Ahead of the Open: Wheat Leads Higher on Smaller World Crop, Corn, Soy May Follow

Posted on 02/18/2020 7:47 AM

GRAIN CALLS

Corn: Up 1 to 3 cents
Soybeans: Mixed
Wheat: up 8 to 11 cents.

GENERAL COMMENTS: Wheat futures rose more 2% on Tuesday after new estimates that the crop in Australia will fall to its lowest since 2008, reducing competition for U.S. supplies in the world export markets. Soybeans and corn are seen following wheat higher on speculation Chinese buying will at last start under the Phase 1 trade deal with the United States after China announced a series of new import tariff exemptions on U.S. products including soybeans.  

China is considering making some purchases of U.S. agricultural goods by early March as a way to show it’s still committed to its phase one trade deal, Bloomberg reported Monday. The government is in discussion over what commodities it could potentially buy at the end of February or early March. While no final decision has been made, the purchases would show China plans to stick to the U.S. trade
deal that came into effect last week, despite the spread of coronavirus, Bloomberg reported citing people it did not identify.

China will grant exemptions on retaliatory duties imposed against 696 U.S. goods, the most substantial tariff relief to be offered so far, the Finance Ministry announced as Beijing seeks to fulfill commitments made in its interim trade deal with the United States. Applications for one-year waivers will be accepted from March 2. The ministry will approve application within three working days. Buyers must get approval before their cargoes clear customs. U.S. goods eligible for tariff exemptions include key agricultural and energy products such as pork, beef, soybeans, liquefied natural gas and crude oil, which were subject to extra tariffs imposed during the escalation of the bilateral trade dispute. Other products subject to exemption on additional tariffs imposed include denatured ethanol, wheat, corn and sorghum China is culling at least 100 million head of poultry for lack of feed and has lifted all restrictions on U.S. poultry imports.

USDA’s daily export sales reporting service did not report any new large sales of grains or soy this morning. The markets remain focused on daily new sales in the weeks ahead. No big sales announcements today may limit short covering unless prices make new session highs later today.

However, the ever-growing list of companies announcing problems from the extended shutdown in China due to the coronavirus outbreak now includes Apple Inc. after announcing it no longer expects to meet revenue guidance for the March quarter. Shares in the iPhone maker fell more than 4% in pre-market trading, pulling down Asian and European stocks and signaling a lower start on Wall Street this morning. The pace of infection growth and deaths from the outbreak in China appears to be slowing, but the World Health Organization has warned that it’s too early to say if cases are truly declining.

Meanwhile, the Trump administration is considering banning U.S. exports of some jet engines to China, the Wall Street Journal reports. The newspaper also reported that Trump administration is considering new restrictions on exports of cutting-edge technology to China, according to people familiar with the discussions. It’s a push aimed at limiting Chinese progress in developing its own passenger jets and clamping down further on tech giant Huawei’s access to semiconductors.

The USDA annual Outlook Forum starts on Thursday in Washington and carries on through Friday, and the trade is hoping for a bit more clarity on the Chinese ag buying into the 2020-21 season. Most traders do not expect the USDA to stray far from the 94.5 million acres of corn and 84 million bushels planted to beans put out last November on the baseline projections. But, the fact that a billion bushels of corn are still standing in the fields out west could have a downward bias to these numbers.

The weekly CFTC Commitment of Traders report on Friday showed hedge funds and other large speculators were net sellers in soybeans instead of being expected buyers. Also, funds were larger sellers than expected in soy products and corn. Speculators were net sellers of grains and livestock on bets that China’s ability to fulfill the trade agreement has been curbed by the coronavirus outbreak and that has created some short covering this morning after the Chinese tariff cut announcement.

South American weather will cap corn and soybean rallies. Argentina’s weather is mostly favorable, although excessive rain and flooding in the north Friday and Saturday may have damaged a few crops. Pockets of drying in southern Argentina will firm the soil notably during the coming week to ten days and a closer watch on timely rain events will be warranted for late February and March. Brazil crops will all received rain at one time or another during the next two weeks. Some areas in the south may dry down periodically, but favorable subsoil moisture and some timely rain events will see to it that crops develop in a favorable environment. The agribusiness consultancy AgRural raised its Brazilian soybean crop estimate by 1.7 MMT, pushing it to a record-high 125.6 MMT, citing “an exceptional Brazilian harvest.”

Corn:  March corn futures opened higher last night and pushed above Friday’s high but fell short of challenging the 20-day moving average. Prices slipped back toward midrange at the break but look for a retest of the overnight highs later today on additional short covering.

Soy: March beans opened higher last night but finished slightly lower before the break, in part because of worries China may refrain from immediate purchases of U.S. soybeans despite tariff cuts because of a cheaper and abundant supplies offered from Brazil. The monthly National Oilseed Processors Association report today is expected to soybean crush rose to 173.748 million bu. in January, up from 171.630 million a year earlier. It would be the largest January crush and the third largest for any month.  Soyoil supplies among NOPA members at the end of January were seen rising to 1.782 billion pounds, up from 1.757 billion at the end of December and 1.549 billion at the end of January 2019, according to a Reuters survey of analysts.

Wheat: Futures are leading higher after Australia said on Tuesday its 2019-20 wheat harvest was the lowest in 12 years, missing its forecast, as a severe drought across the east coast wilted crops. But with harvesting now complete, the Australian Bureau of Agricultural and Resource Economics and Sciences said production fell to 15.17 MMT, down from 15.85 MMT forecast in December.

LIVESTOCK 
CATTLE: Steady to firm
HOGS: Steady to firm

Cattle: Cattle futures posted strong gains on Friday and followthrough is expected to star this holiday-shortened week. Choice beef prices jumped $1.64 on Friday and Select gain $1.92. Slaughter last week slowed 11,000 head from a week earlier but remained 12,000 head from a year earlier.

Hogs: The cash hog turned higher late last week and that’s a positive development for a turnaround in hog futures. However, pork cutout values continued weaken to finished last week, touching a 11-month low. Slaughter last week fell 95,000 head from a week earlier but remained 99,000 head greater than a year ago. China government said it will accelerate hog production and increase state reversive of frozen pork. However, thousands of containers of frozen pork, chicken and beef are piling up at some major Chinese ports as transport disruptions and labor shortages slow operations, people familiar with the matter told Bloomberg.

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