Ahead of the Open: More Sideways, Choppy Trade With Little Fresh Demand News

Posted on 01/29/2020 7:56 AM

Grain Calls

Corn: Down 2 to 3 cents
Soybeans: Steady to up a penny
Wheat: Down 4 to 7 cents

GENERAL COMMENTS:  Soybeans are seen steady to firm but have already back off the best levels seen overnight on concern over the economic impact of the coronavirus outbreak on Chinese demand. Corn is giving back about half of Tuesday’s strong gains on profit taking ahead of today’s weekly ethanol production report and Thursday’s weekly export sales update. Wheat slipped further as the cereal market continued to retreat from one-year highs struck last week.   The markets are still awaiting signs of an increase in Chinese demand as promised in the signing of the Phase 1 trade deal on Jan. 15.  

The USDA daily export sales reporting service did not report any new large sales this morning.  

Trump will sign the implementing legislation for the U.S.-Mexico-Canada Agreement (USMCA) at the White House today. The signing will not have an immediate impact on trade or demand.

China Health Commission updated a 25% rise in new virus cases. There are nearly 6,000 cases reported and 132 deaths. There is some talk of food shortages developing in effected areas and China could soon enact duty-free imports for a host of U.S. Ag products in coming weeks. Two weeks ago, the U.S. and China completed a phase-one trade deal amid almost immediate doubts that Beijing’s commodity purchase pledges were achievable. That was before a health crisis gripped the world’s second-largest economy, making it even tougher to see how the export will materialize.  While the deal doesn’t go in effect until Feb. 15 and exporters are still sorting out paperwork, traders are growing impatient to see the follow-through after China’s pledge the boost purchases of American agricultural supplies by $32 billion over two years from pre-trade war levels

Few crop concerns are developing in South America. Increased rainfall in Uruguay, central and northeastern Argentina, southern Paraguay, north-central Brazil, and from Rio Grande do Sul into Parana, through Feb. 12 will add to confidence in this year crops.  The rain would be locally meaningful, and pockets of notable dryness will likely continue in Argentina and far southern Brazil. No threatening weather is seen on the horizon as a lack of strong ridging and high pressure on the models preclude an extended period of heat/dryness for much of South America.

Corn: March futures opened higher after Tuesday’s unexpected strong close. However, the market ran into fresh selling and ended the overnight session lower. Brazilian corn prices continue to rally on tight nearby stocks and the return of weakness in Brazil’s currency. Safrinha corn seeding lies just ahead and there’s massive inventive to maximize planted area. Positive soil moisture anomalies will also persist in Central & Northern Brazil into at least the latter part of February and could send safrinha acreage to a record of more than 13 million hectares.  Two South Korean importers purchased about 133,000 tons of corn in private deals without international tenders being issued. The corn can be sourced from optional origins.

Soybeans: Futures are slightly higher but down from overnight highs, struggling to spin a positive story for a sustain rally. Soybean oil prices are rising from an eight-week lows after Malaysian palm oil futures jumped the most in 11 years on Wednesday on expectations of lower output. The benchmark palm oil contract for April delivery on the Bursa Malaysia Derivatives Exchange rose as much as 9.1% in early trade before closing 5.9% higher. Indonesia will put an export tax of $18 per metric ton on crude palm oil from February, the first such action since May 2017. The tax comes as crude palm oil reference prices have risen to $839.7 per metric ton for February

Wheat: Futures opened higher but lacked buying interest to push above Tuesday’s session higher. Prices retreated and are now challenging Monday’s lows, key short-term support. Tunisia's state grains agency has asked one of its main grain suppliers to avoid importing French wheat due to continuing strikes at French ports which have hampered recent shipments.  Look for more shipments from Germany and other EU members rather than a shift to U.S. Supplies. Russia's agriculture ministry plans to set up quota on grain exports each marketing season which lasts from July 1 to June 30, the Interfax news agency quoted the deputy ministry, Oksana Lut as saying on Wednesday. The ministry does not see any to downgrade its forecast for Russia's 2019/20 grain exports from the current 45 million metric tons including 36 million of wheat, Interfax quoted Lut as saying.

Cattle: Steady to weak
Hogs: Steady to firm

Cattle:  Futures seen opening weak after prices failed to hold yesterday’s rally. The market is oversold and both February and April futures are $2 to $4 below the cash trade. The market continues to see pressure from funds liquidating longs that had reached more than 90,000 futures and options net long last week.  Choice beef slid 74 cents on Tuesday, while Select gained $1.66 on good sales. Both values are down a buck or two from week-ago levels. Last week’s forward sales were strong and continued a three-week period of trading at new five-year highs to start 2020.

Hogs: Futures seen steady to firmer after finding underlying support and closing higher yesterday.  But the market moved well off its highs by the close and only the front month was able to close Monday’s wide chart gap to the downside. Worries about the coronavirus have weighted heavily on a market that was already on edge about when big Chinese purchases of U.S. pork would materialize. Meanwhile, this week’s kill is already running 58,000 head above year earlier levels. Cash hog bids rose an average of 82 cents Tuesday, while Iowa/Minnesota prices gained $1.10, suggesting improving demand. Wholesale pork cutout values fell $1.38 but sales were active.

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