Ahead of the Open: Grains, Soy Seen Retreating After Rallies Hit Resistance

Posted on 10/02/2019 7:46 AM

Grain Calls

Corn: Down 2 to 4 cents
Soybeans: Down 2 to 5 cents
Wheat: Up 1 to down 4 cents

General Comment:  Grain and soybean futures are in retreat this morning after rising to overhead resistance Tuesday, triggering some profit taking. There was also a slight increase in farmer sales on this week’s strong rallies. Weather looks a little drier after heavy rains end later this week across the Midwest, allowing harvesting to pick up momentum. Traders will need fresh bullish U.S. crop production news next week and some signs of progress on the U.S./China trade front during meeting in Washington.

Commodity brokerage INTL FCStone threw cold water on the corn and soybean rallies tied to ideas smaller crops in 2018 that finally showed up in the Sept. 1 stocks data on Monday signals lower U.S. crop potential this year after adverse weather. FCStone on Tuesday raised its estimate of the average U.S. 2019 corn yield to 169.3 bushels per acre (BPA), from 168.4 BPA. in its prior estimate in September. USDA cut its estimate to 168.2 BPA last month from 169.5 BPA in August. The company forecast U.S. soybean yield estimate to 48.1 BPA, from 48.3 BPA a month ago. Last month, USDA forecast 47.9 BPA, down from 48.5 BPA in August. The next USDA estimates are schedule on Oct. 10, and it’s important to remember that field surveys will be finishing this week with only 11% of the corn harvested as of this week, the slowest since 2009, and 7% of the soybeans. The slow pace may lead USDA may err on conservative cuts to U.S. production until more data is available in November.

Rains are beginning to taper off this morning across the Midwest after producing heavy amounts the past 24 to 48 hours. Some more showers are possible on Saturday, but conditions look much drier the following tow weeks. Temperature will dip this week but no major frost or freeze threat for most areas.  

Hong Kong police fired more than 1,400 tear gas rounds and hundreds of rubber bullets Tuesday; a figure that represented roughly half of all volleys shot over months of protest and illustrated the scope of violence on one of the city’s fiercest days of clashes. Police said Wednesday that protesters had used “lethal violence” against officers, wielding objects including hammers, iron rods and sharpened umbrellas to hit an officer’s head and body before his colleague shot a demonstrator in the chest with live ammunition, the first such incident during the Asian financial hub’s unrest.  Simultaneous rallies against Beijing’s increasing grip raged across the former British colony on Tuesday hours after President Xi Jinping oversaw celebrations marking 70 years of Communist rule in China. Unrest in Hong Kong is hitting the tourist market, with the knock-on effect for the city’s economy laid bare in retail sales figures showing a 23% year-on-year decline, the largest on record. With the protests becoming increasingly violent, pressure is mounting on the international community to support the pro-democracy demonstrators.

The World Trade Organization is poised this morning to open the door to hefty U.S. tariffs on European goods over illegal subsidies for Airbus, pushing a 15-year-old row over support for plane giants to the center of fraught global trade relations. Reports have indicated the WTO will authorize the US to hit $7.5 billion in European goods in the 15-year-old dispute, with the U.S. seen targeting dairy, fruit, meat whiskey and wine imports.

The Trump administration is expected to finalize a plan to increase mandates under the Renewable Fuel Standard (RFS) this week, with the hope of announcing the effort next week, according to Reuters. The effort is not expected to contain a cap on prices for Renewable Identification Numbers (RINs), the credits that refiners can buy to show compliance with the RFS, according to Reuters. Bloomberg reports White House officials rejected a bid by oil industry allies to prevent spikes in the prices of biofuel compliance credits refiners use to prove they have fulfilled the targets. Indications are that an increase in the RFS levels that would reflect amounts that have been exempted via small refinery exemptions (SREs) using a three-year average is still part of the plan, which would be in addition to a 500-million-gallon increase to meet a 2016 court decision which ruled the administration had illegally lowered the RFS mandate that level.

USDA is its daily export sales reporting service said private exporters sold 464,000 metric tons of soybeans for delivery to China during the 2019-20 marketing year. This confirms some of the 600,000 to 1.2 million metric tons of rumored sales earlier this week. The announcement is unlikely to provide much support today.

Corn: December corn futures opened lower and rose throughout the session to eventually fill the downside gap at $3.88 to $3.92 ¾ left Aug. 13 after the USDA bearish crop production report. Futures will need confirmation of a lower U.S. 2019 crop from the USDA on Oct 10 to push through resistance. US farmer is still a reluctant seller on grain until he sees his 2019 yield. U.S. export demand and ethanol demand remains slow which limits the upside in prices.

SoybeansNovember soybean futures tested and fell back from resistance in 9.20 area yesterday and is setting back today. Futures may need additional conformation of new China buying of U.S. soybeans, weather problems in South America or conformations from USDA that US 2019 soybean crop is lower to push through resistance. Support is near 8.90.  The soybean crush was 177.5 million bu. in August, below the 178.5 million bu. expected by traders and 179.5 million bu. in July, USDA report Tuesday. However, crushings were still up sharply from 169.6 million bu. a year earlier and a positive demand signal.

Wheat: December SRW wheat futures were unable to push over 5.00 yesterday and are retreating today. There remains adequate world supplies despite dryness in Australia and Argentina and concerns over quality of the 2019 Canada crops. U.S. wheat export prices remain a premium to other origins which tends to offer resistance on rallies. Key could be direction of corn prices. Morocco’s state grain agency said it awarded 30,000 MT of reduced-tariff imports of U.S. soft wheat in a tender. Egypt tendered to buy an unspecified amount of wheat from global suppliers with lowest offers from France and Ukraine today. Two South Korean flour mills purchased around 77,500 MT of milling wheat today, reportedly from the U.S.

Livestock Calls

Cattle: Steady
Hogs: Steady to weak

Cattle: Cattle may drift sideways to lower testing strong underlying support. Boxed beef prices were mixed Tuesday, with Choice rising $1.03 and Select sliding $1.06, widening the spread between the two to $27.42. That premium is indicative of current marketings and tight supplies of well-finished cattle. Total beef sales were also solid at 156 loads. All remains quiet on the cash cattle trade front with packer buying increased supplies the past two weeks and looking to keep bids steady to weaker to fill in slaughter needs. 

Hogs: Look for hog futures to followthrough on large declines yesterday as profit taking continues. Cash hogs were mixed Tuesday with the national average prices up 45 cents but Iowa/Minnesota down 16 cents. The pork cutout value climbed $1.56 yesterday and sales were moderately-active at 348.50 loads. Slaughter continues run at record levels. The market is still awaiting confirmation of rumored U.S. pork buys by China; tomorrow’s weekly export sales report could reflect some of that business. South Korea confirmed two more cases of African swine fever at pig farms in Paju, a town near the border with North Korea. That brings the ASF count in South Korea to 11.  

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