Ahead of the Open: Quiet, Choppy Trade Amid Iran Tensions and Ahead of Friday's USDA Reports

Posted on 01/08/2020 7:44 AM

Grain Calls

Corn:  Steady to down 1 cent
Soybeans: Steady to mixed
Wheat: Mixed to firm

GENERAL COMMENTS:  The grain markets are mixed but off overnight lows in continued quiet trading ahead of Friday’s USDA reports on final crop production, Dec. 1 inventories and U.S. winter wheat planted acreage. Look for underlying support in the futures with traders looking for USDA to slightly reduced both its corn and soybean crop forecasts and estimates a reduction in wheat plantings.

Iran fired more than a dozen missiles at U.S.-Iraqi airbases in retaliation for the killing of top Iranian general Qassem Soleimani last week.  President Donald Trump tweeted last night that “all is well!” after the strike. Trump is due to make a statement this morning in Washington, with analysts seeing the development as a relatively measured response that could allow both sides to de-escalate the standoff. Oil prices were up sharply last night but have now turned on relief that the Iranian attack was a military target, rather than oil industry facilities. Global stocks are mixed with U.S. S&P 500 futures are pointing to a higher opening.  The dollar is slightly firmer.

Brazil’s Conab raised its crop estimates very slightly in this morning’s monthly update. Soybean production forecast at 122.225 million metric tons (MMT), up from 121.092 MMT earlier and up from 115.03 MMT a year ago. Corn output is forecast at 98.711 MMT, up from 98.409 MMT previously but down from 100.046 billion. USDA will update its soybean forecast of 123 MMT and 101 MMT of corn on Friday.

South America forecasts are little changed and lean price negative. A southward shift in Brazilian rains to aid recent dryness. More rains are forecast in Argentina next week after last week’s rains provided timely benefits to corn and soybean crops. More rains are needed in parts of Buenos Aires by late January.

U.S. agricultural exports totaled $12.66 billion in November, up from $12.08 billion in October and the biggest monthly total since March 2018 when they were at $12.81 billion. The U.S. exported 7 MMT of soybeans in November according to data published on Tuesday by the U.S. Census Bureau. That is the largest total for any month in two years though notably lower than the 2013-2017 November average of 9.8 MMT. Some 4.2 MMT of U.S. soybeans sailed to China in November, and that was also by far the largest volume in two years. In the first quarter of 2019-20, which began on Sept. 1, about 7 MMT of soybeans shipped to China, and that compares with less than 300,000 MT a year earlier. However, during the same period in the four years prior to the trade war, shipments averaged 16.7 MMT.

China, the world’s largest soybean buyer, has said it would increase purchases of U.S. farm products once the Phase 1 trade deal, which is expected to be signed next week in Washington. However, no specific figures have been confirmed and there is a lot of uncertainty over China’s exact needs given its struggles with African swine fever (ASF) over the last year and a half.

ASF has significantly reduced China’s own pork production, and that has been beneficial to global suppliers who have seen a boost in business to the Asian country as a result. U.S. pork shipments jumped to 259,814 MT in November, an all-time high for any month. China was the top destination for U.S. pork in November with 78,776 MT, some 30% larger than the previous record monthly volume set in July 2019. U.S. pork exports through November were a record 2.39 MMT, but if shipments to China are subtracted, the volume is a three-year low and about 5% below 2018’s high for the period.

The U.S. Department of Agriculture’s daily export sales reporting service this morning reported sales of 207,000 MT of corn for delivery to unknown destinations during the 2020/21 marketing year (new crop).  Traders will want to see daily sales increase relatively quickly after the Phase 1 deal is signed with China.

Corn: March corn futures extended recent declines to the lowest since Dec. 13 overnight and are sitting on key support at the 40-day moving average this morning at $3.82 ½.China has suspended its plan to implement a nationwide gasoline blend containing 10% ethanol this year, three sources briefed on the matter told Reuters. A sharp decline in the China’s corn stocks and limited production capacity of the biofuel forced the government to reverse its plans. The reversal is a heavy blow to domestic producers that have built new plants, as well as biofuel exporters, including the United States and Brazil, which were looking to benefit from growing Chinese demand. China was expected to sharply increase imports of U.S. ethanol under Phase 1 of the recently announced trade deal but is now unlikely to require large ethanol supplies without the mandate. The country does not disclose state grain reserve levels, but state stockpiles of corn have fallen to around 56 MMT from more than 200 MMT in temporary reserves in 2017, a government expert said in September.

Soybeans: March futures held above recent lows overnight and pushed back toward unchanged this morning.

Wheat:  March SRW futures extended their decline to the lowest since Dec. 26 overnight and rebounded back above Tuesday’s high. A close above $5.51 would be a positive chart signal. The lowest offer in the international tender from Egypt's state commodities buyer GASC to buy wheat on Wednesday was $231.77 a MT FOB for wheat sourced from Ukraine, according to Reuters. The offer was up about $9 a MT from the last sale on Dec. 10.  No purchase has been confirmed and a result is expected later on Wednesday. Egypt also received offers from Russia, Romania, France.  No wheat from the United States or South America was offered.

Livestock Calls
Cattle: Steady to firm
Hogs: Mixed to weak

Cattle:  Futures likely to consolidate Monday’s strong gains another session. Look for a mixed, choppy trade today to build support for a run at contract highs. Surprising strong cash cattle prices last week have many looking for further gains this week as beef demand remains outstanding. Wholesale beef was mixed Tuesday with Choice cutout values down 9 cents and Select rose 2 cents. Sales were moderately active. Slaughter this week is running 5,000 head above a year ago and packers need to continue accumulate live supplies to match good beef demand.

Hogs: Looking for a mixed start after hogs rallied Tuesday. Slaughter the first two days of this week is 994,000, up 44,000 head from a year ago and the biggest negative factor limiting gains. The national average cash hog prices rose 32 cents on Tuesday, a sign that packers are selling pork actively. While wholesale pork cutout values fell Tuesday, total sales were the third highest in the past three years. The highest was just two weeks ago and suggest stepped up export demand. Pork is very competitively prices against other meat proteins. Record supplies versus record demand is the story. China's sow herd rose 2.2% in December over the previous month, a government minister told reporters on Wednesday, in a sign of improving production after a devastating disease slashed the herd. A pick-up began in October and the sow herd has now increased by 7% since September, Yu Kangzhen, vice minister of the Ministry of Agriculture and Rural Affairs, told a briefing on Wednesday.China has also been boosting production of other meats to help meet any shortfall. Still, live hog prices have risen in the first week of January, and they are expected to keep rising ahead of the New Year holiday at the end of January due to a severe shortage of fresh pork, Pan Chenjun, senior analyst at Rabobank, told Reuters.

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