Ahead of the Open: Quietly Drifiting Higher as Grain Trade Awaits China Deal Signing on Wednesday

Posted on 01/14/2020 8:00 AM

Grain Calls

Corn:  Steady to up 1 cent
Soybeans: Up 1 to 2 cents
Wheat: Up 3 to 5 cents

GENERAL COMMENTS: Soybean and corn futures are steady to higher this morning and wheat is leadingthe gains as traders await the signing of the Phase 1 trade deal which will reopen China’s giant market to U.S. grain and farm product exports. Wheat rose, supported by continued strength in European prices and import tenders from Egypt and Turkey. The U.S. and China are expected to sign a Phase 1 trade deal on Wednesday to start resolving their trade war which led to a massive cut in exports of U.S. soybeans, corn and other farm products to China. Reports say China has agreed to increase U.S. food and farm product imports by $80 billion over the next two years, but the text of the proposed agreement and how it will be enforced has not been released, leaving markets uncertain. Traders want to see signs of China actually buying U.S. soybeans, grains and meat and shipping them out before reacting. There have been too many false hopes in the long trade war.

Depending on the wording and implementation, the new deal could still run afoul of the World Trade Organization's principle of most-favored-nation (MFN) treatment, which prohibits governments from discriminating between their trading partners. It could also violate WTO rules that prohibit the use of quotas and other numeric restrictions on imports and exports.

The U.S. Treasury Department announced yesterday that it will drop its designation of China as a "currency manipulator" just two days before negotiators from Beijing and Washington are set to sign the first phase of the trade deal between the two countries. The trade agreement will include a section on Chinese currency practices that addresses many of the concerns raised when the U.S. applied the manipulator designation in August. As part of the agreement, China will commit to not depress its exchange rate and will make additional disclosures about its foreign-exchange practices.

The South American weather forecast for Brazil has not changed much with rains seen falling through much of the region over the next 10 days. The Argentine weather forecast is turns dry through the upcoming weekend with rains returning by midweek next week.

President DonaldTrump will be the keynote speaker at the American Farm Bureau's annual convention on Sunday, making it the third year in a row Trump has been the head guest, the Farm Bureau says. Agriculture Secretary Sonny Perdue and EPA Administrator Andrew Wheeler will also be in attendance.

The U.S. Department of Agriculture’s daily export sales reporting service reported private exporters  sold 120,000 metric tons of soybeans for delivery to unknown destinations during the 2020/2021 marketing year.   Traders will want to see daily sales increase relatively quickly after the Phase 1 deal is signed with China.

Corn: March corn futures opened lower and have slowly recovered through the overnight session, pushing above Monday’s high and just a couple of cents below key overhead resistance. Fund short covering continues to drive the market after Friday’s positive price action in the face of neutral USDA reports. Safrihna cash corn bids reached 40 reals/bag for July-August delivery – a new record. The incentive for Brazilian farmers to plant record acres of second-season corn are increasing and may limit gains in U.S. futures.

Soybeans: Futures are inside of a wide sideways range established the last three weeks with funds sitting with a small net-long position waiting for more clues about new Chinese purchases. The sales this morning of soybeans to unknown is a small positive. China's soybean imports in December surged 67% from a year earlier to a 19-month-high, customs data showed as a flurry of U.S. and Brazilian cargoes earlier cleared customs.  China brought in 9.54 MMT of the oilseed, up from 5.72 MMT a year earlier.Malaysian palm oil futures fell by th most in eight months on Tuesday after the country’s prime minister defended his criticism of India even as India halted import. India, the world's biggest buyer of edible oils, last week restricted imports of refined palm oil and informally instructed traders to stay away from Malaysian palm oil. The move has effectively stopped all purchases from top supplier Malaysia. India's restriction will result in a quicker build-up of Malaysian Palm Oil Board (MPOB) stockpile when output starts to recover from the second quarter of 2020 and will cap upside in CPO prices. Meanwhile, Malaysian end-December stockpiles fell to a 27-month low of 2.01 MMT, down 11% from the previous month, while production fell 13.3%, industry regulator MPOB said last week.

Wheat: Wheat futures seen following the firming global wheat trade. Euronext European wheat futures rose again on Tuesday after on Monday reaching their highest in over seven months as supply difficulties in France caused by transport strikes added to support from brisk overseas demand. Russia exported 29.2 MMT of wheat in January through November 2019, down 27.4% year-on-year, the Federal Customs Service (FCS) said on Tuesday. In November 2019, exports were down 29.4% year-on-year to 2.7 MMT. Russia's agriculture ministry plans to set a quota for grain exports in the first half of 2020, Interfax news agency reported on Tuesday, citing a draft of the ministry's proposal. The draft, which is yet to be reviewed by the government, sees the quota at 20 million tonnes of grain in Jan. 1-June 30, 2020, it added.

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

Cattle:  Futures seen steady to firmer after wholesale beef prices turned higher yesterday afternoon. Choice rose 51 cents and Select cutouts jumped $1.68 on light sales. Cash cattle are still called steady but a further improvement in beef prices and sales could lead to stronger packer bids. China beef imports in December climbed almost 81% to 189,000 MT from a year earlier and also topped November imports of 186,984 MT. Total 2019 beef imports rose nearly 60% to 1.66 million MT.

Hogs: Futures are expected bounce away from a one-month low ahead of the signing of the U.S./China trade deal tomorrow. The market will also find new support from the $1.72 jump in wholesale pork cutout values on Monday. However, sales were only moderately active. China's pork imports in December rose almost four times to 375,000 MT compared with 95,384 MT a year earlier and up from 229,707 MT in November 2019. Pork imports in 2019 jumped 75% to 2.108 MMT, according to General Administration of Customs data on Tuesday. China's soybean and pork imports from the United States have "significantly rebounded" in November and December, customs vice minister Zou Zhiwu said at a briefing on Tuesday adding that China's agricultural imports from the United States were 14.1 billion yuan ($2.05 billion) in December.


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