Ahead of the Open: Trade Fears Rattle Grain, Livestock Markets; No Off Ramp to U.S./China Deal

Posted on 08/05/2019 8:00 AM

GRAIN CALLS:

Corn: Down 6 to 8 cents
Soybeans: Down 7 to 10 cents
Wheat: Down 3 to 9 cents

General Comment: Grain markets opened steady to higher overnight on weather concerns and then turned lower as U.S./China trade war developments continued to escalate. A Chinese official disputed U.S. contention that China has not purchased U.S. soybeans.  Then the Chinese government reportedly asked its state-owned enterprises to suspend imports of U.S. ag products after President Donald Trump ratcheted up trade tensions with the Asian nation last week, people familiar with the situation told Bloomberg News.

Then China let the yuan breach the key 7-per-dollar level for the first time in more than a decade, in a sign Beijing might be willing to tolerate more currency weakness that could further inflame a trade conflict with the United States. U.S. officials have long suggested that Beijing manipulates the currency to help its exporters. Some traders think it could start a currency war.

Wall Street futures are pointing to another sharp retreat in U.S. equities this morning as President Xi Jinping and his team aren’t planning to buckle under Trump’s latest tariff threats. If anything, they’re sounding more than willing to call his bluff and play the long game. European stocks are in the red too, while Asian shares suffered their steepest daily drop in 10 months.  Oil prices slipped on demand concerns. Gold prices were up as investors sought safe-haven investments.  

Doubts that corn and soybeans can decline for any length of time until first freeze dates can be better worked out, and there’s more clarity over Eastern Midwest rainfall in mid-August have been cast aside for the moment. Crop stress builds across the driest areas of Illinois, eastern Iowa, Indiana, Ohio and Michigan this week with a chance for scattered relief the next 48 hours.

Traders are looking for both corn and soybean conditions this afternoon from USDA show steady to lower ratings. The lack of widespread rain over the next 7 days will further curtail US corn/soy crops in the E Midwest where soil moisture is short.  Central U.S. temperatures are expected to rise back to seasonally warm levels after being cooler than normal and may accentuate the need for rain.

So, it may be a waiting game the rest of this week until USDA releases is first survey-based yield and updated acreage estimates on Aug. 12.

USDA daily export announcement service said private exporters did not report any new large sales in the past 24 hours.


Corn: Futures opened lower and are now poised to test last week’s lows as funds continue to cut long positions amid rising global trade tensions. Friday’s CFTC Reports showed managed money cut net-long positions 41,264 contracts to 111,952 futures and options in the week ended July 30 by selling more than 21,000 longs and buying back almost 20,000 short positions. Traders were looking for a larger reduction in net-long position as prices fell 16 cents during the week. Commercials cut net-short position 29,366 contracts to 462,354 futures and options.   This was funds' biggest weekly net sale of corn futures and options since the beginning of April, and they have likely cut down on bullishness even further in the days since. A new pest is raising risks for global corn from India to China.   The fall armyworm, cited by the UN Food and Agricultural Organization (FAO) as a "food security nightmare", has cut maize yields by up to 30% in key producing states in India this year. The pest has spread rapidly across states after being first spotted in July 2018. The fall armyworm has a voracious appetite for crops. According to an FAO alert, it has spread to more than 30 countries since being discovered, potentially destroying $5 billion worth of corn, its favorite snack.

Soybeans: November soybean opened higher last night and fell to the lowest since May 24, filling the upside gap left from May 28 and triggering new selling this morning. Funds increased net-short positions over 15,000 contracts to 53,572 soybean futures and options and increased soybean meal net-short position 6,615 contracts to 32,294 contracts. During the week ended July 30, soybeans fell 18 cents and soybean fell $8.10. This was funds' most prominent selling week in soybeans since the last week of April, and they may have sold another 19,500 futures contracts over the last three sessions. In the months since Huawei CFO Meng Wanzhou's arrest, China has increased retaliatory economic pressure on Canada, and the casualties have included Canadian soybeans, canola, pork and beef. The hardship is mounting for Canadian farmers hurt by China's decision to stop buying certain agricultural exports from Canada in the wake of Ottawa's arrest of a top Chinese tech executive. A ban on shipments of Canadian pork and beef to China took effect late last month. Chinese officials cited falsified export certificates.  

Wheat: Futures seen on the defensive after a strong close on Friday. Most of those gains have been erased overnight. Funds increased net-long position in SRW wheat by 2,831 futures and options to 14,610 contracts as prices fell 7 cents and cut their net-short in HRW wheat by 4,142 contracts to 14,195 futures and options with prices down 8 cents in the week. The new stance is funds' least bearish in six months. Money managers established a new record short in Minneapolis wheat, marking their sixth straight week of selling in hard red spring wheat. The position increased to 16,586 futures and options contracts from the previous week's 14,410 contracts,

LIVESTOCK CALLS:

Cattle: Mixed to lower
Hogs: Steady to weak

Cattle: Futures seen defensive amid rising trade tensions. Last week’s cattle slaughter was an estimated 626,000 head, versus 624,365 head last year. Boxed beef cutout values were firm on Choice and higher on Select on moderate demand and offerings. The Choice cutout increased 49 cents to $214.73on Friday from a day earlier and up from $212.17 a week earlier. The Select cutout increased $1.29 to $190.63 and up from $188.34 last Friday. The reported boxed beef trade for the week was 419 loads, 0.2% lower than the 420 loads last week. Packer margins improved last week and that may help to support cash bids and futures this week.

Hogs:  Lean hogs seen on the defensive to start this week after falling sharply lower last week. The futures retreat halted the cash market rally by late week, and it may take time to rekindle that strength after China canceled prior pork orders for both 2018 and 2019 in the latest reporting week. Wholesale pork cutout values also fell to $77.20 last week, down from $79.75 a week earlier

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