Ahead of the Open: Soy Up as China Says There is a Trade Deal; Grains Mixed Waiting for Friday's USDA Reports

Posted on 11/07/2019 7:56 AM

Grain Calls

Corn: Narrowly mixed
Soybeans: Up 2 to 5 cents
Wheat: Down 1 to up 2 cents.

General Comment:  Soybeans are slightly higher, and grains are mixed this morning as China and U.S. negotiators are getting closer to a trade deal. However, too many times a close deal did not make it to fruition. Also, traders are unwilling to commit to new buying with not a word from the White House about a completed deal and ahead of USDA’s Crop Production and WASDE Reports on Friday morning. Much of the buying is short covering after recent declines down to key support in corn and soybeans. A bullish report Friday showing smaller crops is needed to encouraged fresh buying interest. Weather leans negative with some drier but cold weather for U.S. harvesting and the South America forecasts still have rain for much of Brazil and in Argentina except in the region of Buenos Aires.

A Chinese Ministry of Commerce spokesman said that both sides in the trade dispute have agreed to roll back tariffs in phases as they work toward a deal. If confirmed by the U.S., such an understanding would provide a road map for a de-escalation of the trade war. The agricultural markets are more interested in when and where such a deal signing will take place and all the details on commodity purchases.

  • Tariffs imposed during months-long war to be cancelled in phases
  • Commerce ministry spokesman does not specify timetable
  • Both sides must simultaneously scrap some tariffs, including reversing U.S. pledge for new tariffs on $156 of Chinese goods set for Dec. 15.
  • Comments follow "serious and constructive" discussions
  • In what could be another gesture to boost optimism, China's state news agency Xinhua reported late on Thursday that the Chinese customs and the Ministry of Agriculture are considering removing restrictions on U.S. poultry imports in place since January 2015 A deal may be signed this month by U.S. President Donald Trump and Chinese President Xi Jinping at a yet-to-be determined location.
  • One possible location was London, where the leaders could meet after a NATO summit that Trump is due to attend from Dec. 3-4.

However, grain, soybean and pork markets remain subdued after news that a cargo of American soybeans booked in the hope it would be exempt from tariffs has been offloaded in China after about a one-week delay due to a dispute between the buyer and customs officials over duty payments. The cargo, bought by state-owned Jiusan Group, had been sitting at a port in northeastern China for about a week after customs demanded payment of the 33% duties on U.S. soybeans, according to the Reuters, citing two sources and another trader who has spoken to Jiusan about the matter. But Beijing has offered duty exemptions to some soybean crushers in recent months to encourage goodwill purchases during trade negotiations. The government never made the details of these waivers public, however, as well as how to implement such waivers. Jiusan's cargo is one of the first booked under the waiver system to arrive in China and is therefore being closely watched by other importers who are due to bring in cargoes in coming weeks, said the sources. Since local customs did not get an explicit policy on paper (about the change of tariffs) from above, they could only implement the most recent one, according to which tariffs on U.S. soybeans are 33%, said one of the sources.

The middle and lower reaches of China's Yangtze river are suffering from the most severe drought in 40 years, with temperatures up to 3 degrees Celsius higher than normal in some regions, the official People's Daily said; citing the ministry in charge of handling natural disasters, the newspaper said the drought was affecting local grain production, and had delayed rapeseed planting in the region.

The weekly USDA export sales report this morning for the week ended Oct. 31 showed continued sluggish grain sales and a spike in soybean exports. Exporters sold 1.807 million metric tons (MMT) last week, up 41% from the prior four week average and topping trade estimates calling for 600,000 MT to 1.2 MMT. China bought 956,300 MT last week. Corn sales last week were 487,900 MT, up 15% from the prior four week average but down 11% from a week ago. Wheat sales were 360,600 MT, down 27% from the previous week and 14% below the four-week average. Both were in line with trade estimates.  

USDA daily export sales reporting services said private exporters sold 136,000 MT of soybeans for delivery to China during the 2019-20 marketing year; and 133,000 MT of soybean meal for delivery to the Philippines during the 2019-20 marketing year. The sales were add support to the soybean complex.

Corn: December corn opened higher last night and fell to retest Wednesday’s low. Trend is down and funds have been adding to short position the past week on fears USDA will not cut the crop as much as traders have been expecting.

SoybeansJanuary beans fell below yesterday’s low overnight before rebounding on the China trade news.

Wheat: Futures are mixed, waiting for USDA global crop and use updates on Friday.

Livestock Calls
Cattle: Steady to mixed
Hogs: Steady to lower

Cattle: Choice and Select boxed beef values climbed $1.09 and $1.71, respectively, on Wednesday and movement was good considering elevated price levels at 132 loads. The market has been looking for another week of higher cash cattle trade, given the continued boxed beef market rally. So far, there has just been a very light test in Iowa and Nebraska at prices ranging from $113 to $114, but volume was too light to set a market trend. This was steady with week-ago action in Iowa and down a buck or two in Nebraska. USDA said 10,100 MT of beef were sold for export in the week ended Oct. 31, down 36% from a week earlier. Shipments were up 9% from a week earlier with Japan and South Korea the top destinations. No new business reported with China.

Hogs:  Hog futures will likely come under pressure as weekly exports were disappointing. Exporters sold 16,600 MT last week, down 45% from the prior week. China took 2,800. Sales for 2020 were 8,340 MT, up from 1.756 MT a week earlier with South Korea taking 7,6000 MT and China cancelling 2,000 MT. Shipments were 33,500, up 56% from the prior four-week average with 10,600 MT headed to China. The pork cutout value rose another $1.44 on Wednesday on moderately active demand and sales. However, the average cash hog price fell another 80 cents, led by a $1.62 drop in Iowa-Minnesota. Slaughter remains record large and up 19,000 head from a week ago and 50,000 head more than a year ago. South Korea confirmed two more cases of ASF in dead wild boars, bringing the total number of cases to 22.

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