Ahead of the Open: Light Short Covering Gives Grains a Bounce Amid Positive China Trade Headlines

Posted on 12/04/2019 7:51 AM

Grain Calls          

Corn: Steady to up 1 cent
Soybeans: Up 2 to 5 cents
Wheat: Up 1 to 3 cents

GENERAL COMMENTS:  Corn and soybean prices are moving higher, consolidating recent steep declines while wheat futures may try to resume their recent rallies. The markets are finding light support from positive China trade headlines, a weaker dollar and stronger crude oil prices. But the markets lack a strong supply or demand story to sustain rallies or continue to move lower.

Today’s headlines are more optimistic for a China deal but the Trump Administration is opening new trade tensions with France with tariffs on Champaign, cheese and other items in response to a new digital tax on U.S. technology and new metal tariffs against Brazil and Argentina for currency devaluation. According to a new Bloomberg News report the U.S. and China are moving closer to agreeing on the amount of tariffs that would be rolled back in a phase-one trade deal and Chinese agricultural purchases.

President Donald Trump's son-in-law Jared Kushner has added another role to his long list of White House duties -- U.S.-China trade negotiator-- as Washington and Beijing try to reach an initial agreement to avoid new U.S. tariffs on Dec. 15. People familiar with the talks told Reuters that Kushner, who helped bring the U.S.-Mexico-Canada trade agreement (USMCA) to fruition, has increased his direct involvement in the negotiations with China over the past two weeks. While the talks have made some progress, these people said the two sides have not yet agreed on the extent to which the United States will remove existing tariffs on Chinese goods and on specific commitments by China to increase purchases of U.S. agriculture products. But sealing a deal with the China could prove daunting. China warned U.S. over Uighur bill, raising doubts over early trade deal China warned that the U.S. House of Representatives bill calling for a tougher U.S. response to Beijing's treatment of its Uighur Muslim minority will impact bilateral cooperation, clouding prospects for a near-term deal to end a trade war.

Global stocks tumbled Tuesday after President Donald Trump signaled he may not sign a trade deal with China until after next November’s election. Even with today’s reports of trade talk progress the markets are still debating whether Trump’s comments were posturing for negotiations or an admission talks are not going as well as expected.

Meanwhile, the World Trade Organization’s appellate body won’t have enough active members to rule on new trade cases. That means the world’s trade referee will cease to function properly at the very moment when it’s needed the most.

The USDA daily export reporting service said private U.S. exporters sold 20,000 metric tons of soybean oil for delivery to Morocco during the 2019-20 marketing year this morning.

Corn: Futures are trying to build a base of support near $3.60 basis December futures. Traders will be watching today’s weekly ethanol production report and waiting for Thursday’s weekly export sales report for direction into week’s end.    

SoybeansFutures head for a second day of gains after testing support at the September lows on Monday. The rebound remains corrective and prices could rally 20 cents without shifting the negative trend. Weather remains beneficial for Brazil soybean development and less so for Argentina. But some forecasts are hinting at rains in 10 days that would be timely relief for Argentina crops.

Wheat: Winter wheat futures are firmer, halting a two-day consolidation of recent gains.  Egypt bought 295,000 metric tons (MT) for late January delivery with the five Russia wheat sales up about $3/MT from the last purchase. While Egypt remains bullish on wheat values as the purchase price creep high, the U.S. is still not in contention for winning any new business because of higher freight costs and U.S. supply price premiums. Traders will be watching Iraq, a major Middle East grain importer, which announced plans to purchase 750,000 MT of wheat from abroad in 2020. U.S. sales and shipments are behind last year’s pace.  

Livestock Calls

Cattle: Steady
Hogs: Mixed to firm

Cattle: Cash cattle was quiet Tuesday and more of the same is expected today. Futures are looking for a firm undertone with packers needing some inventory to maintain active slaughter rates to meet year-end demand. However, beef prices slumped Tuesday with Choice down $2.46 and Select sliding 67 cents on improved sales totals.

Hogs: Yesterday’s rally was a surprise amid negative China trade headlines but market strength underscores underlying China import demand. Today reports on the front are more encouraging, with some saying the president’s comments simply reflect his love of using leverage to get a deal. Cash hog bids rose an average of $1.26 nationally yesterday, but the pork cutout value slumped $2.25.

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