Ahead of the Open: Grains, Soy Meandering Before U.S.-China Trade Talks

Posted on 09/19/2019 7:53 AM

Grain Calls

Corn: Steady-mixed
Soybeans: Steady to down 1 cent
Wheat: Steady to down 2 cents

General Comment: Corn, soybean and wheat markets were slightly easier but holding in a narrow range. Charts are pointing higher, demand concerns remain, and traders continue to debate the size of this year’s crops.

Rains continue in the north-central Midwest this morning after heavy amounts from eastern Nebraska to western Wisconsin, including parts of Iowa and Minnesota. More rain seen this week with the heaviest amounts centered in Iowa, northern Missouri and Illinois. The next 14 days will be wet with average to above-average temperatures. The weather is mixed with too much rain in spots and not enough in other. No cold temperatures will continue to aid maturation of both corn and soybeans.

This morning’s weekly export sales report for the week ended Sept. 12 was a bullish surprise for corn and soybeans and negative for wheat. Corn sales rose to 1.464 million metric tons (MMT) with Mexico taking 1.158 MMT. Soybean net sales rose to 1.728 MMT with China buying 593,200 MT and another 427,400 MT sold to unknown destinations. New-crop soybean meal sales jumped to 342,100 MT with old-crop 93,700 MT.  Old-crop soyoil sales were also up sharply from the prior four week average but new-crop remains sluggish. Wheat sold for export last fell to 286,600 MT, down 47% from the prior four-week average.

U.S. President Donald Trump will meet on Thursday with a group of U.S. senators to discuss biofuels policy, according to a statement from Louisiana Senator Bill Cassidy's office.    The discussion will continue a slew of meetings the White House has held with both biofuel and oil refining advocates to negotiate a compromise between the two sides that have clashed over biofuel blending mandates. Ethanol data released by the EIA yesterday showed U.S. inventories rose as production fell, a negative factor for corn. Siouxland Energy Cooperative this week moved to idle its Sioux Center plant blaming exemptions granted by the EPA to oil refineries, which the Siouxland board president said reduced ethanol demand.

U.S. and Chinese deputy trade negotiators are set to resume face-to-face talks on Thursday for the first time in nearly two months as the world's two largest economies try to bridge deep policy differences and find a way out of a bitter and protracted trade war. The negotiations on Thursday and Friday are aimed at laying the groundwork for high-level talks in early October that will determine whether the two countries are working towards a solution or are headed for new and higher tariffs on each other's goods. The discussions are likely to focus heavily on agriculture, including U.S. demands that China substantially increase purchases of American soybeans and other farm commodities, a person with knowledge of the planned discussions told Reuters. Two negotiating sessions over the two days will cover agricultural issues, while just one will be devoted to texts covering core changes to strengthen China's intellectual property protections and end the forced transfer of U.S. technology to Chinese firms. China may wait to see how talks play out before making any more goodwill purchases of U.S. soybeans after USDA confirmed 720,000 metric tons (MT) earlier this week.  

South China Morning Post is reporting today that China and the U.S. are expected to reach an interim trade deal in Washington next month, with Beijing agreeing to buy more American farm products and the Trump administration postponing further tariff increases and easing restrictions on Chinese telecommunications company Huawei. China’s interest in buying U.S. agricultural products will be supported by a personal visit by a member of China’s negotiating team to Midwestern farm states next week, the newspaper reported. The senior official from China’s Ministry of Agriculture will visit U.S. farmers in Nebraska and Montana, a source with knowledge of the trip told the SCMP, without naming the official. It is unknown whether the trip is intended to finalize the details of Chinese purchases of U.S. farm products.

The specter of a global recession has prompted central banks around the world to loosen policy in recent months. Organization for Economic Cooperation and Development said Thursday that the world economy is moving toward to the slowest growth rate in a decade because of trade tensions. Global growth will slow to 2.9% this year from 3.6% last year, down from the group’s May forecast for 3.2% growth. Trade growth has fallen from 5% in 2017 into negative territory this year while business investment seen falling to 1% from 4% two years ago.  

The U.S. Federal Reserve cut interest rates by a quarter of a percentage point for the second time this year on Wednesday in a widely expected move meant to sustain a decade-long economic expansion but gave mixed signals about what may happen next. In lowering the benchmark overnight lending rate to a range of 1.75% to 2.00% on a 7-3 vote, the Fed's policy-setting committee nodded to ongoing global risks and "weakened" business investment and exports.    

China's economic growth risks slipping below the lower end of Beijing 2019 target of 6% in the third quarter or over the next year, analysts warn, but government economists are slightly more optimistic as they expect stimulus to help stave off a sharper slowdown. Economists believe China's economic growth likely cooled further this quarter from a near 30-year low of 6.2% in April-June, but they differ on whether the slowing trend could persist despite a raft of government policy measures, Reuters reports. Economic activity worsened in August, with growth in industrial production at its weakest in 17-1/2 years, as the U.S.-China trade war dented business confidence, investment and domestic consumption.

USDA’s daily export sales reporting service announced no new large sales by private exporters.  

Corn: Futures are likely open with mixed trends. The market will find support from the weekly export sales report but skeptical the business will continue active, especially after the recent rebound that has turned the charts more positive and encouraged fund short covering.

Soybeans: Soybeans are seen narrowly mixed with weekly export sales and positive chart providing underlying support. Strong meal futures this morning may lend additional support.   

Wheat: Futures slightly lower in consolidation after rising to a five-week high on Wednesday. Strategie Grains increased its forecasts sharply for EU soft wheat production and exports for the second month in a row, pointing to strong harvest results in France and Britain and brisk shipments from Romania and Bulgaria. The French-based consultancy now sees 2019-20 soft wheat production in the 28-country European Union at 144.5 MMT, up from 142.9 MMT projected in August and about 14% above last year's drought-hit crop. For exports, Strategie Grains pegged EU soft wheat shipments this season at 25.7 MMT, up from 24.8 MMT projected by the firm a month ago and well above around 21 million exported in 2018-19. However, wheat stocks in the EU were now expected to rise in 2019-20 as competition from corn and barley for use in animal feed and from other wheat origins in export markets would cap demand, Strategie Grains. 
Dry weather across most of Ukraine has delayed the sowing of winter grain for next year's crop in one of the top Black Sea grain exporters. Ukraine and its rival on Black Sea grain exports, Russia, are both looking for rains in coming weeks. In Russia, though, the sowing is still running ahead of the last year's pace. Dry weather also threatening winter wheat planting in China.

Livestock Calls

Cattle: Steady to firm
Hogs: Weaker

Cattle: Cattle seen steady to firmer as cash cattle quietly traded steady to $2 higher. Friday’s USDA cattle on Feed Report is expected to show strong marketings and reduced placements, paring on feed numbers Sept. 1 by 0.6% from a year earlier. Beef prices slipped again Wednesday with Choice down $1.53 and Select down $1.94 on very good sales. The lower prices are bringing grocers and importers to the market and that will help to encourage packers to run near capacity to make up for the lost production at the Tyson plant in Kansas. Slaughter is down 1,000 head from a year ago over the first three trading days of this week. Beef sales in the week ended Sept. 12 were down 1% from the prior four-week average while shipments rose 11% from the four-week average.

Hogs: Look for a weak a steady to weak opening. Export sales were disappointing with no new large sales reported to China. Net sales last week were 14,200 MT down 34% from the prior four-week average with South Korea, Japan and Mexico the top buyers. Shipments last week rose 16% from a week earlier and were 2% more than the prior four-week average with Mexico and China the top two destinations. Prices will also be pressured by average U.S. cash prices slumping 29 cents on Wednesday with fresh pork cutout values slipping 10 cents lower as a drop in loins offset gains in hams and bellies. Sales continued this week’s very active trade.  Bulgaria confirmed a new outbreak of African swine fever (ASF) on a farm with 3,968 pigs in the northeast part of the country. This was the eighth outbreak at an industrial farm in Bulgaria since July. Meanwhile, South Korea lifted the 48-hour ban on local movement of pigs in some areas after completing the disinfection of around 6,3000 farms across the country after finding ASF for the first time earlier this week. Farms in Gyeonggi and Incheon provinces west of Seoul will be banned from transporting pigs for three weeks.  Thailand culled more than 200 pigs this week in the first such action amid heightened fears of a potential outbreak of ASF. Thailand has yet to report any outbreaks of disease among its pigs, though neighboring Myanmar, Laos and Cambodia have all confirmed cases of the deadly disease.

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