Ahead of the Open: Waiting for Today's USDA Crop Report, U.S.-China Trade Talks

Posted on 10/10/2019 7:45 AM

Grain Calls

Corn: Steady to mixed
Soybeans: Steady to up 3 cents
Wheat: up 2 to 4 cents

General Comment:  Soybeans and corn rebounded from overnight losses tied to mixed reports on China trade talks. USDA’s much-anticipated October Crop Production and Supply & Demand Reports are out at 11:00 a.m. CT today. Analysts polled by Reuters expect the department to cut its harvested acreage and yield estimates for both corn and soybeans. Traders are looking for a corn crop of 13.684 billion bu., down 115 million bu. from September, and a soybean crop of 3.583 billion bushels, a 50-million-bu. decline from September. But given the late development of this year’s crops and a winter storm headed toward the Upper Midwest, the final analysis may have to wait until the January final summary report. After the recent rallies into key overhead resistance, the markets will need to get some bullish news to inspire new buying to sustain gains. Any U.S.-China trade headline today will also drive market direction.

The U.S. Midwest weather forecast, with the blizzard-like conditions moving through the Northern Plains today and Friday and heavy rains moving west to east through Saturday. Drier weather may follow into next week with models differing with rainfall amounts by the end of next week. Some areas will experience a killing freeze the next few mornings with temperatures forecast to drop in the range of 28-34 degrees in sections of the northern Midwest over the weekend and the region sees below average temps for the next week.

The South American weather forecast has rains across most of the Argentine growing regions with the southern areas dry. Argentina is expected to harvest 47.5 million tons of corn this season, the Rosario Grains Exchange said Wednesday, down from a previous estimate of 50 million tons as growers grapple with dry weather and political uncertainty that favors soy planting.

In Brazil, rainfall is also seen for some southern and northern areas with the 6- to 10-day period similar with temperatures near average. Dry conditions in central and western areas may force some replanting. That’s probably a more positive development for corn and cotton that are planted after soybeans.  

The United States' and China's top trade negotiators are set to meet on Thursday for the first time since late July to try to find a to narrow differences enough to avoid a scheduled Oct. 15 tariff rate increase on $250 billion worth of Chinese goods. Chinese officials are reportedly bringing pledges to buy 30 million tons of U.S. soybeans in the marketing year that started Oct. 1 — about the same amount it bought prior to the start of the trade war. It may also offer to buy 300,000-400,000 tons of pork and 3-4 million tons of American wheat. However, this morning CNBC reporting that China negotiators may leave early after recent U.S. actions soured the atmosphere.

The U.S. Commerce Department announced on Monday a plan to blacklist 28 Chinese public security bureaus, technology and surveillance firms, citing human rights violations of Muslim minority groups in China's Xinjiang province. A day later, the U.S. State Department imposed visa restrictions on Chinese officials related to the Xinjiang issue.

Meanwhile, there is a report overnight that the White House is looking at rolling out a previously agreed currency pact as part of a deal that could also see a suspension of a tariff increase next week. That news helped steady markets, which were roiled overnight after the South China Morning Post reported that deputy-level discussions had made “no progress” and negotiators might cut short their stay, which the U.S. refuted.  Some media reports suggested both sides are considering an "interim" deal that would suspend planned further U.S. tariffs in exchange for additional purchases of American farm products, Trump has repeatedly dismissed this idea, insisting that he wants a "big deal" with Beijing that addresses core intellectual property issues.
But in a possible easing of tensions, The New York Times reported that the Trump administration will soon issue licenses allowing some U.S. companies to sell non-sensitive goods to China's top telecom equipment maker Huawei Technologies.

USDA in its daily export sales reporting service said private exporters sold 398,000 metric tons MT of soybeans for delivery to China during the 2019-20 marketing year. 

Corn: Futures will trade mixed this morning ahead of the USDA numbers. Today’s weekly export sales were a disappointing 284,500 metric tons (MT) and will keep some early pressure on the market. Argentina is expected to harvest 47.5 MMT of corn this season, the Rosario grains exchange said on Wednesday, down from a previous estimate of 50 MMT as growers grapple with dry weather and political uncertainty favors soy planting. With growers expecting an increase in grains export taxes under a new government, farmers are reducing corn planting in favor of cheaper-to-produce soy, as a hedge against the uncertainty over agricultural policy after the next government is sworn in in December. 

SoybeansNovember soybeans are trading inside of Wednesday’s range and near session highs. The weekly and daily export sales report confirms strong sales with 2.093 MMT sold last week with 1.178 sold to China. Soymeal sales last week jumped to 364,700 MT led by Mexico’s purchases. 

Wheat: The grain is supported by adverse weather damaging U.S. and Canadian crop. Weekly USDA export sales last week rose 38% from the prior 4-week average and should lend support.

Livestock Calls

Cattle: Steady-mixed
Hogs: Sharply higher

Cattle: Futures seen firmer as the season’s first major winter storm barrels into the Plains and Midwest today. That is providing a lift to feeder and cash fed cattle markets this morning. The weather shift is likely to stress livestock across a wide swath. Boxed beef prices were mixed yesterday, with Choice climbing $1.00 and Select sliding 94 cents and movement was strong at 171 loads. Look for some selling after USDA reported net sales reduction of 29,100 MT last week, all as of a result of Hong Kong cancelling 36,000 MT.     

Hogs: Look strong this morning after USDA reported big weekly sales this morning. 2019 sales rose to 31,300 MT, up 26% from the prior four-week average and included 18,800 MT sold to China. The big news was 2020 sales of 123,500 MT, almost entirely sold to China. Traders have been waiting for some big sales ahead of U.S.-China trade talks this week. The national average cash hog price rose another $1.65 on Wednesday with Iowa/Minnesota average prices jumping $2.11 on improved demand. However, pork sales were done at lower money again on Wednesday. This morning’s weekly export sales report showed. One of China's top pig farming companies imported 906 breeding pigs from Denmark this week, China's customs said on Wednesday, in the first import of live pigs in a year. The animals bought by C.P. Pokphand Co 0043.HK, China's fifth largest pig producer, arrived on a charter flight in August and spent over a month in quarantine in Xiangyang city in central Hubei province, according to a report on the website of China's General Administration of Customs. It is the first import of live breeding stock since African swine fever began spreading through China's hog herd over a year ago. According to Shanghai JCI statistics, China’s pig price rose 12.2% during National Day holiday last week and up 181% this year.

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