Ahead of the Open: Corn Extends Drop on Larger U.S. Crop Outlook, Beans Seen Rebounding

Posted on 08/13/2019 7:49 AM

GRAIN CALLS:

Corn: Down 8 to 13 cents
Soybeans: Up 4 to 7 cents
Wheat: Down 2 to 4 cents

General Comment: Corn and soybean futures are moving in opposite directions after USDA on Monday forecast U.S. farmers would harvest more corn and fewer soybeans than traders were expecting. The U.S. Midwest weather forecast models were again a bit wetter, especially for the far south with close to average rains falling over the region the next 10 days. Temperatures will be going from average to below average over the near term and back to above average over the weekend, then back to cooling back off the first half of next week.

The weekly USDA Crop Progress Report showed conditions that matched the week-prior result but slightly exceeded industry expectations for a 1% drop in the “good” to “excellent” (G/EX) categories. This added pressure to the market overnight after prices were locked down the daily 25-cent trading limit on Monday in response to the larger USDA acreage and yield estimates  The  sustained  stability  of  recent  crop condition when most years they are declining this time of the year explains the narrowing difference between the 2019 readings and the year-ago and 10-year average results. But even the steady crop conditions last week were a surprise, since the G/EX ratings declined in 10 states and improved in just 5, with three unchanged.  

The overall soybean condition rating for the 18 major soybean-growing states was 54% G/EX for the fifth consecutive week. Looking at individual states, seven increased their ratings while nine decreased and two remained the same. The low overall U.S. condition rating comes from the states known as some of the top producers of soybeans, such as Illinois down 1% to 39% G/EX, Indiana fell 2% to 34% G/EX and Ohio’s crop still suffers at 29% G/E, with 22% of it in “poor” and “very poor” condition. USDA reports topsoil moisture rated short to very short each week. Some of these totals this week are Illinois at 62%, Indiana at 61%, Iowa at 36%, Michigan at 58%, Minnesota on 12%, Missouri at 19%, Ohio at 46% and Wisconsin at only 8%. The major states at 25% or more are seemingly facing yield threats from continuing droughty conditions.

The Argentine peso tumbled as much as 25% to a record low of 60 per dollar yesterday, with the country’s main stock index plunging by the second-largest amount of any benchmark in any country since 1950, as investors retreat in the wake of President Mauricio Macri’s stunning defeat in primary elections over the weekend. Alberto Fernandez, the winner in that vote, criticized Macri for increasing short-term debt to unsustainable levels, while adding he does not want to default on the nation’s obligations. That was not enough to stop yields on shorter-maturity notes rising to 35%.  Argentina farmers are going to hold onto their soybeans long and that that may open new U.S. sales opportunities for soybeans, meal and oil, including new business with China. Monday’s weekly USDA report showed soybeans inspected for export last week slipped to 944,238 MT from 1.033 MMT a week earlier, but that’s still well above the 581,559 MT a year ago. China was the destination for 468,230 MT of beans last week.  

Already hurting from the U.S.-China trade war, Hong Kong’s economy could be facing something much worse than a recession. With protests continuing to disrupt the territory’s retail and tourism industries — and bringing the airport to a standstill for a second day on Tuesday, analysts say it wouldn’t take much to tip the economy into negative territory. Hong Kong is an important gateway for capital, too. So, the bigger fear is the damage done to Hong Kong’s standing as a conduit between China and the rest of the world. Even if its economic relevance to China has faded over time, it’s still an important valve for foreign money flowing into and out of the world’s second-biggest economy.

Signs of a global slowdown are everywhere today. Singapore’s government cut its growth outlook to 0-1% from 1.5-2.5% this year, showing how the U.S.-China stand-off is hitting the region’s most trade-reliant economies. In Europe, the ZEW expectations figure for investor confidence dropped to -44.1, the lowest since 2011. In the U.S., the rate on the 30-year Treasury bond is closing in on an all-time low as investors seek shelter from what seems to be a rapidly worsening global outlook. Asian and European markets are lower today and U.S. stock futures point to a lower open on Wall Street this and gold prices rose to a new six-year high as a safe-haven asset.  

USDA daily export announcement service said private exporters reported no large new export sales in the past 24 hours.

Corn: December futures gapped lower after closing limit down on Monday. The market remains under pressure from fund long liquidation after USDA’s stronger crop production forecasts.

Soybeans: November futures opened steady to lower last night and rebounded on the smaller USDA crop forecast and uncertainty how the financial upheaval in Argentina will impact global soybean trade.

Wheat: Futures seen following corn lower this morning, but demand is improving. Wheat inspected for export is 28% ahead of a year ago with the USDA currently forecasting a 4% increase on the year.  U.S. Winter Wheat harvesting was 89% as of Aug. 11, up from 82% last week, 93% a year ago, 96% on average the past five years. U.S. Spring Wheat harvesting was 8% done well behind the five-year average of 30%.

LIVESTOCK CALLS:

Cattle: Sharply lower
Hogs: Lower

Cattle: Futures seen lower to sharply lower amid slaughter plant upheaval that will pressure cash bidding. But it will support higher wholesale beef which jumped $2.25 for Choice on Monday and $3.98 for Select on strong sales. Futures daily trading limits are expanded to $4.50 for live cattle and $6.75 for feeder cattle today. A fire at a Tyson Foods beef processing plant near Holcomb, Kansas sent the cattle market reeling yesterday as the plant is one of the largest in the U.S. and it will be shuttered for an indefinite period. Steve Stouffer, president of Tyson Fresh Meats, said it still does not know when the facility will reopen and resume processing. He said the company is “taking steps to move production to alternative sites.

Hogs:  Lean hog may follow cattle lower. The national average cash hog prices fell $2.02 on Monday with Iowa/Minnesota falling $2.66. Wholesale pork prices fell 25 cents on modest sales. Slaughter estimated at 466,000 head, down from 467,000 head a year ago. Much improve packer margins should help the cash hog market stabilize this week as market supplies are not as large as feared to start this week.  

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