Ahead of the Open: Quiet Rebound on Fund Short Covering on Crop Concerns

Posted on 12/03/2019 7:50 AM

Grain Calls          

Corn: Mixed-weak
Soybeans: Up 1 to 3 cents

Wheat: Up 4 to 6 cents


GENERAL COMMENTS:  Grain and soybean prices are moving higher on short covering amid a renewed focus on a potential small U.S. production, mixed weather in South America and rising, albeit small threats to world wheat output.

USDA reports corn harvest increased five percentage points to 89% done as of Dec. 1. That was nine percentage points behind the five-year average for the beginning of December. That’s more than 9 million acres still to harvest, or about 1.4 billion bushels still in the field. As of Sunday, USDA reports 96% of the soybean crop was harvested, up just two points from the previous week and three points behind the five-year average. More than three million acres of soybeans were left to be harvested. During the first two weeks of December, USDA will survey over 81,000 U.S. producers about crop output and release the data Jan. 10.  “One of USDA’s largest survey efforts, the responses will provide the final information about 2019 U.S. row crops focusing on harvested acreage, production, and storage, the agency said in yesterday’s weekly Crop Progress Report.

The weekly CFTC Commitments of Traders report showed funds were net buyers of corn in the week ended Nov. 26 when most were looking for funds to add more than 13,000 contracts to their shorts. Funds bought almost 7,500 futures and option positions last week, cutting their net short positions to 116,072 contracts suggesting December option expiration had more short positions than expected. However, in soybeans funds were record sellers of a net 61,393 futures and options, switching to a net-short position of 42,941 futures and options.

U.S. President Donald Trump is raising doubts about a trade deal with China anytime soon, sending global stocks sharply lower while commodities rallied as the U.S. dollar fell near a two-week low. In London, Trump told reporters that a trade agreement with China might have to wait until after the U.S. presidential election in November 2020, denting hopes of a quick resolution to the dispute which has weighed on the world economy. Traders will be waiting for any fresh comments from the economic team at the White House today to add clarity about the status of China trade talks.


Negative trade developments outside of China also have increased negative or more cautious market sentiment. Blaming Brazil and Argentina for weakening their currencies and hurting American farmers, President Trump said Monday that he would impose tariffs on steel and aluminum from both countries, a move that would shatter previous agreements and escalate the global trade war. Trade troubles are also brewing with France. The Trump administration said on Monday that a new French tax that hit American technology companies discriminated against the United States. The declaration could lead to retaliatory tariffs as high as 100 percent on French wines. Reports also surfaced Monday that the U.S. was contemplating increasing the scope of tariffs levied against the European Union over illegal Airbus subsidies after winning a World Trade Organization ruling earlier this year.

A temporary peace in the trade war is growing less likely and avoid a looming Dec. 15 wave of new U.S. tariffs on China exports of smartphones, toys and other consumer favorites. Heightened U.S. tariff use invites copycat tariffs from other nations looking to find solutions to slowing growth.  Trump tweeted Monday that he sees financial indices hitting records as an affirmation that tariffs are an economic winner.

Meanwhile, If a deal on the U.S.-Mexico-Canada Agreement (USMCA) is not reached by the end of this week, “I do not see how the USMCA can be ratified in the year we’re in,” Sen. Chuck Grassley (R-Iowa) said yesterday on AgriTalk radio and on the Senate floor. “By all accounts, the deal is close,” Grassley said. “I urge House Democrats to act quickly and be reasonable so that we can finally deliver certainty on this issue to the American people.


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


Corn: Futures have given back most of the overnight gains before the pause this morning. Corn needs to quickly take out Monday’s high to turn the charts more bullish. USDA reported Monday that total corn used for industrial purposes totaled 486 million bu. in October, up 7% from September but down 5% from last year. Ethanol profit margins have been increasing and the most recent report of weekly production was its highest since early July. Preliminary data from November implies ethanol demand will also be down year-over-year, but the gap is narrowing.  


Soybeans: Futures are also paring overnight gains amid the weakness in global stocks, but demand remains good. U.S. processors crushed 187.2 million bu. of soybeans in October, according to USDA. That was stronger than the average pre-report trade estimate of 185.1 million bu. and shattered the previous record of 183.6 million bu. set last year. Cumulative September and October crushings of 349.5 million bu. were nearly equal to 2018 levels whereas USDA is calling for a slight increase of nearly one percent in 2019-20. Soyoil stocks totaled 1.82 billion lbs., up from 1.78 billion lbs. in September but down from 2.05 billion lbs. in October 2018.

 Wheat: Winter wheat futures remain confined inside of Friday’s big upside surge for a second day with a firm undertone. A close above the Nov. 29 high would be a new buy signal. Traders are waiting for results from Egypt’s tender to buy an unspecified amount of wheat from global suppliers; Russia has the lowest offer.

Livestock Calls

Cattle: Steady/weak
Hogs: Mixed/weak

Cattle: Cash cattle prices averaged $118.21 last week, up $2.25 from the previous week. But live cattle futures softened Monday as traders took some profits out of the long side of the market. Cash cattle prices are expected to firm again this week given wintry weather in the northern market and strong packer margins, but Monday’s price action suggests traders will take a cautious tone until a firmer cash trade is confirmed now that the Tyson plant is back running at reduced capacity after the fire in August shuttered the plant. Beef prices moved higher Monday with Choice cutouts up 49 cents and Select up $2.64 but sales were light.

Hogs: Lean hog seen remaining under pressure from the China trade uncertainty, overshadowing firming cash hog markets. Traders on Monday trimmed premiums lean hog futures hold to the cash index. Despite the national average cash price firming 77 cents to start the week.

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