Ahead of the Open: More Selling Amid Coronavirus Potential Impact on China ,World Demand

Posted on 01/30/2020 8:05 AM

Grain Calls

Corn: Down 2 to 4 cents
Soybeans: Down 5 to 7 cents
Wheat: Down 4 to 7 cents

GENERAL COMMENTS:  Soybeans are heading for an eighth consecutive daily decline with prices set to open near a new six-week low touched overnight. Wheat and corn are also sliding lower amid the general economic malaise from the Chinese coronavirus outbreak and increased chart-based selling.
The coronavirus death toll rose to 170 and confirmed cases in China soared past 7,700, with ripple effects of the spreading illness raising threats to the economy. Airlines halt flights from China. Schools in Europe uninvite exchange students. Restaurants in South Korea turn away Chinese customers. India and the Philippines reported their first confirmed cases of the coronavirus, as the illness continues its global spread. At least one Chinese city and several provinces have extended the Lunar New Year holiday beyond Feb. 2 to control the spread of the virus. With the disease spreading across the globe, the World Health Organization is gathering Thursday to consider issuing an international health emergency.

 

Asian and European stocks fell overnight with U.S. futures pointing to a lower opening on Wall St. amid mounting evidence that the outbreak is disrupting company supply chains and consumer activity. Economists have started cutting growth forecasts as authorities tighten travel restrictions and lock down cities, while businesses suspend their China operations. Copper has posted its longest run of declines on record. Brent crude is below $59 per barrel from above $70 at the start of the month.  Barring an exponential escalation of the virus, it looks like raw materials are doing what they always do: vastly overprice new risks. What follows is usually a violent snap back when fundamentals come back in focus, and that includes the grain and livestock markets.  

 

China’s food demand is rising rapidly and that may spur increased imports. China’s COFCO has asked all its soybean crushers and rice processors to resume production, state television reported today. Slaughterhouses have also been instructed to reopen. The country is working to increase supplies amid an outbreak of coronavirus. Beijing has also instructed farmers to increase vegetable production and opened roads for delivery trucks to keep residents of locked-down Wuhan, where coronavirus originated, fed. The roughly 11 million residents of the city have stocked up on instant noodles, vegetables and other foods. While shortages haven’t developed, shelves have cleared quickly when goods arrive. Farmers are picking produce overnight and working long hours. China’s COFCO Group and the China Grain Reserves Corporation Group have increased supplies of rice, meat and cooking oil to Hubei province. The government has also promised tougher penalties for anyone attempting to profit from the situation.

USDA weekly export sales report showed better-than-expected corn business, wheat sales were near the top end of trade estimates, but soybeans were at the lower end of trade forecasts. Corn export sales rose 23% from the prior week to 1.235 million metric tons (MMT) and almost double the prior four-week average. Unknown destinations were the best buyers, taking 345,000 metric tons (MT). Wheat sales were down 7% from a week earlier at 646,300 MT but still up 49% from the four-week average. Soybean exports fell 41% from a week earlier to 469,700 MT with China the best buyer with 360,900 MT, but that included 210,000 MT that were switch from unknown destinations. Soybean meal sales were strong at 467,700 MT, but still down 11% from the prior four-week average.

 

The daily USDA export sales reporting service did not report any new large sales overnight. That will add to the demand concerns.

 

The South American weather forecast for Brazil remains active with rainfall for much of the growing regions over the next 6 to 10 days. That’s beneficial for immature crops but means some increased soybean harvest delays. The slower harvest increases production risks for the safrinha crop. The Argentine weather forecast turns drier for the rest of the week and weekend with another rain event seen early next week that will be closely watched as soils are drying out.

 

India's food ministry has sought more than $28 billion to run the world's biggest food welfare program in the fiscal year beginning April 1, three government sources told Reuters. Details on the level of subsidy will be made public when Finance Minister Nirmala Sitharaman presents the 2020/21 budget on Saturday. An inadequate allocation could force the state-run Food Corp of India, the main grain procurement agency, to borrow up to $2 billion outside of the budget. The United States wants India to buy at least another $5-6 billion worth of American farm goods if New Delhi wants to win reinstatement of a key U.S. trade concession and seal a wider pact. U.S. President Donald Trump cited trade barriers last year when removing India from its Generalized System of Preferences (GSP) program that allowed zero tariffs on $5.6 billion of exports to the United States. In retaliation, India slapped higher tariffs on more than two dozen U.S. products. Ahead of a Trump visit to New Delhi to meet Prime Minister Narendra Modi next month, negotiators on both sides are hammering out terms for a mini trade deal that would include New Delhi rolling back higher tariffs on some farm goods such as almonds, walnuts and apples.

 

Corn: March futures opened steady to firm but went nowhere and turned back to the downside. Prices are about 3 cents above this week’s low at $3.77 ¼, which is short-term support.

 

Soybeans: Futures are heading for a test of the Dec. 2 at $8.882 ½ this morning. Prices opened steady firm and quickly retreated with the global market selloff.

 

Wheat: Futures touched the lowest since January overnight and will remain under long liquidation pressure to start trading this morning. Additional warming is expected in the U.S. Plains late this week and during the weekend that will spread 50- and 60-degree Fahrenheit highs as far north as Montana and 60- and 70-degree readings in the central southern Plains. Such conditions will further reduce winter hardiness leaving the wheat crop more vulnerable to any sudden surges of bitter cold and raising the need for adequate snow cover before any bitter cold airmass arrives. Colder weather is needed to improve winter hardiness and to prevent premature wheat development that could lead to crop damage later this spring. Meanwhile, Egypt is tendering for an unspecified amount of wheat today for delivery from March 11 to 25. Russia's agriculture ministry said on Thursday it sees the 2020 grain crop at 125.3 MMT, the Interfax news agency reported. That’s up from 120.7 MMT last year. Still, Russia's winter grain sowings are faring better than in recent years with 5.7% of them classed as in a bad condition, Interfax news agency reported on Thursday. This winter in Russia, the world's largest wheat exporter, has been unusually warm and dry so far. In the southern North-Caucasus federal district, the situation requires special attention because more than 14% of the winter grain sowings there are not doing well. Pakistan’s Prime Minister directed the government to take all possible steps to reduce hoarding and price gouging to limit wheat and flour shortages.

 

Cattle: Steady to weak
Hogs: Steady to weak

 

Cattle:  Futures seen defensive to start on further long liquidation on weak chart signals and lower cash bids. Cash cattle trade reportedly got underway at $122 in Kansas and Texas yesterday, down $2 from the bulk of trade in these states last week, though USDA has yet to confirm action.  February futures are now trading basically in line with these early cash prices. The market is telling producers to get current. Market weights held steady at 1,377 lbs. last week from a week earlier but still up 9 lbs. from a year ago. Wholesale beef prices were mixed Wednesday with Choice up 67 cents and Select down 23 cents on moderate sales.  Today’s weekly export sales report showed net sales of 21,700 MT of beef in the week ended Jan. 23, down from 27,797 MT a week earlier. Shipments also slowed slightly last week to 15,577 MT. Look for traders to spend more time positioning the next two session ahead of Friday’s USDA semi-annual Cattle Inventory report.

Hogs: Futures seen weaker on the opening, but prices are oversold and continued strength in the cash hog market should help to put a floor under prices on further price declines. Weekly pork export sales rose to 34,090 MT last week, up from 30,334 MT a week earlier. However, China bought just 1,500 MT as Japan and Mexico continued to actively buy U.S. pork. Shipments remained active at 43,646 MT last week with China shipping 18,600 MT. The pork cutout value plummeted $4.67 on Wednesday, with loins, butts, hams and bellies all notching sharp declines. Recent heavy pressure on futures has narrowed the front-month’s premium to the CME lean hog index to $2.56. The chief executives of Brazil's largest meatpackers JBS SA, BRF SA and Marfrig said on Wednesday that China's meat imports will remain elevated in 2020 because of the lasting effects of African swine fever. JBS CEO Gilberto Tomazoni, speaking alongside BRF CEO Lorival Luz, told an event in Sao Paulo that he expects the impacts of swine fever on the global meat market to peak in 2020. Livestock producers are paying $1 more per bushel for corn than U.S. producers because of strong export demand and rising domestic use.

 

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