Ahead of the Open: Harvest Delays to Continue as Traders Position Ahead of USDA reports on Thursday

Posted on 10/07/2019 7:46 AM

Grain Calls

Corn: Steady up 2 cents
Soybeans: Steady to mixed
Wheat: Down 2 cents  

General Comment:  Corn, wheat and soybeans quickly traded both sides of unchanged overnight and more of the same choppy trading is likely today through Wednesday.  It’s all about the weather, as there was little news out during the weekend, and the weather does not look good for U.S. harvesting the second half of this week after heavy rains in parts of the Midwest during the weekend. The week will start out mostly dry, but by Wednesday snow blows into the Dakotas and Manitoba, with the European model forecasting as much as 10 inches, and rains douse the rest of the eastern and western corn belt at the end of the week. There is a freeze forecast Thursday and Friday mornings, the GFS has it much more extensive than the Euro model, but the delays due to snow and rain look more important than the cold temps. Crop progress updates this afternoon should show winter wheat just over the halfway mark on planting, corn at close to a quarter harvested, and beans around 15% harvested. Then on Thursday USDA updates is corn and soybean production forecasts with considerable uncertainty over potential yields.

International weather has some showers and rains headed for South America. Rainfall distribution may be poor the next two weeks in central and western Brazil but better in the south. Rains are needed soon with a better chance the second half of October. Rain potential improved by next weekend in western Argentina to ease dryness as eastern Argentina gets enough moisture to maintain favorable conditions. Southern Argentina continues too dry.

The Commitment of Traders report showed that funds continued to cover their net short ag market positions last week. Funds were sellers in soyoil, SRW wheat, and lean hogs. Funds bought a slightly smaller than expected 34,000 contracts in corn and a larger than expected 33,000 contracts in soybeans. However, funds were still net short in 7 of the 10 markets. Net long positions are held in soyoil, hogs, and live cattle.  Smaller-than-expected Sept. 1 U.S. stocks and renewed buying interest from China had speculators quickly changing their minds about bearish soybean bets last week, as they slashed their pessimism toward the oilseed to an eight-month low. U.S. corn stocks also shocked the market to the downside, but while investors acted accordingly, their views remain bearish as Chicago futures are still elevated for the time of year.

U.S. jobs numbers fell below market expectation in September, another sign the economy is slowing or maybe even stalling. And while the jobless rate dropped to a 50-year low, there’s problem brewing for corporate America. HP is slashing thousands of jobs, General Motors-United Auto Workers labor talks took turn for the worse and manufacturing slowdown is spreading to the service sector. Last week's price action provided an early warning that the dollar could be on the verge of rejecting the recent rally.

Japanese Foreign Minister Toshimitsu Motegi said Japan and the United States will sign a trade agreement on Monday in Washington, and that Tokyo aimed to bring it into force as soon as possible. The U.S.-Japan agriculture-centered deal is notable for what it leaves out. It does not include the bulk of products that make up the bilateral trading relationship, notably autos from Japan and aircraft, liquefied propane gas and semiconductor manufacturing equipment from the United States.

China’s Vice Premier Liu He travels to Washington this week for trade talks and has said he will bring an offer that won’t include commitments on industrial policy or government subsidy reforms. So, while officials are willing to talk, they have indicated a narrowing range of topics that are up for negotiation. The Chinese were frustrated with the difficulties and unpredictability of dealing with Trump long before impeachment was a potential reality. The impeachment case adds just another layer of unpredictability. Apart from U.S.-China trade talks in Washington, the focus will be on U.S. inflation, preliminary October consumer sentiment data and the Sept. 17-18 FOMC minutes

Hong Kong struggled to recover on Monday, with the metro only partially functioning and infrastructure extensively damaged, after scores of protesters were arrested in violent clashes overnight that drew the first warning from the Chinese military. Scores of protesters were arrested and bussed away under the new emergency laws, which came into effect on Friday night, after some of the most violent clashes in four months of protests virtually shut the city down on Saturday. Chinese military personnel raised a yellow flag with the arrest warning written in large letters, a Reuters witness said, the first direct interaction between the People's Liberation Army (PLA) and protesters. What started as opposition to a now-withdrawn extradition bill has grown into a pro-democracy movement.

Taiwan said on Monday China was practicing "authoritarian expansionism" in the Pacific, pointing to reports of plans for Chinese military presence in two Pacific countries that have recently switched diplomatic allegiance to Beijing from Taipei. "We have seen reports that China is interested in reopening this radar station in Kiribati and building a naval base in Western Province of Solomon Islands," Foreign Minister Joseph Wu told a forum on cooperation among countries in the Pacific.

USDA in its daily export sales reporting service said private exporters sold198,000 metric tons (MT) of soybeans for delivery to China during the 201-20 marketing year; and sold 240,000 MT of soybeans for delivery to unknown destinations during the 2019-20 marketing year.


Corn: Corn futures ended lower on Friday paring its biggest weekly gain in more than a month. The Sept. 1 stocks report was bullish as it was 314 million bu.  below trade estimates and it really verified what the cash market has been telling us for months, that last year’s crop was overstated and signals 2019-20 ending stocks should fall well below 2 billion bu. for the first time in four years.  Reuters came out with their survey of traders ahead of Thursday’s report, with an average guess for yield at 167.5 bushels per acre (BPA), versus September’s 168.2 bpa, and the average guess for production is 13.684 billion bu. down from 13.799 billion bu. last month. The average guess for ending domestic stocks is 1.784 billion bu., compared with 2.190 billion bushels last month.

SoybeansFutures tried overnight to rise above last week’s high but failed and turned lower. The market is under light pressure from China trade pessimism and some rains developing in South America. Looking ahead to Thursday’s crop production report, the Reuter’s survey showed an average guess for the U.S. yield at 47.3 bpa, versus September’s 47.9 bpa, and the average guess for production is 3.583 billion bu., down from 3.633 billion bu. last month. The average guess for ending domestic stocks is 521 million bu., compared with last month’s estimates for 640 million bu. Soy farmers in Brazil's largest growing state of Mato Grosso have planted 6.65% of the estimated, below the 12.6% level seen at this time last year due to scarce rainfall, state research institute Imea said on Friday.   Mato Grosso farmers, who harvested an estimated 32.45 million metric tons (MMT) of the oilseed in the last crop, had planted 1.7% of the estimated area last week, Imea said.  The historical average of soy planting for the period is 9.17%, according to Imea, which forecasts Mato Grosso farmers will collect a record 32.8 MMT of soybeans this season.  

Wheat: The grain is floundering this morning after mixed trends last week. Russia’s Grain expects the country’s wheat crop to total 75.8 MMT, with 34 MMT of it likely to be exported. Also of note, Russia’s Institute for Agricultural Market Studies (IKAR) also raised its wheat crop estimate by 400,000 MT to 75.4 MMT. Traders surveyed by Bloomberg look for U.S. wheat ending stocks at to 1.015 billion bu., little changed from 1.014 billion bu. estimated by USDA last month. The average guess for world stocks is 285.17 MMT, compared with 286.51 MMT from the USDA a month ago.

Livestock Calls

Cattle: Steady to firm
Hogs: Steady to weak

Cattle: Cattle may start steady to firm after cash bids rose $1 to $5 last week. However, beef prices slumped last week on moderate sales. Last week’s slaughter slowed to 639,000 head down 9,000 head from a week earlier. First notice day for October cattle is today and the board is a tiny bit premium. The cattle rally may slow on expectations for heavy placements in Q4 dampening the outlook for summer and fall 2020.  

Hogs: Look for steady to weak start in futures this morning. Cash hog bids set back 16 cents on Friday, keeping light pressure on futures as they already hold a premium to the cash hog index. Meanwhile, concerns are mounting about big kill numbers. USDA estimates the slaughter rose 2.669 million head last week from 2.646 million a week earlier and 169,000 above a year ago. The pork cutout also slipped 19 cents on Friday and movement was light. But product prices were still up for the week. U.S. meat packer JBS USA will remove the feed additive ractopamine from its supply chain to increase export opportunities, the company said on Friday, opening the door for increased pork sales to China.

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