Ahead of the Open: More Gains on Phase 1 China Trade Deal Despite Skepticism

Posted on 12/16/2019 8:02 AM

Grain Calls          

Corn:  Up 3 to 6 cents
Soybeans:  up 6 to 9 cents

Wheat: up 6 to 9

 

GENERAL COMMENTS:  Corn, wheat and soybeans all extended Friday’s tepid rallies after traders digested the trade deal during the weekend and appear to expect it will be at least a  shot in the arm to U.S. grain and ag exports.

Nine weeks to the day that President Donald Trump announced the phase one trade deal with China, officials from both countries announced they had agreed on the details on Friday. The U.S. declared the 86-page document an historic achievement, and even China called it a major advance.  The grain markets shrugged it off because it’s less clear how China will follow through on pledges to boost American agricultural imports. The fine print on quantities is still secret and nothing is signed yet.

 

With this the last full trading week of the year and the fund trade highly skeptical of the deal to buy $40 billion of U.S. farm product imports, the risk is for increased short covering into January. The deal may be signed in early January and on Jan. 10 USDA may trim its U.S. corn and soybean crop estimates after the miserable harvest season.

As of Dec. 10, Funds increased net short positions in corn by 29,664 contracts to 114,801 futures and options and increased shorts in Soybeans by 13,509 to 112,528 contracts, both were more than expected. Funds also sold all three wheat markets last week. Funds reduced net long positions in SRW by almost 9,000 contracts to 11,603 contracts and increased HRW wheat net shorts by 9,907 contracts to 24,159 futures and options net short. Funds are once again holding record short position in spring wheat futures.   

 

Argentina put additional 5% taxes on corn, wheat to 12% and oilseeds to 30% for export, which was slightly less than expected 8 to 10% rate. Argentina gets longer term rains over the northern half of their ag areas with spotty dryness still likely during the next two weeks in southern growing region.

On Friday, The Rosario Grain Exchange took issue with the Buenos Aires Exchange, saying that soybeans were only 43% planted in Argentina versus 61% from the Buenos Aires Exchange, but they had wheat harvest and corn planting slightly higher.

 

Spot basis bids for soybeans and corn were steady to firm at U.S. Midwest river terminals on Friday, with hopes for increased exports rising after China agreed to buy $32 billion of additional farm products over the next two years, grain dealers said. Farm groups are eager to help China fill their shopping lists.

 

The USDA daily export reporting service said private U.S. exporters did not make any large new sales Friday. Traders will be watching for new Chinese purchases daily, but it may not happen until January.

 

 

Corn: Futures extended Friday’s gains to touch the highest in five weeks overnight, crossing back above the 40-day moving average. Next resistance is at $3.91, the 100-day moving average.

Soybeans: March futures failed to take out Friday’s high overnight. It will be important to see March rally and close above $9.31 ½ early this week to sustain new gains. Members of the National Oilseed Processors Association (NOPA) likely crushed 172 million bu. of soybeans in November, according to a Reuters poll. That would be down 3.4 million bu. from the all-time high crush in October but a record for the month. Soyoil stocks are expected to total 1.423 billion lbs., which would be unchanged from October and down 61 million lbs. from November 2018.

Wheat: both HRW and SRW rallied above Friday’s highs overnight but still need to close above the November highs to trigger more aggressive buying.

 

Livestock Calls

Cattle: Steady to firm
Hogs: Steady/firm

Cattle: Futures

Boxed beef cutout values were firm to higher on moderate demand and offerings on Friday.
The Choice cutout increased 64 cents to pare its weekly loss to $8.29 and the Select cutout fell $3.06. The Choice-Select price spread was $12.05 per cwt on Friday, versus $17.26 per cwt a week earlier. The reported boxed beef trade for the week was moderately active.  Packer beef margins for the week were a positive $126.42 per head, versus a positive $214.13 the week earlier, according to HedgersEdge.com. Funds increased net longs 2,799 contracts to 81,013 in the week ended Dec. 10 before prices surged to new highs on Friday.

Hogs:   After gapping higher and surging to a four-week high on Friday, Feb. hogs closed where they opened, leaving behind a $2 selling tail.  Feb. needs to clear Friday’s high at $71.55 to sustain a further rally. The pork cutout values slipped 20 cents to $81.88 last week while the national average cash price rose $1.25 last week to $47.94. Pork margins were a positive $66.36, down from $70.61 per head the week before. Funds increased net short positions 4,446 futures and options to 8,220 contracts in the week ended Dec. 10. Last week’s slaughter slipped to 2.763 million head, down 36,000 head from a week earlier but still up 152,000 head from a year earlier.
 

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