiles, an issue that has been a sticking point in a broader U.S.-China trade deal, according to America’s top agricultural trade negotiator; China is unwilling to open its corn, rice and wheat markets to broader market forces that would allow for freer imports, Gregg Doud, the chief agriculture negotiator for the U.S. Trade Representative said; China subsidizes its domestic corn and rice growers, which unfairly boosts supplies and limits imports

While the weather pattern will moderate in temperatures the next two weeks, it will not moderate in precipitation. At least three strong storms will keep much of the central and eastern U.S. wet and warmer temperatures will melt last week’s heavy snows, adding to the flooding concerns. Traders will be looking for corn planting to be 5% to 6% completed as of yesterday in the weekly report tonight, compared with about 6% on average the past five years and 3% last week. Spring wheat planting may be 6% to 7% complete, up from 16% on average and 2% last week.

Meanwhile, Thunderstorms in recent days somewhat eased dryness on Brazil’s second-corn with more storms expected the next 7 days. In Argentina, corn and soy harvesting will slow this week but as much as 15% of the double-crop soy at risk from dryness and yield losses. Spain will get some rain relief this week, but northern and parts of Eastern Europe wheat slips with the drier and warmer weather this week. It is too early for yield impact from weekend freeze in France. Showers this week continue to ease dryness and aid Ukraine wheat. About 30% western Australian wheat is still too dry for seeding after weekend rain. India will likely see average monsoon rains in 2019, the country’s state-run weather office said today. Specifically, it forecasts the country will receive 96% of the 50-year average.
By the way, this is a short trading week, with the markets closed on Friday in front of Easter. We also have only two weeks to go before first notice day on the May contracts.

USDA did report a new large daily sale this morning. Private exporters reported to the U.S. Department of Agriculture export sales of 140,000 metric tons MT of soybeans for delivery to unknown destinations during the 2018/2019 marketing year.

Corn market is seen up 2 to 3 cents and trading above the April 9 high before prices tumbled to new lows after the USDA WASDE report.  Key resistance starts at $3.66 ¼ and runs up to $3.75 this week. The weekly CFTC report showed funds increased their record net short to 271,746 futures and options in the week ended April 9, up a larger-than-expected 25,011 contracts from a week earlier. Commercials moved to a net long position for the first time since data began in 2006.This trade setup remains the potential fuel for a major rally in response to a U.S./China trade deal, sustained planting delays into May or some economic catalyst.

Soybean futures are firming this morning with May futures back above $9. Key resistance remains the April 4 high at $9.07 ¼.  March crush from the National Oilseed Processors Association will be out later this morning and it is expected to show about 169.15 million bu. of soybeans were processed last month, down from a record 171.90 million a year ago. The CFTC report showed funds reduced net-short positions 2,855 contracts to 71,314 futures and options last week when most were looking for an increase in bearish bets. It remains the biggest bearish bet for this time of the year. Commercials flipped to net-short 866 futures and options, from net-long position to 1,539 contracts. But commercials remain the largest ever for this time of the year despite record supplies coming quickly from South America

Wheat futures are mixed with winter wheat lower and spring wheat high. Data from the ag consultancy SovEcon shows that Russia has exported 31.702 MMT of wheat nine months into the 2018-19 marketing year, which is nearly in line with the previous year’s shipments at this point. Early in the year, Russia’s aggressive exports pushed sales well ahead of year-ago, but that pace has slowed dramatically as stocks dwindled. Still, SovEcon raised its 2019-20 wheat crop estimate to 83.4 MMT, up from 80 MMT previously. Managed funds cut net-short HRW wheat positions for a second week in the last three to 47,793 futures and options, down from a record 51,380 on March 19. Funds were net short a record 54,269 contracts in the SRW market, down from a second straight week from a record short 73,508, CFTC data showed on Friday.

Livestock Calls:

Cattle: Steady to firm

Hogs: Steady to firm

Cattle futures seen steady to firm on steady to firm wholesale beef prices and improvement sales last week. Choice beef prices rose $1.91 last week and Select gained 74 cents. Warmer temperatures will fire up the grills and boost beef demand. CFTC data shows funds increased net-longs 704 futures and options contracts to a record 148,941 contracts last week while commercials increased net shorts to a record hedge of 230,528 contracts. 

Hog futures seen steady to firm on rising cash hog and wholesale pork prices on Friday. The national average cash hog rose $1.81 to $76.37 on Friday and up 58 cents for the week. Pork prices led gains, up $3.87 last week. Slaughter fell to 2.384 million head last week, down from 2.458 million a week earlier. Slaughter was still up 12,000 head from a year earlier. On April 11, USDA announced record weekly pork export sales of 90,700 metric tons (MT), including a record 77,732 MT sold to China. More sales are expected in the months ahead with China looking to supplement lost production to African swine fever. China’s total hog herd dropped 18.8% in March versus year-ago, the country’s ag minister reported over the weekend. Funds raised bullish bets 13,691 contracts to 50,482 net-long futures and options last week. Commercials raised hedge positions to 144,725 contracts.  

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