Ahead of the Open: Markets Continue to Digest USDA Acreage Shocker; China Trade Truce Provides Little Clarity, Comfort

Posted on 07/01/2019 7:49 AM

GRAIN CALLS:

Corn:  Down 1 to 2 cents
Soybeans: Up 1 to 3 cents
Wheat: Down 2 to 5 cents

General Comment: Corn, wheat and soybeans all opened higher last night and have retreated. Warm temperatures and some rains the past week have traders looking for U.S. crop conditions to improve in tonight’s weekly USDA Crop Progress Report.

The first weekend of summer proved to be quite favorable for summer crops produced east of the Rocky Mountains. A much-needed weekend of net drying and warming occurred in the majority of the Great Plains, Midwest, Delta and southeastern states. The break from frequent rainfall and often

milder-than-usual weather was welcome. This week will continue the highly favorable environment for crops, although slowly increasing rainfall and some cooling will occur as the week moves along

Very warm and hot weather slowly breaks from northwest to southeast over Wed.-Fri., then convincingly over the weekend as a strong cool front sweeps across the central U.S.  A seasonable to cool period then follows and lasts at least one week as the central U.S. becomes divided by heat to the southwest and coolness to the northeast.  T-storms form each day through next week as each air mass battles for position, producing above-normal rainfall across the northeast half of the central U.S., and near-normal rainfall to the south.

No one is really impressed by the U.S./China trade truce and controversy is building on the U.S. concessions regarding letting China's Huawei buy high-tech equipment from the United States.  President Donald Trump agreed to restart trade negotiations with China after meeting with the country's leader, Xi Jinping, during a Group of 20 summit in Japan on Saturday. Trump said he would scale back restrictions on Chinese telecom giant Huawei and delay slapping new tariffs on Chinese goods as talks resume between the two countries. Existing U.S. tariffs would remain. During a news conference, Trump revealed that China had agreed to buy a "tremendous" amount of U.S. farm and other products to reduce the trade imbalance and that the U.S. will give China a list of the goods it wants China to buy.

No timeline for the negotiations to restart or conclude was laid out by Trump. "If we make a deal, it will be a very historic event,” he stated. While seeking to reach a deal, Trump indicated, "I want to get it right." But in true Trump style, he also cautioned, “This does not mean there will be a deal. They would like to make a deal. I can tell you that. If we can make a deal it would be historic.”

Xi said China is sincere in continuing trade negotiations and managing differences with the U.S., according to the Xinhua News Agency, but negotiations should be based on equality and mutual respect and address each other's legitimate concerns. Xi also indicated China will safeguard its core interests when it comes to China’s sovereignty and dignity. The two sides will have to find a solution that is mutually acceptable, Xi stated. “"China and the United States both benefit from cooperation and lose in a confrontation," the Chinese leader told Trump. "Cooperation and dialogue are better than friction and confrontation."

On Friday, USDA said Chinese importers bought 544,000 metric tons (MT) U.S. soybeans for shipment in the 2018/19 marketing year. It was the largest U.S. soybean sale to China since late March, USDA data showed.  Now the trade will be watching weekly shipments closely to see if those beans get inspected for export. China has found the fall armyworm in the major corn-producing province of Shandong in the north, although it has not yet damaged any crops there, the government-backed Beijing News reported. That marks the 19th province where the destructive pest has spread to since it was first detected in the southwestern province of Yunnan in early January, stoking fears over grain output

Brazilian President Jair Bolsonaro announced last Friday that the European Union and the Mercosur region have reached a historic free trade deal that will expand Brazils access to the EU market. The deal will cut import tariffs on several ag products, including orange juice, instant coffee and fruits. Brazil says meat, sugar and ethanol will all gain access to the European market via quotas. Bolsonaro noted that talks have been ongoing since 1999 and that the trade agreement will be one of the most important trade accords of all time for his country. 

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

Corn:  Futures are weaker after USDA shocked traders Friday with a much smaller cut in corn acreage for this year. USDA shaved just 1.1 million acres off its corn plantings estimate versus March intentions, putting planted acres at 91.7 million. Traders had expected a 6.1-million-acre cut. Traders knew that the timing of USDAs survey and planting delays meant these   acreage figures are very much subject to change. As expected, USDA in a related briefing said it plans to resurvey corn, soybean, sorghum and cotton planted acreage in 14 states for its August Crop Production Report.   When USDAs June acreage survey was conducted, there was 16.7% of corn acres remaining to be planted, 41.2% of soybeans, 21.6% of sorghum and 16.1% of cotton still to be planted. As a result, the June acreage estimates leave as many questions as they provide answers. But the charts have turned lower and that will keep funds in a selling mode after pushing long positions to near 189,000 futures and options contracts as of the close on June 25.


Soybeans: Futures seen holding firm underlying after the department slashed soybean planted acres in Friday’s Acreage Report by 4.6 million versus March intentions to 80.0 million acres, whereas the market had expected minimal adjustments. The U.S. Department of Agriculture's monthly oilseed crushings report after the close tonight is expected to show that 164.3 million bushels, of soybeans were processed in May, down from a 171.6 million-bushel crush in April and the 172.4 million bushels crushed in May 2018. U.S. soyoil stocks at the end of May were seen declining to 2.082 billion lbs., the first drop in six months.

 

Wheat: The wheat is following corn to the downside as U.S. acreage come in near expectations.  Russia's Ikar agriculture consultancy said on Monday it had lowered its official "base scenario" 2019 production estimate for wheat to 79.3 million tons, from 80 million tons; the revised forecast followed three weeks of dry and hot weather in Russia's south, which had had a detrimental effect on the crop. Russian export prices for wheat rose last week as dry and hot weather added to continuing risks for all grain and sunflower seed crops in Russia.  India had its driest June in five years due to a delay in monsoon rains, the weather department said late on Sunday, raising fears for crops and the broader economy; overall, rains were a third below average,

LIVESTOCK CALLS:

Cattle: Steady to weak
Hogs: Steady to weak

Cattle: Live cattle will be steady to lower on weakness in the cash markets and followthrough selling to Friday’s weakness. Last week’s cattle slaughter was an estimated 665,000 head, up 3,000 head from a week earlier and 16,000 head larger than a year earlier. Boxed beef cutout values were firm on Choice and lower on Select on moderate demand and moderate to heavy offerings on Friday. The Choice cutout increased $0.63 per cwt from the day before to $219.66 per cwt but still down from $219.82 a week earlier. The Select cutout declined $1.34 to $195.56 and down from $199.55 a week ago. The reported boxed beef trade for the week was 530 loads, 15.5% higher than a week earlier.  Packer margins for the week were a positive $206.24 per head, versus a positive $195.57 the week before, according to HedgersEdge.com.

Hogs: Futures seen steady to weaker continuing the drop from Friday. The Average cash hog prices was down 80 cents on Friday. Wholesale pork cutout values fell 35 cents on light sales. Weekly hog slaughter totaled an estimated 2.384M head. The total year to date was 62.461M head, up 1.915M head or 3.2% above last year. Packer margins were negative $2.35 per head on Friday, compared with a positive $0.44 per head the week before.  The U.S. and China agreed on Saturday to restart trade talks after President Donald Trump offered concessions including no new tariffs to reduce tensions with Beijing.​ Traders are watching for improved pork sales to China, after Trump said Beijing agreed to buy more U.S. farm products during the weekend meetings. As many as half of China’s breeding pigs have either died from African swine fever or been slaughtered because of the spreading disease, twice as many as officially acknowledged May, according Reuters citing estimates from four people who supply large farms.

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