Ahead of the Open: Soybeans Seen Firmer on Better Demand; Grains Weaken on Slow Exports

Posted on 06/20/2019 8:01 AM

GRAIN CALLS:

Corn: Up 1 to down 1 cent
Soybeans: Steady to up 2 cents
Wheat: Down 1 to 4 cents

General Comment: Grain and soybean markets remain in a consolidation phase. Grains are weak amid sluggish exports while soybeans are finding support from better exports and worries about reduced planted area from too much rain across the Midwest.

The rain for this coming weekend has shifted north and west leaving eastern belt and Delta slightly drier than yesterday’s forecast. Ridge is still expected to build starting late on Monday in the southern plains, bringing warm and drier weather to the Plains and Midwest. But given the high soil moisture levels the warm weather will boost evaporation rates and combined with Gulf moisture to trigger scattered and severe thunderstorms in the afternoon.

The weather concerns are also spreading to China’s crops. Drought is expected to prevail over the next ten days in the North China Plain and a part of the central Yellow River Basin. Totally dry weather is not expected, but showers will not replenish depleted soil moisture because of high temperatures, according to World Weather Inc. This is increases risks for lower yields for corn, soybeans, cotton and peanuts. In the meantime, areas near and south of the Yangtze River are abundantly to excessively wet due to frequent rainfall in recent weeks. Serious flooding has been avoided but drier weather is need to reduced potential for more serious crop damage, the forecaster said.

Mexico on Wednesday ratified the U.S.-Mexico-Canada Agreement (USMCA), with Canada next expected to follow and the U.S. showing signs it will take up the matter later this year. Mexico's Senate approved the trade pact by 114 votes to four, with three abstentions. The Trump administration is hoping for a compromise with House Speaker Nancy Pelosi (D-Calif.) to enable ratification before the August recess, a timeline most conclude is too optimistic. But at least one senator, Chuck Grassley (R-Iowa), thinks the August target can “definitely” be reached.

Top Chinese and U.S. officials will hold trade talks following instructions from their leaders, the Chinese commerce ministry said on Thursday, adding that Beijing hoped Washington would create the necessary conditions for dialogue; China hopes the United States will listen to its industry and stop threatening tariffs and waging a trade war. During a hearing with the House Ways & Means Committee Wednesday, U.S. Trade Representative Bob Lightizer said a U.S./China trade deal remains “a big if.” He added that both he and Treasury Secretary Steven Mnuchin will meet with Chinese officials in Osaka, Japan to lay the groundwork for the Xi/Trump summit
 

World stock markets are rising on Thursday after the U.S. Federal Reserve signaled it was likely to cut interest rates next month, joining the European Central Bank earlier this week that said it was prepared to cut rates and increase monetary liquidating to boost flagging growth caused by trade disputes. Yesterday, the Fed came much closer to giving markets and President Donald Trump what they’ve long been stamping their feet for: an interest-rate cut. It held off on an actual cut, disappointing those betting on immediate action. But a late-July rate cut is almost a done deal. The dollar is weakening on the Fed’s comments and that may be a long-term positive development for U.S. farm export competitiveness. The U.S. dollar is weak against every G10 currency and the Dollar Index is sitting on its 200-day moving average and that could signal a major trend change if prices close below it to finish this week. 
Iran said it shot down a U.S. drone in its airspace, escalating already fierce tensions in the Persian Gulf, a region supplying a third of the world’s oil that’s been on the brink of a military confrontation for weeks. Unsurprisingly, the crude price surged to a two-week high. The United Nations Security Council got a new report on the May tanker attacks, which concluded that a “state actor” was most likely behind the incidents. A strong oil market provides a better backdrop to ethanol and biodiesel demand and production.

USDA daily export reporting service reported two new overnight sales this morning. Private exporters sold 189,000 metric tons (MT) of soybeans for delivery to unknown destinations, with 126,000 MT sold for delivery before Sept. 1 and 63,000 MT sold for delivery in the 2019-20 marketing year that starts Sept. 1. USDA also reported 122,000 MT of corn sold to Mexico with 52,000 for delivery before Sept. 1 and 70,000 MT sold for delivery in the 2019-20 season that starts Sept. 1.  

 Corn: Prices head for a third decline on chart selling and worries about demand. USDA reported net sales of 38,400 metric tons (MT) sold for export this season, down 90% from the prior four week average and far below reduced trade estimates. Mexico canceled 22,700 MT last week.  Sales for delivery in the 2019-20 season were 360,800 MT, in line with trade estimates calling for 200,000 to 500,000 MT. The U.S. corn crop is going to be substantially smaller, but the market needs to see fresh evidence of additional shrinking to sustain the recent surge. U.S. ethanol production for the week ended June 14 rose 1.6% above a year ago and inventories fell 0.2% from last year, the government said Wednesday. 


Soybeans: Soybeans are seen firm on worries that late planting concerns. This morning’s weekly exports sales report showed exporters sold 571,500 MT last week, up 34% from the prior four-week average and well above trade estimates. New-crop sales were a modest 200,000 MT last week.

Wheat: The approaching U.S. harvest continues to weigh on winter wheat futures with beneficial rains seen across the U.S. and Canadian spring wheat belts the next week pressuring spring wheat futures. U.S. exporters sold a net 187,600 MT of wheat last week, below market estimates for 200,000 to 500,000 MT. The Russian ag consultancy IKAR trimmed its 2019-20 wheat production forecast by 500,000 MT to 80 MMT, citing dry weather in southern areas, the eastern part of the central Black Soil region and part of the Volga area. This reduction resulted in a 500,000-MT cut to the firm’s wheat export forecast down to 36.5 MMT. SovEcon, another leading ag consultancy in Russia, also cut 600,000 MT from its wheat export forecast today, dropping it to 37.6 MMT.  These may be the start of cut with hot, dry weather expected for another two weeks in Russia, Ukraine and parts of the Black Sea region.  Egypt bought 110,000 MT of wheat from Russia and 180,000 MT of wheat from Romania. Japan bought 61,864 MT of food-quality wheat from the United States. Bangladesh plans to import 100,000 MT of wheat from Russia as part of a deal between the two nation’s governments.

LIVESTOCK CALLS:

Cattle:  Steady
Hogs: Steady to lower

Cattle: Live cattle futures should rebound from Wednesday’s weak technical close as wholesale beef prices moved higher on good sales. Choice cutouts rose $1.06 and Select gained 44 cents on Wednesday. Still, the very light and defensive tone in cash cattle trade to start this week remains a cap on gains. USDA said beef sales in the week ended June 13 rose 9% from a week earlier but were 9% below the four-week average. Japan, South Korea and Mexico were the top three buyers. Shipments were up 14% from the four-week average.

Hogs: Futures seen defensive to start on weak demand. The pork cutout value plunged $3.46 on Wednesday, but cash hog prices were able to climb 79 cents. USDA said exporters sold 19,700 MT of pork last week, down 15% from the prior week and 50% below the four-week average. Shipments were up 2% from the prior four-week average with Mexico and China the top destinations. China reported two new outbreaks of African swine fever in Pingtang county in the southwest province of Guizhou.  

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