Ahead of the Open: Grains, Soy Rebound from Oversold Levels as China Trade Fears Ease

Posted on 02/04/2020 7:54 AM

Grain Calls

Corn: Up 2 to 4 cents
Soybeans: Up 5 to 7
Wheat: Up 6 to 8 cents

GENERAL COMMENTS:  Grains, soybeans and livestock markets are seen reopening higher this morning after posting solid gains overnight after opening under pressure after World stock and other commodity markets bounced on Tuesday. Risk appetite is improving this week across equities and commodities after the initial knee-jerk reaction to the coronavirus in China.  

The USDA daily export sales reporting services said private exporters did not report any new large U.S. grain or soybean sales this morning. That will be a mild negative factor when prices reopen.

The agricultural markets are responding favorably to reports by the state-run China Global Times reports that China is unlikely to delay Phase 1 trade deal implementation. Chinese firms’ purchase of U.S. goods will be delayed in the first quarter due to coronavirus outbreak, but they can increase purchases later this year as the obligation is measured annually, the Global Times cites Gao Lingyun, researcher at the Chinese Academy of Social Sciences, in an interview. Meanwhile, a New York Times article says the coronavirus “may delay hard-fought U.S. trade wins in China.” The Office of the U.S. Trade Representative said it has not received a request from China for flexibility on commitments it made to purchase more U.S. products due to the coronavirus. Also of note, there’s a push for President Donald Trump to lift the remaining $270 billion in tariffs on Chinese exports to give Beijing more latitude to meet its promise to buy $200 billion more in U.S. products over the next two years.

However, The U.S. Commerce Department on Monday finalized a new rule to impose anti-subsidy duties on products from countries that it has determined undervalue their currencies against the dollar, including potentially China. The move could provide a fresh irritant in U.S.-China trade talks just weeks after the world’s two largest economies signed a Phase 1 trade agreement and comes a day after Beijing accused Washington of spreading fear about the fast-spreading coronavirus that originated in China.

Today’s gains may be capped by favorable weather in South America and rain and snow in drier areas of Australia, Europe and Black Sea region wheat growing areas.

Chinese stocks rose 1.3%, reversing some of a previous coronavirus-related plunge of about 8% amid official efforts to soothe nerves over the spreading outbreak. MSCI's main world index rose 0.3%, led by gains in South Korea and Australia, the biggest leap in commodity-focused stocks in over three months. Despite the relative market calm on Tuesday, the outbreak continued to generate unnerving headlines with Hong Kong reporting its first coronavirus death - the second fatality outside mainland China - as the overall death toll reached 427. China's securities regulator on Monday to limit short selling and stop mutual fund managers selling shares unless they face investor redemptions. China's central bank has flooded the economy with cash while trimming some lending rates, and more is expected. Oil futures staged a modest rebound, one day after slumping to the lowest in more than a year.

Chinese authorities on Tuesday ordered local governments to ensure disruptions to the transportation of animal feed and livestock are kept to a minimum during the coronavirus outbreak. Local authorities should not intercept transports of young animals, livestock, feed or animal products, and the closure of slaughterhouses was forbidden, the Ministry of Agriculture said on its website. The moves are another sign that China may need to boost imports of table-ready food first and follow that with larger bulk commodity imports.

President Donald Trump will deliver his annual State of the Union address this evening, with the speech likely to take credit for the strong economy as he seeks to move past the impeachment battle.

Agriculture Secretary Sonny Perdue announced that at the direction of President Donald Trump, USDA would begin issuing the third and final tranche of the 2019 Market Facilitation Program (MFP 2) payments “aimed at assisting farmers suffering from damage due to unjustified trade retaliation by foreign nations.” USDA says the payments should begin showing up in farmers’ bank accounts by the end of this week. The payments boost immediate cash flow needs and likely will keep farmers tight holders of the 2019 crop, boosting basis levels.  

Corn: March futures are bouncing from a two-week low yesterday on speculation global demand for U.S. supplies will be strong the next several months with the current U.S. price advantage. U.S. feed demand remains strong amid record livestock and poultry supplies. Brazil exported 2.294 MMT of corn in January, down 47.5% from December and 40.7% less than January 2019.  Brazil’s shipments of ethanol also were cut basically in half versus December, with shipments of 78.1 million liters also down 25.4% from year-ago. Demand for ethanol producers improved in December. A total of 530 million bu. of corn was consumed for industrial purposes during December, which was up 4.6% from November and a 3.5% gain from December 2018, USDA reported Monday. That tally included 479 million bu. consumed for ethanol, which was up 4.9% from November and 3.8% from year-ago.  

Soybeans: Futures are heading for a second day of gain after touching a new two-month low on Monday on better U.S. soybean shipments last week and improving global demand for U.S. soymeal and soyoil. Soybean crushings totaled 184.7 million bushels in December, USDA reported Monday. This confirmed expectations for the second-largest single monthly figure behind 187.0 million bushels crushed in October 2019. Monthly figures continue to gradually make up for a slow start thanks to much lower crush in September. Malaysian palm oil futures rose 2.3% on Tuesday as prospects of a steep drop in production helped prices. Dry weather and lower fertilizer use reduced output last year and are likely to lead to lower production this year. Malaysia expects palm oil demand from China to remain strong despite the epidemic as people who are forced to stay indoors eat more packaged foods such as instant noodles that use a lot of palm oil, the industry regulator said on Tuesday.   

Wheat: Futures see support fom firmer European prices overnight and improving global demand. Some concerns remain about how quickly Russian exporters will return to the markets after recent rising domestic prices reduced their competitive position.    

Cattle: Steady to firm
Hogs: Steady to firm

Cattle:  Futures seen steady to firmer. Cash cattle trade averaged $122.04 last week, which was down a little over $2 from the week prior, but a far lesser drop than futures saw last week. On Monday, futures gave some signs they were working to stabilize. February futures ended the day high-range and just slightly under the cash market. March feeders hold a $5-plus discount to the cash feeder cattle index, and prices for feeder steers climbed $1 to $6 at an Oklahoma City auction Monday. But the product market got off to a disappointing start. Choice slid $1.44 and Select plunged $3.24, with movement at a light 103 loads.

Hogs: Futures seen opening firm in rebound from new contract lows on Monday. Fears of economic fallout from the coronavirus have eased as China will need more imports of pork. The pork cutout value rose 27 cents on Monday while the cash hog prices in Iowa/Minnesota gained 19 cents and the national average prices jumping $1.15, a sign of improved packer demand despite slaughter jumping 14% last week above a year ago. China will sell 10,000 MT of frozen pork from its state reserves on Feb. 7, according to a notice on the website for the China Merchandise Reserve Management Center on Tuesday. The notice came amid the coronavirus outbreak in China, which has raised concerns over food supply. The state planner said earlier today China will arrange to release frozen pork whenever necessary.


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