Ahead of the Open: More Sideways, Choppy Trade Ahead of the Weekend, USDA Report on Feb. 11

Posted on 02/07/2020 4:48 AM

Grain Calls

Corn: Up  1-2 cents
Soybeans: Mixed-firm
Wheat: Steady to up 2 cents

GENERAL COMMENTS:  Soybean seen mixed to start the day session after trading both side of unchanged overnight but still heading for the first gain in four weeks. Traders sought a clearer picture on the impact of a coronavirus outbreak in China and awaited Chinese imports under a trade deal with Washington. Corn is seen firmer after two days of declines after bouncing off support yesterday to pare intraday declines. Wheat is steady to firm on underlying technical support.

The markets are also cautious ahead of the USDA WASDE Report on Feb. 11. The agencies chief economist said on Thursday its monthly supply and demand estimates would factor in the broad goals of the U.S.-Chinese trade deal but not details of China's purchase commitments.  A stronger dollar adds to worries about U.S. export sales going forward.

The USDA daily export sales reporting services said private exporters did not report any new large U.S. grain or soybean sales this morning. While not unexpected, that will be a mildly negative factor when futures reopen.

U.S. job growth accelerated in January, with unseasonably mild temperatures boosting hiring in weather-sensitive sectors, indicating the economy will probably continue to grow moderately despite a deepening slump in business investment. Nonfarm payrolls increased by 225,000 jobs last month, more than the 160,000 expected. Average hourly earnings increased seven cents, or 0.2%, last month. That lifted the annual increase in wages to 3.1% in January. The job and wage growth bode well for solid consumer spending and that is bullish for meat and feed demand into 2020.

A volatile week in global financial markets seems set to end on a down note as gauges pull back this morning. The human toll from the coronavirus continues to rise with 636 dead and over 31,000 confirmed cases in China. The economic fallout and public anger are also spreading.

The Chinese doctor who was reprimanded after warning in December about the then-unidentified virus died from the disease. His death prompted a rare online revolt in China. Chinese authorities pledged “thorough investigations” into the death, as public anger built across the country over the government’s handling of the epidemic.

The White House reported that President Donald Trump and President Xi Jinping agreed during a phone call “to continue extensive communication and cooperation between both sides.” The presidents also “reaffirmed their commitment to its implementation,” the release said.

China’s state-planner says it has coordinated with state-owned ag conglomerates COFCO and Sinograin to increase supplies of meat, rice, flour and edible oils the Hubei province and its capital city of Wuhan, the epicenter of the coronavirus. China will move 2,000 MT of frozen pork from its state reserves to Wuhan, China's National Development and Reform Commission said today.

Meanwhile, fall army worm outbreak has impacted around 422 acres of wheat in Sichuan during 2019, Xinhua news reports, but the large base of the pest has officials warning the destructive pest could damage 1.3 million acres in the province if it is not controlled properly. China’s National Agriculture Technology Extension Service Center estimates the pest that first hit China in January 2019 has damaged roughly 2.5 million acres of farmland, with corn and sugarcane seeing the bulk of the damage. Fall armyworm is expected to hit more crops across wider areas this year, including key corn-producing areas in the northeast.

Corn: March futures are at critical juncture after successfully testing support yesterday and paring losses.  A close above $3.81 ¼, last week’s close, would be a positive. A close above $3.85 in the near term would be bullish. Prices are seen opening near $3.81 ½ this morning. The March discount to July futures narrowed to 8 cents overnight up from a discount of 10.75 cents a week ago. Narrowing spreads is bullish with cash basis remaining firm. 

Soybeans: Futures are heading for the first gain in four weeks after falling to the lowest since May. The market has not provided any new bullish signals. Most of Argentina’s soybean crop has optimal soil moisture as earlier planted crops begins their key pod-filling stage, the Buenos Aires Grains Exchange reported. The exchange said that at this point its “yield expectations are above the average seen in recent seasons.” The exchange expects production of 53.1 MMT this season, above estimates earlier in the season but still down 2 MMT from 2018-19.

Wheat: Futures are following Paris wheat slightly higher after dropping to a four-session low overnight. Russia may ship less than 32 MMT abroad this season as factors such as the China coronavirus outbreak make domestic sales a better option for farmers, the IKAR consultancy said on Friday.  IKAR said Russian wheat prices had started to "drastically fall" over the last couple of weeks. Earlier, IKAR expected exports to slip 33.5 MMT, down from 35.2 MMT a year ago. France exported 1.2 MMT of wheat outside the European Union in December, hitting a new high for the 2019-20 marketing year that started in July. France harvested its second largest crop on record, which has helped push its soft wheat exports outside of the bloc up 19% from year-ago to 5.2 MMT.

Cattle: Steady to firm
Hogs: Higher

Cattle:  Cattle futures rallied back from steep losses to close slightly higher, following the surge higher in hogs yesterday. Futures seen trying to build on yesterday’s rally, but cash markets remain weak. Cash cattle trade took place in the Iowa/Minnesota market yesterday at prices ranging from $119.50 to $122, steady to lower compared to action earlier in the week and trade last week, but volume has still been quite light. Nebraska also saw a light test at $123, a buck lower than last week. But all remains quiet out of Texas and Kansas. Wholesale beef was mixed with Choice up 21 cents and Select down $1.98 on light to moderate sales. Slaughter this week is up 9,000 head from a year ago and 1,000 head from a week ago.

Hogs: Futures seen opening higher after closing sharply higher to mostly limit up yesterday.  Daily limits expand to $4.50 today. A gap higher opening this morning could create a bullish island bottom patter on the daily charts. Look for prices to remain support by China buying speculation. Tyson Chief Executive Noel White told analysts on an earnings call yesterday that China pork orders are up nearly 600% in the first quarter, reigniting trader bullish enthusiasm. After tumbling more than $3 on Wednesday, the U.S. average cash hog price inched back 28 cents yesterday. Wholesale pork cutout values also eked out a 5-cent gain on strength in bellies and ribs. Slaughter this week is up 132,000, or 7.1%, from a year ago and down 3,000 head from last week. China’s largest hog producer says average hog selling prices rose 142% in January. Another sign that China is going to need increasing import supplies to meet domestic demand.  

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