Ahead of the Open: Grains, Soy Seen Consolidating Strong September Rally

Posted on 10/01/2019 7:59 AM

Grain Calls

Corn: Down 1 to 2 cents
Soybeans: Steady to up 2 cents
Wheat: Up 1 to down 5 cents

General Comment:  Grain and soybeans prices pausing this morning after yesterday’s strong rallies on smaller U.S. supplies and ahead of increased corn and soybean harvesting. Ssoybean futures edged higher overnight to a new two-month high, adding to gains from the previous session when a lower-than-expected estimate of U.S.  Sept. 1 stockpiles and reports of new Chinese buying buoyed prices. Corn is slipping lower this morning after rallying 4% on Monday when the USDA’s grain stocks report also pegged corn inventories below market expectations. Wheat is showing mixed trends after reaching seven-week highs on Monday.   

The national corn harvest was 11% done as of Sunday, up from 7% a week earlier and 19% on average for the date. Soybean harvest was 7% completed to start this week, behind the 20% average. Harvesting will remain slowed by widespread rain this week but is looking drier next week and into the end of the month.

After the smaller Sept. 1 inventory report, signaling last year’s crops were smaller than originally estimated, traders are now focused on the potential for smaller 2019 harvests than USDA forecasts last month. Next update is Oct. 11 and both markets will be well supported by expectations for USDA to cut this year’s crop size and yesterday’s bullish chart performance to end September. 

An auction of Japanese 10-year debt drew the lowest bid-to-cover ratio of any since 2016, leading to a rising interest rates across the curve. The sell-off spilled into U.S. Treasuries and European sovereign debt, with the U.S. 10-year yield rising by eight basis points. The collapse came after the Bank of Japan’s decision to reduce bond purchases in October. It also comes in the wake of a record month for corporate debt issuance globally with companies selling more than $300 billion for the first time ever.  It would appear the global race to lower yields is over. The U.S. dollar index is stronger again today after rising to its highest level since May 2017 yesterday.

China's military on Tuesday showed off new equipment at a parade in central Beijing to mark 70 years since the founding of the People's Republic, including hypersonic-glide missiles that experts say could be difficult for the United States to counter.  In a speech at the start of the nearly three-hour, highly choreographed spectacle, Chinese President Xi Jinping said that his country would stay on the path of "peaceful development," but that the military would resolutely safeguard the country's sovereignty and security. China watchers see it as a message to the world that China's military prowess is growing rapidly, even as it faces mounting challenges, including four months of anti-government protests in Hong Kong and a slowing economy.
After a day of celebration in Beijing for the 70th anniversary of the founding of the People's Republic of China, protests have again broken out in Hong Kong. A source confirmed to CNN that a man was shot by police in Hong Kong's Tsuen Wan district, where protests earlier turned violent. This is the first time lethal force has been used in four months of unrest.

Private Chinese buyers were estimated to be bidding for 750,000 metric ton (MT) to 1 million MT yesterday after the government issued 0% import quotas for upwards of 1.8 MMT, according to commercial sources on Monday.

USDA is its daily export sales reporting service said private exporters did not report any large sales to China. That may be a bit disappointing, but most traders will be looking for any business on Monday to be reported on Wednesday. Sales in September to China took a few days to work into the USDA daily reporting service.  

Corn: December futures touched $3.88 ¼ on Monday, the highest since gapping lower on Aug. 13. The failure to push above Monday’s high overnight triggered some light profit taking. Look for fresh fund short covering to develop on any setbacks ahead of the Oct. 11 USDA Crop Production Report.

SoybeansNovember added to Monday’s rally, reaching $9.09, the highest since July 29 in overnight trading. The 200-day moving average rests near $9.11, the next barrier to sustaining the September reversal to the upside.

Wheat: European wheat extended gains to a new seven-week high of 176.00 euros per MT, helped by a fresh low for the euro since May 2017 against the dollar. Rising world prices can bring in some new tenders as a few weather issues are starting to increase global buying interest. While U.S. wheat inspected for export at 17.1 million bu. last week was within trade expectation, it was stronger than corn shipments. Ukraine wheat exports jump 61% in the July-September quarter to 8.63 MT from a year earlier, the Agriculture Ministry reported Tuesday.  U.S. winter wheat planting picked up over the past week to 39% complete as of Sept. 29, a 17-point gain from last week and three points more advanced than anticipated, USDA data Monday showed. On average, producers have typically seeded 38% of their crop at this point in the year.

Livestock Calls

Cattle: Steady
Hogs: Steady to firm

Cattle: Cattle may continue to consolidate recent gains, waiting for cash markets to catch up with premium priced futures.  In the past three weeks, cash prices have recovered a little less than $5 of lost value while spot Oct LC rallied nearly $12. On it’s low, Oct LC was $6 under the lowest cash average that occurred after the Tyson fire in Kansas. Now, October futures are at par with cash. Fed cattle supplies are ample for the next couple of months. Showlists were up substantially in the south for this week. Cash cattle traded at an average price of $104.93 last week, which was roughly a $3 gain from the week prior, according to USDA. Meanwhile, eating less beef and pork has little to no health benefits, according to research published on Monday that contradicts some other dietary guidelines.   

Hogs: Look for follow-through buying to start today after December hogs fell to a new low and finished above the August highs, forming a monthly reversal to the upside.  The national cash hog markets rose 64 and Iowa/Minnesota cash bids rose 82 cents. Pork cutout values rose 47 cents Monday led by strength in Butts and bellies. However, sales were light. Slaughter on Monday was 489,000 head, up from 450,000 a year ago, reminding the market that supplies will remain record large. The market remains supported by expectations for increased Chinese and Asia buying of U.S. pork amid lost production to African swine fever.

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