Ahead of the Open: More Fund Short Covering on News on China Tariff Cuts and New Sales

Posted on 12/23/2019 8:10 AM

Grain Calls

Corn:  Steady to up a penny
Soybeans: Up 1 to 3 cents
Wheat: Up 1 to 3 cents.

GENERAL COMMENTS:  Soybeans and grains seen trading firmer on fund short covering, some new buying and improving chart pictures. However, trading will be light with upcoming holidays and that can lead to increased volatility. Markets around the world will be closed Dec. 25 for Christmas, with the U.S. federal government also shuttered on Dec. 24.
USDA daily export sales reporting services said Private Exporters sold 126,000 metric tons (MT) to China on Friday. That followed a similar sales announcement last Thursday and a positive development for soybean trading today.

Traders concerned that China deal could end up a short-term truce are breathing a little easier after Beijing announced plans to cut import tariffs for frozen pork, pharmaceuticals and some high-tech components starting from Jan. 1. The plan, approved by China’s cabinet, will lower tariffs for all trading partners on more than 859 types of products to below the rates that most-favored nations (MFN) enjoy, the Finance Ministry said today. MFN rates are the lowest possible tariffs a country offers to its trading partners. Monday’s tariffs cuts may be a way for China to import more from the U.S. without violating international trading rules that ban managed trade.

U.S. Trade Representative Bob Lighthizer previously said he expected the 86-page, nine-chapter agreement to be signed by him and Chinese Vice Premier Liu He in early January in Washington and released publicly then. Lawyers for both sides are reviewing the accord before signature. Lighthizer expects it will come into effect 30 days after the signing.

The outbreak of African swine fever this this has boost China buying of global meat supplies. China imported 229,707 MT of pork during November, which was more than a 150% increase from year-ago levels and the highest figure since at least January 2016 (when Eikon record-keeping began), according to Chinese customs data released today. Wholesalers were working to build up supplies ahead of the Lunar New Year celebrations. For the first 11 months of the year, China has imported 1.733 MMT of pork, a 58% increase from the year prior. The country’s imports of poultry also surged during November to 77,895 MT, a 71% rise from year-ago. And China’s beef imports last month of 186,984 MT represented a 79% surge from year-ago. For the first 11 months of the calendar year, China has imported 1.47 MMT of beef, a 57% gain from last year. Corn imports fell 17% in November, but year-to-date purchases are still up over 30% at 4.06 MMT. Wheat imports more than doubled in November from October leaving January-November imports up 4% from the pace a year earlier.

The weekly CFTC Commitment of Traders report showed a week of hefty fund buying across the principle 10 Ag markets. Funds were net buyers in every single market. Funds covered short positions in corn, soybeans, meal, hogs, and HRW wheat and spring wheat. Funds added to long positions in soyoil, SRW wheat, live cattle, and feeder cattle markets. Across all 10 markets, funds were net buyers of about 127,000 contracts cutting their net short position to a net 17,000 contracts. Additional short covering into a US/China Phase 1 Deal signing will keep a firm tone under the market amid expectations for looming purchases of U.S. farm goods.

 

Argentina will see upwards of 1 ½ times the normal precip.  during the next two weeks, alleviating dry spots and boost crop conditions. Most of Brazil will see normal precip. into early January. The dry areas of northeast Brazil will remain below normal precip.

Corn: Futures are likely to build on two straight weekly gains amid recent signs of slowly improved corn exports and hopes for increased Chinese buying of corn, ethanol and DDGs.  Meanwhile, Trump administration officials and staffers have met several times recently and will eventually announce funding for E15 buildout, including labeling, pumps, underground piping and tanks. “Serious cash” will likely be unveiled possibly next year, one source said. A similar program announced by then USDA Secretary Tom Vilsack was dubbed “Priming the Pump” but some Trump officials want another name for the upcoming cash infusion. Cash markets remain firm on light farmer selling of both corn and soybeans that will keep a firm undertone to the futures during the holidays.

Soybeans: March soybeans are set to follow through on three consecutive weekly gains this week on expectations for increase Chinese buying. Some Chinese hedge buying was seen last week and may continue this week in anticipation of new cash purchases in 2020 when the trade deal is finalized.  

Wheat: Futures are heading for another firm week on fund short covering and export demand

Livestock Calls
Cattle: Steady to lower
Hogs: Steady-weak

Cattle: Futures likely to open steady to firm. Wholesale beef prices rose Friday, paring weekly declines. The cash markets came in slightly higher last week and that bodes well for packer demand heading into 2020. Analysts did a good job anticipating the roughly 2% rise in the number of cattle and calves on feed as of Dec. 1, but Placements during November were several percentage points higher than anticipated and Marketings at 97% of year-ago levels were just a bit lighter than anticipated, giving the report a negative read.

Hogs:  Market is likely to start steady to firmer on speculation China will be boosting U.S. pork purchases in 2020. Cash hogs were slightly higher Friday, paring their small weekly losses and increasing talk cash markets are making a low. Wholesale pork cutout values were down 17 cents Friday, capping a $5.34 weekly decline. Slaughter slowed to 2.763 million head last week from a record 2.799 million head a week earlier. Later today, USDA will release the quarterly Hogs & Pigs survey. Traders surveyed by Reuters expected the hog herd advanced 3% on Dec. 1 from a year earlier as the number of hogs kept for breeding rose 1.6% in the quarter and market hogs rose 3.1%.  

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