Ahead of the Open: Quietly Firmer Watching U.S., South American Weather, Fund Buying

Posted on 10/21/2019 7:51 AM

Grain Calls

Corn: Up 1-2 cents
Soybeans: Up 3 to 5 cents

Wheat: Up 1 to 3 cents

General Comment: The wheat rally edges up on weather risks, brisk global demand while soybeans rise for a third session on harvest risks, better exports and corn follows slightly higher.  Price movements were limited as traders awaited further indications on U.S. harvesting from weekly government crop data later in the day, as well as developments in U.S.-Chinese trade negotiations that may lead to more agricultural shipments.

Snowfall and freezing temperatures in northern U.S. states have raised additional risks over ongoing harvesting of corn, soybeans and wheat. The U.S. Department of Agriculture has said it will collect extra data on corn and soybean acreage in Minnesota and North Dakota following the recent snow. Brisk weekly U.S. export sales reported on Friday were also supporting the soybean market.

Traders are looking for the corn harvest to advance to 32% to 35% completed, up from 22% a week earlier, Soybean harvest probably rose to 37% to 39% done as of Sunday, up from 26% a week earlier. Farmers have been tight holder of new-crop corn because many don’t need cash following MFP payments and expectation for smaller USDA crop forecasts in November and January crop updates. Both corn and soybean basis levels are tracking well above normal in most locations.

Unfavorably wet weather for maturing and harvesting corn and soybeans in the Midwest is expected to continue. Unfavorably wet weather for maturing and harvesting corn and soybeans in the Northern Plains continues. Some harvest losses due to snow and strong winds are expected. Some recent beneficial rains in the Delta and Southeast, although prior hot/dry weather has impacted filling soybeans.

More rain and cooler temperatures are needed to support soybean planting and development in Parana and the Mato Grosso Brazil. Some beneficial showers and cooler temperatures are expected during the next few days. This situation bears watching. However, Brazilian soybean farmers managed to erase a planting delay that was being reported since the start of the season, sharply advancing sowing from the previous week to be on a par with the average for the period, ARC Mercosul said on Friday. According to a report from the consultancy, farmers have planted 22.8% of the expected area by Friday, compared to 22.7% of a five-year average for the period. In the previous week, planting pace was at only 9.5% of the area, which raised concerns for the crop.

China is seeking $2.4 billion in retaliatory sanctions against the United States for non-compliance with a WTO ruling in a tariffs case dating to the Obama era, a document published on Monday showed. WTO appeals judges said in July that the United States did not fully comply with a WTO ruling and could face Chinese sanctions if it does not remove certain tariffs that break the watchdog's rules. The WTO's Dispute Settlement Body effectively gave Beijing a green light to seek compensatory sanctions in mid-August. The United States said at the time that it did not view the WTO findings as valid and that the judges had applied "the wrong legal interpretation in this dispute."  China went to the WTO in 2012 to challenge U.S. anti-subsidy tariffs, known as countervailing duties, on Chinese exports including solar panels, wind towers, steel cylinders and aluminium extrusions, exports that China valued at $7.3 billion at the time.

Chinese Vice Premier Liu He said on Saturday that China will work with the United States to address each other's core concerns based on equality and mutual respect, and that stopping the trade war would be good for both sides and the world. "Stopping the escalation of the trade war benefits China, the U.S and the whole world. It's what producers and consumers alike are hoping for," Liu said in a rare public speech about the trade war.

China and the United States reached a limited deal earlier this month toward ending the trade. Both sides are working toward a written agreement.  Liu said on Saturday that China will step up investment in core technologies to accelerate economic restructuring, adding economic prospects remain "very bright". "We're not worried about short-term economic volatility. We have every confidence in our ability to meet macroeconomic targets for the year," he said.  Chinese Vice Premier Han Zheng vowed to further reduce tariffs and remove non-tariff barriers for global investors, official Xinhua News Agency reported on Saturday.  Han welcomed multinational companies to invest more in China, saying the country will only open its door wider and wider, according to Xinhua.  President Donald Trump on Friday said he thinks a trade deal between the United States and China will be signed by the time the Asia-Pacific Economic Cooperation meetings take place in Chile on Nov. 16 and 17.  

The weekly CFTC Commitments of Traders reports showed the funds reduced their net-short corn position less than expected and increased net-long positions in soybeans more than expected in the week ended Oct. 15. Money managers cut their net short position in CBOT corn futures and options to 66,141 contracts through Oct. 15. That compares with a net short of 90,668 contracts a week earlier. Hedge funds and other money managers expanded their net long position in CBOT soybean futures and options to 49,029 contracts from 6,501 a week prior. On the net, funds bought nearly 141,000 soybean futures and options contracts in the five weeks ended Oct. 15, the most in such a period since the Argentine soybean crop was succumbing to drought in March 2018. In the week ended Oct. 15, money managers reduced their net short position in SRW wheat futures and options to 10,564 contracts from 19,138 in the previous week. Money managers cut their net short in HRW wheat futures and options to 23,353 contracts through Oct. 15 from 35,076 in the prior week, the largest weekly reduction since early June. In Minneapolis wheat, funds trimmed their net short to 9,582 futures and options contracts from 11,777 a week earlier. That is their least bearish Minneapolis wheat view since early July. Through Oct. 15, money managers substantially increased their net long in CBOT soybean oil futures and options to 43,457 contracts from 29,723 in the previous week. The new stance is funds most bullish since November 2017. Funds reduced their soybean meal short for the fourth week in a row through Oct. 15, though it remains their most bearish meal view for the time of year. The new net short of 25,070 futures and options contracts was down from 32,740 a week earlier.

USDA’s daily export sales reporting agency said U.S. exporters did not report any new large sales this morning.

Corn: December futures are fractionally higher but still well below last week’s highs. Farmers, biofuel lobbyists say Trump and EPA must rewrite RFS rule to carry through on pledge. Angst and threats of legal action are nothing new when it comes to the Renewable Fuel Program (RFS), from both proponents and opponents. But the degree of anger is clearly rising among farmers and biofuel producers as they attempt to pressure the Trump administration to rewrite its new rule on blending requirements, threatening court action if the rule is not substantially altered.

SoybeansNovember futures have traded above and below last Friday’s range and are just below last week’s highs to begin trading this morning.

Wheat: The wheat market is following through on last week’s strong advance amid further fund short covering and increasing global demand. Saudi Arabia's state grain buyer SAGO said on Monday it bought 605,000 MT of wheat   Europe, South and North American origin (excluding Canada), as well as coming from the Black Sea and Australia. Algeria's state grains agency OAIC has issued an international tender to buy milling wheat to be sourced from optional origins. Australia is set to produce the smallest winter grain crop for more than a decade. Rabobank expects wheat production to fall to 15.84 million metric tons (MT), down 8% down on last year and 32% below the five-year average.  National Australia Bank has also sharply cut its wheat forecast to 15.5 MT, down from 20 MT in September, after hopes of a reasonable crop in Western Australia fizzled and NSW growers started cutting crops for hay. Dryness is also expanding in China and southeast Europe and central Ukraine with little rain the next two weeks. Canada will be favorably dry the next two weeks for harvesting.    

Livestock Calls

Cattle: Steady-mixed
Hogs: Steady-weak

Cattle: Futures seen poised for a mixed trade after cash came in mixed last week and beef trended mixed last week.  Futures were sharply lower Friday after reaching overhead resistance earlier last week. Cargill stopped receiving cattle for slaughter at its Dodge City, Kansas, beef plant after an explosion on Thursday but it expects to resume today. The company continues to process carcasses it had on hand at the time of the Thursday explosion, which occurred in a stand-alone building outside the main facility and injured two workers. 

Hogs: The hog are seen weak in continuation of the drop last week. Massive weekly USDA pork sales failed to light a fire under the lean hog market, in part because the sales “may have” included big numbers from previous weeks. Futures are trading at a premium to the cash hog index, which tempered buying interest. Data from China’s National Statistics Bureau indicating drawdowns in pork production were less severe than China’s ag ministry and analysts project also contributed to uncertainty in the market. That uncertainty makes traders reluctant to add long positions. The national average cash hog prices fell 94 cents on Friday. Pork cutout values rose 75 cents but on very light sales.

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