Ahead of the Open: Grains Trying to Stabilize After July Swoon but Exports Continue Weak

Posted on 08/01/2019 8:05 AM


Corn: Steady to up 2 cents
Soybeans: Steady to Down 2 cents
Wheat: Mixed

General Comment: Markets struggling to stabilize amid no immediate U.S. crop threat, a lack of concrete progress at the China trade talks this week and very sluggish U.S. export sales.

The U.S. Midwest weather outlook remains cooler and dry for Iowa, Illinois, Indiana and neighboring areas. Scattered showers occur in these drier areas next week, although the rainfall is not expected to be heavy or widespread enough to offer any huge reversal in moisture deficits that have been growing the past month. Temperatures likely turn seasonally warmer late next week, and some storms may develop but remain scattered.

Export sales in the week ended July 25 remain disappointing and will lean negative this morning. USDA said 383,100 metric tons (MT) of wheat were sold, down 42% from a week earlier and 2% below the already slow prior four-week average. Corn sold for export before Aug. 31 fell 43% below the four-week average while new-crop sales were light at just 129,600 MT. Soybean sales for delivery before Aug. 31 rose to 143,100 MT from the prior week’s tally of net cancellations. China bought some beans, switched some purchases from unknown and reduced prior purchases. New-crop sales were 305,500 MT and included 68,000 MT sold to China.

Chinese and U.S. negotiators are set to meet again in early September, this time on American soil. The talks that ended earlier this week in Shanghai may not have produced much concrete progress but working teams from the U.S. and China will be in “intensive” contact during August to lay down “good groundwork” for the September in-person trade talks in the U.S., according to China’s Ministry of Commerce. "With regards to this [week's] round of negotiations, both sides communicated over two topics: One is how we view the past—we mainly discussed why negotiations broke down and clarified our views on some economic and trade issues," ministry spokesman Gao Feng said Thursday. Still, there is little confidence for September meetings with many other escalating including Hong Kong, the South China Sea, Taiwan and Huawei Technologies Co.

The Federal Reserve cut interest rates on Wednesday for the first time in more than a decade, as it tried to keep America’s record-long economic expansion going by insulating the economy from mounting global risks and trade tensions. Stocks fell as the Fed Chairman Jerome Powell indicated this was not the start of a long rate cutting cycle and traders fear that with rates already very low the cut may not stimulate growth. Now the Fed is out of the way the next big thing is the July jobs report due out tomorrow, which will set the tone for the pace of activity in the second half of the year

World food prices eased for a second month running in July after five consecutive monthly gains, pushed down by falls in the prices of some cereals, dairy products and sugar, the United Nations food agency said on Thursday. The FAO cereal price index fell 2.7% from June due to lower wheat and corn prices but was still up 4.1% from its level in July last year.  The FAO dairy price index fell 2.9% from June, the second straight month of decline. The meat price index rose 0.6% in July from June, posting the sixth consecutive moderate month-on-month increase.  

USDA daily export announcement service said private exporters did not report any new large sales in the past 24 hours.

Corn: Futures are finding underlying support from the weather. Coolness has been positive for pollination in some areas, but dry weather is starting to show up as stress in fields from Iowa to Ohio.

Soybeans:  Soybean futures are struggling with the negative price action to finish July and concerns the U.S/China trade talks will continue into 2020. Export sales continue to disappoint. Later today, USDA is expected to report the June crush fell to 159.4 million bushels from 165.3 million in May and down from 169.6 million a year ago. Traders surveyed by Reuters predicted crush would fall between 158.6 to 161.0 million.

Wheat: Futures seen trying to consolidate recent declines but the weakness in weekly exports will limit rallies. Still some concerns about final European and Russian crop size after recent dry, warm weather will lend some support. Canada is also drying out too much. India's monsoon rains in the week ending on Wednesday were above average for the second time since the start of the season on June 1, helping farmers accelerate the planting of summer-sown crops and easing concerns of drought.


Cattle: Weak
Hogs: Weak

Cattle: Futures seen extending Wednesday decline. Wholesale beef prices were lower Thursday, but sales were moderately active. Cash cattle trading remains very quiet with most trades about steady with last week. Slaughter is down 2,000 head from last week’s pace. USDA said beef export sales were 11,300 MT last week, down 35% from the prior four-week average and shipments fell 9% from the four-week average.

Hogs:  Lean hogs will extend declines after three days of steep losses tied to fund liquidation and increasing cash hog volatility. Weekly export sales were disappointing at 8,800 MT as USDA reported China cancelled 12,200 MT last week. In additional, China reduced prior sales for 2020 by 2,500 MT. The weakness the last three days suggest exporters know what was coming today. Today, China confirmed another outbreak of African swine fever in its central province of Hubei. The ag ministry detailed this was on a farm with 32 hogs. Market players have been expecting too much China pork buying too soon. We have said the buying would be a second half 2019 and 2020 feature.  Cash prices moved $2.18 lower on Wednesday after surging in late July. August lean hogs now hold a discount to the CME lean hog index. Pork cutout values rose 46 cents on Wednesday and this week’s slaughter is 32,000 smaller than a week ago.  

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