Ahead of the Open: Quietly Lower Ahead of USDA Crop Report on Thursday

Posted on 09/09/2019 7:51 AM

Grain Calls

Corn: Steady to down 1 cent
Soybeans: 1 to 3 cents lower
Wheat: 1 to 3 cents lower

General Comment: Grain and soybean futures seen extending last week’s weakness to start this week that will be dominated by positioning ahead of the USDA Crop Production Report on Thursday morning. The U.S. corn crop may fall 229 million bushels from the August forecast, according to a Reuters survey with soybean production seen down 103 million from last month. Most look for U.S. corn and soybean crop ratings to be steady with a week ago.

Frost and light freezes were noted in southeastern Saskatchewan, southwestern Manitoba and extreme northern North Dakota Sunday morning. The cold may have negatively impacted a few canola, corn, soybean and flax crops, although most of the freezes were relatively light and may have not had a huge impact on the region, according to World Weather Inc. The southern Prairies and northern U.S. Plains as well as the upper U.S. Midwest will now enter a period of rainy weather that will slow crop maturation and harvest progress while raising a little concern over some crop quality. Dry spots from Central Iowa to Ohio continue to miss rains, reducing kernel and pod filling. Temperatures will average warmer than normal the next 10 days. Winter wheat seeding in the Southern Plains will commence in the next two weeks amid adequate soil moisture. In South America, dry weather the next two weeks and warmer temperatures may slow early planting progress in Brazil and dry weather is beginning to raise concerns for Argentina wheat and sunflowers.

Managed funds on Tuesday were short a combined net 214,000 contracts in corn, wheat and soy.  The bulk of fund selling following improved Central U.S. weather has already occurred. Normal seasonal recoveries lie ahead, but any rapid advance requires bullish yield data in Thursday’s USDA Crop Production and World Supply and Demand Reports.

A Friday meeting between Trump and some of his top officials could not agree on a final ethanol plan, especially after farm and biofuel groups, and some farm-state lawmakers, made it clear the pending package would be branded “a disaster for ethanol and corn growers,” according to Senate Finance Chairman Chuck Grassley (R-Iowa). Sen. Joni Ernst (R-Iowa) via Twitter said, “the only good deal for Iowa farmers is one that upholds the intent of the RFS,” or the Renewable Fuel Standard (RFS).

Chinese exports unexpectedly contracted in August, amid the nearly 16% plunge in exports to the U.S. Imports fell for a fourth consecutive month. Top White House economic adviser Larry Kudlow said the trade war with China may take a long time to resolve, warning of a prolonged dispute with Beijing that he compared to the Cold War. “The stakes are so high. We have to get it right. And if that takes a decade, so be it,” Kudlow told reporters at the White House on Friday. He also said that he didn’t want to make a prediction about the timeline for a deal. Kudlow said the dispute is broad based, encompassing issues including trade, human rights and national security. 

In Hong Kong, the violent protests, which have rocked the city, are showing little sign of slowing down even after the concession made by leader Carrie Lam last week.

Asian stocks were mostly higher on Monday as traders considered the new stimulus measures announced on Friday in China which offset the weak trade data. Treasuries and the dollar were little changed, the yuan dipped, and European stock markets are mixed with U.S. futures pointing to a higher opening on Wall Street. Markets are hoping Friday’s easing by the People’s Bank of China is the start of a global trend, rather than a localized event. Expectations are high for Thursday’s decision from the European Central Bank, with a rate cut further into negative territory seen as the minimum that will be announced.

USDA’s daily export sales reporting service announced private exporters saold 651,670 metric tons of corn for delivery to Mexico.  Of the total, 590,820 metric tons is for delivery during the 2019-20 marketing year and 60,850 metric tons is for delivery during the 2020-21 marketing year. 

Corn: Futures fell to new lows on Friday and continue to show little upside strength. Prices likely to test Friday’s lows in early trading. The weekly CFTC trade position report showed funds increased net-short positive to largest since the end of May while commercials cut net-short positions to the smallest since the end of May. Open interest fell to the lowest since March.

Soybeans: November futures fell overnight to the lowest since Aug. 28 amid a lack of positive fresh news. In the week ended Sept. 3, funds cut net-short positions 2,920 futures and options to 73,127 contracts while commercials increased net-short positions more than 7,500 contracts to 25,317 contracts.

Wheat: Futures pulled lower by falling European and world prices. On Friday, Stats Canada raised new crop beginning stocks to 6.3 million metric tons, above USDA’s 4.7 MMT estimate. Canada will again export some 24-25 MMTs of wheat and stocks in 2019-20 will rise 1.0- 1.3 MMT. The prevailing theme is that USDA in its Sept. 12 report will raise major exporter wheat stocks/use slightly. The world wheat cash market is still looking for a bottom. Export prices for Russian wheat fell last week for the sixth consecutive week and reached their lowest level since October 2017 amid strong competition from other producers, Russian agricultural consultancy SovEcon said on Saturday. Black Sea prices for wheat with 12.5% protein content fell by $2.50 from the previous week to $186.5 per metric ton (MT) on a free on board (FOB) basis, SovEcon said.  Saudi Arabia's state grain buyer SAGO bought 780,000 MT of world wheat in an original tender for 595,000 MT, the first from Saudi Arabia to allow wheat offers from the Black Sea region. The wheat offered was from the European Union, the Black Sea region, North America (excluding Canada) and South America, SAGO governor Ahmad A. Al Fares said in a statement. The seller has the freedom to select the origin to be supplied. The wheat was bought at an average price of $217.79 per MT. Traders told Reuters that a substantial proportion of the wheat would be sourced from the Black Sea region, but that some would still be sourced from Saudi Arabia's traditional suppliers in the EU.

Livestock Calls

Cattle: Lower
Hogs: Lower

Cattle: Cattle futures extending Friday’s sharp to limit-down declines with limits expanding to $4.50 today. Wholesale beef prices fell on Friday with Choice down $2.11 to $2.27.31 and down $4.46 for the week. Prices fell to the lowest since Aug. 13. Sales were moderately active, up 35% from a week earlier.  Last week’s cattle slaughter was an estimated 565,000 head, versus 571,192 head last year, with Friday’s kill 115,000 head and Saturday’s kill 101,000 head. This was the first Saturday kill over 100,000 head since June 2 last year with packer margins over $400 per head.

Hogs: Look for early follow-through weakness. Hog futures gapped lower at Friday’s open and fell to limit losses through Friday trading. Limits expand to $4.50 today.  The cash hog markets continue to fall, taking the CME lean hog index $1.32 lower to $65.25. However, wholesale pork prices rose $1.36 on Friday on light sales. Slaughter last week was 2.204 head, down from 2.221 a year earlier. Signs of improved pork demand and lighter kills may help the market stabilize today. U.S. July export data showed record pork shipments for the month and second highest ever to China. That’s another signal that Chinese imports could rachet higher amid falling slaughter supplies amid the African swine fever outbreak. But Chinese tariffs need to be lifted before substantially higher exports develop. Last week, China announced new construction subsidies for large producers that might cover 20% of construction costs of a 2,000-sow farm. African swine fever (ASF) was confirmed on backyard farms near Manila, the first report of the deadly hog disease in the Philippines. More than 7,000 hogs were culled from the infected area.

Add new comment