Ahead of the Open: Grains, Soy Seen Drifting ahead of Next Week's USDA Reports

Posted on 10/04/2019 8:02 AM

Grain Calls

Corn: Steady down  a penny
Soybeans: Steady to up 2
Wheat: Down 2 cents to up 2 cents

General Comment:  Corn and soybeans drifting today on uncertainty about the size of any USDA cuts in the U.S. corn and soybean yield forecasts next week amid more reports this week on stronger harvest results This week’s rain has not been helpful for either crop. Prospects for increased harvesting may weigh on cash and futures heading into next week. Charts are bullish and the setbacks since the early week surge are a pause to refresh. Wheat prices seen following corn amid global surplus. The weekly CFTC Commitments of Traders report this afternoon will be closely examined for how much of the short positions did funds liquidate on this week’s rally.

The U.S. Midwest weather forecast is wet this weekend and drier the first half of next week before another front moves in Thursday to keep harvesting slow or stalled.  Drier weather is seen after next week’s storm, but forecasters have low confidence since the upper-air pattern remains in place and there is plenty of soil moisture to provide evaporation and more showers with some warmer temperatures.

Brazilian soils remain awfully dry, as rainfall between June and August was the lightest in over two decades. Now, as the dryness lingers into the growing season, the trend appears more alarming for Parana based on the latest weather update. On Tuesday, No. 2 producer Parana in the country’s south reported about 10% of the intentions had been planted. That is the slowest start in seven years and well off last year’s record pace of 29%. A week ago, top grower Mato Grosso in the country’s Center-West had less than 2% of the crop planted, just below the recent average. State agency IMEA should update progress on Friday. Historically, these states do not reach the halfway mark on planting until later in October, so there is still time to recover. The last 10 years of data suggest that a late soy planting pace did not have a significant bearing on yields in Parana or Mato Grosso, but the soybean timing did impact second-crop corn yields.  The weather models agree that Parana will remain parched in the coming days. The American model suggested 75% below normal rainfall through Oct. 18, and the European model had an even drier trend through Oct. 12.  

In Argentina, about 20.6% of the 2019-20 corn crop has been planted so far while the season's wheat harvest has begun in early-planted northern farm areas, the Buenos Aires Grains Exchange said in its weekly report on Thursday.  Corn planting progressed by 4.6 percentage points during the preceding week. Initial wheat collection in marginal growing areas in northern parts of the country had begun, while dry weather as stifled wheat crops and rains are needed immediately to prevent yield losses. 

Meanwhile in France, farmers had harvested 6% of this year's grain maize crop by Sept. 30, up from 3% a week earlier but well below the 42% progress seen a year ago, farm office FranceAgriMer said on Friday. Farmers also made little progress in winter grain sowing for next year's harvest, the office's weekly data showed, suggesting recent wet weather has disrupted field work.

The trade front with Beijing has been quiet this week with China celebrating 70 years of communist rule. Talks are set for Oct. 10-11 in Washington after China boosted purchase of U.S. soybean and wheat in the past week. China's top diplomat said on Thursday that China was willing to buy more U.S. products, and said trade talks would yield results if both sides "take more enthusiastic measures" to show goodwill and reduce "pessimistic language" in their trade dispute.  Wang Yi, China's state councilor and foreign minister, said in response to questions from Reuters that the Trump administration had shown goodwill by waiving tariffs on many Chinese products. President Donald Trump on Wednesday said that a trade deal with China could come sooner than people think and praised the Chinese purchases.

The European Union is likely to take retaliatory measures in response to new U.S. tariffs on European goods, German Foreign Minister Heiko Maas told newspapers in remarks published on Friday. The WTO this week ruled that some subsidies EU states paid to plane maker Airbus were illegal. Washington announced plans for new tariffs on Wednesday with 10% tariffs on European-made Airbus plans and 25% duties on French wines, Scotch and Irish whisky, cheese and other goods starting Oct. 18 as punishment for illegal EU aircraft subsidies.  EU manufacturers are already facing U.S. tariffs on steel and aluminum and a threat from Trump to penalize EU cars and car parts. The EU has in turn retaliated. The Trump administration believes tariffs were effective in bringing China to the negotiating table over trade and in convincing Japan to open its agricultural market to U.S. products.

 Japan and the U.S. plan to enact their recent trade deal Jan. 1, 2020, Nikkei reported today, citing Japan’s foreign minister. The pact tackled ag and industrial issues, but negotiators did not address automobile trade, other than to push back the threat of higher U.S. duties on car imports. Japanese lawmakers still must ratify the pact.

Hong Kong invoked emergency powers for the first time in more than half a century to ban protesters from wearing face masks. Chief Executive Carrie Lam said the move had become necessary to reverse the violence in recent weeks, adding that the government may consider additional measures. Activists have promised to defy the ban, with protests the administration already lasting almost four months already. The benchmark Hang Seng Index fell 1.1% to close below the key 26,000 level. Trader remain cautious about U.S.-China trade progress and how the Hong Kong protests play during negotiations.

USDA in its daily export sales reporting service said private exporters did not report any large new commodity sales overnight. That’s not a surprise after the announcements of Chinese soybean goodwill buying earlier this week ahead of talks next week.

Corn: Corn futures continue to consolidate the sharp early-week gains, heading for the biggest weekly gain in four months. The gains have been capped by increased farmer selling and continued weak export sales. But the chart picture is improved as market sentiment swung to the bullish side after the USDA’s surprisingly low estimate for Sept. 1 inventories. Traders are now focused on the Oct. 10 USDA update of this year’s crop.

SoybeansFutures are also paring this week’ more than 3% jump on a lack of conviction ahead of USDA updated crop forecasts next week. Nonetheless, Sept 1, inventories were lower than expected and Thursday’s weekly exports sales report showed about 2.08 million metric tons (MMT) in the week ended Sept. 26. Analysts' forecasts for soybean export sales had ranged from 900,000 MT to 1.4 MMT.

Wheat: The grain is little changed for the week, having rallied the past four weeks. However, underlying support stems from weekly USDA export sales report showing 130,000 MT of U.S. white wheat sold to China for shipment in the 2019-20 season. It was China's first purchase of the variety, used to make breads and noodles, since March and its largest one-time purchase of U.S. wheat since December 2016, USDA data showed.  

Livestock Calls

Cattle: Steady to firm
Hogs: Steady to weak

Cattle: Cattle may rise for a third day as firmer cash markets this week. Light cash cattle trade started Wednesday in Texas and Kansas at $2 higher prices of $105 and cash prices pushed up to $106 in these states yesterday. Sales volume is still on the light side, and cash trade has yet to get started in other states. Boxed beef prices were mixed yesterday, with Choice slipping 91 cents and Select climbing $1.31. Movement was solid at 164 loads.  Weekly beef export sales fell to 12,600 MT from 19,100 MT.

Hogs: Look for hog futures to opened steady to easier as slaughter this week is already 97,000 head above a year ago. The rebound in cash hogs reversed Thursday with the national average price down 16 cents. However, wholesale pork cutout values rose $1.24 led by gains in bellies and loins and sales were moderately active. Pork export sales for the week ending Sept. 26 included impressive pork export sales of 31,000 MT for 2019, but China was not listed as a major buyer; Beijing did, however, purchase 3,500 MT of pork for 2020. The market had thought the easing of tariffs on U.S. pork would spur much larger business to close out September. The devastation of Asian hog herds could boost export demand for U.S. pork.  

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