Ahead of the Open: Corn Leads Higher on Export demand; Choppy Trade With Dec. 15 U.S. Tariffs Looming

Posted on 12/12/2019 7:58 AM

Grain Calls          

Corn: Up 1 to 3 cents
Soybeans: Down 2 to 3 cents
Wheat: Down 1 to up 2 cents

GENERAL COMMENTS:  Corn is fractionally higher, rising from a three-month low on ideas demand is set to increase. Soybeans are drifting lower on worries Chinese buying is finished with the Dec. 15 U.S. deadline looming with new tariffs without a Phase 1 trade deal completed or near completion. 

This morning’s USDA weekly export sales report for the week ended Dec. 5 was a positive with grain sales higher than expected and soybeans at the top end of trader estimates. Wheat export sales rose to 502,700 metric tons (MT), up 33% from the prior four-week average. Net sales of corn rose 28% from the four-week average to 873,500 MT. Soybean export sales last week rose 54% to 1.05 MMT from a week earlier but down 17% from the prior four-week average. USDA said 251,400 MT sold to unknown destination and another 241,600 sold China.

The USDA daily export reporting service said private U.S. exporters sold 1.6 million metric tons (MMT) of corn to Mexico, including 1.074 MMT for delivery in 2019-20 and 525,780 MT for delivery in 2020-21. In addition. USDA said 110,744 MT of corn sold to unknown destination for delivery in 2019-20.

There were no new soybean sales announced to China after USDA said yesterday that 585,000 MT of soybeans sold to China for delivery in 2019-20 and another 140,000 MT sold to unknown destinations for delivery this season.  

China and the United States are in close communication on trade, its commerce ministry said on Thursday, declining to comment on possible retaliatory steps if Washington imposes more tariffs on Chinese goods this weekend. The United States is due to impose tariffs on almost $160 billion of Chinese imports such as video game consoles, computer monitors and toys on Sunday. U.S. President Donald Trump is expected to meet top trade advisers on Thursday to discuss the move, sources told Reuters yesterday.
The countries agreed in October to conclude a preliminary trade agreement, but talks have failed to produce deals on agricultural purchases by China and rollbacks of existing tariffs imposed by the United States. Many analysts had expected a deal ahead of Dec. 15.  Beijing has said it would retaliate if the United States escalates the trade dispute.

Here are the main scenarios:
Postponement of the Dec. 15 tariffs. While a delay would extend the uncertainty drag on markets and the economy, it allows China and the U.S. to keep talking without inflicting more pain on each other. A new deadline might become a signing ceremony at the World Economic Forum in Davos in late-January.

The mini deal that President Trump has talk about. Billed as phase one of a broader agreement may involve Beijing pledging to buy American agriculture products, both sides calling a ceasefire on future tariffs and a reduction in existing levies, and perhaps some vague promises to pursue stable currencies and protect intellectual property rights

No deal, new tariffs take effect Sunday. This would be the preferred option of hawkish Trump advisers because China’s economy is indeed showing signs of increasing stress. There’s also a case to be made that the political benefits of a tough-on-China stance heading into the 2020 election year just might outweigh the additional economic costs.

 

Corn: Futures will lead the trade higher on better exports. Brazilian meat giant JBS SA is negotiating a deal to import 200,000 MT of Argentine corn, the Sao Paulo- based company told Bloomberg on Wednesday. The purchase is for arrival in the first months of 2020 and comes after prices in Brazil’s domestic market surged between 25% and 40% in the past two months, JBS said. Brazil’s record exports have depleted domestic stockpiles to bare minimums with harvest still several months away. That means better demand developing for U.S. supplies as dry weather is increasing the threat to Argentina production. 

SoybeansFutures India's soymeal exports in 2019/20 could plunge to their lowest in four years due to faltering demand from top buyer Iran and as a rally in local soybean prices make shipments pricey for overseas buyers; lower exports from India will help major growers like the United States, Argentina and Brazil increase sales of the animal feed to Asian buyers like Bangladesh, Vietnam and Japan.

Wheat: Futures may follow corn to the upside on support from a small bump in exports. In its first estimates for 2020, Strategie Grains pegged the EU soft wheat crop at 140.5 MMT, which would be a 5.3-MMT slide (3.6%) from the previous season amid a drop in acreage

Livestock Calls

Cattle: Steady to firm
Hogs: Steady/firm

Cattle: Futures are seen building on Wednesday’s rally in early trading. Traders are betting firmer cash prices this week despite the weakness in beef values. Choice beef cutouts fell $2.84 on Wednesday to the lowest since Oct. 18 and narrowing the premium to select cutouts to $14.93 from almost $30 earlier this fall. Sales remains active this week, supporting a strong slaughter pace this week. Choice cutouts remain the second highest ever for mid-December and support strong packer margins. Beef export sales last week were 9,900 MT, up sharply from just 528 MT a week ago but down 36% from the four-week average. Shipments were down 13% from the prior four-week average.

Hogs:  The National average cash hog prices rose 21 cents on Wednesday, continuing the rebound and suggesting a seasonal low has been established in the cash market. Slaughter this week is down 12,000 head from last week. Pork cutout values rose 7 cents yesterday led by strength in bellies and hams. Sales were light to moderate. Net export sales of pork last week for delivery before Dec. 31 slipped 5% from the prior week to 29,200 MT and were 11% below the prior four-week average. Mexico bought 13,900 MT and China bought 5,600 MT. Shipments last week were 38,200 MT, down 10% from the prior four-week average. China was the top destination, taking 13,900 MT last week.

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