Ahead of the Open: Rain, Cooler Temperature Forecasts Pressure Grains amid Weak Exports

Posted on 07/18/2019 7:59 AM

GRAIN CALLS:

Corn: Down 6 to 8 cents
Soybeans: Down 4 to 6 cents
Wheat: Down 4 to 6 cents

General Comment: Corn is leading lower this morning after recent heavier Midwest rains and forecasts for the heat this week to break by the weekend. The forecasts support better pollination progress. Funds are cutting long positions. Soybeans also benefitting from rain despite the short stands after late planting. Wheat continues to follow. The supply bulls and the demand bears are battling with the weekend
weather pattern change reducing the fear about a further drop in US yield potential. 

Rains focused the last 24 hours from the Dakotas to Wisconsin with some showers in parts of Missouri and Illinois. Rains were heavier and more widespread than expected Scattered rains will continue through tomorrow in the northern half of the Corn Belt with a cold front set to break the heat wave on Sunday. Several days of cooler weather follow next week with less rain before warmer but not hot weather returns by late next week. After the recent cool temperatures break, the heat is back on in Europe and dryness and crop stress is building in France, Germany and Eastern Europe this week and will stick around next week. Corn, oilseed, wheat and barley production risk is rising. Rain may aid Ukraine crops, but it is starting to turn drier in China after recent hot temperatures.

U.S. Treasury Secretary Steve Mnuchin said that the next phone conversation with China on trade will come later today. “Ambassador [Robert] Lighthizer and I have a call scheduled for later today with our counterparts. This will be the second conversation we’ve had. There has been conversation at the staff level,” Mnuchin said on CNBC’s Squawk Box. “We’re working under the direction of President Trump and President Xi [Jinping] from the meeting in Osaka and we’ll see where we get.” He signaled that in-person talks are still possible, depending on how the conversation later today goes. He said the U.S. is trying to get back to making a “lot of progress” in the talks. He also denied reports that the situation with Huawei is the sticking point in the U.S./China trade discussions. Meanwhile, President Donald Trump continues to complain about China’s lack of agricultural purchases.

USDA daily export reporting service said private exporters did not report any large new farm commodity sales. Market continues to wait for more Chinese purchases that the Trump administration says are coming.

Corn: Improving weather and weak exports remain at the heart of today’s market weakness. USDA reports net new sales of 200,000 metric tons (MT) of old-crop corn, down 21% from the four-week average. New-crop sales were more disappointing at 133,000 MT. U.S. ethanol production in the week ended July 12 rose 1.8% last week from a week earlier and up 0.2% from a year ago, pushing inventories up 7.3% above a year ago. Ethanol is trading near $1.52 a gallon or about a 40-cent discount to gasoline. The pace this year is slightly below a year ago suggesting the USDA forecast for a 155 million bu. cut in corn used to make ethanol may be 70 million bu. too much.

Soybeans: Soybean export sales also came in light. Old-crop sales were 127,900 MT and new-crop sales were 198,400 MT and no major Chinese purchases. Both were at the low end of trade estimates. Meal sales, while up from last week’s very low total, still remained light last week.

Wheat: Wheat is under pressure from better yields and increasing U.S. harvest progress. Better rain in the U.S. and Canadian spring wheat belts also adding to the lack of buying interest. Weekly exports sales were 347,300 MT, up 22% from the prior week but in line with trader estimates.

LIVESTOCK CALLS:

Cattle: Mixed to weak    
Hogs: Firmer

Cattle: Cash cattle prices are steady to higher in the north and steady to a bit lower farther south, compared with last week. Wholesale beef prices remain in retreat with Choice down 36 cents and Select falling 82 cents. However, sales were very strong Wednesday and that should help to put a floor under the market today after a weaker start. Slaughter is running a little larger than a year ago and equal to last week. Dressed weights continue to trail year ago and the five-year average, supporting a widening premium for Choice beef to Select, currently at a wide $24.23. Beef export sales in the week ended July 11 were up 8% from the four-week average at 19,800 MT, lead by sales of 8,000 MT to Japan. Shipments rose 5% above the prior four-week average.

Hogs:  Average cash hog bids jumped $1.10 on Wednesday, led by the $1.57 advance in Iowa/Minnesota. Traders are optimistic that improved demand at home and abroad will keep the cash market supported. Recent updates out of China signal pork prices are on the rise and supplies are likely to tighten notably in the months ahead.  The pork cutout value climbed for the third day in a row on Wednesday. And this week’s kill is running in line from year-ago, a dramatic improvement from recent slaughter numbers running well ahead of last year’s pace. USDA said weekly pork export sales last week rose up 43% from the prior four-week average at 30,100 MT but did not include any new business with China. Shipments were up 42% from the prior four-week average with China taking 9,900 MT. The strong shipments to China are positive since they already have a large amount of unshipped sales on the books.

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