Ahead of the Open: Wheat Rallies on Tighter Supply, Better Demand, Markets Wait on China Trade Deal Signing

Posted on 01/15/2020 7:46 AM

Grain Calls

Corn:  Steady to firm
Soybeans: Steady to slightly weaker
Wheat: Up 2 to 6 cents

GENERAL COMMENTS: The world wheat markets are firming again today on increasing demand and speculation that U.S. wheat exports may begin to improve. Corn and soybeans are little changed waiting for the details of the U.S./China Phase 1 trade deal after the signing later this morning.

USDA daily export sales reporting services said private exporters sold 126,000 metric tons (MT) of soybeans for delivery to China during the 2019-20 marketing season. That may help to put a bid back int the soybean market this morning. 

President Donald Trump and Chinese Vice Premier Liu He are expected to sign a Phase 1 trade deal at 10:30 a.m. CT, with the text of the agreement expected to be released around the same time. The deal reportedly includes Chinese commitments to purchase at least $80 billion worth of U.S. agriculture goods over the next two years. Language regarding the purchases and enforcement mechanisms will be closely scrutinized. A confidential annex with detailed purchase commitments won’t be released, and skepticism continues whether China will fulfill farm product purchase commitments.  

U.S. Treasury Secretary Steven Mnuchin said on CNBC this morning that some technology and cybersecurity issues would be resolved in the next chapter of a deal to end a trade dispute between the United States and China. "There still more issues to deal with and we'll address those."

The United States and China have no agreement for further reductions in tariffs, U.S. Trade Representative Robert Lighthizer and Mnuchin said in a joint statement on Tuesday. They said all aspects of a Phase 1 trade deal with China would be made public today, except a confidential annex that will detail U.S. products and services to be purchased by China. "There are no other oral or written agreements between the United States and China on these matters, and there is no agreement for future reduction in tariffs. Any rumors to the contrary are categorically false," according to the statement.

Global Times, a state-owned newspaper known for its nationalistic stance,  said in an article that, “we have a few words to say to the Chinese public — don’t feel ‘we lost’ because China will increase purchase of American goods in the phase-one deal. There was some balance in China-U.S. trade, and the purchase of U.S. products not only meets the needs of Chinese people’s consumption upgrade, but also strengthens bilateral ties and bolsters the relationship up in the right direction in the 21st century.”

The U.S., EU and Japan increased pressure on Beijing over its model of state-sponsored capitalism, calling for tougher World Trade Organization (WTO) curbs on government subsidies. The three issued a joint statement on Tuesday on a proposal for more stringent global rules to prevent Chinese companies relying on state support to gain advantage over foreign rivals. The proposed rule changes take aim at core parts of China’s economic model, calling for a wider World Trade Organization (WTO) ban on various types of state support and for governments to do more to prove that aid to companies does not distort trade. The agreement could help the Trump administration deflect criticism that its deal with China fails to address industrial subsidies and that the U.S. has not sufficiently worked with its allies to pressure Beijing. Brussels hopes the proposals can be a first step in a wider reform effort at the WTO.

The Senate Appropriations, Foreign Relations, Commerce and Health, Education, Labor and Pensions Committees hold markups today to vote on the U.S.-Mexico-Canada Agreement (USMCA). That clears the way for the chamber to take the agreement up, with Senate Majority Leader Mitch McConnell (R-Ky.) saying they will do so Thursday. Passage is expected. The House has already cleared the measure that will help to strengthen the economies of North America.  

Corn: March corn futures traded a narrow 1 1/2-cent range overnight and remain just a couple of cents below key resistance at $3.92.  A move above that level could accelerate fund buying and short covering. Several French animal feed companies have suspended operations since Friday because of strikes over pension reform that has disrupted grain transport, farm office FranceAgriMer said on Wednesday. A month-old public transport strike that has crippled rail services and rolling stoppages by dock workers have left companies in the European Union's biggest grain producer struggling to get grain to ports and to manufacturers.

Soybeans: Futures opened steady overnight but have slipped lower this morning amid skepticism china will be an immediate buyer of U.S. soybeans after recent purchases and cheaper supplies offered from Brazil. China's soybean imports in 2020 will rise to some extent, an agriculture ministry official said on Wednesday, without providing specifics. China bought 88.51 million metric tons (MMT) of soybeans in 2019, up from 88.03 MMT in 2018, but down 7% from 95.53 MMT in 2017 before the trade war began. China's soybean demand was also curbed by the African swine fever disease, which has slashed the country's pig herd by more than 40%. Beijing has issued a series of measures to boost pig production and increase supplies of pork.

Wheat: Wheat futures are seen following world prices higher this morning with Paris wheat futures touching the highest since Feb. 22 on the continuation chart.  Egypt's state grain buyer GASC on Tuesday bought 240,000 MT of wheat, including 180,000 MT of Russian wheat and 60,000 MT of Romanian wheat. Jordan's state grain buyer purchased 60,000 MT of hard milling wheat to be sourced from optional origins. Turkey's state grain board purchased around 550,000 MT of optional origin wheat but a substantial part of the volume was expected to be sourced in Russia. Turkey also purchased about 100,000 MT of durum wheat to be sourced from optional origin.

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

Cattle:  Futures seen steady to firmer after Choice and Select boxed beef values surged $2.21 and $2.07, respectively, on Tuesday. Sales were just moderate.

Hogs: Futures will start steady to firm on stronger cash hogs. The national average cash price rose 97 cents on Tuesday. Wholesale pork prices were up a nickel. With strong profits, packers have increased the kill this week 55,000 head from a yearChina will release 30,000 MT of frozen pork from its state reserves on Jan. 17, the country’s China Merchandise Reserve Management Center announced today. The country has released 190,000 MT of frozen pork from its state reserves since early December as it works to shore up supplies ahead of the Lunar New Year holiday, which is China’s peak consumption period. Once its frozen pork stocks have been depleted, China is expected to really ramp up its imports of the meat. Pork prices were not expected to further rise ahead of China's Spring Festival holiday, a peak demand season for the pork, as more pigs will be sent to slaughterhouses, while imported pork and pork from reserves is being released to the market, an ag ministry official said today.

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