Ahead of the Open: Rains Next Week May be Key; Traders Cautious Before of Thursday's USDA Reports

Posted on 07/10/2019 8:11 AM

GRAIN CALLS:

Corn: Down 2 to 4 cents
Soybeans: Up 1 to 3 cents
Wheat: Mixed to up 2 cents

General Comment: Corn is on the defensive again this morning after falling for the first time in five sessions on Tuesday as weather threats remain somewhat limited despite the late plantings and low crop ratings. Soybeans are seen steady to firmer. A stronger close today would be a positive technical signal after yesterday’s gains. Both corn and soybean traders are cautious ahead of the new USDA supply and demand reports scheduled at midmorning on Thursday. Questions will remain about both corn and soybean yields and acreage for months. It’s too early to make yield forecasts based on crop ratings and USDA will not update acreage until its August report where 14 states will be resurvey after late plantings.

Temperatures average warmer to much-warmer than normal over the next 10 to 14 days as upper-level high pressure bounces back and forth from the Rockies to the Midwest.  Best rainfall generally focused on northern areas, though substantial totals affect parts of the Delta  and Texas from a tropical storm this weekend. Environmental conditions are conducive for development of a tropical depression in the Gulf of Mexico late today or Thursday while the low moves slowly westward across the northern Gulf of Mexico. A low chance exists for the remnants of the storm to produce a swath of rain within part of the southeast half of the Corn Belt next week.  Traders are betting those rains will ease recent drying soils in the Midwest.  

U.S. Trade Representative Robert Lighthizer and Treasury Secretary Steven Mnuchin spoke on the phone with Vice Premier Liu He and Commerce Minister Zhong Shan yesterday in the first confirmed contact between the two parties since Presidents Trump and Xi met at the G-20. Both sides said dialogue would continue without outlining next steps. China’s leadership remain cautious on the chances of a lasting deal and Xi is reportedly insisting that the U.S. lift tariffs on Chinese goods. Trump told Xi last month that the U.S. would tone down criticism of Beijing’s approach to Hong Kong following massive protests in the territory in order to revive trade talks with China, the Financial Times reports. Commerce Secretary Wilbur Ross on Tuesday said Washington would issue licenses to U.S. companies to sell their products to the Chinese telecom equipment maker Huawei under certain conditions. Don’t look for China to start purchasing U.S. farm goods anytime soon until a deal is in place. Still, Chinese food prices rose 8.3% in June, led by a 21.1% surge in pork prices, China’s preferred meat, and as fruit prices surged 42.7% due to bad weather and low prices last year.

Federal Reserve Chair Jerome Powell starts his two-day semi-annual monetary policy testimony to Congress at 9 a.m. CST. Concerns about trade policy and a weak global economy "continue to weigh on the U.S. economic outlook" and the Federal Reserve stands ready to "act as appropriate" to sustain a decade-long expansion, Powell said in a prepared statement before the hearings. The remarks bolstered expectations of an interest rate cut later this month at the July 30-31 meeting. U.S. stocks turned higher.

The European Commission cut its euro-area growth and inflation forecast for next year in its latest quarterly estimates.  The projection comes as investors see a recession in Europe’s largest economy as almost inevitable, and amid rising expectations of further easing from the European Central Bank. There was some slightly better news for the U.K. economy, where data published this morning showed a rebound in May as car factories resumed production following Brexit-related shutdowns in April.

USDA daily export reporting service did not report any new large sales this morning.

Corn: Prices on the defensive on speculations the summer is helping to shape up the crop and grow out of its wet funk.  Corn is at risk of forming a bearish a head and shoulders top should December closed below $4.20. If it gets dry quickly and temperatures stay elevated, the bull market will return with a vengeance.  The biggest threat left to the 2019 corn and soybean crops is an early frost. The question is not whether or not frost will damage the crop, but how much will it damage the crop.

Soybeans:  Solid follow-through gains would be intriguing – but, ahead of Thursday’s USDA data, might not mean much without some bullish government projections. Tuesday’s lows are now key short-term support.

Wheat:  European grain prices have firmed today after recent weakness tied to traditional harvest-time market pressure. A stronger close today would be a positive development.

LIVESTOCK CALLS:

Cattle: Mixed to firmer
Hogs: Steady to firmer

Cattle: Futures affirmed monthly buy signals on Tuesday, forming an outside-day reversal and closing at the highest since May 21 in the October contract. A stronger close for the week would suggests the July 5 gaps were breakaway events. Charts are bullish but beef prices tumbled on Tuesday with Choice down $2.73 and Select falling $2.32 on light to moderate sales. It will be important to see stepped up sales at the lower prices to finish this week. Feeders are leading the rally amid the recent weakness in corn prices.

Hogs: Today’s trade may reveal whether hogs rallied in sympathy with the cattle complex or something “real” is brewing. The national average cash hog prices rose 37 cents on Tuesday. Wholesale pork carcass cutout values jumped $1.80, led by gains in bellies, hams, ribs and loins. Sales were strong at nearly 420 loads. The big negative remains heavy hog supplies with slaughter up 57,000 head in the first two days of this week from a year earlier.

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