Ahead of the Open: Mixed Trade Expected to End October, Waiting on USDA Reports Next Week

Posted on 10/31/2019 7:57 AM

Grain Calls

Corn: Down 1 to 2 cents
Soybeans: Mixed
Wheat: Down 1 to 3 cents

General Comment: Look for mixed trading with end of the month cross currents evident today. Prices are trying to recover from deeper overnight losses tied to increased worries about completing Phase I of the U.S./China trade talks. Weather is cold, snowy and wet for the next four days in much of the U.S. with some drier but cold weather next week. Another storm after Nov. 8 is expected to enter the western U.S. and move through the Midwest. Harvest will continue to struggle and remains a positive, albeit small bullish factor. The South American weather outlooks leans negative with more showers in the forecasts. But there remain some significant dry spots developing in Brazil. Rains may reach those areas in about 9 days and will be closely monitored after recent dryness in key west-central growing regions.

Today’s  export sales report for the week ended Oct. 24 was generally in line with trade estimates. Soybean sales nearly doubled to 943,600 metric tons (MT) from the poor sales a week earlier, but were down 39% from the four week average. China accounted for 481,000 MT. Traders were looking for sales of 500,000 MT to 1.1 million MT. Corn sales rose 12% from a week earlier to 549,100 MT. Wheat sales were 493,800 MT, more than 31% above the prior four-week average.

Chinese officials have doubts about whether it is possible to reach a comprehensive long-term trade deal with Washington and U.S. President Donald Trump, Bloomberg reported on Thursday, citing unnamed sources. Chinese officials are casting doubts about reaching a comprehensive long-term trade deal with the U.S. In private conversations with visitors to Beijing and other interlocutors in recent weeks, officials have warned they won’t budge on the thorniest issues and that they remain concerned about President Donald Trump’s impulsive nature.

Commodities, stocks and U.S. equity futures dropped on the news, which is understandable because as the trade war drags on, the global economic warning signals are mounting. On Thursday a gauge of the outlook for China’s manufacturing sector dropped to the lowest level since February. Spain’s economy settled down into a slower pace of growth, reflecting a broader malaise in the euro area. U.K. consumer confidence slumped to match a six-year low. Hong Kong’s economy contracted sharply as it entered a recession, exceeding economists’ worst estimates of the damage from months of protests. Taiwan was a rare bright spot: its economy grew at the fastest pace since the second quarter of last year.

But the levels of ag imports has become a major sticking point in the bilateral trade talks, as Beijing wants to buy based on market conditions instead of committing to a large figure and a specific time frame. "What the government can do is to remove the extra tariffs, both sides need to do this. Then let the companies make the purchases based on their own will, and based on market rules," Cao Derong, President of the China Chamber of Commerce for Import and Export of Foodstuffs, Native Produce and Animal By-Products (CFNA) told Reuters in an interview late on Wednesday. While China can step up purchases based on market conditions, the $40-$50 billion target is "very high", he added, and can't be guaranteed. Beijing would not be able to reach the target without removing substantial technical and non-tariff barriers. Trump and China's President Xi Jinping had been expected to meet and sign an interim deal at an APEC summit next month. But Chile on Wednesday abruptly cancelled the summit cue to civil unrest in its capital.

But President Donald Trump keeps displaying some of the least-desirable traits of his primary trade-war enemy, China. Yesterday, for example, the markets learned he wants final say over U.S. automakers’ supply chains as part of his NAFTA replacement deal, USMCA. This is just the sort of government control and favoritism for which people rightly criticize China, according to Bloomberg. It would raise costs for automakers and put them at risk of becoming political footballs.

The morning after Jerome Powell and the Federal Reserve seem to have successfully walked the line on Wednesday, delivering their third insurance rate cut of the year while signaling that may be it. It was all very much as expected, and the markets took it in stride. The message that policy makers are in no rush to tighten policy was a minor flourish that sent stocks to another record and gave Treasuries a little boost. Emerging market currencies looked to post their best gains against the dollar in two weeks, scaling new three months highs after the U.S. Federal Reserve's interest rate stance dented the dollar. The weaker dollar is a positive development for U.S. grain markets.

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

Corn: December fell back below key support at $3.88 overnight and is back above that level as markets end trading. This is a closing key price tonight for market direction next month. U.S. ethanol production returned to a rate of over 1 million barrels per day -- the first time since mid-September that it has been above that mark. Production was at a rate of 1.004 million barrels a day, up 8,000 barrels from last week, while inventories dropped by 265,000 barrels to 21.099 million barrels. Rising ethanol production is expected for Brazil may not be enough to cope with rising demand and the country will continue importing fuel from the United States to cover the shortfall; according to analysts from S&P Global Platts,

SoybeansNovember futures fell to a new swing low overnight but is trying to recover this morning. There were 1,659 deliveries against the expiring November futures overnight, more than double the top end of trade estimates calling for 100 to 700 deliveries.

Wheat: Futures seen slipping lower this morning on speculation the recent increase in world buying may soon stall. Higher prices amid record inventories will encourage buyers to wait for a retreat before adding to forward coverage.

Livestock Calls
Cattle: Steady to weak
Hogs: Steady to weak

Cattle: Live cattle may see some long profit taking to close out October. Beef prices were mixed on Wednesday with Choice sliding 50 cents and Select jumping $3.10 on moderate to light sales. Cash cattle trade is firming this week in a light test and remains supportive to the market. USDA reported that beef export sales in the week ended Oct. 24 rose 14% to 15,700 MT from a week earlier. Japan, South Korea and Hong Kong were the top three buyers.

Hogs: Futures may struggle to add to solid gains on Wednesday. The weekly USDA export sales report showed 30,100 MT of pork sold for export before Dec. 31 last week, up 57% from the prior week but down 68% from the four-week average. China only took 1,900 MT last week but they also cancelled 4,200 MT for delivery in 2020. China took 10,200 MT of the 32,500 MT shipped last week. The national average cash hog prices fell $1.48 and Iowa-Minnesota cash prices fell $1.82 and the wholesale pork cutout values slumped $1.28. Pork sales slowed from Tuesday’s strong movement. The weakness in cash markets is following its seasonal pattern and that may continue into November.

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