Ahead of the Open: Grains, Soy Slipping Lower on China Deal Questions, Harvest Ramping Up

Posted on 10/15/2019 8:10 AM

Grain Calls

Corn: Down 3 to 5
Soybeans: Down 4 to 6
Wheat: Down 4 to 6 cents

General Comment:  Grain and soybean markets are retreating amid doubts about the size of future Chinese imports and the ability of U.S. and Chinese negotiators to take a verbal deal and turn into to actual written deal. China also asking for U.S. to rollback tariffs already in place to reach the $50 billion ag product good purchasing  agreement. The harvest window is opening this week and traders are eager to the latest field reports.

Farmers who delayed planting in waterlogged fields this spring face a new threat as they race to harvest their crops. Snow and high winds over the past several days buffeted northern Farm Belt states where many farmers faced historic planting delays last spring; the early blizzard bookended a trying year for U.S. farmers. Harvest activity has finally started picking up for many grower this week.

South American weather forecast has rains for most of Argentina as well as southern Brazil over the next 5 days---the rest of Brazil is quiet---the 6 to 10 day has rains for Brazil with Argentina turning quiet---temps are below in Argentina and above in Brazil.

Bloomberg News is reporting this AM that China wants real US tariff cuts to enable them to secure $50 billion of US ag goods. China would only make that move if President Trump rolls back levies put in place since the trade war began. Beijing is suggesting it may need more time to negotiate an accord, even as the Trump administration suggests a deal could be signed with Chinese President Xi Jinping at APEC in November. High levels of uncertainty remain.

China has already bought 700,000 MT of U.S. pork and 700,000 MT of U.S. sorghum this year to meet market demand, along with 320,000 MT of cotton, 230,000 MT of wheat and 20 MMT of U.S. soybeans, according to Foreign Ministry spokesman Geng Shuang. Over the weekend, Chinese state media warned of uncertainties and cautioned against being “overly optimistic” about negotiations. But on Monday, the Chinese foreign ministry confirmed that progress was made on issues including agriculture, intellectual property protection, exchange rates, financial services, the expansion of trade cooperation, technology transfer and dispute settlement. An editorial from China’s state tabloid Global Times published today also echoed the more hopeful tone with a commentary under the headline, “The breakthrough in China-U.S. [talks] should be celebrated instead of being dismissed.”

Surging pork prices pushed China's consumer inflation to a near six-year high in September, complicating Beijing's effort to stimulate growth but also giving it a strong incentive to buy more agricultural goods from the U.S.. The consumer-price index rose 3% in September from a year earlier, bumping up against Beijing's inflation target of "around 3%" this year. The rise in consumer prices accelerated from August's 2.8% expansion and topped a median forecast for 2.9% growth from economists polled. The main factor was surging pork prices, up 69% from a year earlier--the fastest rise in 12 years. China must rely on its own ­resources to ensure its food ­supplies, officials said in a white paper released yesterday, ­dimming hopes among overseas producers that Beijing will expand imports to meet domestic ­demand. Data overnight showed China’s factory deflation worsened in September due to slowing output growth and falling raw material prices, adding to signs that the country’s domestic slowdown is an increasing drag on the struggling world economy. That news came amid fading optimism about an easing in the trade war as China indicated it needs to go over some details before signing. Import taxes on all remaining Chinese shipments to the U.S. are due to today.

The International Monetary Fund’s role as a promoter of cooperation faces its biggest test in a decade as the 189-nation organization meets in Washington this week to wrestle with how to heal a world economy fractured by trade dispute. the IMF is set Tuesday to slash its 2019 global growth forecast for the fifth straight time — each for the same reason. Tariffs and other implements of trade combat are taking their toll on everyone from farmers to manufacturers and in economies across the globe — not just the U.S. and China.

USDA’s daily export sales reporting agency reported U.S. exporters sold 142,579 metric tons of soybeans for delivery to unknown destinations during the 2019/2020 marketing year. The sale is not a surprise and too small to give a boost to the market this morning.

Corn: December corn opened lower after failing to hold gains yesterday. The market slipped below Monday’s low late in the overnight and session and is testing key gap support at $3.88 to $3.92 3/4. This morning.

SoybeansNovember soybeans probably need to limit losses today or market bears will say the rally is over and yesterday’s retreat marked the top as traders bought China trade deal rumors and now are selling the fact, with some question developing about the deal itself.

Wheat: The wheat market is following corn lower and plentiful global supplies available at lower price than U.S. export offers.

Livestock Calls

Cattle: Steady-higher
Hogs: Steady-higher

Cattle: Futures seen mixed waiting for more the cash market to show some strength this week. Lighter cash cattle trade last week resulted in an average price of $109.21, up roughly $2 from the week prior. The light nature of the sales could lead to trade earlier trade this week, especially on the Southern Plains. Packer profit margins have stabilized near $230 a head. Live and feeder cattle futures posted solid gains to start the week, with October live cattle trading at a modest premium to the cash market. November feeder futures are also just slightly above its respective cash index. Boxed beef prices strengthened on Monday, but movement was light at 82 loads.

Hogs: The market’s failure to hold continue higher after the China trade deal announcement late Friday suggest the premium already offered in the hog futures fully reflects the China buying. Still, retail pork prices surged 84% from year-ago in the week ending Oct. 2 amid a devastating outbreak of African swine fever, according to ag ministry data. Prices actually moderated to some degree in the weeks leading up to this month’s National Day holiday, but the price rally is expected to accelerate going forward. “Every week it’s a new record, notes Jim Huang, chief executive of the consultancy China-America Commodity Data Analytics.

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