Ahead of the Open: Grains, Soy Bounce on Hopes for Interim U.S.-China Trade Deal

Posted on 10/11/2019 7:40 AM

Grain Calls

Corn: up 3 to 5
Soybeans: Up 5 to 7 cents
Wheat: Up 2 to 5 cents

General Comment:  China trade hopes have markets around the world moving higher this morning. Soybeans and corn rebounded from disappointing price action on Thursday. The markets gaining on adverse U.S. weather and increasing concerns about dry weather in parts of South America that may increase the risk to this year’s production.

Hard freezes overnight from Canada down to north Texas. Some near freezing temperatures over much of Minnesota and Iowa this morning. Cold air will move east tonight leading to the end of the growing season in parts of the Midwest. Next week look’s drier to start with weather models divided about when and to what extent rains return by late week.

Thunderstorms and heavy rains in parts of northern Buenos Aires province with more rain forecast into Saturday. However, southern and western areas remain dry. Southern Brazil will see showers in the next week, but the central area remains dry and warm, already slowing planting and causing some farmers to consider replanting.  

Trump said the first day of high-level trade negotiations between the U.S. and China went “very well” and that he plans to meet with the top Chinese negotiator today. The U.S. and China have both signaled willingness to work toward a partial deal and leave the thornier issues for later discussions. However, Trump repeated yesterday that he would prefer a complete agreement. The meeting between President Trump and China’s Liu He will occur at 1:45 p.m. CST in the Oval Office, the outcome of the trade talks is likely to be the biggest market event of the day.

Chinese state newspaper said that a "partial" trade deal would benefit China and the United States, and Washington should take the offer on the table, reflecting Beijing's aim of cooling the row before more U.S. tariffs kick in on Oct. 15.

China wants a U.S. tariff ceasefire and an easing of American restrictions on Huawei. In return, Washington is seeking pledges from Beijing to buy more agricultural commodities, refrain from currency manipulation and open domestic industries to more foreign ownership. Saved for a later date will be the bigger issues that Trump campaigned for and the reasons he started a trade war in the first place: U.S. accusations of intellectual-property theft, forced technology transfer and complaints about Chinese industrial subsidies.

Chinese importers stepped up purchases of U.S. agricultural goods ahead of high-level trade talks in Washington, including another wave of soybean deals and the country's record largest weekly purchase of American pork, U.S. data showed on Thursday.

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

Corn: Futures opened higher overnight as prices rebound from 10-day low this morning after tumbling on Thursday after USDA made smaller cuts in the U.S. carryover projection. However, the snow, cold and wind this week raises questions about smaller U.S. crop forecasts in the USDA November and January updates given the lack of maturity of corn this year. December’s discount to March futures has narrowed this week and that is positive a close at a discount of less than 10 would be a new buy signal for fund traders.   

SoybeansNovember futures rose to a new three-month high overnight, rising above Thursday’s high at $9.34. USDA is now forecasting carryover reserves will fall to 460 million bushels this year, that’s down from 912 million this past marketing year and forecasters early this year for stocks to rise to more than 1 billion. It is still a large carryover and will cap gains but the odds of a smaller crop by the final summary in January will keep a firm undertone to the market.

Wheat: The grain is supported by strong corn prices and chart support. The export markets are quiet, and traders wait to hear about any China deals that may include additional purchases of U.S. wheat.

Livestock Calls

Cattle: Steady-mixed
Hogs: Steady to weak

Cattle: Futures seen supported by expectation for this week’s cash trade to come in about $1 higher. Wholesale beef moved higher on Thursday on light sales. The disappointing net sales cancellations in the weekly USDA export sales report on Thursday will cap gain until there are several weeks of much stronger beef exports.

Hogs: The failure to rally Thursday after USDA’s weekly sales report confirmed record Chinese purchases will keep the market on the defensive. The 123,400 MT weekly sale to China for 2020 shattered records and the report also included solid sales of 18,800 MT to the country for 2019. The worry is not that China made goodwill purchases ahead of the trade talks this week, will they actually take delivery or buy more. Look for solid underlying support to develop on weakness after average cash hogs rose $1.92 and pork cutout values rose 90 cents on Thursday. Slaughter remains at record levels and requires stronger demand to clear the supplies. South Korea’s ag ministry today announced plans to purchase all pigs from Yeoncheon, a town bordering North Korea that has suffered two outbreaks of African swine fever, including the latest case. The ministry will slaughter all the pigs and released in the market for consumption after the pork has been inspected

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