Ahead of the Open: Wheat, Soy Lead as China Deal Signing Imminent, New Purchases Expected

Posted on 12/30/2019 7:58 AM

Grain Calls

Corn:  Steady to up 1 cent
Soybeans: Up 5 to 7 cents
Wheat: Up 4 to 7 cents

GENERAL COMMENTS:  Wheat and soybean are seen trading near the highest for the most-active futures in about a year on anticipation China will expand purchases of U.S. crops under a planned trade deal with Washington. Corn is following higher. Firm physical markets for wheat around the world, supported by steady export demand, have wheat leading the rallies. The Phase 1 agreement includes a commitment by Beijing to increase purchases of U.S. agricultural products. This morning, South China Morning Post reported that China’s top negotiator, Vice Premier Liu He, has accepted an invitation to lead a delegation to the U.S. beginning Jan. 4 to sign the trade deal.

Beijing will live up to its trade deal commitments, but Washington must also honor the one-China policy in relation to Taiwan, according to China's envoy to the United States. In an interview with Chinese state television CGTN on Saturday night, Cui Tiankai, -China's ambassador to Washington, also dismissed talk of a new cold war as "very irresponsible". The comments come as Beijing and Washington hammer out the final details of the text for an interim deal to end a protracted trade war that has rattled the global economy and financial markets over the last 18 months. Despite some relief with the phase one deal, overall bilateral tensions remain high. China has accused the US of interfering in Hong Kong, Tibet and Xinjiang, and of challenging Beijing on the self-ruled island of Taiwan, which will go to the polls on -January 11.

China approved two new genetically modified (GM) crops for import—Corteva AgriScience’s DAS-81319-2 soybean and 55-1 papaya. It also renewed permits for 10 others, including ones for corn, soybeans, canola and beets, the country’s ag ministry announced today. This paves the way for the country to bring in more farm products from the U.S. as part of the Phase 1 trade deal that is expected to be approved next month. The approvals took effect Dec. 2, 2019 and will last three years, the ag ministry details.

The European Union's new trade commissioner, Irishman Phil Hogan, said Monday that he would seek a reset of EU/US trade relations on several contentious issues when he meets his U.S. counterpart for the first time next month. The two sides are in theory trying to forge a deal to remove overall import duties, but are stuck over farm products, which D.C. said must be included and Brussels said it cannot feature. They are also at odds over Washington's paralysis of the World Trade Organization's judicial arm, a vital part of the global trading system.

The weather forecast for Brazil has rainfall for more of the northern growing regions over the next 6 to 10 days with lighter amounts in the south. The Argentine weather forecast over the next 10 days is seen mostly dry after some showers last weekend. Weather leans a bit positive, but soybean harvesting is expected to begin in the next week in Mato Grosso, about 15 days earlier than expected and above-average yields expected after beneficial weather the past two months.

 

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. Traders will want to see sales increase relatively quickly after the Phase 1 deal is signed with China. 

Corn: Futures are seen opening at resistance at $3.91 this morning. Stronger resistance remains near $4.00 and $4.10 heading into the China trade deal signing and the Jan. 10 USDA final crop production forecasts.

Soybeans: January option expiration pressured futures on Friday. Today, prices are resuming the short-covering rally with March seen opening near Friday’s high at $9.50 ½. Malaysian palm oil futures erased earlier declines and extended their winning streak on Monday to near a three-year high. Prices were supported by forecasts of a steeper-than-expected seasonal decline and a push for higher palm oil levels in biodiesel in Indonesia and Malaysia. Palm hit an intraday high of 3,140 ringgits, its highest since Jan. 25, 2017. Futures are up at least 47% this year and on track for their biggest yearly gain since 2009. The Malaysian Palm Oil Association and the Southern Peninsular Palm Oil Millers Association forecast month-on-month falls in production of 16% and 27% respectively, traders said. Domestic consumption in Malaysia and Indonesia is expected to increase as both countries push for higher palm content requirements in their 2020 bio-diesel programs.

Wheat:  March SRW wheat are up near their summer highs and the highest on the weekly charts since Aug. 2018. The market is following a firmer global market trend amid some rising concerns about the European and Black Sea crops from dry weather and a lack of snow covering moving into the winter. U.S. exports are improving, and more sales will be needed to sustain this year’s rally.

Livestock Calls
Cattle: Mixed
Hogs: Steady to mixed

Cattle: Futures seen opening steady to mixed with weaker beef prices offset by firm cash cattle markets to finish last week. Slaughter rose 26,000 head from a year earlier. Concerns about a winter storm disrupting cattle production underpinned cattle futures last week and may continue to offer support to start this week. Strong domestic and export demand for beef have also recently helped to support cattle futures. China bought 219 MT of U.S. beef for 2020, a small amount, and Hong Kong bought about 3,369 MT. U.S. beef has previously entered China through Hong Kong in a process known has transshipment.

Hogs: Looking for a steady to mixed start after futures dropped Friday as large U.S. slaughter rates offset an uptick in U.S. pork sales to China. Fresh pork carcass cutout values fell 74 cents on Friday, but the national average cash hog prices rose 39 cents. Slaughter rose 132,000 head last week from a year earlier. Traders are keeping an eye on Chinese demand because China to make up for the outbreak African swine fever that has decimated its herd. Sales were the biggest for 2020 in about a month and came after three consecutive weeks of net cancellations by China. Weekly shipments of 16,115 MT of U.S. pork to China were the biggest since February, according to USDA data. The USDA said in a quarterly report on Dec. 23 that the inventory of all U.S. hogs and pigs on Dec. 1 was 77.3 million head, up 3% from a year earlier.  China will release more frozen pork from its reserves ahead of the upcoming New Year and Lunar New Year holidays, state-owned CCTV reported, citing the Ministry of Commerce. Beijing has already released more than 100,000 MT of frozen pork from state reserves since mid-December, CCTV reported.  

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