Ahead of the Open: Soy May Lead Higher on Confirmation of More China Purchases

Posted on 02/05/2019 8:08 AM

Grain Calls

Corn:  Steady to mixed
Soybeans: Steady to higher
Wheat:  Steady to mixed

General Comment: The USDA on Tuesday confirmed private exporter sales of 2.603 million metric tons (MMT) U.S. soybeans to China for delivery in the marketing year that ends Aug. 31. USDA also reported this morning 274,000 MT sold to unknown destinations for delivery by Aug. 31. On Monday, USDA announced 612,000 MT sold to China for delivery this marketing year. These sales announcement will be supportive to the market. China Vice Premier Liu He announced last Thursday after the conclusion of talks in Washington that China would buy an additional 5 million tons. Trump said last week he would meet Chinese President Xi Jinping soon to try to seal a comprehensive trade deal as Trump and his trade negotiator both cited substantial progress in two days of talks. 

President Donald Trump’s State of the Union address to Congress later tonight promises to be dramatic partisan event given the current politic tensions on multiple issues. Trump has been hinting that he may declare a national emergency to secure funding for a border wall. While the wall and shutdown issues are likely to dominate proceedings, Trump may also make proposals on drug prices and announce details for upcoming summits with Chinese and North Korean leaders. Negotiating new World Trade Organization rules to try to rein in China's "mercantilist" trade practices would be largely a futile exercise, the Trump administration's trade office said on Monday, vowing to pursue its unilateral approach to protect U.S. workers, farmers and businesses.

U.S. grains trader Archer Daniels Midland Co. on Tuesday missed Wall Street estimates for quarterly profit, hurt by higher expenses and lower margins in its origination business because of the global soy and corn surpluses and the U.S.-China trade dispute.

Brazil’s weather forecast has scattered but good rains for all areas except for the far south this week with more likely starting after Feb. 13. Dry weather precedes and then follows showers and rain during the Feb. 9 to 13 period across much of Argentina. 

Corn is seen narrowly mixed waiting for the USDA flurry of updates on 2018 production, Dec. 1 inventories and world supply and demand projections. Slower ethanol production may lead to USDA cutting its corn usage forecast in Friday’s reports. Processors used 454.5 million bu. of corn to make ethanol in November, according to USDA. Ethanol grind declined 5.6 million bu. (1.2%) from October and 21.2 million bu. (4.5%) from November 2017. Corn-for-ethanol grind in the first quarter of the 2018-19 marketing year was 1.360 billion bu., down 31 million bu. (2.2%) from last year.

Soybeans seen steady to firmer on China trade optimism and strengthening demand. U.S. soy processors crushed 178.1 million bu. of soybeans in November, according to USDA, 1.1 million bu. more than traders surveyed by Reuters expected. Soyoil stocks at the end of November estimated at 1.900 billion lbs., 130 million lbs. less than anticipated.  

Wheat futures will open steady to mixed waiting for USDA reports on Friday that will also include the first estimate of winter wheat seedings, which are expected to fall near a record low.  

Livestock Calls

Cattle: Steady to firm

Hogs: Steady to higher

Cattle futures seen steady to firm. Choice boxed beef prices firmed $3.39 Monday, while Select was up 26 cents, though movement was light at only 81 loads on the day. Slaughter rose 6,000 head to 118,000 head on Monday from a year earlier. Supplies should begin to seasonally slide but it looks like there may be more than enough market ready supplies this week and that could weigh on packer bids amid the light beef sales to start this week. April futures remain in a consolidation phase after reaching new highs last week and suddenly plunging. Those highs are key resistance.

Hog futures seen on starting firmer on additional short covering after a sharp gain on Monday. The average national direct cash hog price firmed 21 cents to start the week, but Iowa/Minnesota fell 39 cents. Supplies were heavy Monday after cold weather curbed movement last week. Wholesale pork carcass prices rose $1.13, led higher by a strong gain in bellies. Movement was light at just 257.8 loads. Slaughter rose to 478,000 head on Monday, up 3.7% from a year ago and burdensome unless pork sales improve.

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