Ahead of the Open: Grains, Soy Seen Strong as U.S. Planting Delays Take Center Stage

Posted on 05/14/2019 8:06 AM

Grain Calls

Corn: up 6 to 9 cents
Soybeans: Up 14 to 16 cents
Wheat: Up 3 to 6 cents

General Comment: The grain and soybean markets posted strong followthrough gains to reversals in the corn and recoveries off the lows in soybeans on Monday amid escalating trade tensions between the U.S. and China. The story has now shifted to wet U.S. weather and mounting planting delays that are threatening planted acreage and yield potential.

The central U.S. weather forecasts lacks any sustained period of dryness for a wide-open window of planting.  Some showers and thunderstorms dot the Corn Belt and Dakotas through Thursday including parts of Iowa and Illinois today and tonight. A series of frontal systems will work across the Plains and Midwest starting May 18 through most of next week. The heaviest totals will be seen from eastern Kansas through Illinois and north to Minnesota. The major issue is the lack of incentive offered by the market to mud in crops prior to early June. 
China and the United States have agreed to keep talking about their trade dispute, the Chinese government said on Tuesday, as U.S. President Donald Trump said he thought recent discussions in Beijing would be successful. The slightly more optimistic comments came after both sides ramped up their trade war, with China announcing details of new tariffs against U.S. imports on Monday, following a U.S. move last week to target Chinese imports.

President Donald Trump said Monday that he feels talks with China “are going to be very successful” as he confirmed he will meet President Xi Jingping at next month’s G-20 summit. U.S. President Donald Trump said on Monday he has not made a decision to go ahead with tariffs on another $325 billion in goods from China and said he plans to meet with Chinese President Xi Jinping at the G20 summit next month. Speaking several hours later at a dinner gathering at the White House, Trump said it should be clear in "three or four weeks" if a U.S. trade delegation's trip to Beijing two weeks ago was successful. World stock markets are recovering some of the worst of yesterday’s sell-off as hopes of a deal linger.

Federal Reserve Bank of New York President John Williams warned that central banks around the world should be reviewing their strategies to prepare for a future of slow economic growth and low interest rates. Williams told Bloomberg News that tariffs are a supply shocks and probably will boost inflation by an additional 0.2% in the next year. Rising inflation expectations may also lend support to increased investment in commodities including grains as a hedge against price increases that can hurt stock values. Remember stocks relative to commodities are at a record high.

The daily USDA export report for large sales said private exporters sold 180,000 metric tons of soybeans for delivery to unknown destinations during the 2018-19 marketing year. That should give the market some additional boost this morning.

Corn market gapped higher overnight after forming a bulliish key reversal up on Monday. Prices are still below levels that would trigger aggressive fund short covering but the chart picture is turning more bullish. Corn planting advanced just seven percentage points over the past week to 30% complete, five points slower than expected and a dramatic 36 points behind the five-year average. Illinois has seeded just 11% of its intended acres (82% on average), with Indiana 6% planted (57%), Iowa at 48% (76%), Minnesota at 21% (65%) and Nebraska at 46% planted (72% on average).  Odds are rising for more prevent-plant acres and what corn is planted late will likely be subject to some yield drag.

Soybeans futures are following grains higher and finding light support from less pessimism a further escalation in U.S./Chinese trade relations. USDA reported 9% of the crop had been planted, whereas analysts surveyed by Reuters expected that figure to come in at 15% complete. Progress now lags the five-year average by 20 percentage points.

Wheat futures seen building on Monday rally amid signs of improved demand and worries about U.S. production. USDA reported spring wheat planting jumped 23 points over the past week to 45% complete, which was 10 points more advanced than anticipated. But that’s still well behind the  2014 to 2018 average pace of 67% complete at this point in the season. Still, recent rains have done the winter wheat crop more good than harm, according to USDA, which again rated 64% of the crop in “good” to “excellent” condition. That included a three-point shift from the “good” to the “excellent” category The Russian intervention price for wheat was announced and it works back to $185/MT fob. No tonnages were announced, but the Russian intervention price has acted to put a low in the wheat markets in recent years.

Livestock Calls:

Cattle:  Steady to lower

Hogs: Steady to weak

Cattle futures seen lower to start on followthrough selling after sharp losses on Monday and expectations for lower cash cattle this week after packers paid $2 to $3 lower last week. However, wholesale beef prices moved higher on Monday with Choice up 47 cents and Select jumping $1.43. Sales were slow to moderate and need to pick up to sustain the rally. Export demand also has been improving the last few weeks. Cattle are due for a seasonal low and the market is severely oversold and no long under pressure from fund

Hog futures seen steady to mixed. The National average cash hog prices rose 71 cents on Monday with Iowa/Minnesota up 48 cents. The wholesale pork cut out value jump $2.08 on Monday. Sales were slow and will need to show improvement to sustain a rally in futures. The CME Group is bringing bacon back to the exchange starting next month. The new Fresh Bacon Index was designed to provide producers, packers, wholesalers and retailers with a weekly price to track changes in supply and demand transacted in the cash markets and reported by USDA.

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