Ahead of the Open: Wheat Futures Rally Sharply to Open the Week

Posted on 06/03/2019 8:23 AM

Grain Calls 

Corn: Steady to mixed
Soybeans: Steady to up 2 cents
Wheat: Up 11 to 16 cents

General Comment: Grains and soybeans are likely to be very volatile this week, with Mexico tariff threat on June 10 playing off the weather again. The weather generally getting a touch more favorable to seeding.  The planting numbers tonight will be important. Most traders will be looking for corn planting to be 68% to 72% completed as of Sunday, up from 58% a week earlier and 97% a year ago. Soybean planting may be 39% to 41% complete, up from 29% a week ago. Look for another drop in U.S. winter wheat conditions from excess rain. The markets closed poorly on Friday, and the U.S. weather forecasts are about where we left them on Friday’s close. Showers for the second half of this week with a four-day window for planting in the northwest, and a couple of days in the east to start the week. This isn’t a lot, but it’s more than we have gotten in a while.

Trump administration ended India’s status as a developing nation, an arrangement that lets the country export almost 2,000 products to the U.S. tax free, days after his threat to levy Mexican goods. Mexico sent their foreign minister to Washington to complain about President Donald Trump’s tariffs, but there’s no one there to talk to, as Trump is in Britain.  The Mexican government should target agricultural goods produced in states that have voted for U.S. President Donald Trump's Republican Party if the trade conflict between the two neighbors worsens, the head of Mexico's main farm lobby said on Friday. Trump’s main trade adversary, China, said the impasse between the world's two largest economies hasn't “made America great again,” in a white paper that asserted its right to development and sovereignty. Beijing also said it's investigating FedEx after the company failed to deliver items to the correct addresses, possibly a reaction to packages destined for Huawei that wound up in the U.S. Huawei Technologies, the Chinese telecommunications equipment supplier fighting a U.S. sales ban, kicks off a trade secrets lawsuit in the United States on Monday against a former employee who has sought to turn the case into a referendum on Huawei's corporate behavior. The trial, involving salacious allegations of corporate espionage, racketeering and a secret database of rivals' technology, promises to keep Huawei in the spotlight amid a U.S. blacklisting and pressure on allies not to buy its networking gear over security concerns.

The United States cannot use pressure to force a trade deal on China, a senior Chinese official and trade negotiator said on Sunday, refusing to say whether the leaders of the two countries would meet at the G20 summit to bash out an agreement. Speaking at a news conference, Chinese Vice Commerce Minister Wang Shouwen said it was irresponsible of the United States to accuse China of backtracking. During the consultations, China has overcome many difficulties and put forward pragmatic solutions. However, the U.S. has backtracked, and when you give them an inch, they want a yard, he said. China stocks fell on Monday after last month posting the worst monthly decline since last October, as festering trade tensions between Beijing and Washington reduced risk appetite and stoked economic slowdown fears.   

The CFTC Report on Friday showed large specs bought less soybeans than expected, bought about 20,000 fewer corn contracts than expected, and bought about 10,000 fewer contracts in the wheat than had been expected. Funds cut net-short corn futures and options positions 95,993 contracts to a net-short of 20,736 and the smallest bearish bet since mid-February. The short probably shift to new long during the final three sessions of last week. However, Commercials increased net-shorts 98,052 to 262,346 contracts as farmers in the U.S. and South America increased cash sales. Funds reduced their net-short positions in soybeans by 23,137 to 129,994 futures and options, when many were expecting short positions to shrunk more last week. Commercials remain net-long 19,593 contracts, down 28,576 futures and options contracts. Managed money cut net-short positions 17,980 contracts to 23,780 contracts in SRW wheat and 8,614 futures and options in HRW wheat to a net short of 39,469 contracts.

USDA daily export sales reporting service did not report any new large export sales.

Corn: Since May 13 when prices fell to new contract lows, the corn markets has been on a strong weather rally. The market is taking a pause to start the new month, waiting on the latest planting data tonight.  China's corn output will likely retreat 1.2% year-on-year to 254 million metric tons (MMT) this year on smaller planted acreage, according to the report from Chinese Agriculture Outlook Committee (CAOC). Farmers have a strong willingness to expand the growing areas of soybean, as soybean subsidies remain higher than corn subsidies. Corn consumption is expected to hit 283 MMT, down 0.2% year on year, and curbing inventories.

Soybeans: Futures seen steady to firm on light fund short covering. U.S. soybean crushers likely processed 170.0 million bushels of soybeans in April, according to the average forecast of eight analysts surveyed by Reuters ahead of a USDA report after the close. That would be down from a 179.4 million-bushel crush in March and the 171.6 million bushels crushed in April 2018.  The world soybean market lacks a demand driver. This is the case even amid US acreage and yield losses. Chinese tariffs on soybeans will continue through the foreseeable future. And African Swine Fever will weigh on Chinese and Southeast Asian soy protein feed demand. Meanwhile, China and Malaysia announced a barter deal where Malaysia will supply 200,000 MT of palm oil in exchange for construction services and equipment from China.

Wheat: futures on up on wet U.S. weather forecasts, increase U.S. winter wheat production risks. Hotter and drier weather in the Black sea region will begin to reduce yield potential in Russia. Canada is very dry and may get some rains this week. If they miss that could be a big deal. Australia is also very dry.



Livestock Calls:

Cattle:  Steady to lower

Hogs: Lower

Cattle: Futures seen weak to start this week after a poor weekly close last Friday and worries cash cattle may resume their recent retreat. Choice beef cutout values fell 37 cents on Friday and Select lost $1.13. 

Hogs: Futures seen weaker amid concerns about fallout from the U.S. plans to slap tariffs on Mexican goods starting June 10. The national cash hog prices slumped 88 cents on Friday, led by a $1.49 drop reported in Iowa/Minnesota. Counter-seasonal weakness remains a negative factor. However, fresh pork cutout values rose 83 cents led by gains in bellies and hams. Slaughter fell to 2.128 million head last week from 2.325 million a week earlier but still up from 2.034 million a year earlier.  The market may uncover support today after ignoring the strong weekly export sales report last Friday. Net sales rose 18% to 54,700 MT from a week earlier. China bought 39,100 MT and Mexico purchased 8,900 MT. China shipments of pork last week were 4,200 MT and Mexico took 5,500 MT.

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