Ahead of the Open: More Sideways, Choppy Trade With Better Exports Providing Support

Posted on 12/19/2019 7:53 AM



Grain Calls
Corn:  Steady to down a penny
Soybeans: Down 2 to 4 cents
Wheat: Up 3 to 5 cents.

GENERAL COMMENTS:  Soybean futures edged down on Thursday, consolidating below a five-week high touched earlier this week, as traders awaited weekly U.S. export data for signs of Chinese demand in the wake of a trade deal between Washington and Beijing. Corn also ticked lower while wheat rallied on export demand after a pullback a day earlier. Looming Chinese demand limits the downside fall all the grains heading into the January USDA Crop Report.

Today’s weekly USDA export sales report through Dec. 12 showed better wheat and soybean sales and much improved corn sales, albeit within trade expectations. Exporters sold 868,600 metric tons (MT) of wheat last week, a marketing year high and 95%% above the prior four-week average. Soybeans export sales last week were 1.431 million MT, up 18% from the prior four-week average.  And included 689,600 MT sold to China and another 180,800 MT sold to unknown destinations.  Corn export sales rose to a marketing year high of 1.709 million MT, almost double the prior week’s tally and included previously announced sales of 1.153 million MT sold to Mexico.

Yesterday, Chinese importers bought at least two cargoes (120,000) to as many as six cargoes of U.S. soybeans after receiving another round of tariff-free quota for U.S. shipments on Tuesday, traders in both countries told Reuters. The sales, the first since Washington announced an interim trade deal with Beijing last week, may also be China's last large U.S. purchases before newly harvested soybeans from top supplier Brazil begin hitting the market next month, traders said.


USDA’s daily export sales reporting service said private exporters sold 126,000 MT of soybeans for delivery to China during the 2019-20 marketing year. 

A long-awaited U.S.-China 'phase-one' agreement announced last Friday buoyed grain markets as it included a 27-page commitment by Beijing to expand purchases of U.S. farm products with specific but varying dates for fulfilling the terms. China’s shopping list includes beef, pork, poultry, corn, wheat rice, tobacco, ethanol and DDGs.  Henry Kissinger met in China with President Xi Jinping, and the details of his conversations last week were passed onto President Donald Trump, White House economic advisor Larry Kudlow told CNBC. Xi said that he would rather deal with Trump than Democrats “who won’t talk about key trade issues, but instead will go on about human rights and other things,” Kissinger said, according to Kudlow.

A look at China’s recent history of ag-related purchases worldwide may temper the bevy of private analysts who are skeptical that China will purchase the additional amount of U.S. farm products specified in the agreement. Last year, data shows China purchased a total of $124 billion of farm products from around the world. Brazil-China trade could return to pre-trade war levels, erasing some of the gains seen, particularly last year. Brazilian farm exports to China surged to $35.4 billion in 2018 from $26.6 billion the year before. In that period, U.S. farm exports to China dropped to $13.2 billion from $24 billion. The first thing that is likely to happen is a rebalancing of soy trade.


Grain markets have also drawn support this week from higher export duties proposed by the new government in Argentina, which could curb supply from the major crop exporter. The government said on Tuesday it wants to raise export taxes on wheat and corn to 15% from 12%, and increase a tariff cap on soybean exports to 33% from 30%, after already raising the levies last weekend  

The South America weather outlook is leaning positive Rains fell in parts of Northern Brazil and southwest Argentina. Rains will continue to oscillate between northern and southern areas of Brazil the next two weeks, maintaining good growing conditions. However, Argentina forecast is turning much drier into January, possibly hurting crop development.

Corn: Futures seen trading both side of unchanged with export demand improvement lending a firm undertone. U.S. ethanol production fell for the first time in 11 weeks last week, leading to a small drop in inventories. Conab forecasts 2019-20 total Brazilian ethanol production at 31.57 billion liters up from 28.11 billion liters forecasts in August. Of that total, Corn-based ethanol is forecasts at 1.69 billion liters, up 114% from last season.

Soybeans: March soybeans are enjoying a refreshing pause. Look for underlying buying to develop on the early weakness.  Malaysian palm oil futures fell for a second straight day on Thursday, dragged lower by slowing demand, although a decline in inventories limited the losses. Palm prices have lost ground over the past two sessions due to expectations of 10%-12% lower demand in December and India's proposal to raise tax on edible oils. However, the lower-than-expected production levels and rapidly declining inventories in Malaysia and Indonesia for the December-March period are still supportive of the current bull market, he added.

Wheat: Futures are showing strength after a mild pullback with support from strong sales. Most of the Ukrainian winter grain crops sown for the 2020 grain harvest are in a good and satisfactory condition, ProAgro agriculture consultancy said on Thursday. Ukraine sowed a total of 7 million hectares of winter crops this year and 6.7 million of them have sprouted so far, the consultancy said. It said 84% of the sprouted crops were in a good or satisfactory state. Ukraine sowed 7.1 million hectares of winter grains last year. Germany's winter wheat sown area for the 2020 harvest has been reduced by 7.1% on the year to about 2.83 million hectares, the national statistics office said on Thursday. Farmers had turned to other crops such as rapeseed, data from the agency showed. The Taiwan Flour Millers' Association purchased 104,600 MT of milling wheat to be sourced from the United States in a tender which closed on Thursday, Reuters reported. Japan's Ministry of Agriculture sought 148,405 MT of food-quality wheat from the United States, Canada and Australia in a regular tender.

Livestock Calls

Cattle: Lower

Hogs: Stead-mixed

Cattle: Futures seen extending Tuesday’s weakness after beef cutout values tumbled. Choice boxed beef values tumbled $3.24 on Wednesday, extending the market’s dramatic slide that has taken Choice beef under year-ago for the first time since June. Select values also dipped $1.90 Packers will be reluctant to let more margin slip away given that next week’s kill will be the smallest of 2019, keeping most cash bids steady at best. Trading will be quiet ahead of the USDA Cattle on Feed Report Friday after the close. Total Dec. 1 cattle on feed is expected to rise 2% from a year ago as placements rise 1.1 in November and marketing fall 2.2%, according to a Reuters survey of analysts.  USDA reported beef sales of 10,100 MT, down 12% from the four-week average. Shipments fell 17% below the prior four-week average.

Hogs:  Market is likely to follow cattle and pork prices lower to start this morning before uncovering some buying interest. Pork cutout values fell $1.52 yesterday to extend its weekly drop to $4.37. Ham and belly prices have led the decline, with other cuts holding close to steady. USDA reported pork sales last week fell to 26,800 MT, 23% below the four week average with Mexico taking 11,300 MT and China buying 5,900 MT. Exports continued active at 39,200 MT with China shipping 15,300 MT. U.S. pork purchases by China should pick up after China’s cold storage pork runs a lot lower, industry sources advise. China in part confronted the devasting African swine fever (ASF) by killing off entire hog operations, resulting in a reduction of 40% to 50% of its hog population. The country has added cold storage facilities, but when those stocks are significantly reduced sometime during 2020, China is expected to accelerate pork imports.

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