Ahead of the Open: Quietly Firmer Ahead of USDA Reports, Adverse Weather Developments

Posted on 09/30/2019 7:50 AM

Grain Calls

Corn: Steady to up a penny
Soybeans: Up 5 to 8 cents
Wheat: Up 1 to 5 cents

General Comment:  Grain and soybeans are quietly higher to begin the week ahead of today’s USDA reports on Sept. 1 inventories and update wheat production at 11 a.m. CDT this morning. The market also remains concerned about wet weather slowing U.S. harvests that have already been reduced by excessive rains earlier this year. Dry weather in South America beginning to catch the attention of speculative traders holding short positions.

Traders are looking for U.S. soy stocks at 982 million bu., down from USDA’s Aug estimate of 1.005 billion bu. and still double the 438 million bu. a year earlier. Sept. 1 corn stocks will depend on Q4 corn feeding and residual use with the average trade estimate expecting 2.428 billion bu., below the 2.445 billion USDA forecast earlier this month by USDA but still up from 2.14 billion a year ago.  Sept. 1 wheat stocks hinge on the agency’s final take on size of 2019 US wheat crop along with Q1 domestic wheat feeding. Traders expected Sept. 1 wheat stocks near 2.318 billion bu., down from 2.39 billion bu. a year earlier. Trade looking for a nominal 22 million bu. reduction in the U.S. wheat crop decline vs. August crop forecast of 1.98 billion bu.

The weekly crop progress report is likely to show corn harvesting advanced to 14% to 15% as of Sunday, up from 7% last week, and 19% average. Soybean harvest may be seen at 2% to 3% completed. U.S. winter wheat planting expected to advance near 37-40% completed in tonight’s report, up from 22% done a week ago and behind the prior five-year average of 43% done.

Weather impact on the markets is a mixed bag with limited odds for frost and freezes across the Midwest through at least the first half of October but heavy rain and showers slows Midwest corn and soybean harvesting the next 10 days following heavy weekend precipitation across parts of Missouri, Iowa, Illinois, Indiana and Wisconsin. Rain and wet, heavy snow continued to hamper spring wheat harvesting in the U.S. and Canada during the weekend and linger into Tuesday, especially in Saskatchewan.

In South America, some erratic rainfall forecast in parts Brazil and Argentina during the next ten days will offer pockets of improved topsoil moisture for better planting, emergence and establishment of early season soybeans and full season corn. Western Argentina will remain too dry. Eduardo Sierra, a meteorologist at the University of Buenos Areas lowered his 2019-20 wheat crop estimate by 3 MMT to 17 MMT and he now pegs the corn crop at 40 MMT, down 20% from his previous projection. He projects the Argentine bean crop at 50 MMT, compared with USDA estimating 53 MMT. The dryness has hurt wheat yields and slowed corn sowing, as growers pile into safe-haven soybeans, Argentina's main cash crop. Uncertainty is rife in the recession-hit economy with left-leaning Peronist Alberto Fernandez expected to win the Oct. 27 presidential election.

China officially begins celebrating its 70th anniversary of the founding the People’s Republic of China on Tuesday through Monday. China has purchased 1.823 million metric tons of U.S. soy over the last 2 weeks, including 427,000 MT sold to unknown. It’s still unclear how willing Beijing will be to buy more ahead of the trade talks in Washington on Oct. 10-11.  Meanwhile, on Friday, Bloomberg reported that the U.S. was considering the possibility of delisting Chinese firms from U.S. exchanges”. World shares on Monday largely shrugged off reports that Washington is considering delisting Chinese companies from U.S. stock exchanges, downplaying the likelihood of such radical escalation of the U.S.-China trade war or how any such delisiting would work. China warned on Monday of instability in international markets from any "decoupling" of China and the United States following the reports, noting a U.S. Treasury response that said there were no immediate plans to block Chinese listings. Any U.S. action could have serious consequences should China decide to sell or stop buying U.S. Treasury bonds, which China is the second largest investor.

The next WASDE is Oct. 10, and it’s important to remember that field surveys will be finishing this week with only perhaps 15% of the corn having been harvested, and 2% of the soybeans, so the USDA is likely to err on conservative cuts to U.S. production. That may limit new buying interest until the November crop production reports.  Speculators eased their bearish views on corn and soybeans last week, but their willingness to place any optimistic bets on the Chicago-traded commodities is at multi-year lows. Funds cut net-short positions 10,736 contracts to a net short of 159,890 futures and options, down from 170,626, the largest since mid-May. In Soybeans funds reduced their net-short positions 6,493 contracts to 41,688 futures and options. In Wheat, funds increased net shorts 6,202 contracts in SRW, reduced HRW net-short positions 1,374 and cut net-short positions in spring wheat futures 3,542 contracts from a record short.

USDA is its daily export sales reporting service said private exporters sold 120,000 metric tons of corn for delivery to Mexico during the 2019-20 marketing year.  

Corn: Futures are in the middle of a sideways trading band from $3.65 ¾ to $3.77 ½ this morning. A move outside of that range will likely set the tone for October price direction. The market is supported by concerns of smaller U.S. production while sluggish exports continue to cap rallies. Reuters reported Friday that Brazil shipped 60,000 tons of corn to the United States. Cargill confirmed the shipment, declining to elaborate; NovaAgri SA, another local grain trader, said in a statement it also shipped some 60,000 tons of corn to U.S.-based meatpacker Smithfield Foods on Sept. 3

SoybeansNovember futures tested Friday’s low and the 20-day moving and rebounded overnight, triggering buying as prices rose back above the 200-day moving average.  The U.S. Department of Agriculture's monthly oilseed crushings report after the close is expected to show crush rose to 179 million bu. in August, up 169.6 million bu. crushed in August 2018. U.S. soyoil stocks at the end of August were seen declining to 1.974 billion lbs, down from 2.039 billion lbs at the end of July and 2.215 billion lbs at the end of August 2018.

Wheat: European wheat prices are pushing higher this morning adding to last week’s gains. The recent increase in global demand for wheat, albeit mostly non-U.S. supplies, suggests the markets have already set seasonal lows. Increasing worries about the size and quality of U.S. and Canadian spring wheat continues to provide support.  

Livestock Calls

Cattle: Steady to firm
Hogs: Weaker

Cattle: Cattle may extend last week’s gains on a firmer cash market to end last week. Cash action picked up Friday between $106 and $107 in Colorado, between $105 and $106.50 in Iowa and Nebraska, and at $103 in Kansas and Texas on Friday, which was generally $2 to $4 higher than the prior week. However, wholesale beef prices moved lower on light sales with Choice down 93 cents and Select down 53 cents. Slaughter last week was 648,000 head, unchanged from a year ago but down 10,000 head from a week earlier. South Korea lifted beef imports restrictions on some EU products, a sign of increasing demand for meat supplies amid the recent outbreak of African swine fever in Korea. 

Hogs: Look for a lower start in response to weaknening cash markets last week and the bearish Hogs & Pigs report.  USDA estimates the U.S. hog herd at a record 77.678 million head as of Sept. 1, up 2.542 million head (3.4%) from last year. That was 410,000 head more than the average pre-report estimate implied. The market hog inventory came in 0.5 percentage point higher than expected at 3.5% above year-ago. The breeding herd was 0.2 points higher than the average pre-report estimate at 1.6% above last year. Look for underlying support to develop on expectations for increased Chinese purchases of U.S. pork.

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