Ahead of the Open: Grains, Soybeans Take a Rally Pause Amid Warmer U.S. Forecasts

Posted on 06/18/2019 8:02 AM

GRAIN CALLS:

Corn: Down 7 to 8 cents
Soybeans: Down 3 to 5 cents
Wheat: Down 6 to 13 cents

General Comment: After a strong start to the week on Monday, grain and soybean futures gave back the early gains and closed below the openings as fund buying slowed. Corn futures dropped as much as 2% overnight and were headed for their biggest one-day decline in two weeks, weighed down by U.S. planting progress and forecasts for less heavy rain and warmer weather in the days ahead. Wheat dropped 1.5% last night, falling for the first time in seven sessions, while soybeans lost ground after climbing to their highest since early March. Funds are probably net long more than 200,000 corn futures and options contracts and 20,000 wheat contracts after Monday’s close They remain short more than 40,000 soybean futures and options.The markets are taking a pause as supply-driven markets need daily new threats to crops and warmer, drier forecasts have mitigated new risks this morning.

Returns on investing in commodities may be boosted as central banks ease monetary policy and governments take steps to offset the impact of global trade disputes, Goldman Sachs said in a report. The investment bank said it was forecasting 3-month total commodity index returns of 10% for the S&P Goldman Sachs Index and 9% returns on a 12-month outlook. The longer-term returns were lower due expected growth in oil supply will weight on crude oil prices.

The Federal Open Market Committee two-day meeting that starts today and concludes Wednesday will be a key pivot point. Perhaps the U.S. central bank can take its cue from its European cousin, which outperformed dovish market expectations this morning. European Central Bank President Mario Draghi gave the clearest signal yet that more easing could be on the horizon if the economic outlook doesn’t improve, spurring money-market traders to price in a 10 basis-point cut by December while bonds rallied anew. The euro fell against the dollar.

USDA daily export reporting service did not announced any new large overnight sales this morning.   

Corn: Prices have set back to the breakout point last week, so no damage to the rally. A couple of days of consolidation is bullish long-term. Improved weather in several areas enabled a relatively strong surge in corn plantings during the week ended June 16, with the 18-state figure climbing 9% to 92% complete. That compares to all recent averages at 100% complete at this time. Comparable 1995 and 1996 results were at “just” 95% at this date, thereby emphasizing the lateness of this year’s activity The USDA’s second 2019 reading for crop conditions showed now change from the 59% rated “good” and “excellent” a week earlier. That’s far below the comparable year-ago (78%) and five-year readings (75%). These latest numbers were mixed, with 9 states showing weekly improvement, whereas 6 saw reductions and 4 were unchanged. Ratings for the ‘I states” were all in the 50%-60% range with Illinois at 51%, Indiana at 50% and Iowa at 59%.

Brazilian farmers are expected to harvest a total crop of 101.2 million metric tons (MMT) of corn in the 2018-19 season, agribusiness consultancy Agroconsult said on Monday, revising up its previous forecast of 100.4 MMT.  The consultancy also estimates Brazil corn exports in 2019 at 38 MMT, up from 31 MMT projected in March. Brazilian pork and poultry processors, who have benefited from strong exports to China amid the African swine fever outbreak, are starting to feel the pinch now at home as prices soar for corn, the main ingredient in animal feed. The price spike has drawn comparisons to a corn supply squeeze in 2016, when a drought in Brazil hurt the local crop, driving up costs for meatpacking giants such as BRF SA and JBS SA. The higher corn cost would limit profit margins for the companies at a moment when pork exports, for example, are 40% up due to strong demand from China.  

Soybeans: July beans opened higher overnight but have followed corn lower this morning. Prices remain above the lows from Monday and have also found some buying interest at the 200-day moving average.   U.S. soybean farmers made a lot of planting progress last week, up 17 points to 77% complete as of Sunday. This figure is still way below last year’s progress, 96%, and the 10-year average of 92% complete. Producers in Ohio, Michigan, Indiana and Missouri are way behind even the slow progress of many of the states. Iowa farmers had a chance to make good progress this past week—up 19 points to 89% complete, although this is still 9 points below the 5-year average. Illinois producers also saw more opportunities this week with an increase of 21 points to increase their progress to 70% complete, compared with the 5-year average of 95%.   NOPA crush in May was smaller than expected at 154 mil bu. versus 159 mil in April and below trade estimates of 162 mil bu., the association said Monday.

Wheat: Winter wheat futures are seen lower this morning in a continuation of the late selling on Monday.  According to USDA, 64% of the 2019 U.S. winter wheat crop is rated in either “good” or “excellent” condition as of June 16. This was unchanged from the previous week and was slightly better-than-expected.  The portion of the 2019 U.S. spring wheat crop rated to be in either “good” or “excellent” condition slipped 4% in the week ended Sunday to 77%. Greatest declines were seen in Montana (-14%) and Washington (-7%) while condition ratings improved 4% in Minnesota. We suspect that the benefits from increased moisture along the Canadian border experienced over the weekend will help to bolster soil moisture levels in major U.S. spring wheat production areas this week.  

LIVESTOCK CALLS:

Cattle:  Mixed
Hogs: Steady-firm

Cattle: Live cattle futures seen mixed but may follow a higher trend expected in feeder cattle. Feeders seen supported by a drop in corn prices overnight. Live cattle gains may be capped by lower wholesale beef cutout values Monday with Choice down 41 cents and Select down 25 cents. Trade volume was light yesterday. Cash cattle will be slow to develop as feedlots hold supplies for better bids amid very current supplies.  

Hogs: Futures seen steady to firm after showing some stability on Monday. The market needs to quickly continue to move higher to improve the overall technical outlook. Cash markets are showing mixed trends to start the week and will need to lead futures rallies. The national average cash hog prices rose 29 cents on Monday but wholesale pork cutout values slipped 24 cents on Monday. Weakness in hams and loins offset gains in bellies, ribs and butts. Movement was light to moderate as slaughter rose 61,000 head above a year ago. China has banned the import of pork from the Canadian company Frigo Royal, saying that customs authorities found traces of the feed additive ractopamine in its pork products. Xinhua news agency reports that China’s customs administration will increase the number of inspections for ractopamine in Canadian pork shipments.

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