Ahead of the Open: Gains Pause after Surging Friday, Soybeans Seen Rebounding from 2 1/2-Month Lows

Posted on 12/02/2019 8:12 AM

Grain Calls          

Corn: Steady to mixed
Soybeans: Up 4 to 6 cents
Wheat: Mixed to 2 cents lower

GENERAL COMMENTS:  U.S. soybean futures may rise for the first time in eight sessions on Monday, rebounding from a more than two-month low touched in the previous session, despite concerns around the trade deal between Washington and Beijing.  Friday’s strong 2-plus percent rallies in the corn and wheat markets is shifting their price trends to neutral to bullish, but the key is follow-through strength today. The CFTC will release their weekly Commitments of Traders report on Monday afternoon. Key will be whether funds have liquidated their net long soybean position and how short are they in the grains.

Market is weakening from earlier price highs amid developments in trade talks between the United States and China. A trade deal between United States and China was now "stalled because of Hong Kong legislation", news website Axios reported on Sunday, citing a source close to U.S. President Donald Trump's negotiating team. China expects the U.S. to roll back some tariffs on its exports as part of a trade deal, an official newspaper said Monday, reiterating Beijing's insistence that President Donald Trump's administration be "flexible" and "reasonable." The Communist Party newspaper Global Times ran several articles Monday that emphasized there would be no deal without a promise to phase out the tariffs imposed by Washington; it cited officials saying that China will buy American farm products and the amount "could be substantial, but it cannot promise a specific number in the deal because the amount must be based on market demands."

China said on Monday U.S. military ships and aircraft won't be allowed to visit Hong Kong and announced sanctions against several U.S. non-government organizations for encouraging protesters to "engage in extremist, violent and criminal acts." The measures were announced by China's Foreign Ministry in response to U.S. legislation passed last week supporting anti-government protesters. It said it had suspended taking requests for U.S. military visits indefinitely, and warned of further action to come.

Some slightly better economic news emerged for China at the weekend, with its factory activity gauge unexpectedly jumping in November thanks to government support and a more stable global outlook. Yet another closely watched bellwether for global trade, South Korean exports, declined more than expected.   

Meanwhile, U.S. President Donald Trump on Monday said he would immediately restore tariffs on U.S. steel and aluminum imports from Brazil and Argentina.  Emerging market stocks and the highly sensitive Mexican peso slid to session lows following Trump's vow, which came in an early morning post on Twitter that gave no other details on the planned trade action.

The weather front remains mixed this morning with some drier weather for final soybean harvesting and advancement in corn collection will develop this week after heavy rain and snow during the weekend. In South America, Brazil will get 1 to 4 inches of rain the next week, boosting crop conditions. But Argentina continues too dry. A more limited rainfall pattern occurred during the weekend in Argentina with a trace to 0.47 inch resulting from scattered showers and thunderstorms Argentina will experience net drying conditions over the next ten days even though the nation will experience some scattered showers and thunderstorms. Corn and soybean conditions still vary greatly with its soil moisture.

The USDA daily export reporting service did not report any new large sales by U.S. exporters this morning.

Corn: Futures turned back to the downside overnight after failing to hold gains above the 20-day moving average. There were no deliveries against the expiring December contract, a sign of demand for immediate supplies in the cash market.

SoybeansFutures are rebounding after touching the lowest since Sept. 12 on Friday. The market rebound was capped on worries about U.S.-China trade progress.

Wheat: Winter wheat futures are easing from five-month highs on Friday on light profit taking. Declining world crop forecasts are expected to limit declines.

Livestock Calls

Cattle: Steady/weak
Hogs: Mixed/weak

Cattle: Live cattle futures pared daily gains and closed lower on Friday suggesting a weaker start this morning despite cash cattle prices that reached as high as $120 in the Plains -- as much as $4 above the previous week. That suggests traders sense the cash market may be nearing a top. But with wintry weather in the northern market and highly profitable packer margins, there are no clear signs the cash market rally is over. Beef prices were slightly lower on Friday with Choice down 12 cents and Select down 30 cents.

Hogs: Lean hog futures seen starting the week a little softer. The average national direct cash hog price softened 9 cents on Friday, suggesting some lower cash hog bids may develop this week. But with packer margins still deep in the black, there’s incentive to make sure kill lines are full. Wintry conditions will slow hog transportation in some areas. Wholesale pork cutout values rose $1.87 on Friday on light sales. Chinese Vice Premier said the country must resolutely work to achieve the target of recovering pig production numbers, and stabilize pork supply for the upcoming holidays, the official Xinhua News Agency. China must ensure stable pork supply in key periods of early 2020, including the Lunar New Year holidays in January and during the annual National People's Congress in March, a sign of better U.S. pork exports.

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