Ahead of the Open: Grains, Soy Set for Corrective Rebound, South America Remains Threatening

Posted on 01/11/2019 8:03 AM

Grain Calls

Corn:  Up 2 to 3 cents
Soybeans: Up 4 to 6 cents 
Wheat: Up 4 to 6 cents

General Comment: President Donald Trump closed off the only live negotiation on Capitol Hill to resolve the partial government shutdown, now poised to become the longest in U.S. history on Saturday. The shutdown has delayed the release of key USDA data just as China has resumed at least some purchases of U.S. agricultural products.  USDA’s annual Crop Production, Quarterly Grain Stocks, and Winter Wheat Seedings reports were all scheduled for release today and will be rescheduled once the government reopens. All three reports were expected to be mildly bullish. The lack of weekly export sales data has been more damaging as measurements of overseas demand are missed.

The markets succumbed to heavy fund selling and long liquidation on Thursday on disappointment the details of what the Trump Administration called an agreement to make substantial purchases of ag products were not released following this week’s trade talks in Beijing. The good news is talks will continue. U.S. Treasury Secretary Mnuchin said that Chinese Vice Premier Liu He will "most likely" visit Washington later in January for additional and higher-level negotiations. 
Overnight, Asian and European stocks rose with the U.S. stock markets off to a strong start. Gold and oil are higher, and the dollar is weaker, adding a positive background for the grains. Bloomberg reports that cash is pouring back into high-yield and leverage loan ETFs.  If December’s sell-off was about investors pricing in the potential for a very meaningful deterioration in U.S. and global growth, this turn in U.S. credit is the best evidence that the perception in markets of the economic outlook has changed to something less dire.  

South America weather forecasts remain little changed and still threatening.  In Brazil, rain will aid crops in southern areas but remain light and scattered elsewhere increasing crop stress. Amounts and coverage the next week will be closely monitored for any changes that would increase stress or bring beneficial rain. In Argentina, the concern of significant flooding continues with more rounds of heavy rain are expected across the northern third of the main corn and soybean growing region. Southern areas would welcome some rain, but forecasts call for more erratic coverage and amounts. 
On Thursday, CME announced lowering margins $100 for corn and $300 for soybeans effective after the close today. Margin cuts may prove to aid fund involvement depending on weather and U.S./China trade talk progress.  

Corn is seen rising to start trading after yesterday’s slide push prices back down toward key long-term support. Still, prices are heading for a lower weekly close and it will take a while to build a new based of support. Downside is limited.

Soybeans seen firming to start, paring this week’s decline on prices add back some weather premium with threatening weather in South America.  Traders still running blind on getting USDA confirmation of any new China buying of U.S. farm goods.

Wheat futures seen adding to this week’s gains on speculation that world demand will improve for U.S. wheat in the weeks ahead. 

Livestock Calls

Cattle: Steady-firm

Hogs: Steady-weak

Cattle futures seen steady to firm. Wholesale beef prices moved higher Thursday with Choice up 12 cents and Select gaining $1.30. Sales were moderately active. Slaughter this week is up 5,000 head to 477,000 from a year ago. Packers seen paying steady to higher prices to acquire supplies for next week.

Hog futures seen steady to weak as cash hogs halted their 10-day rally on Thursday, leaving futures premiums a bit expensive. The good news was wholesale pork carcass values rising 79 cents to $70.46 but sales were light. Still, it looks like the pork markets continues to curve out its seasonal low.

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