Ahead of the Open: Buying Trends on China Deal Supports Stocks, Commodities

Posted on 12/27/2019 7:59 AM

Grain Calls

Corn:  Steady to up 1 cent
Soybeans: Up 1 to 2 cents
Wheat: Up 3 to 6 cents

GENERAL COMMENTS:  Grain, soybean and livestock markets will be following the rallies in global stock markets with a weaker dollar and stronger oil prices adding to the bullish commodity undertone. Crude oil prices rose to three-month highs Friday as improving economic data from China and the U.S. indicated an end to the trade war is restoring confidence in global growth. China’s industrial production rose at the fastest pace in eight months during November, data today showed. Emerging market currencies and stock markets are rising, putting pressure on the dollar and helping to increased speculative interest in long commodity positions.
South American weather leans negative with more rain in the forecasts for both Brazil and Argentina next week after showers earlier this week started to relieve dryness.

The USDA Export Sales Report for the week ending Dec. 19 showed stronger sales of wheat and soybean oil but corn and soybean sales were at the low end of trade estimates. Net sales of wheat were 715,000 MT, up 29% from the prior four-week average, led by new business with the Philippines, Taiwan and Mexico. Soybean oil sales rose to 37,400 MT on active sales to South Korea. Net sales of corn last week fell 63% to 624,800 from a week earlier. New-crop sales were just 1,400 MT. Soybean export sales were 736,200 MT down 49% from a week earlier and 39% below the four-week average. China bought 400,400 MT, including 66,000 switched from unknown destinations. New-crop sales were light at just 11,100 MT.

Pork sales rise but beef sales were in line with recent business. Net sales of beef for delivery in 2019 were 6,300 MT and sales for delivery in 2020 were 13,100 MT. Shipments fell 7% below the four-week average. Net sales of pork for delivery in 2019 were 16,400 MT, down 39% from a week earlier. Sales for delivery in 2020 rose to 17,825 MT from 10,414 MT a week earlier and the most in four weeks. Pork export shipments rose to 40,100 MT, the most in four weeks. Mexico was the best buyer last week and China was the top destination for U.S. pork.

Traders expect that China will soon release 9.6 million metric tons (MMT) of wheat and 7.2 MMTs of corn Tariff Rate Quotas for 2020 purchases. The potential that China could secure an additional 5-6 MMTs of world wheat annually is underpinning CBOT wheat. China has been importing 4-6 MMTs of corn annually, so the impact corn may be less unless U.S. grabs a bigger share. Chinese demand for U.S. soybeans is slowing amid cheaper Brazilian offers from mid-February onward.

Authorities in Sichuan, China’s top hog producing province, expect to produce around 60 million hogs in 2020 – near levels it achieved prior to the outbreak of African swine fever (ASF). Through the first three quarters of this year, the province produced only 35.82 million hogs, down 18% from the same period last year. To reach the target, the local authorities will give a 300-yuan ($42.89) subsidy for every newly added sow and subsidize companies that restart deserted pig farms or build new ones, Xinhua News reported. That will help to boost overall Chinese demand for feed demand and soybean imports.

 

The U.S. Department of Agriculture’s daily export sales reporting service did not report any new large sales this morning, but none were expected.  

Corn: Futures are extending the rally after closing above the 100-day moving average. Key resistance is $3.90 ½ to encourage new fund short covering as we move into the last 2 ½ days of 2019. China warned earlier this week that a destructive pest that has threatened the country's grain output is expected to hit more crops across wider areas in 2020, including the key corn-growing region in the northeast.  "It is expected that in 2020, fall armyworm will be very severe and the situation will be extremely grave," according to the report by the National Agriculture Technology Extension Service Center (NATESC), an institute under the Ministry of Agriculture and Rural Affairs.

 

Soybeans: January option expire today and deliveries against the January futures begin Tuesday night. That could lead to some additional volatility today. Spot CBOT soyoil futures have pushed to their best levels since early 2018. The surge in palm oil futures to the highest since February 2017 is sparking the soyoil rally. Soyoil is pushing soybeans to the upside.

 

Wheat:  SRW wheat are up near last week’s six-month highs while HRW futures are extending the three-month rally to the highest since late July. Rosstat reported that Russian grain stocks as of Dec. 1 totaled 42.4 MMT which was close to last year. However, Russian wheat stocks totaled 24.5 MMTs, which was down 1.8 MMT. The stocks data was consistent with trade expectations and is a reason why Russian interior wheat prices are rising, and exports are slowing. Expected adverse weather across Ukraine may significantly damage winter grain crops, especially those that were sown late, consultancy APK-Inform quoted Ukrainian agricultural scientists as saying on Friday. It said that crop sown late had a reduced frost resistance and any sharp fall in temperature could damage them.  

Livestock Calls
Cattle: Steady to firm
Hogs: Steady to firm

Cattle: Futures seen steady early in consolidation of Thursday’s rally. A winter storm warning has been issued for tonight through Sunday from northeast Colorado to central Minnesota with 6 to 16 inches of snow possible. Mixed wholesale beef prices will curb early buying but sales were strong and provide further support to the bulls’ demand argument. Cash cattle trade has been light but firm. Bullish traders may have to wait for confirmation of stronger cash cattle later today.

Hogs: Looking for steady opening, waiting for new fund buying to return with today’s export news. Cash hog markets were fractionally higher on Thursday. The wholesale pork cutout value slumped $1.05 yesterday but sales surged to a record. Some of that business Thursday may have been leftover from Tuesday when USDA was closed and did not report daily business. Slaughter remains near a daily record with this week’s total up 138,000 head from a year earlier.

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