Ahead of the Open: Mixed Grains on Oil Surge Versus Negative U.S. Weather

Posted on 09/16/2019 7:56 AM

Grain Calls

Corn: Steady to up 1 cent
Soybeans: Steady to down 2 cents
Wheat: Steady to up 2 cents

General Comment: Corn, wheat and soybeans found initial support from the surge in oil prices last night but have settled back from daily highs as oil prices gave back their initial strong gains.  The weather leans negative and traders are looking for more clues to China demand for U.S. commodities and upcoming trade talks. 
With no threat of frost or freezes in the coming week will keep crops developing favorably. Next week’s cooling is not expected to generate damaging conditions, but the situation will be closely monitored. In the meantime, Argentina is still too dry and will stay that way this week. Brazil’s weather this week will bring rain to the far south while center west and center south stay hot and dry. U.S. crops that are still filling and maturing will experience a good mix of rain and sunshine this week with more drying possible next week. There will be some ongoing need for greater rain in the west-central high Plains. Good drying conditions will push early season summer crops toward full maturation in the Delta and southeastern states as well as Texas. Additional rain this week in the Northern Plains will not bode well for unharvested wheat quality and fieldwork will be slowed.  The big question in front of the market is: “has the rain received last week helped fill out late developing plants, or has it merely delayed maturity?”   Traders are looking for a 1 to 2 percentage point drop in corn and soybean “good” to “excellent” crop ratings in tonight’s weekly USDA report.     

Just days after President Donald Trump was discussing easing sanctions against Iran, he’s now threatening a U.S. military response if it’s proved the Islamic Republic staged yesterday’s attack on Saudi Arabian oil facilities. We start the week with a record intraday jump in the price of oil, with Brent crude futures surging as much as 20% as Saudi Arabia rushes to restore oil production after a drone strike on a key Aramco facility cut its output in half, removing about 5% of world supply. Gains have since been cut in half but remain sharply higher. Washington is standing by to deploy U.S. emergency oil reserves, while the assault, claimed by rebels in Yemen but blamed on Iran by the U.S., also demonstrates just how vulnerable the Saudi economy is to escalating tensions in the region. If an Iranian hand is found behind the raid, doing nothing would set a bad precedent, while retaliation risks starting a conflict that could spiral out of control. For Trump, there appear to be no good options.

China's slowdown deepens as industrial output growth fell to 17-1/2 year low. Retail sales and investment gauges worsened too, reinforcing views that China is likely to cut some key interest rates this week for the first time in over three years to prevent a sharper slump in activity. Despite a slew of growth-boosting measures since last year, the world's second-largest economy has yet to stabilize, and analysts say Beijing needs to roll out more stimulus to ward off a sharper slowdown. In particular, the value of delivered industrial exports fell 4.3% on-year, the first monthly decline since at least two years, Reuters records showed, reflecting the toll that the escalating Sino-U.S. trade war is taking on Chinese manufacturers.

Trade talk focuses on reports that China has allocated a duty-free tariff rate quota for 5 million metric tons (MMT) US beans for the four quarter. Trade thinks they purchases from 1.0 to 2.0 MMT last week with most off the PNW. PNW rail bean bids have firmed 17 cents over last week. There were days where there were no bids. Adding 30 cargos to the PNW loading program has also firmed rail values. At the same time cash bids for Brazil beans have fallen to around 75 over with offers off to 119 over for Oct-Nov. This compares to 140 over offers last week. Even new crop offers are soft at 58 over for February shipments, 43 over for March, and 30 over for April.

Meanwhile, The U.S. will agree not to raise tariffs or introduce curbs to import quotas on Japanese cars when the country’s leaders meet next week, the Tokyo Shimbun newspaper said Monday. As part of the deal work out last month on the sidelines of the Group of Seven, would lead to Japanese concessions on U.S. agricultural imports.

USDA’s daily export sales reporting service announced private exporters sold 256,000 metric tons of soybeans for delivery to China during the 2019-20 marketing year. This confirms another portion of the rumored business and more will be needed to match last week’s expectations.  

Corn: Futures are seen steady to firmer on strength in oil prices that may help to support ethanol demand and fund short covering activities. The weekly CFTC traders report showed funds increased net-short positions by 17,028 futures and options to 136,399 in the week ended Sept. 10, slightly more than expected and likely to remain a positive factor depending on upcoming harvest reports.

Soybeans: Soybeans are waiting for more confirmation of Chinese buying. CFTC reported funds increased net-short positions by 18,610 contracts to 91,737 as of last Tuesday. A potential source of short-covering support with confirmation of Chinese buying or U.S. crop deterioration.  NOPA's August crush data is due out on Monday. Analysts polled by Reuters expect, on average, a crush of 162.018 million bushels, which would be the biggest August crush ever. Soyoil stocks were seen dropping to a 21-month low of 1.410 billion pounds.

Wheat: Futures are seen steady to firmer in further consolidation of recent declines. The market is still searching for confirmation of its seasonal lows amid worries about the final 25% of the U.S. spring wheat harvest and drier weather conditions developing in parts of the Southern Hemisphere.

Livestock Calls

Cattle: Steady to mixed
Hogs: Firmer

Cattle: Cattle will be mixed to start today with futures waiting for cash trade to develop this week after rebounding from earlier weakness. Boxed beef cutout values were steady on Select and higher for Choice on Friday on good demand and offerings. But prices were lower for the week. Packer margins were estimated at $385.88, down from $395.16 a week earlier. 

Hogs: Look for a steady to firm start on followthrough to last week’s rally but cash market weakness will limit gains without a turnaround.  CME hogs will maintain an expanded 4.5 cent limit on Monday after closing up the maximum allowed by the exchange on Friday. October futures rose $2.975 last week with December surging $6.225 on expectations for stepped up Chinese pork imports.  However, Pork cutout values fell $5.11 last week, led by a $19.02 drop in bellies. Cash hog prices in Iowa/Minnesota fell $9.75. Slaughter rose to 2.611 million head last week, up from 2.323 a week earlier, underscoring the record supply of market-ready animals for this time of the year.  It will take time to balance of the excitement over possible Chinese purchases and efforts to resolve the trade war against large domestic supplies.

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