Ahead of the Open: Grains, Soy Weak Amid A Lack of a Bullish Spark

Posted on 11/11/2019 7:44 AM

Grain Calls

Corn: Down 2 to 4 cents
Soybeans: Down 4 to 7 cents
Wheat: Down 3 to 4 cents.

General Comment:  The government is closed today, and most U.S. markets are open except the government bond markets for Veterans’ Day holiday. Thanks to all who served to protect our country. 
Grain markets are under pressure after President Donald Trump said Friday that he has not agreed to rollbacks of tariffs sought by China, increasing doubt about when there may be a deal on Phase 1 of a trade deal will be signed. Prepare for another week nervously watching for any headlines from the U.S. or Chinese sides of the trade war after U.S. President Donald Trump over the weekend said China wants a deal “much more than I do,” in advance of a speech he’ll give Tuesday on trade at the Economic Club of New York, which investors will be watching for more clues. Senate Minority Leader Chuck Schumer (D-N.Y.), a longtime China critic, urged Trump to keep the pressure on China. “President Trump shouldn’t be giving in to China unless we get something big in return,” Schumer said on Twitter.

The trade will be looking for nearly 90% of the beans to be harvested as of Nov. 10 in Tuesday’s USDA weekly update with corn about 70% harvested. Otherwise, there isn’t much to look forward to for feeding the bull this week. We have been in a downtrend in the grains since the middle of October, it feels like harvest has been pushing prices down, but now with most of the beans in and the majority of the corn, harvest hedging should start to abate.

Precipitation is still expected periodically to interfere with corn and soybean harvesting and seasonably cool temperatures after this week coupled with shorter hours of daylight will limit drying times. All of this coupled with a slower pace at co-op and mills due to the requirement of drying grain will keep the harvest progressing slower than usual for an extended period of time. No serious harm is expected to corn, but soybean quality can decline the longer it stays in the fields.  After light to moderate snow and some rain move out of the Great Lakes area tonight, not much meaningful precipitation is expected the remainder of this week through Saturday, although a few spotty areas of light precipitation may impact a few areas. Two frontal systems will move across the U.S. crop region east of the Rocky Mountains during the Nov. 17-21 period producing some brief periods of rain and a little wet snow.

Brazil’s weather bottom line is mostly good, but the light and more sporadic nature of the daily rainfall will remain a concern for periods of drier and warmer weather that may come along to induce some crop stress. Improved soil moisture will be needed to ensure that crops will develop aggressively and yield well even if rainfall diminishes for a while. Northeastern parts of the nation will stay much too dry, but there will be some potential for at least a little rain next week However, pockets of dryness in parts of the Argentina’s important grain and oilseed production areas remain a concern. While no widespread critically dry bias is expected to develop, there will be a greater rainfall need soon to ensure the best crop development and production potential in the driest areas.

 The CFTC Commitment of Traders report on Friday showed funds sold more soybeans than expected but commercials and index funds were larger buyers last week. Funds sold 13,896 contracts to cut their long position to 58,429 futures and options, the first reduction in eight weeks. Index funds increased net-long positions for a 10th straight week to the highest since August 2018. Commercials cut net-short positions for the first time in eight weeks. In corn, fund increased net shorts almost 20,000 contracts to 104,846 futures and options, the third straight increase. Commercials cut shorts 903 contracts last week and index funds increased net longs more than 24,000 contracts to a net-long of 268,454, the most since August. Funds increased net shorts 4,540 contracts in HRW futures to 33,929 futures and options and sold 5,696 contracts in SRW to flip to a net short position of 654 contracts.  

Increasingly violent protests in Hong Kong are weighing on global stock markets which were already showing some nerves about progress on a U.S.-China trade deal. Overnight the MSCI Asia Pacific Index slipped 0.7% while Japan’s TOPIX index eked out a 0.1% gain despite a strengthening yen. In Europe, the STOXX 600 Index was 0.4% lower, S&P 500 futures pointed to a lower open on Wall Street, and gold was recovering some of its recent losses

USDA daily export sales reporting services said private exporters did not report any large new sales.
 

Corn: December corn is just above Friday’s lows to begin trading this week. The USDA report came in slightly bullish with both yield and U.S. ending stocks lower than the Oct. report. World stocks were also reduced and provided enough support for the corn market to close higher for the day. The numbers from the USDA weren’t bullish enough to offset the continued pressure from harvest as producers are moving corn to town with historically high basis levels. The lower yield on corn suggests the final yield in January can come down. But demand remains weak.

SoybeansJanuary beans did close lower on Friday as USDA did not change its production forecasts and raised carryover slightly by reducing crush demand. Prices fell to the lower since early October this morning. Palm oil prices extended their rally to the highest since January 2018 overnight, providing a lift to soybean oil futures.

Wheat: Futures are following corn lower despite USDA trimming this year’s U.S. crop by 42 million bu. and lowering carryover 29 million bu. However, USDA raised its world wheat carryover projection slightly. Look for some support to begin to develop as wheat establishment in a few unirrigated areas of China is not quite what it ought to be for this time of year. The same is true in many U.S. Plains and Midwestern locations. Southeastern Europe has been dry biased throughout its autumn planting season as well and too much rain as delayed planting in the North. Each of these areas still has favorable production potentials for 2020, but a little more vulnerability to winter weather extremes may exist this year because of poor establishment.

Livestock Calls
Cattle: Steady to firm
Hogs: Steady to mixed

Cattle:  Cattle futures closed higher Friday and should continue to firm to start this week. Higher cash sales and continued strong beef prices are leading the way higher. Choice boxes rose 83 cents to $239.12, the highest since June 2017. Selected rose 24 cents to the highest since Aug. 16. Beef prices may see some demand loss to turkey and ham for Thanksgiving but that should be short lived with cattle numbers predicted to fall in the fourth quarter and beef imports from Australia and New Zealand now going to China. The negative setup for cattle futures is the meeting November 17th between USDA Secretary Perdue and Brazil Ag Minister to discuss Brazil exporting beef to the U.S. and funds increasing net longs another 20,000 contracts to almost 61,000 futures and options.

Hogs:  Lean hog futures closed mixed Friday and more mixed trading is expected today with nearby futures under pressure from both weak cash hog prices and funds rolling longs out of December futures. However, pork demand is improving with cutout values up $2.03 to $82.67, the highest pork cutout value since Aug. 16.  A doubling of Chinese pork prices pushed consumer prices to a nearly eight-year high in October, as domestic challenges intensified amid the slowing of the economy and trade war with the United States. The consumer price index (CPI) rose to 3.8 per cent last month, the highest since January 2012, according to official data ­released yesterday. Adding to Beijing's food inflation woes, the price of poultry soared to almost 67% in October as increased demand pushed up those prices. Higher prices for pork and ­other meats fly in the face of Beijing's. With people spending more on food that leaves less for other items.

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