Ahead of the Open: Mixed Trade With China Talks Today, Harvest Gaining Momentum

Posted on 10/25/2019 7:52 AM

Grain Calls

Corn: Steady to narrowly mixed
Soybeans: Down 1 to 2 cents
Wheat: Steady to up 2 cents

General Comment: Look for another choppy day of grain trading to finish this week. Showers will end early next week and allow for better harvesting. The export markets is quiet to end this week but better world wheat buying continues to put a floor under the wheat futures. Recent beneficial rain in parts of South America weighs on corn and soybeans but more follow-up rains will be needed in November.

Top U.S. and Chinese trade officials will discuss plans on Friday for China to buy more U.S. farm products, but in return, Beijing will request cancellation of some planned and existing U.S. tariffs on Chinese imports, people briefed on the talks told Reuters. Robert Lighthizer, the United States Trade Representative, U.S. Treasury Secretary Steven Mnuchin, and Chinese Vice Premier Liu He will speak by telephone Friday, their latest attempt to calm a nearly 16-month trade war that is roiling financial markets, disrupting supply chains and slowing global economic growth.  If a text can be sealed, Beijing in return would exempt some U.S. agricultural products from tariffs, including soybeans and wheat and corn, a China-based source told Reuters. One of the sources told Reuters that China's offer would start out at around $20 billion in annual purchases, largely restoring the pre-trade-war status quo, but this could rise over time. Purchases also would depend on China’s commodity needs and competitive pricing.

Meanwhile, China is willing to increase its imports of agricultural and industrial goods from Brazil in order to enhance bilateral trade, Chinese Vice Premier Hu Chunhua said on Friday. China is Brazil's biggest trading partner and largest source of foreign investment. Last year, bilateral trade rose to a record $100 billion. Chinese President Xi Jinping received President Jair Bolsonaro with state honors at the Peoples Palace in Beijing to mark the 45th anniversary of the establishment of diplomatic ties between the countries. Brazil is hopeful China will authorize more local meat exporters before Chinese President Xi Jinping visits Brazil next month, as the South American country seeks to position itself as a major food exporter to the world's most populous nation. Discussions between a Brazilian delegation to China and local authorities this week also covered demand for Brazilian commodities like sugar, cotton and ethanol.

China's Communist Party leaders will on Monday start their most important meeting this year, with President Xi Jinping expected to champion the Chinese model of governance while fighting protracted economic and political crises at home and abroad. The four-day conclave comes at a critical time, as Hong Kong grapples with anti-government protests for the fourth month and China's economy is also growing at its slowest pace in nearly three decades, hurt in part by a prolonged trade war with the United States. Stable growth has been fundamental to the Party's political legitimacy. China watchers said it is important for XI to use the occasion to cast the Chinese political system as meritocratic, unchallengeable and superior to Western democracy.

Argentina’s battered peso weakened another 1.3% against the dollar yesterday even after the central bank sold $346 million in reserves to reverse the decline three days ahead of the president election on Oct.27.President Mauricio Macri, an advocate of open markets to solve Argentina’s economic problems is expected to lose Sunday’s election to populist Alberto Fernandez and may win a majority to avoid a November runoff vote. The weaker peso continues to keep Argentina corn and soybeans well below U.S. export prices.

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

Corn: December corn closed below the 20-day moving average for a fourth session on Thursday and is stuck in a narrow range. The market remains supported by expectations for USDA to lower its crop forecast on Nov. 8 but sluggish exports and ethanol production limit gains.

SoybeansNovember futures opened steady and tried to rally overnight. Prices are drifting lower this morning but remain above this week’s lows. A small double top has formed in November soybeans near $9.45, which is key short-term resistance.   

Wheat: Futures rebounded slightly overnight after stumbling to a one-week low on Thursday. Prices are holding above short-term support but better U.S. sales are needed despite the increase demand for French, Russian, Ukraine and other non-U.S. supplies the past week at higher prices. SovEcon raises Russian 2019-20 Wheat export estimates by 700 MT to 32.6 MMT as export prices and the crop outlook increase.  

Livestock Calls

Cattle: Steady to mixed
Hogs: Steady to lower

Cattle: Live cattle may pause after rising to a four-month high and closing lower on Thursday. Wholesale Choice beef cutout are up $5.49 this week and Select is up $4.65. Cash trade is steady to firm this week in a light test with further gains needed to support the current futures premiums. USDA releases its monthly Cattle on Feed report on Friday.  Weekly USDA export sales showed beef sales rose 6% from a week earlier. Traders are looking for on feed numbers to fall about 1.2% from a year ago on Oct. 1 as placements rise 1.6% in September, according to the average of traders polled by Reuters. The range of estimates is large again this month from down 4.9% to up 7.6%.

Hogs: Futures extended this week’s decline to a two-week low following the weakening trend in U.S. cash hog prices and wholesale pork amid record slaughters. The national average cash hog price fell another $1.36 yesterday, down $3.07 this week. Pork cutout values are down $4 so far this week with slaughter running 60,000 head above a year ago. Bullish traders were also disappointing by a normal week of export sales after the big surge recently amid strong buying from Mexico, China, Japan and Korea. China's Ministry of Agriculture and Rural Affairs on Friday confirmed a new outbreak of African swine fever in the southwestern province of Yunnan. The report shows how the fatal pig disease continues to spread in the world's top pork producer, more than a year after it first reached the country.   People are increasingly resorting to stealing pork in China as prices for the meat soar after the disease decimated the country's hog herd, the Daily Telegraph reported today. Look for some stability to come into the market today on ideas lower pork prices will spur new export sales.

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