Ahead of the Open: More Sideways, Choppy Trade Until USDA Data Later This Morning

Posted on 02/20/2020 6:47 AM

GRAIN CALLS

Corn: Down 1 to 2 cents
Soybeans: Down 4 to 6 cents.
Wheat: Down 2 to 4 cents.

GENERAL COMMENTS: Wheat and corn erased small overnight gains and turned lower ahead of the USDA release of 2020 planting estimates and some insights into the impact of the U.S./China trade deal and coronavirus outbreak on Chinese demand for ag product imports. Soybean futures edged down on Thursday, falling for a third time in four session on rising concerns over declining demand in China, which has been hit by the coronavirus epidemic. A stronger dollar added to downward pressure on futures. The U.S. dollar has had its strongest start to a year since 2015.

China is struggling to get its economy back on track after imposing severe travel restrictions to contain the virus that emerged in the central province of Hubei late last year and has claimed more than 2,000 lives, with over 74,000 people infected. Prospects of China ramping up U.S. agricultural purchases under the interim trade deal have been clouded by the coronavirus epidemic. Still, it would not be a surprise to see China buying emerge with tariff exemption set for release on March 2 and market talk of Chinese interest in sorghum and soybeans this week.

USDA’s daily export sales reporting service did not report any new large sales of grains or soy this morning. The markets will be focused on daily new sales in the weeks ahead after China announced tariff exemptions.   The weekly export sales report is delayed until Friday after the holiday on Monday.

The USDA on Thursday will announce a goal for biofuels to make up 30% of U.S. transportation fuels by 2050, a move that could bolster an industry that has been otherwise battered by the Trump administration. Refineries are currently required to blend 20.09 billion gallons of biofuel in 2020, about 10% of projected crude oil production, according to the U.S. Energy Information Administration. President Donald Trump has been criticized by the corn-based ethanol industry after his Environmental Protection Agency (EPA) granted exemptions to the blend requirement for dozens of oil companies over the last two years.

World stock markets are on the defensive on increasing concern among investors about the spread of the coronavirus in countries outside China, with a spike in infections in South Korea, and deaths in Japan and Iran. The Chinese province at the center of the outbreak reported a sharp drop in new cases after the country again changed the way it diagnoses infections. The economic fallout also continues as automakers prepare for widespread production halts at plants around the world as the shutdown in China is leading to shortages of components. A.P. Moller-Maersk A/S, the world’s largest container shipping company, tried to strike a more upbeat tone by predicting a sharp rebound in trade in the coming months, based on expectations the outbreak may soon peak.   

The Chinese manufacturing engine that powers much of the world economy is struggling to restart after an extended Lunar New Year break, hindered by travel and quarantine restrictions imposed to curb the coronavirus epidemic and still in place in many parts of the country. China cut the benchmark lending rate on Thursday, as widely expected, as the authorities move to lower financing costs for businesses and support an economy jolted by a severe coronavirus outbreak.

Nearly half of 109 U.S. companies responding to a poll by Shanghai's American Chamber of Commerce said plant shutdowns have already had an impact on their supply chains, while almost all of the remainder expect an impact within the next month. The outbreak, slow pace of business resumption and its impact on the global economy is set to dominate discussions at this weekend's G20 meeting of finance ministers and central bank governors in Riyadh, though Chinese counterparts will not attend as they focus on efforts to limit the fallout.   

Corn:  March corn futures are stuck inside of Monday’s large range rally for a second day, consolidating gains and waiting for fresh demand.  Corn accounted for 47.7% of Japan’s 2.229 MMT in feed shipments in December, a 0.7-point decline from year-ago and a 0.9-point drop from November, according to preliminary data from the country’s ag ministry. Sorghum and wheat usage were also down from year-ago at 1.7% and 1.5%, respectively. Barley continues to account for 3.4% of the country’s feed rations, unchanged from year-ago.

Soy: May soybeans opened lower after bouncing more than a dime of session lows on Wednesday and closing higher. The market rally has been capped by recent rains in South America boosting production potential. Traders will be watching closely if too much rain causes significant harvesting delays or whether an upcoming dry period in Argentina extends into the end of March.

Wheat: Futures are pressured by profit taking after recent strength. Limited winter kill damage to winter wheat across the Northern Hemisphere, maintaining good yield potential. However, prices were supported by dry weather across North Africa cutting crop outlooks and a potential decline in production in the EU this year.  Soft wheat production in the EU is expected to fall to 137.9 million metric tons (MMT) in 2020 from 145.7 MMT  last year, grain trade lobby Coceral said on Thursday.

LIVESTOCK 
CATTLE: Steady to firm
HOGS: Steady to firm

Cattle:  Cattle futures expected to firm with cash cattle trade gets started at higher prices. Cash action got started yesterday in Kansas and Texas at $120, up $1 from the week prior. Packers were thought to be short-bought, which gave feedlots some leverage in negotiations. But for the cash and futures market to continue higher, the product market also needs to turn up, too. Choice and Select boxed beef values fell another 56 cents and $1.97 on Wednesday, but movement did improve to 181 loads. Look for continued strong beef demand with current prices offering grocers attractive featuring items heading into the grilling season. On Friday, USDA is expected to show the number of cattle on feed up 2.4% on Feb. 1, according to the average of estimates from analysts polled by Reuters. Placements seen rising 1.4% in January with markets expected to be up 0.7% last month, the survey showed.

Hogs: Futures seen building on recent positive prices action amid firming cash bids amid large supplies. Slaughter counts are down 6,000 head this week from a week ago, but up 65,000 head from a year ago. Cash hog bids have climbed this week, with the national average price rising another 19 cents on Wednesday. China’s move to relax tariffs on nearly 700 U.S. goods, including pork, gave futures a lift at midweek. We have already been shipping record-setting amounts of the meat to China, and the tariff cuts, China’s need for shelf-ready protein, and its Phase 1 purchase commitments give Beijing plenty of reason to import a lot of pork from the United States.

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