Ahead of the Open: Grains, Soy Retreat Amid U.S./Iran Tensions, South American Rains

Posted on 01/03/2020 7:52 AM

Grain Calls

Corn:  Down 1 to 3 cents
Soybeans: Down 4 o 7 cents
Wheat: Down 5 to 7 cents

GENERAL COMMENTS:  Wheat, corn and soybeans all followed global markets lower this morning on heightened geo-political tensions between the U.S. and Iran.  


Qassem Soleimani, one of Iran’s most powerful generals who led proxy militias that extended the country’s power across the Middle East, was killed in an airstrike in Iraq on orders from President Donald Trump. Iran’s supreme leader Ayatollah Ali Khamenei vowed revenge. The killing has inflamed tensions between the U.S. and Iran, and across the Middle East, heightening fears of a wider conflict which could pull in other countries.  

Now that geopolitical tensions are back at the forefront of market participants on the heels of the killing of a top Iranian commander in a U.S. airstrike, it’s necessary to think about the ways in which this could have an enduring impact on markets. Beyond raising risk premiums generally, one conduit for market turbulence is inflation – in this instance, potentially and primarily through oil prices, which jumped more than 4% this morning.  Higher inflation raising global growth risks by crimping spending on other discretionary items.


USDA’s weekly export sales report for the week ended Dec. 26 were in line for corn and wheat, although at the low end of trade estimates while soybeans sales fell below trade forecasts. Wheat sales fell 46% from the prior four-week average to 312,900 metric tons (MT). Corn sales fell 43% from the prior four-week average to 531,400 MT during the holiday week. Soybean sales were down 66% from the four-week average at 330,300 MT. Meal and oil sales were also down from recent weekly totals.


With soybean harvesting just beginning in Brazil, the South American agriculture power continues to move aggressively to sell its production overseas. Brazil exported record monthly volumes of crude oil, cotton and pork in December, as the country ramps up oil production and Chinese demand for meat boosts Brazilian animal protein industry, official data showed on Thursday. Pork exports reached a record in December, at 65,900 MT, and jumped 15% in 2019 to 635,500 MT, boosted by Chinese demand amid the African swine fever outbreak that decimated China's pork industry. Beef exports have also benefited from Asian demand, growing 12% in 2019 to 1.52 MMT. Cotton exports were a record both for December and for the full year. Brazil shipped 278,000 MT of the fiber last month, and 1.55 MMT in 2019. Production has been growing for the last two years, and Brazilian farmers were also favored by the additional import tariff China imposed for U.S. cotton. Corn exports reached 44.9 MMT in 2019, an all-time high.

Weather leans negative in South America after light to moderate rains the past three days in most Brazilian corn and soybean growing regions and aids drier areas of northeastern Brazil through the weekend. More follow-up rains are still needed in Southern Brazil and Paraguay, increasing the importance of next week’s rainfall coverages and amounts. The next 8 days are looking wetter for Argentina crops after the past week of beneficial moisture. Buenos Aires Exchange reported that 84.3% of the soybean crop has been planted in Argentina as of this week and 83.5% of the corn is in the ground.

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 have matched Monday’s high on Thursday but failed to clear that short-term resistance. Tonight’s close cold be important short-term signal. Bunge ended its 13-year ownership interest in an Iowa ethanol plant, the company said on Thursday, following industry struggles with thin margins and overproduction. Southwest Iowa Renewable Energy repurchased Bunge's 25% stake in the facility on Dec. 31, according to a statement.


Soybeans: Soybeans futures touched the highest since October yesterday and pared most of the session’s gains by the close. Thursday’s high is now key resistance with momentum turning down on the overnight market weakness. USDA reported that 174.6 million bushels of soybeans were crushed in November, down from 187 in October and 178 million bu. a year earlier.


Wheat:  March spiked to a new six-month high and pared gains to close near session lows. Momentum is turning lower on overnight weakness.  However, condition ratings for winter wheat declined from late November to late December in most U.S. Plains states, the U.S. Department of Agriculture said on Thursday, reflecting dry conditions in some areas. Crop ratings fell the most in Montana, the No. 5 winter wheat producer last year. The USDA rated 55 percent of Montana's winter wheat in good to excellent condition at the end of December, down from 68 percent by Nov. 24. In Oklahoma, the No. 3 producer, 40 percent of the winter wheat was rated good to excellent, down from 52 percent in late November. Topsoil and subsoil moisture conditions in Oklahoma were rated mostly adequate to short, the USDA said. Wheat also ratings declined in top producer Kansas, where more than half the state was abnormally dry until storms brought welcome precipitation in the last few days of December, according to the latest weekly U.S. Drought Monitor. Morocco's state grains agency ONICL has issued a tender to import about 354,000 MT of U.S.-origin durum wheat under a preferential tariff import quota, with results expected Jan. 9.  

Livestock Calls
Cattle: Steady to weak
Hogs: Steady to mixed

Cattle: Futures seen mixed to start this morning with rising U.S./Iran tensions a potential drag on global growth and trade. Wholesale beef prices were mixed Thursday with cash hogs were slightly higher in a very light trade. Choice fell $1.17 on Thursday but Select beef cutouts rose 51 cents. Sales were light even as this week’s slaughter rose 23,000 head above a year ago. U.S. beef sold for export in 2020 was 5,700 MT, less than half the 13,127 MT sold a week earlier. Beef shipments fell 23% below the prior four-week average.

Hogs: Looking for a mixed start this morning. The national average cash hog price fell 12 cents on Thursday and Iowa-Minnesota dropped 69 cents with slaughter up 38,000 head from a year earlier. However, wholesale pork cutout values rose 83 cents yesterday led by gains in bellies, ribs loins and butts. Unfortunately, sales were slow. Hog futures rose near a seven-week high on Thursday on optimism for increased U.S. pork sales to China in 2020. This morning’s USDA report showed sales for 2020 were 24,100 MT, the most in six weeks with Mexico and China the top buyers. Weekly pork shipments fell 19% from the prior four-week average to 30,600 MT with China and Mexico the top destinations.

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