Ahead of the Open: Mixed to Weaker Tone to Start Ahead of Friday's USDA Reports

Posted on 02/07/2019 7:29 AM

Grain Calls

Corn:  Steady to mixed
Soybeans: Steady to mixed
Wheat:  Down 2 to 4 cents

General Comment: Grain markets remain quiet and stuck in very narrow ranges awaiting the USDA updates tomorrow on 2018 final crop sizes, Dec. 1 inventories, winter wheat seeded acreage and global supply and demand updates. The markets have been moving sideways for much of the past two months in part because of a lack of USDA data but also uncertainty about U.S./China trade. Friday’s USDA data dump remains the focus ahead of the U.S. trade team visit to Beijing next week to negotiate further terms of a new deal. The impact of the U.S./China trade tensions continues to play out in world markets amid slowing demand in China. Earlier today, the European Commission slashed its growth outlook for the Euro zone to 1.3% in 2019, down sharply from its 1.9% growth rate forecast in November. The commission blames a slowdown in Germany, Italy, and the Netherlands, along with the U.S./China trade war for the slower growth rate.

The USDA on Thursday did not confirm any additional Chinese soybean purchases. On Wednesday USDA announced 586,000 of 2018-19 soybeans and 63,000 of 2019-20 beans sold to China. On Tuesday, USDA announced 2.603 MMT sold to China while 612,000 MT announced sold on Monday.  

No change in South American weather outlooks.  Rainfall coverage and totals were limited the past 24 hours, but showers are picking up with most of Brazil likely to receive normal rainfall the next two weeks. Argentina continues a drier trend with scattered storms popping to maintain an overall good crop yield environment.

Corn is seen starting fractionally weaker. The market continues to see selling on rallies after Wednesday’s report showed U.S. ethanol production in the week ended Feb. 1 plunged 8.5% from a year ago.  The United States has asked Brazil to consider lifting tariffs imposed on its ethanol exports and is hopeful of a positive outcome, a senior official at the U.S. Department of Agriculture said; Brazil currently charges a 20-percent tariff on ethanol imports surpassing 150 million liters a quarter. U.S. ethanol exports are reaching China tariff-free after unloading in Malaysia and getting mixed with domestic supplies and re-exported to China, according to Reuters.  This morning, USDA reported export sales in week ended Dec. 27, fell 65% below the prior 4-week average to just 503,100 MT.

Soybeans seen steady to weaker as large global inventories limit rallies as China trade deal optimism waning. U.S. exporters sold 1.052 MMT in the week ended Dec. 27, including 808,000 MT to China, that were not reported in the daily USDA reporting service because of the government shutdown. That may add some light support. However, U.S. soymeal exports sales week ended Dec. 27 fell 85% from the prior 4-week average to the lowest since the marketing year began.

Wheat futures will start lower led to the downside by winter wheat futures amid worries about new export demand going forward. Sales in the week ended Dec. 27 were up 3% from the prior four-week average at 593,000 MT

Livestock Calls

Cattle: Steady to weak

Hogs: Weaker

Cattle futures seen steady to weaker in follow-through selling to Wednesday’s retreat. Wholesale beef markets were mixed yesterday with Choice up 55 cents and select slumping 73 cents. However, sales were light with slaughter up 7,000 head this week from a year ago. The Fed Cattle Exchange online auction on Wednesday reported slightly firm trade between $124 and $124.50 on small sales totals. Packers still want to buy animals lower.

Hog futures seen weak to start after failing to hold gains on Wednesday and closing near session lows. Fresh pork carcass prices fell 61 cents with most cuts lower. Bellies rebounded and that is a key to improving stability in the market. Sales remained moderate. The average national direct cash hog price dropped 43 cents yesterday. Slaughter the first three days of this week is up 40,000 head or 2.9% from a year ago. This morning’s export sales report for week ended Dec. 27 showed improved sales for 2019 with China buying 15,200 MT. That should provide some new support to the market that has been lacking clues on exports during the government shutdown.

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