Ahead of the Open: Corn, Soy Seen Firmer on Pre-Holiday Positioning Amid Uncertain Weather

Posted on 08/30/2019 7:44 AM

                                                                                                                                                                                                                                                                                                                                                                                                                                               GRAIN CALLS:

Corn: Up 1 to 2 cents
Soybeans: Up 4 to 6 cents
Wheat: Widely mixed; up 1 to down 8 cents

General Comment: Corn seen clawing slightly higher early on Friday, but the market is still poised for its biggest monthly decline in more than four years, as improved weather helped the crop recover from planting season flooding and export demand remains sluggish.  Soybeans gained ground on optimism over U.S.-China trade talks, while wheat slid, with both markets set to register monthly declines. Corn and soy crops are behind and with the calendar flipping to September the trade will be watching for any adverse weather or real threats of damaging cold temperatures.  The next 10 days is a little drier with average to below-normal temperatures with no cold air threats.

Some underlying support stems from the U.S. and China discussing the next round of face-to-face trade talks scheduled for September. The mood lifted yesterday after U.S. President Donald Trump said some trade discussions were taking place with China on Thursday, with more talks scheduled. China's commerce ministry also said a September round of meetings was being discussed by the two sides, but added it was important for Washington to cancel a tariff increase.

 

Grain traders are awaiting details about a "giant package" related to ethanol that U.S. President Donald Trump said his administration is planning to announce. Farmers are angry that oil refiners have been freed from obligations to use the corn-based fuel.  

 

World stocks rose to a one-week high on cautious hopes for a resumption of more harmonious relations between Beijing and Washington on Friday, though a stronger dollar capped gains with China's yuan on track for its weakest month in 2-1/2 decades, which offsets some of the impact of U.S. tariffs. For most of August global stocks have reeled and fixed income shined as deepening concerns over global trade and clear signs of a slowdown, possibly even a recession, in the global economy loomed large over financial markets. Recent economic data has also pointed to a global growth slowdown with business investment, manufacturing activity and exports all going south across major economies.

Investors are waiting on a string of economic releases due over the weekend including China's official manufacturing survey, which would provide a good gauge of the real impact from the Sino-U.S. trade war. The Australian dollar, often seen as a proxy bet on the Chinese economy, slipped towards a 10-year trough. In commodities, spot gold came off recent highs to trade at $1,527.20 an ounce. Silver was trading higher at $18.41 an ounce after hitting its highest level in more than two years on Thursday. U.S. crude slipped 64 cents to $56.07 a barrel while Brent fell 17 cents to $60.91 a barrel.

 

Standard & Poors announced on Thursday would consider Argentina's long-term foreign and local currency issue ratings as CCC- "vulnerable to nonpayment" - starting on Friday following the government's Wednesday announcement that it wants to "re-profile" some $100 billion in debt. The plan, which requires congressional approval, has stoked fears of a full-blown financial crisis in Latin America's third largest economy, two months before business-friendly President Mauricio Macri's handling of the economy is tested in a general election against a leftist rival. Argentina opposition candidate Alberto Fernandez held talks with four major agriculture organizations at his campaign's offices in Buenos Aires in his first major meeting with the grains sector, which had a combative relationship with Fernandez de Kirchner. "The restrictions that once existed on trade, on the freedom to export ... He said that this will not be part of their policy," Dardo Chiesa, leader of the Argentina's Rural Confederation (CRA), told reporters. He was referring to the policies of Fernandez de Kirchner's government between 2007 and 2015, which included strict export limits on corn and wheat, of which Argentina is a major global supplier. The tension between Fernandez de Kirchner and Argentina's grains sector, considered the engine of the economy, boiled over in 2008 when producers paralyzed trade for weeks through a strike to protest an increase in the export tax on soybean shipments.

 

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

Corn: December opened lower last night and has been slowing rising amid month-end positioning and caution ahead of the three-day holiday weekend. There were 400 contracts delivered against the expiring September futures on first notice day. That was near the top end of trader estimates and there were no strong commercial stoppers. Brazil's ethanol industry is looking to grab a chunk of China's ethanol market as the Asian nation targets a 10% blend in gasoline to improve air quality. Brazilian ethanol industry representatives were part of a trade mission organized by the Sao Paulo state government that visited China this month. The mission's agenda included meetings with Chinese authorities and a visit to the headquarters of commodities trader COFCO, which owns four ethanol plants in Brazil. A source at COFCO, however, told Reuters it was unlikely China would implement the blend nationally next year.

Soybeans: The November soybeans futures rose to the highest six session overnight and is trading above the 20-day moving average. Beans are up 20 cents from the new three-month lows hit on Wednesday. There were 866 contracts delivered against the expiring September futures on first notice day, but ADM stopped 130 and Bunge stopped 178.Deiveries against September meal were 611 contracts, heavier than expected and no commercial stoppers. Soybean oil deliveries were just 58, well below the 300 to 1,500 expected.

 

Wheat: Futures are mostly lower amid worries about large global supplies and rains ahead of U.S. winter wheat planting. There were 440 contracts delivered against the expiring September futures on first notice day. That was larger than expected and there were no strong commercial stoppers. Russian wheat exports have been slow so far this season, to the benefit of Ukraine which has seen a surge in its shipments of the grain. Russia has exported 6.3 MMT of wheat since the 2019-20 marketing year began on July 1, down 1.4% from the same period a year earlier. The drop is due to a few factors including forecasts for a smaller Russian crop this year which has prompted some Russian farmers to hold off sales in the hope of getting higher prices later. In contrast, Ukraine has exported 4.1 MMT of wheat so far this season, up 55% from a year ago, and its wheat crop is expected to rise this year.

 

LIVESTOCK CALLS:

Cattle: Steady to weak
Hogs: Steady to weak

Cattle: Futures seen slightly weaker to start amid lower cash cattle trade as the combination of the reduction production at the fire-damaged Tyson plant and next week’s holiday allowed packers to bid lower. Lower Choice beef prices this week added to the negative cash tone. Beef sales were sluggish after the recent surge in beef prices. Exports also slowed in the latest reporting week. Slaughter is up 3,000 head from a week ago so far this week but down 13,000 head from a year ago.

Hogs:  Lean hog futures will follow the downside lead of cash and pork prices. Cash hogs were now nearly $2 with this week’s kill up 2.4% from a year ago. Pork cutout values were down 45 cents on Thursday to $71.46, down $8.38 from a week earlier and $18.88 below the peak seen on Aug. 9. China bought 1,861 MT of U.S. pork from Aug. 16 to Aug. 22, up from 220 MT a week earlier, before an additional 10% tariff on farm imports kicks in on Sept. 1, according to USDA data. China's commerce ministry said on Thursday it will seek to boost pork imports and release frozen meat from state reserves to increase supplies. Canada, Mexico and U.S. plan North American strategy for African swine fever prevention, preparedness and response during recent meetings of veterinary officials.

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