Ahead of the Open: Corn, Soy Seen Firmer on Cool U.S. Weather, China Trade Deescalation

Posted on 08/29/2019 7:54 AM

GRAIN CALLS:

Corn: Up 2 to 3 cents
Soybeans: Up 4 to 5 cents
Wheat: Steady to down 2 cents

General Comment: Corn and soybeans are inching higher after holding support earlier this week as the crops continue a very slow finish with cool temperature encouraging some short covering in case there is a hard freeze in September. Temperatures fluctuate but generally remain cool over the next two weeks, lengthening filling, but not producing a killing freeze.  The rainfall forecast is complex, but is most likely to include below-normal rainfall in southern corn and soybean areas through the period, while some t-storms affect northern areas next week and beyond.

China steps back from possible retaliatory tariffs. China indicated overnight that it wouldn’t immediately retaliate against the latest U.S. tariff increased announced by President Donald Trump last week, emphasizing the need to discuss ways to de-escalate the trade war between the world’s two largest economies. The White House says not to expect a deal anytime soon and China says it could retaliate on the planned tariff hike though it prefers not to.
“China has ample means for retaliation, but thinks the question that should be discussed now is about removing the new tariffs to prevent escalation,”  Commerce Ministry spokesman Gao Feng told reporters Thursday. Higher tariffs on Chinese exports to the U.S. are due to come into force on Sept. 1, and some retaliatory measures from Beijing are already planned. Meanwhile, Trump’s trade adviser Peter Navarro said negotiators from China are set to come to Washington in September to talk about the big changes the U.S. is asking for, but it’s “unlikely anything quick will happen.” The Trump administration on Wednesday made official its extra 5% tariff on $300 billion in Chinese imports and set collection dates of Sept. 1 and Dec. 15, prompting hundreds of U.S. retail, footwear, toy and technology companies to warn of price hikes.

Meanwhile, a U.S. navy destroyer sailed near islands clamed by China in the South China Sea on Wednesday, the U.S. military said, a move that Beijing condemned as an illegal attempt by Washington at “maritime hegemony.” The busy waterway is one of a growing number of flashpoints in the U.S.-Chinese relationship, which include an escalating trade war, American sanctions on China's military, and U.S. relations with Taiwan.

Trump may have gained some international support for his trade war with China. Last weekend, the Group of Seven leaders pledged to reform the Geneva-based trade body and address some key gaps that have emerged in the international trading system since the World Trade Organization was created 25 years ago. The G-7 statement on WTO reform was noteworthy because it aligned with the Trump administration’s demands for tougher intellectual-property protections, a more efficient system for settling disagreements and new curbs on unfair commercial practices.

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

Corn: December futures fell to the lowest since May’s contract low yesterday and rallied to post solid gains. The market is holding those gains and adding some additional weather risk premium today. USDA reported this morning that exporters sold 858,900 metric tons (MT) in the week ended Aug. 22 for new-crop delivery. That was above trade estimates for 350,000 to 800,000 MT of new sales with Mexico buying 547,200 MT, most of which was already reported in the daily reporting service. An increase in weekly ethanol production in the U.S. sparked a rally in corn futures on Wednesday. Weekly ethanol production increased by 15,000 barrels per day to 1.038M--a surprise considering big producers like Poet have announced production stoppages in reaction to EPA waivers granted to several gasoline refineries. USDA Secretary Sonny Perdue said the president will announce a new plan to boost demand for biofuels within weeks.

Soybeans: The market is adding a little weather premium with cool weather further delaying pod set and fill. The weekly USDA export sales report showed net new-crop delivery sales were 353,100 MT, at the bottom of the range of trade estimates.  However, new-crop soymeal sales were strong at 245,400 MT last week with old-crop shipments jumping 59% above the four-week

Wheat: Futures are slightly lower but may bounced after USDA reported export sales near the top end of trade estimates. Exporters sold 661,700 MT in the week ended Aug. 22, a marketing year high and up 37% from the prior four-week average. South Korea and Mexico were the top buyers. Ukraine's agriculture ministry on Thursday issued its first forecast for the country's 2019 wheat harvest, saying that output could rise to 27.8 MMT from 24.6 MMT in 2018. The ministry's statement said the overall grain harvest could rise to 71.1 MMT from 69.8 MMT last season. World wheat supplies remain burdensome.

LIVESTOCK CALLS:

Cattle: Steady to weak
Hogs: Steady to firm

Cattle: Futures seen weak after disappointing close and weakness in cash markets. Weekly beef export sales fell 18% below the prior four-week average last week and shipments slowed 7% from the four-week average.  Choice boxed beef dropped $3.80 yesterday and Select climbed $1.10, narrowing the spread between the two to $21.15. Meanwhile, some additional light cash cattle sales took place yesterday around $108 in Iowa and between $103 and $104 in Kansas, down a bit from last week’s action at $109 and $106 for these states, respectively.    In the wake of the Tyson fire in Kansas, beef prices have surged, and packer profit margins have soared. USDA surprised the market by announcing yesterday it would investigate whether there were any unfair practices at play in the wake of the fire.

Hogs:  Lean hog futures may rise today after improved export business. USDA reported pork export sales jumped 53% from the prior week and were 85% above the four-week average. Japan and Mexico were the top buyers and China bought 1,900 MT last week. Pork shipments last week rose 3% from the prior week with the primary destination Mexico and China. Today, China’s commerce ministry announced it will release frozen pork, beef and mutton from its state reserves in “due course” to increase the amount of meat available to the market. This is the sign the market has been waiting for as depletion of freeze stockpiles may boost new imports. Rallies will continue to struggle with record slaughter, pressuring cash prices. Cash hog bids dropped $1.52 yesterday. And a $12.16 plunge in belly prices pulling the pork cutout value $2.42 lower. Over the past week, the cutout value has tumbled $8 and belly prices have plummeted $45.32, setting records in the process.

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