Ahead of the Open: Mixed Trading With U.S. Harvest Accelerating, China Buying Potential

Posted on 10/23/2019 6:39 AM

Grain Calls

Corn: Steady to down 2 cents
Soybeans: Steady to down 2 cents
Wheat: Steady to mixed

General Comment: Mixed trade expected with any China trade deal bullish influence waning after recent rally and waiting for actual new purchases. Midwest corn and soybean harvests are expected to put downside pressure on corn and soybean futures. The trade awaits upcoming harvest yield reports, U.S. corn, soybean and wheat export sales activity, USDA’s November WASDE, U.S. biofuel policy to determine if there will be a further decline in U.S. corn and soybean carryout to fuel further upside price action in corn and soybean futures.

State television in China is reporting the country will increase imports of certain goods, including agricultural, consumer and component products, as part of its effort to stabilize foreign trade, citing China’s state council. This is the first mention in Chinese media of the intent to purchase U.S. farm products, a development President Donald Trump and other members of his trade and economic team have previously noted. Beijing on Tuesday offered major Chinese and international soybean processors waivers that would exempt the companies from steep tariffs on imports of up to 10 million metric tons (MMT) of U.S. soybeans to cover December and January needs before the Brazilian harvest. The waivers, however, failed to unleash a flood of immediate buying as U.S. prices remained too high, according to U.S. export traders.

Forecasts for normal- to below-normal precipitation for a large part of the U.S. farm belt over the next two weeks should allow for more active harvesting in most areas. The USDA called the soybean harvest 46% done, compared with the 64% average. Corn harvest was 30% done on Oct. 20, versus 47% average and the slowest since 2009.  Yield reports continue to be on the good side of things, but again, it is not the first two thirds of harvest that will determine this production, but rather the last third.

South America weather leans negative with rain and showers further reducing soil moisture deficit areas. Some additional rain reached parts of Argentina but rain the next week will remain erratic and leaving areas too dry.

USDA daily export sales reporting services said private exporters sold 128,000 metric tons (MT) to unknown destination for delivery in the 2019-20 marketing year that began Sept. 1.  The news may give a boost to soybeans but traders would have rather seen a sale to China than unknown destinations.

Corn: December corn opened steady last night, tried to rally and headed lower this morning. Crude oil prices are lower this morning looking for the government inventory report to show stocks increased for a sixth week in a row, keeping the price of oil under pressure. Weekly ethanol data is also due this morning with expectations low.

SoybeansNovember futures came with ¼ cent of recent highs and gave back most of the gain by the close on Tuesday. Brazilian farmers were active sellers amid profitable new crop margins. Rumors abound on Chinese importers are not willing to chase soybean rallies. This is a political marketplace where trends are lacking.

Wheat: Futures rebounded overnight and retreated this morning. The markets continue to find light support from dry weather increased crop risks to Australia, Argentina, Ukraine and parts of eastern European and Black Sea region. Firming world prices are positive, but U.S. remains the most expensive variety in most destinations.

Livestock Calls

Cattle: Mixed
Hogs: Steady to weak

Cattle: Live cattle pausing waiting for signs of strong cash cattle bids to add premiums. Choice beef rose 80 cents Tuesday and Select surged $3.64. Movement was pretty light for the third day in a row at 105 loads. Little cash trade this week adds to the lack of buying interest today. U.S. beef inventories totaled 464.2 million lbs. at the end of September, down 5.7 million lbs. (1.2%) from August and 43.0 million lbs. (8.5%) from last year. The five-year average is a 25.5 million-lb. increase in beef stocks during September. Beef stocks are 15.6 million lbs. below the five-year average for September. USDA releases its monthly Cattle on Feed report on Friday.  Traders are looking for on feed numbers to fall about 1.2% from a year ago on Oct. 1 as placements rise 1.6% in September, according to the average of traders polled by Reuters. The range of estimates is large again this month from down 4.9% to up 7.6%.

Hogs: Futures fell to the lowest in two weeks yesterday and may open weaker this morning after the pork cutout value tumbled $2.43 on Tuesday, though that did encourage solid movement of 419.29 loads. The national average cash hog price fell 85 cents on Tuesday and Iowa/Minnesota bids were down $1.04. Slaughter remain near record levels, down 1,000 head from a week ago and up 31,000 head from a year ago. Chinese pork/hog prices soared this week to new record highs. A potential mini panic is developing over Chinese red meat production as domestic supplies tighten. Consumers/retailers are in a fight for the tightening supplies of Chinese red meats with the holidays just ahead. If China were to drop their retaliatory duties for U.S. pork as reports suggest, import margins would be massive with imports only constrained by logistics. This is no place to be bearish hog prices. China imports of pork this year are up nearly 44% through September while beef imports are up 53.4%, official data today show. U.S. pork stocks in freezers totaled 598.9 million lbs., down 7.9 million lbs. (1.3%) from August but up 9.5 million lbs. (1.6%) from September 2018. The five-year average was an 18.6 million-lb. increase in pork stocks during September

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