Ahead of the Open: More Sideways, Choppy Trade Amid China Talks, Sluggish Holiday Export Sales

Posted on 12/05/2019 7:59 AM

Grain Calls          

Corn: Steady to down 2
Soybeans: Up 1 to 3 cents
Wheat: Steady to up 2 cents

GENERAL COMMENTS:  Grain and soybean prices continue their sideways and narrow price trends ahead of next week’s USDA WASDE Report and few new weather concerns.

This morning’s weekly USDA export sales report for the holiday week ended Nov. 28 showed disappointing overseas demand for U.S. grains and oilseeds. Wheat sales fell to 228,100 metric ton (MT), down 45% from the prior four-week average. Shipments fell to a marketing year low. Corn sales fell to 546,100 MT last week, down 18% from the prior four-week average and at the low end of trade estimates estimating 500,000-900,000 MT last week. Soybean exports sales slowed to 683,800 MT, down 55% from the four-week average. China bought almost 300,000 MT, with two-thirds switched from unknown destinations, confirming that Chinese buying with reduced tariffs may be over until a new deal is signed. The markets will likely trade the slowdown, but next week’s report will provide a better view on export demand after recent price weakness.

Banter between U.S. and Chinese negotiators continues with A Chinese Ministry of Commerce spokesperson telling reporters today that officials remain in close contact with their U.S. counterparts, and reiterating tariffs should be reduced proportionally as part of a phase-one trade deal. While there are only 10 days left ahead of the Dec. 15 imposition of further import levies by the U.S., investors continue to see little risk of the increased measures being implemented. Speaking in London yesterday President Donald Trump said discussions with China are going very well. “We will make a lot of progress,” he said.

In Washington, China’s Ambassador to the U.S., Cui Tiankai, said the two sides are trying to resolve their differences over trade, but warned some are trying to undermine those efforts. "At the same time, we must be alert that some destructive forces are taking advantage of the ongoing trade friction [through] extreme rhetoric such as 'decoupling,' the 'new Cold War,' and ‘clash of civilizations,'" Cui said in remarks at a U.S./China Business dinner.  Cui did not specifically talk about the status of the trade talks, but said China remains committed to expanding bilateral trade and investment between the two nations.

Rising meat and vegetable oils prices led global food prices higher during November, despite a slide in cereal prices amid record-setting production, according to the Food and Agriculture Organization of the United Nations (FAO). Its food price index averaged 177.2 points in November, a 2.7% gain from October and 9.5% above year-ago levels. 
Oil prices are holding recent strength after Oil Minister Prince Abdulaziz bin Salman, in Vienna for the OPEC meeting, said he is willing to raise Saudi Arabia’s production slightly if other countries keep failing to meet agreed output levels, according to delegates. But if they comply, Riyadh would lead the way in deepening cuts, they said. Tanker-tracking data compiled by Bloomberg show that oil exports from the Middle East fell to their lowest level since July last month. 
Stronger oil prices and a weaker dollar this morning are underlying positive factors for the grain and livestock markets.

The USDA daily export reporting service did report private U.S. exporters sold 245,000 metric tons of soybeans for delivery to unknown destinations.  Of the total, 120,000 MT is for delivery during the 2019-20 marketing year and 125,000 MT is for delivery during the 2020-21 marketing year. Those sales announcements may lend light support to soybeans today.

Corn: Futures are testing short-term support this morning leading to a test of bull’s resolve and bears willingness to sell more. Meanwhile, National Economic Council (NEC) Advisor Larry Kudlow is developing a new plan to bolster biofuel-blending requirements after ethanol proposals in politically important farm states complained the current proposal doesn’t do enough to compensate for waivers exempting some small refineries from the mandates.

SoybeansFutures are moving up on short covering but lack much strong new buying interest. Palm oil futures extended their rally to a two-year high today in Malaysia. Palm oil production will fall below use, tightening supplies after dry weather and reduced fertilizer applications cut output potential in Malaysia and Indonesia.

Wheat: Winter wheat futures seen steady to up 2 cents with spring wheat leading the upside with gains of 2 to 3 cents. Algeria’s state grains agency purchased around 500,000 MT of milling wheat in an international tender, reportedly from France and Argentina. Japan purchased 91,220 MT of food-quality wheat from the U.S. as well as 69,420 MT of the grain from Canada in a regular tender.  For the first 10 months of 2019, Russia exported roughly 26.4 MMT of wheat, down 10.4 MMT (28%) from last year during that period, according to official customs data. This year’s crop is smaller. In addition, Russian wheat prices have recently climbed.  

Livestock Calls

Cattle: Steady/weak
Hogs: Mixed/weak

Cattle: Almost 900 head of cattle sold at the online Fed Cattle Exchange auction yesterday at an average price of $118.36, a gain of more than $2 to $3 from auction sales the week ending Nov. 20 and roughly in line with last week’s national average cash cattle price.  The softening in the boxed beef market has curbed market expectations for higher cash trade this week. Choice boxed beef dropped $3.20 and Select tumbled $2.00 on Wednesday, with 153 loads changing hands. The spread between the two is narrowing at a time when that gap typically widens—a worrisome signal that marketings are not as current as suspected. USDA’s weekly export sales report showed beef sales plunged to 500 MT for 2019 with 2020 sales limited at 11,700 MT. Shipments fell 27% below the prior four-week average.

Hogs: Lean hogs may rise on an uptick in 2019 pork exports. USDA reported net sales of 30,600 MT, up 20% from the prior week and 5% better than the four-week average. Mexico bought 10,900 MT and China purchased 10,300 MT. However, shipments slowed 22% from big exports the past four weeks. Also, for 2020, USDA reported net sales reductions of 1,400 MT after China cancelled 8,500 MT. Wholesale pork cutout values rose 39 cents Wednesday on light to moderate sales. Average hog weights in the Iowa/southern Minnesota market edged another 0.1 lb. lower the week ending Nov. 30 to 287.0 lbs., still up 5.5 lbs. from year-ago despite record kills. The abundance of pork coming to market has made it tough for lean hog futures to put together a lasting rally and emphasized the importance of strong pork exports.  

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