Ahead of the Open: Diminishing U.S-China Trade Talk Hopes Pressuring Marketings

Posted on 10/08/2019 7:57 AM

Grain Calls

Corn: Steady down a penny
Soybeans: Down 1 to 4 cents
Wheat: Down 2 cents to up a penny

General Comment:  Corn and soybean harvesting will try to move forward as fast as possible to start this week before wet, cold and snowy weather returns to put an abrupt halt to activities. The markets are going to wait for USDA production update on Thursday amid increasing U.S.-China trade tensions this morning. 

U.S. and Chinese deputy trade negotiators on Monday launched two days of talks aimed at paving the way for the first minister-level negotiations in months on Thursday and Friday. Stocks are falling and grain markets remain defensive this morning on ominous signs the talks may end early or may not even take place after the Trump administration blacklisted Chinese technology giants for violating predominately Muslim ethnic minorities  and added 28 companies to the “entity lists” which restrict companies from exporting American-made technology to China.

The Beijing government said it would retaliate against the moves, with foreign ministry spokesman Geng Shuang telling reporters to “stay tuned.”  This morning, Bloomberg is reporting that it won’t delist Chinese companies on U.S. stock exchanges as suggested last week, but instead will limit capital flows into the China market by restricting pension funds from investing in China. Another flashpoint has been a widening controversy over a tweet from a U.S. National Basketball Association official. His backing of Hong Kong democracy protests was rebuked by the NBA, sparking a backlash against the league for its willingness to be censored for the sake of profit. China's state broadcaster dropped the games of the Houston Rockets, and two Chinese corporate sponsors suspended ties.

President Trump told reporters late Monday that he hopes China finds a humane and peaceful resolution to the protests in Hong Kong, and warned the situation had the potential to hurt trade talks. "If anything happened bad, I think that would be a very bad thing for the negotiation. I think politically it would be very tough," he told reporters at the White House. Beijing views U.S. support for pro-democracy protests in Hong Kong as interfering with its sovereignty.

U.S. corn and soybean crops face freezing temperatures rain and snow later this week after heavy rains last week slowed harvesting and crop development. This remains a positive underlying factor despite the renewed trade-related pessimism this morning. Corn harvest was just 15% done on Oct. 6 and less than 60% was mature. Condition fell last week amid too much rain and snow. Only 72% of the soybean crop was dropping leaves and safe from cold temperatures this week. However, just 14% of the crop was harvested and 20 percentage points behind normal. Conditions also fell last week across the Midwest and add to underlying support ahead of the USDA Oct. 10 Crop Production report. Small cuts in both corn and soybean yields and production are expected with more likely as further harvest results are collected for the November USDA update.  

Weather also leans bullish in Brazil where scattered showers and thunderstorms have occurred in recent weeks, but much of the precipitation has been a little to erratic and light to seriously improve topsoil moisture for aggressive planting, emergence and establishment  The next two weeks will produce some beneficial rainfall from southern Minas Gerais to northern Mato Grosso, including parts of southern Goias, and from Uruguay and Rio Grande do Sul to southern Parana. Areas in between the two regions noted above will experience limited rainfall and net drying leaving the planting and emergence environment mostly unfavorable  Brazilian farmers have planted 3.1% of the estimated soybean area for the 2019/2020 crop, agribusiness consultancy AgRural said, blaming a lack of rain for the slowest start to the season in six years. Delayed planting will not harm soybean production but could negatively impact second season corn and cotton that is plated after early soybeans. Temperatures will be near to above average until greater rain falls Dryness in western and southern Argentina will limit planting and germination until late next week when showers and rain are forecast.

 

USDA in its daily export sales reporting service said private exporters did not report any new large sales in the past 24 hours this morning.  

 

Corn: Futures opened firm overnight but slipped back into the red amid China trade worries and sluggish export demand.  Midwest cash ethanol margins have risen in recent weeks on rising DDG and ethanol prices. Even with cash corn in the Midwest at 3.85, ethanol economics are improving, but better exports and U.S. blending needed to improve cash corn demand going into year end.  

SoybeansFutures opened higher on the declining U.S. crop ratings and more adverse weather ahead. However, the dimming hopes for a trade deal with China quickly capped gains and turn prices lower overnight.

Wheat: The grain continues to grind sideways waiting for more details on the impact of wet, cold snow across parts of Canada and U.S. Northern Plains. Downside risk is limited but world prices much lead rallies. U.S. winter wheat planting is 52%, slower than the trade estimate for 54% and behind the five-year average of 53%. U.S. winter wheat emerged was 26%, equal to the five-year average. U.S. spring wheat harvested was 91% completed on Sunday, behind the 99% average.

Livestock Calls

Cattle: Steady to firm
Hogs: Weaker

Cattle: Futures seen steady to firmer amid growing confidence in firmer cash trade.  Cash cattle traded at an average price of $107.34 last week, which was a solid $2.41 gain from the week prior. Trader are looking for stronger bidding again this week. Meanwhile, boxed beef values slipped to start the week, with Choice dropping 87 cents and Select falling $1.01. Movement was lackluster at 119 loads, but that is often the case to start the week. Product market weakness is not a surprise; This week historically marks a low in beef prices.

Hogs: Look lower on followthrough selling to futures sharply lower to limit down closes on Monday. Last week’s big kill weighed on lean hog futures to start the week and Monday’s slaughter heightened those concerns. USDA reported 489,000 pigs were slaughtered to start the week, which matched last Monday’s big tally and topped year-ago by 16,000 head. But the product market nevertheless got off to a good start, with the pork cutout value rising $2.58 on an $8.97-surge in pork bellies. And cash hog bids edged 53 cents higher. Limits are expanded to $4.50 today after a limit-lower close in December and February lean hogs yesterday. The big negative today will be growing trade tensions with China.

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