Ahead of the Open: Mixed Trends with Soy Slightly Higher and Grains Weak

Posted on 10/28/2019 7:56 AM

Grain Calls

Corn: Down 1 to 2 cents
Soybeans: Up 1 to 4 cents
Wheat: Down 2 to 5 cents

General Comment: Look for firmer soybeans and weaker grain futures this morning. The weekend weather was wetter than expected, and harvest was slower than expected, especially after the late soybean selloff Friday tied to increased progress and farmer selling.  Additional precipitation in the Delta and Midwest will come too fast for significant drying to occur after the weekend precipitation event limiting the amount of fieldwork that will take place before the next storm arrives. This is especially true in the mid-south region where the weekend precipitation was heavy. Some harvesting may occur in the Midwest over the next few days, but only a limited amount of progress is expected.

This week’s driest weather will occur in the far western United States and in the northern Plains where little to no meaningful moisture is expected. In the meantime, cold will overspread much of the interior western states and northeast into the northern and western Plains and upper Midwest. The cold will dominate most of the week but will be most significant Wednesday morning when lows in the single digits and teens occur from the Rockies to the Great Lakes. Yield concerns continue for crops still left in the fields. 
The best rains of the season fell across central Brazil last week, spurring soybean planting.  But 20% to 30% of Brazil’s soybean area still needs rain. Dry areas of Mato Grosso do Sul, southwestern Mato Grosso, much of northern and western Parana and southwestern Sao Paulo, along with Paraguay, are expected to see limited rainfall into the first week of November. The weather forecast starts the week dry, then rains well up from the southwest to the east, leaving the western belt and northeast region largely dry. Northern Argentina has already received beneficial rain, but southern and southwest areas remain too dry.

The weekly CFTC Commitments of Traders reports showed larger buying by the funds in beans, wheat and oil than had been expected. Funds increased net-long soybean positions almost 20,000 contracts to 68,822 futures and options, the most since June 2018.  In SRW wheat, funds flipped to net-long 12,099 contracts, the first bullish net position since August and most since June. Funds remain modest net shorts in both HRW and spring wheat futures. New longs rose nearly 7,000 contracts and they bought back almost 15,700 short positions. Funds were net buyers of more than 24,000 soybean oil futures and options, to push their net-long to 24,163 contracts, the most since September 2017. Funds increased net-short corn position 9,914 contracts to 76,055 futures and options, the first increase in five weeks. Commercials cut net-short positions in corn for a second straight week and fourth smallest hedge position for this time of the year since data began in 2006.

Chinese officials confirmed over the weekend that the U.S. and China are close to finalizing the “phase one” deal Presidents Donald Trump and Xi Jinping are expected to sign on the sidelines of a Nov. 16-17 meeting in Chile of the Asia-Pacific Economic Cooperation. In a statement issued last Friday, the U.S. Trade Representative’s offices provided no details on the areas of progress. However, Bloomberg reported that trade advisor Navarro was secretly trying to undermine the trade talks. Traders are on alert for additional China ag buying and USDA confirmation this week– especially for red meats.  

Meanwhile, Chinese food prices continue to soar led by pork. Egg futures on China's Dalian Commodity Exchange rose to their highest in more than three years on Monday, in a move tied to sharp gains in pork prices after disease devastated the country's hog herd. Pork prices in China surged towards $8 per kilo ($3.63 per lb.) last week as colder weather increased demand, with retail pork prices in mid-October showing their biggest weekly jump since at least 2016. The elite Central Committee of China's ruling Communist Party will hold a closed-door meeting from Monday to Thursday to set the major policies for the year ahead and beyond, and probably discuss crises ranging from Hong Kong to the trade war with Washington. The meeting is the fourth time that China's roughly 370-person Central Committee has gathered since the 2017 party congress, which ushered in President Xi's second five-year term in office as party and military chief.  Little, if any, news of the proceedings is made public until it closes

Argentine bond markets fall on Monday after President Mauricio Macri was ousted in an election by Peronist rival Alberto Fernandez, though economists said the impact could be cushioned by a stronger-than-expected showing by the conservative leader. With votes almost all counted, Fernandez had around 48% of the vote to Macri's 40% - a wide enough margin to win in the first round, but a far better result for Macri than a landslide defeat in an August primary which sparked a market collapse. Investors are waiting for Fernandez and his vice-presidential running mate, former firebrand President Cristina Fernandez de Kirchner, to detail their economic plans, including any new agricultural export taxes. Farmers may move to sell crops before Fernandez takes office on Dec. 10. The past four years of Macri policies, including lifting trade controls and export limits, resulting in record production and profits for farmers in Argentina, a major corn and wheat exporter and biggest shipper of soymeal and soybean oil. 

In Washington, Growth Energy, the U.S. Grains Council, and the Renewable Fuels Association expressed disappointment with the news that the Brazilian government amended the recent August 31st rule that raised the quota on U.S. ethanol imports under the tariff rate quote (TRQ) from 600 million liters per year to nearly 750 million liters per year; the TRQ regulates the threshold of ethanol that can be imported into Brazil without triggering a 20 percent tariff.

USDA daily export sales reporting services said private exporters sold 135,000 metric tons of soybean meal for delivery to the Philippines during the 2019/2020 marketing year. Traders were hoping for some new Chinese sales.

 Corn: December corn is testing support at last week’s low at $3.84 this morning after falling for a second week. Key support remains at the Oct. 10 low at $3.78 ¼. Momentum indicators are trending lower but at neutral levels.

 SoybeansNovember futures opened higher on positive China trade buying after Friday’s unexpected sharp drop pushed the market down to $9.19 ½, which become short-term support. Better support remains near $9.10.

 Wheat: Futures rebounded slightly overnight before extending last week’s drop, falling to the lowest since October16 this morning. Look for the market to catch a bid near current levels amid firming Russian cash prices. Reports circulating that Russian wheat stocks are down 8% from a year ago with the export program running 18% behind last year’s pace with a bigger harvest. That suggest either carryover supplies were overstates or domestic demand is much stronger and pulling supplies out of the export pipeline.  

Livestock Calls
Cattle: Steady to firm
Hogs: Steady to lower

Cattle: Live cattle may start firmer but the market is overbought and due for some consolidation of the strong gains the past six weeks. The market climbed to the highest level since spring last week. Boxed beef prices marched higher last week, with Choice jumping $7.40 and Select gaining $6.80. But movement slowed on the runup and average cash cattle dropped $1.01. Funds increased net-long positions 9,671 contracts to 31,214, the most since June and fifth straight weekly gain after posting a net-short positions for the first time ever. USDA’s Cattle on Feed Report on Friday showed there were 11.278 million head of cattle in U.S. feedlots as of Oct. 1, down 1.1% from last year and right in line with pre-report expectations. The number of cattle placed into feedlots last month was slightly higher than the average pre-report estimates, but well within the range of estimates.  

Hogs: Futures may extend last week’s declines to start but prices are at key support. The market needs a consistent flow of export news from China and news on that front has been spotty. Reports on trade talks have been positive in recent day and China is expected to make more big pork purchases from the U.S. Forward movement on the U.S./Mexico/Canada Agreement could also jolt the market. The national average cash hog price fell $3.76 last week but the pork cutout value slipped just 47 cents, a positive sign of underlying pork demand amid record slaughter numbers. Slaughter last week slipped 33,000 head to 2.693 head from a week earlier but up 130,000 head from a year earlier.

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