First Thing Today: Higher Opens Expected This Morning

Posted on 11/29/2019 8:16 AM

Good morning!

Mostly firmer opens expected this morning… Grain and soy complex futures closed poorly on Wednesday, but we anticipate a round of corrective buying to support the market this morning. Weekly soybean exports sales were very strong, wheat sales also topped expectations and corn sales were with the range of estimates. We expect corn to open stead to 1 cent higher, soybeans 2 to 4 cents higher and wheat futures 1 to 3 cents higher. We expect cattle futures to trade with a firmer tone this morning on support from strong gains in the cash market Wednesday and for hogs to trade mixed to firmer after another week of strong export sales and shipments.

Muted China reaction after Trump signed a bill supporting Hong Kong’s protesters... President Donald Trump signed two bills supporting Hong Kong’s pro-democracy protesters. One requires America’s government to reconsider Hong Kong’s special trade status each year and threatens sanctions for human-rights violations. The other blocks new export licenses for tear-gas, rubber bullets and handcuffs for delivery to Hong Kong’s police. China’s foreign ministry has condemned the bills, which could also complicate trade talks. Despite the legislative language criticizing what Beijing calls U.S. interference in China’s domestic affairs, and a second summoning of the U.S. ambassador in a week, China’s leadership still wants a trade deal to help alleviate pressure on its economy, observers note.

U.S. soybeans are coming into China again as port congestion eases… Bloomberg News reports that congestion at ports is easing after China loosens customs policy. While China agreed to waive a 30% retaliatory tariff on imports of U.S. beans, buyers still had to pay a deposit before seeking a refund from the government. Many struggled to come up with the cash, which caused a logjam at Chinese ports of as much as 2 MMT of soybeans from the U.S. as well as shipments from other countries that were caught up in the congestion. China’s customs authorities now are letting importers use a letter of guarantee from banks instead of cash to pay the deposit, and the beans are flowing again.

Weekly export sales… For the week ended Nov. 21, USDA reported the following export sales.

 

2019-20 (in MT)

Expectations

Corn

806,800

400,000-900,000

Soybeans

1,664,100

600,000-1,200,000

Wheat

612,700

300,000-600,000

Soymeal

93,200

150,000-300,000

Soyoil

14,900

5,000-30,000

 

Bank expects sharp drop in Brazilian corn exports in 2019-20… Brazil’s domestic corn demand is on the rise as corn-based ethanol production increases and livestock producers ramp up meat production to meet increased demand from China. As a result, Ikeda, a bank specializing in ag financing, expects Brazilian corn exports to fall to around 30 MMT in 2019-20 from around 40 MMT in 2018-19.

Argentine farmers hope for export-friendly ag minister… Argentine farmers and grains exporters are lobbying President-elect Alberto Fernandez to name a market-friendly ag minister as they wait to hear his new grain/soy export tax plan. There’s fear among farmers and exporters that Fernandez will increase export taxes on grain and soy shipments to levels similar to what they were prior to current president Mauricio Macri taking office. Gabriel Delgado, chief economist at the government’s agriculture technology (INTA) institute, is who farmers and the ag industry are reportedly backing even though he was ag minister under the previous regime when ag export taxes were much higher. Fernandez’s pick for economy minister will also be critical in this decision making on ag export taxes.

India expecting record wheat crop after big monsoon rains… India could produce a second straight record wheat crop in 2020 after the wettest monsoon in 25 years. The country received rains during the June-September monsoon season that were 10% above average and the rainfall continued during October and November. As a result, wheat plantings and yields are expected to increase for the 2020 crop. In 2019, India produced a record 102.2 MMT wheat crop.

Government payments key contributor to rise in U.S. 2019 farm income forecast… U.S. net farm income is now forecast at $92.5 billion for 2019, up $8.5 billion (10.2%) from the 2018 level, according to USDA’s November update. In inflation-adjusted terms, net farm income is seen up $7.0 billion, down 32.3% from $136.6 billion in 2013. In August, USDA forecast net farm income at $88.0 billion. Net cash farm income is seen at $119.0 billion, a rise of $15.5 billion (15.0%) from 2018, and up from the August forecast of $112.6 billion. Direct government farm payments are forecast to increase $8.8 billion (64.0%) to $22.4 billion in 2019.

China pig bubble bursts, supply still short… Dim Sums: Rural China Economics and Policy reports,  “Chinese pork prices have dropped about 20% in November. Most industry analysts seem to view the decline in pork prices as a temporary market correction, and they expect a moderate rebound because there is still a 15 MMT to 20 MMT deficit in pork supply... Chinese news media are thick with propaganda about farmers rebuilding production capacity. Ministry of Agriculture officials at a press conference last week instructed news media to report good news to restore the confidence of hog farmers. A Chinese Academy of Ag Sciences official recited the party line that production has already begun to rebound and the overall meat supply is stable as increases in supply of poultry, beef and lamb and imports have filled in the deficit. While officials spread the mantra of stability, the situation on the ground suggests an industry still on a knife's edge, with panic-selling and new disease risks tipping the market into a downturn despite a yawning supply gap that consumers are learning to live with.”

Cash cattle trade sharply higher… Cash cattle activity turned sharply higher in the $119 to $120 range late Wednesday as feedlots and packers looked to wrap up this week’s trade ahead of Thanksgiving. Those prices are up $3 to $4 from the average of nearly $116 the previous week. Given the surge in cash prices this week, it could signal a short-term top is nearing after weeks of strength in the cash market

Market focus on cash hog trade… Cash hog bids trended higher into Thanksgiving, with the national direct price up 35 cents on Wednesday. Given snowy conditions in parts of the upper Midwest and strong packer margins, strength in the cash market is likely to continue. However, packer demand is somewhat uncertain given plant downtime around the holiday.

Today's reports:

Add new comment