Ahead of the Open: Corn, Soy Rise on Smaller Crop Outlooks, Easing China Tensions

Posted on 08/26/2019 8:01 AM

GRAIN CALLS:

Corn: Up 1 to 3 cents
Soybeans: Up 9 to 12 cents
Wheat: Steady to up 2 cents

General Comment: Corn and soybeans are moving higher after a weak start overnight on U.S./China trade tensions that have since ease this morning and support from lower U.S. crop estimates. We are forecasting a national corn yield at 163.3 bushels per acre and soybean yields at 46.1 bushels, both well under the USDA estimates earlier this month.

August is set to end on a cool note, further slowing crop maturity. Near to slightly below normal rainfall and below normal temperatures will prevail for the next 10 days. The chill will further slow US summer row crop maturation and raise crop quality and quantity concern with even normal freeze dates in October. Monday’s USDA crop progress report is expected toshow corn and soy crops that are falling even further behind in maturity relative to normal.

Stock markets clawed off their lows and rallied sharply on Monday, but sentiment remains fragile after the latest flare-up in the U.S.-China trade war sent investors scrambling into government bonds and battered emerging market currencies last week. Stock markets recovered after U.S. President Donald Trump said China had contacted Washington overnight to say it wanted to return to the negotiating table. Beijing called for calm. Stocks had fallen sharply in Asia before Trump spoke as investors panicked that the latest tit-for-tat tariffs would damage global growth. The price of gold, which has boomed in recent months as nervous investors flocked to the precious metal, touched its highest since April 2013 and was last up 0.3% at $1,542  

The United States and China sought to ease trade war tensions on Monday, with Beijing calling for calm and U.S. President Trump predicting a deal after markets fell in response to new tariffs from both countries last week. Trump, speaking on the sidelines of the G7 summit of world leaders in France, said Chinese officials had contacted U.S. trade counterparts overnight and offered to return to the negotiating table. Vice Premier Liu He, who has been leading the talks with Washington, said on Monday China was willing to resolve the trade dispute through "calm" negotiations and resolutely opposed the escalation of the conflict. 
On Sunday, the White House said that Trump wishes he had raised tariffs on Chinese goods more quickly and to higher levels, even as Trump signaled he did not plan to follow through with a demand that U.S. firms find ways to close operations in China. Trump raised eyebrows on the sidelines of a G7 summit when he responded in the affirmative to questions from reporters on whether he had any second thoughts about raising tariffs on Chinese goods by 5%. Trump announced the additional duty on some $550 billion in targeted Chinese goods on Friday, hours after China unveiled retaliatory tariffs on $75 billion worth of U.S. goods.  The levies take aim at the heart of Trump's political support—factories and farms—amid signs of a slowing U.S. economy. U.S. Treasury Secretary Steven Mnuchin said Trump could order companies out of China under the International Emergency Economic Powers Act if he declared a national emergency. Trump indicated on Sunday that he was not planning such a step at this time, however.

Meanwhile, China will fight back against the latest U.S. step to increase tariffs on Chinese goods, the ruling Communist Party’s People’s Daily said on Sunday amid an escalating trade war between the world’s two largest economies. “China is confident that it will follow its own path and do its own things well, and will never waver in its stand on countering any provocations by the U.S. side,” the newspaper said in a commentary.

Illegal violence is pushing Hong Kong to the brink of great danger, the city government said on Monday, after a weekend of clashes that included the first gun shot and the arrest of 86 people, the youngest just 12. Police fired water cannon and volleys of tear gas in running battles with protesters who threw bricks and petrol bombs on Sunday, the second day of weekend clashes in the Chinese-ruled city. Six officers drew their pistols and one officer fired a warning shot into the air, police said in a statement, adding that 215 rounds of tear gas and 74 rubber bullets were fired over the two days. The protests began in mid-June over a now-suspended extradition bill that would have allowed Hong Kong people to be sent to mainland China for trial. The protests pose the gravest popular challenge to Chinese President Xi Jinping since he took power in 2012, with his government keen to quell the unrest ahead of the 70th anniversary of the founding of the People's Republic of China on Oct 1.

President Trump on Sunday said he and Japan's Prime Minister Shinzo Abe had agreed on the principles of a trade deal that would probably be signed next month in New York. Trump's Trade Representative Robert Lighthizer said the deal would open markets to over $7 billion worth of goods and covered agriculture, industrial tariffs and digital trade. The U.S. president said Abe agreed that Japan would buy 2.5 million metric tons (MMT) U.S. corn. Abe said of the "potential" purchase of U.S. corn that such purchases would be carried out by the private sector.

USDA daily export announcement service said private exporters reported no new sales during the weekend.

Corn: December futures are rebounding from fresh seasonal lows set on Friday after the spiraling U.S./China trade war sparked fresh fund selling. The weekly CFTC report showed speculators and funds switched to a net-short position of about 56,000 futures and options on Aug. 20, compared with a net long of 45,000 a week earlier the most since the week ended May 21. Commercial bought about 80,000 and are now net-short 312,000 contracts, the smallest since late May.

Soybeans: The market is entering a consolidation phase with support coming from lower yield potential measured during the Pro Farmer Midwest Crop Tour last week. November beans opened lower and have erased all of Friday’s losses, a positive technical signal. Weather and crop conditions will take on increasing importance in the coming weeks as late-seeded crops try to push to maturity. China's July soybean imports from the United States jumped threefold from the previous year, customs data showed on Sunday, as cargoes booked by Chinese state firms during a trade truce arrived. China imported 911,888 MT of U.S. soybeans, up from last year's 308,127 MT and up 48.3% from 614,805 MT in June. Palm oil prices jumped to a six-month high on rising demand and prices in China for vegetable oils.  China nearly tripled soybean oil imports in July from a year earlier and boosted palm oil imports 74%. Funds increased net-short positions by about 6,000 futures and options to 72,000 contracts. Commercials bought about 5,000 contracts to cut their net-short position to 15,000.  The net-short fund position does offer the potential for a sharp recovery if a frost/freeze catches the immature 2019 U.S. crops.

Wheat: Futures seen supported by a movement toward a U.S./Japan trade deal that will keep exports of U.S. wheat flowing to a large and crucial markets for U.S. farmers. There is a strong tendency for the world market to bottom during the tail end of August or early September. But better demand and lasting dryness across the Southern Hemisphere will be needed to sustain rallies. December SRW futures rose to the highest since Aug. 15 overnight after forming an outside-day reversal and higher close on Friday. Funds ditched their net-long position in SRW futures and options in the week ended Aug. 20 while adding to shorts in HRW and spring wheat markets. Funds held a new record short in spring wheat futures for a sixth straight week.

LIVESTOCK CALLS:

Cattle: Steady to firm
Hogs: Steady to weak

Cattle: Futures seen steady to firm. The August Cattle on Feed report is viewed as neutral to slightly supportive. The July placement rate was slightly below expectations, the marketing rate was a little better, and the August 1 cattle on feed inventory was slightly below the average estimate. The herd rose 0.2% from a year ago last month, less than the 0.8% gain expected by traders polled by Reuters. The smaller gain was the result of feedlots buying 2.1% less replacements, below the 0.1% increase expected by traders. The report did confirm the 5th consecutive month of record large on feed supplies. But the lack of a bearish surprise should allow cattle futures to trade steady to higher this week. September tends to be a seasonally weak period for the beef and cattle markets. But our view is that after the break in both CME futures and Western Plains cash markets, the trend is likely to be higher in the coming months. Spot futures have affirmed support at $100 as funds liquidated a once record net-long position earlier this year to the smallest bullish bet since 2015.

Hogs:  Lean hog futures seen steady to weak after cash hog fell $1.57 on Friday to an average of $64.55, down $4.10 for the week. The carcass cutout values slipped 29 cents on Friday to $76.65, capping a more than $10 drop for the week. Hams and bellies have led the retreat. A major increase in U.S. pork exports is needed to shift the focus away from the record U.S. slaughter China's agriculture ministry said on Monday it had confirmed a new outbreak of African swine fever in the southwestern province of Yunnan. An epidemic of African swine fever has swept through China's hog herd over the last year, reducing pig numbers by almost a third, according to official data, and sending pork prices soaring China brought in 182,227 metric tons (MT) of pork in July, according to data from the General  Administration of Customs, up 107% from July 2018. That was up from 160,467 MT imported in June, and close to May’s hefty 187,500 MT.

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