Ahead of the Open: Watching South American Weather and Waiting on China Buying

Posted on 01/21/2020 7:00 AM

Grain Calls

Corn:  Down 2 to 3 cents
Soybeans: Down 4 to 7 cents
Wheat: Up 1 to down 2 cents

GENERAL COMMENTS:  Corn fell nearly 1% overnight, easing after notching its biggest one-day gain in more than three months last Friday. Soybeans also fell with Chinese purchases likely to provide a direction to the market this week. Wheat prices lost ground early but turned mixed on strong global demand and rising prices in rival exporting countries.

There was no confirmation of any Chinese buying rumored on Friday, and overseas futures markets were catching up to the Friday Chicago rally. The weather forecasts look plenty wet for Brazil, but perhaps a bit drier for the southern Argentine areas. The U.S. Department of Agriculture’s daily export sales reporting service reported no new large sales by private exporters this morning.

The CFTC Commitment of Traders numbers out on Friday showed funds were mall net buyers in beans and corn versus expectations of small selling, and less buying in wheat than had been expected. Funds were net-long 6.290 soybean futures and options in the week ended Jan. 14, up 5,131 contracts. In corn, funds cut net-short positions 2,445 contracts to 728,442 contracts. Funds increased net-long positions 2,100 to 29,787 SRW wheat contracts and bought 5,119 contracts in HRW to push the net-long positions to 7,935 contracts.

The Chinese go on holiday for a week on Saturday, so the trade will be watching closely to see if they do any buying this week in front of their spring festival. It is not in the nature of the Chinese to sign a big deal and then not do something to prove good faith shortly thereafter. So, the only thing that matters this week is Chinese purchase confirmations.

Meanwhile, the mysterious respiratory disease in China which has already killed six people has entered a new phase with the illness spreading from person to person. The number of confirmed cases rose to 291, with the new virus a cousin of the severe acute respiratory syndrome, or SARS, that killed almost 800 people 17 years ago. Authorities in the country say the outbreak is controllable ahead of the new-year travel season where hundreds of millions of people make journeys for the holidays. Beijing today warned officials not to cover up the spread of a mysterious new coronavirus that started in central China. The World Health Organization said in a tweet on Monday that the latest outbreak had most likely started with an animal source but also noted there had been “some limited human-to-human transmission occurring between close contacts.”  Global markets are moving to a risk-off stance as investors try to price in the risks from the outbreak in China.

The weekend saw mostly dry over the Brazilian ag areas Saturday, Sunday and Monday, mostly dry over the Argentine ag areas Saturday & Sunday with rains over the central ag areas Monday. The outlook shows heavy rain over the northern Brazilian ag areas including Bahia over the next week with the south mostly dry. Rains are seen over the northern Argentine ag areas early this week with the south mostly dry. The 10-day forecast sees above-normal precipitation for most of the Brazilian grain regions and below-normal temperatures to maintain favorable crop conditions. Much of Argentina is expected to have below-normal precipitation with above-normal temperatures, increasing crop stress.

President Donald Trump sought on Sunday to assure American farmers and ranchers hit by a protracted tariff war with China that a trade agreement he signed with Beijing will lead to major purchases of U.S. agricultural products. Trump told a meeting of the America Farm Bureau Federation (AFBF) that the initial trade deal he signed with China last Wednesday would be a boon for farmers, whom he thanked for sticking with him after he twice had to allocate multibillion-dollar bailouts for producers targeted by Chinese tariffs. It included a pledge by China to purchase at least $36.5 billion worth of agricultural goods in 2020 and at least $43.5 in 2021.Trump told the farmers he would vigorously enforce the trade deal to make sure China holds up its side of the agreement.

With China poised to increase purchases of U.S. agricultural goods this year as part of a Phase 1 China trade deal, USDA Secretary Sonny Perdue said on Monday at the AFBF annual convention that there is no need for a third year of trade-related aid for farmers. Perdue said China will soon begin buying U.S. farm goods. China, which typically buys the bulk of its U.S. agriculture products during the fall and early winter, will likely change the timing of its purchases, Perdue said.

Meanwhile, French President Emmanuel Macron said on Monday he had a "great discussion" with U.S. President Donald Trump over a digital tax planned by Paris and said the two countries would work together to avoid a rise in tariffs. Macron and Trump agreed to hold off on a potential tariffs war until the end of 2020, a French diplomatic source said. France decided in July to apply a 3% levy on revenue from digital services earned in France by firms with revenues of more than 25 million euros ($28 million) in France and 750 million euros worldwide. Washington has threatened to impose taxes on French products in response.

Global growth appears to have bottomed out but there is no rebound in sight and risks ranging from trade tensions to climate shocks makes the outlook uncertain, a top International Monetary Fund official said on Monday. For 2020 and 2021, the IMF trimmed back its global growth forecasts, mostly due to a sharper-than-expected slowdown in India and other emerging markets, even as it said that a U.S.-China trade deal added to hopes the activity was bottoming out. The IMF now sees growth at 3.3% this year, below its October projections for 3.4% and cut the 2021 forecast to 3.4% from 3.6%.  The Fund's cautious outlook assumes that there are no additional flare-ups in U.S.-China trade tensions but warned that the root cause of the problem is not yet fixed.

 Iran said on Monday it could quit the global nuclear Non-Proliferation Treaty (NPT) if European countries refer it to the U.N. Security Council over a nuclear agreement, a move that would overturn diplomacy in its confrontation with the West. The 1968 NPT has been the foundation of global nuclear arms control since the Cold War, including a 2015 deal Iran signed with world powers that offered it access to global trade in return for accepting curbs to its atomic program. The fate of the 2015 pact has been in doubt since U.S. President Donald Trump pulled the United States out of it and reimposed sanctions. Iran has responded by scaling back its commitments, although it says it wants the pact to survive.

Corn: The impressive bullish price action on Friday makes it obvious that the market got too many shorts in on the price break on Thursday, and the psychology now is nervous about the upside potential. Open interest fell about 32,000 contracts on fund short covering. Brazil's soybean farmers have harvested only 1.8% of the soybean area so far this season, agribusiness consultancy AgRural said on Monday, reducing the ideal window for planting of the country's second corn that is sowed after the oilseed is collected. "For it to be a truly great harvest, we need rains lasting until the end of April and if possible beginning of May," Antonio Galvan, a grain grower in Mato Grosso, told Reuters when asked about the prospect of planting corn outside the ideal window. Some farmers may opt to plant sorghum, sunflower or pulses to guarantee a second harvest, even if that means cultivating a less lucrative crop than corn.  

Soybeans: Futures are drifting lower this morning after strong technical close on Friday. This week’s action will be focus on confirmation of China buying. European Union soybean imports in the 2019/20 season that started on July 1 had reached 7.4 MMT by Jan. 19, official data showed on Monday. That was 6% lower than the volume cleared by Jan. 13 last year. EU soymeal imports had reached 10.3 MMT, up 9% versus the year-earlier period.

Wheat: Futures seen mixed SRW contracts slightly higher but HRW and spring wheat slightly lower. Prices bounced from overnight low after Paris wheat extended their rally to the highest since February on the weekly continuation chart. The area sown with soft wheat for this year's harvest in France, the European Union's biggest grain producer, is estimated to have declined by 10% compared with 2019 to a 19-year low after heavy rain disrupted field work, a survey showed on Friday. Persistent warmth in the Black Sea keeps positive 2020/21 Russia winter crop outlooks, with winter kill risks on the horizon. Ukraine wheat and rapeseed crops are also still seeing mostly favorably warm conditions, although lingering dryness and a lack of snow cover raises the risk for hard freeze events to cause damage to crops later in the winter, and could jeopardize soil moisture reserves for the spring growing season.

Livestock Calls
Cattle: Steady to firm
Hogs: Steady to firm

Cattle:  Futures seen steady to firmer after cash cattle were steady to higher last week and beef prices advance. Wholesale beef continued higher on Monday with Choice rising 47 cents and Select up 73 cents. Sales were light during Monday’s holiday. Chinese beef importers are seeking to renegotiate prices previously agreed when they closed deals to buy dozens of shipments from Brazil because values are too high, according to a report in the Folha de Sao Paulo. Some Chinese importers are refusing to pay for shipments that already arrived in China, seeking a discount from Brazilian exporters. The newspaper said some of those new companies recently cleared to sell are facing financial difficulties due to the renegotiation requests from China, because they invested in new infrastructure to be able to export and are not being paid. Some Brazilian beef exporters are trying to divert cargoes that have not yet reached China to other potential destinations, such as Iran.

Hogs: Futures seen steady to firm after the national hog price rose $1.08 on Monday after wholesale pork cutout values jumped $1.64 on light holiday volume. All primal cuts rose yesterday, a positive development.  The market is waiting for more evidence of aggressive Chinese buying of U.S. pork. China produced 42.55 million tons of the meat last year, down 21.3% from 2018, and the lowest output since 2003, according to National Bureau of Statistics data.


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