Ahead of the Open: More Choppy Trade Ahead of Friday's USDA Supply and Demand Report

Posted on 11/05/2019 7:51 AM

Grain Calls

Corn: Narrowly mixed
Soybeans: Steady down 2 cents
Wheat: Steady to up 2 cents.

General Comment:  Grains seen steady to firm and soy softer to start today amid continue positioning ahead of the USDA’s Nov. 8 Crop Production and World Supply and Demand estimates. Average yield estimates for Friday’s WASDE versus the October WASDE are corn, 167.2bpa, down from USDA October estimate of168.4 BPA. Soybean yields seen at 46.6 bpa, down from 46.9 bpa. So, the consensus has formed around lower yields for corn and beans. U.S. corn and soybean usage and China soy usage and imports will be other key data.

On Monday, USDA reported that U.S. Winter Wheat plantings are 89% complete versus 85% last week, 83% a year ago, and 88% average. Conditions were seen 57% good to excellent versus 56% last week and 51% a year ago. The U.S. Corn harvest is 52% complete versus 41% last week, 74% a year ago, and 75% average. The crop was rated 58% good to excellent versus 58% last week. The U.S. Soybean harvest was 75% complete versus 62% last week, 81% a year ago, and 87% average

Weather leans negative in South America as the recent drying trend is ending. Many areas from Mato Grosso, Bolivia and Paraguay through Mato Grosso do Sul to southern Minas Gerais, Sao Paulo and Parana will experience a notable boost in precipitation over the next ten days. Worry over ongoing and developing dryness will be put down – at least for a while – and much improved planting, emergence and establishment conditions are expected as rain increases. In the meantime, northeastern Brazil will remain quite dry with a growing level of concern for unirrigated crops from northern Minas Gerais to Piaui, Pernambuco and parts of Bahia. Argentina will be mostly dry the next six days with more rain, mainly in western areas next week.

China’s asking price is becoming clear for Xi to head to the U.S. and sign a deal centered on agricultural purchases that Trump is seeking ahead of next year’s election. Beijing wants tariffs scrapped on as much as $360 billion of Chinese imports before Xi gets on the plane, according to Bloomberg News. The Chinese leader made a pledge to a trade expo today that the Phase 1 deal would lead to other measures to open China’s markets. Those remarks came as The Financial Times reported that the U.S. was debating whether to roll back levies on $112 billion of Chinese imports. Meanwhile, data from purchasing managers showed Chinese manufacturing continued to pick up in October. U.S. trade statistics due later may offer an insight on the tariff saga’s impact on U.S. imports and exports. But investors are doubtful: The European Chamber said many agreements reached last year saw “no follow-through.”

Equities in Asia gained on trade hopes after European stocks yesterday had their biggest gains in three weeks and shares in the U.S. hit a record high. Markets were further supported overnight after China’s central bank reduced the cost of one-year funds to banks for the first time since 2016. The yuan traded past 7 per dollar for the first time since August.

OPEC slashed its estimates for oil it will need to pump in the coming years. The producer group expects demand for its crude to decline about 7% over the next four years amid a flood of U.S. shale supplies. This could compel members, including Saudi Arabia, to reduce output even further from already agreed levels. In the market, crude oil prices are slightly higher on the back of trade optimism.

the U.S. trade deficit fell 4.7% to $52.5 billion in September as the country recorded its first petroleum surplus, but overall imports and exports otherwise fell under the weight of rising global tariffs and a slowing world economy. The United States imported fewer cars but sold fewer overseas in September. It also imported fewer cellphones, toys and games, but sold less food, feed and beverages abroad. The goods trade gap with China narrowed by $100 million to $31.6 billion, with exports to the country falling $800 million in September and imports from China falling $1.0 billion.

USDA daily export sales reporting services said private exporters did not report any new large sales.

Corn: December corn opened steady and held yesterday’s low at $3.83 and above last week’s low at $3.82, suggesting some short covering ahead of the USDA report.

SoybeansJanuary beans seen softer after an overnight rally faded. The market remains skeptical of any new benefits of a trade deal with China with clear details of Phase 1 deal.

Wheat: Futures rebounded as Egypt seeks optional-origin wheat for Dec shipment with offers France, Russia, Romania and Ukraine. Japan seeks 123,000 MT optional-origin wheat and the Philippines bought 35,000t optional-origin feed wheat. Meanwhile, soft wheat exports from the European Union in the 2019-20 season that started on July 1 had reached 8.8 MMT by Nov. 3, official data showed. That was 50% above the volume cleared by Oct. 28 last year. Ukraine has increased its grain exports by around 43% to 19.6 million tons in the 2019/20 July-June season buoyed by higher wheat exports, the agriculture ministry said Tuesday.  

Livestock Calls
Cattle: Steady to mixed
Hogs: Steady to slightly firmer

Cattle: Boxed beef values climbed again Monday, with choice firming $1.61 and select surging $2.87. But movement slowed to a crawl, with just 81 loads changing hands. That could signal a pullback for the product market lies soon, which could lead to a setback in futures, as well. Futures are also trading well ahead of the cash market and the market is technically overbought, which may also point toward a near-term correction. That said, momentum is clearly to the upside and packers are enjoying impressive profit margins.   Boxed beef cutout values were higher on moderate to good demand and offerings, support both packer bids and futures. The Choice and Select cutouts both jumped $7.76 last week pushing margins above $300 and keeping Slaughter running near capacity.  

Hogs:  The pork cutout value surged $3.11 to start the week, with all cuts rising and hams and bellies leading gains. Rising beef prices are likely shifting some business to pork. But movement was on the light side at 277 loads. Cash hog bids slid $1.67 on a national average basis yesterday, but that masked a 52-cent gain for the Iowa/Minnesota market and a 30-cent rise in the western Corn Belt. Monday’s kill was steady with week-ago and up 14,000 head from year-ago with packer margins near $50 a head and the highest for the year.  China's agriculture ministry said it will reduce the number of small-scale slaughterhouses to better prevent and control African swine fever; there are too many small slaughterhouses in some places in China, equipped with old facilities and backward production techniques, and checks on the pork quality are not done properly.

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