Ahead of the Open: More Sideways, Choppy Trade Waiting for Chinese Buying

Posted on 02/14/2020 7:25 AM

GRAIN CALLS

Corn: Mixed
Soybeans: Steady to mixed
Wheat: Steady to up 2 cents.

GENERAL COMMENTS: Soybean futures may add to a second week of gains on short covering on uncertainty whether China will soon step up purchase of U.S. beans. Wheat is trying to pare its week loss to start today but weaker world prices amid ample world supplies will weigh on the market. Corn has been trading both sides of unchanged overnight, again testing underlying support on hopes for China to announce reduced tariffs for U.S. corn, DDGs and ethanol as the U.S.-/China Phase 1 trade agreement was due to go into effect 30 days after its Jan. 15 signing.

USDA’s daily export sales reporting service did not report any new large grain or soybean sales this morning. Bulls will be looking for new China buying to surface next week.

Craig Allen, president of the U.S.-China Business Council (USCBC) said yesterday that he was confident that China will still meet its "Phase 1" trade deal commitments to massively increase purchases of U.S. goods and services despite the coronavirus crisis that may only impact the timing of the purchases. China has pledged to increase U.S. goods purchases by $77 billion in 2020 and by $123 billion by 2021, including $40 billion of U.S. farm goods.

However, the U.S. charged Huawei with racketeering and conspiring to steal trade secrets, escalating its fight with the Chinese telecommunications company. In a federal indictment, the Justice Department accused the company and two of its subsidiaries of a “pattern of racketeering activity” and stealing information from six U.S. companies, including source code and manuals for wireless technology, going back to 1999. The Trump administration says Huawei poses a national security risk as it supplies 5G networks around the world.

Agricultural, commodity and financial markets remain nervous about the eventual impact coronavirus will have on China and world economic growth. The number of infections from the virus in China rose to 63,851 with the death toll standing at 1,380. Authorities in Beijing said they would welcome U.S. participation in a joint mission with the World Health Organization after Director of the National Economic Council Larry Kudlow said he is disappointed with China’s transparency over the outbreak. Industries are continuing to suffer from the shutdown in the hardest hit areas, with Mattel Inc. among the latest to warn of production delays. Europe’s largest economy stagnated in the fourth quarter, with Germany showing growth of only 0.6% for the whole of 2019. Growth across the euro area was 0.1% in the final quarter of 2019 and 1.2% for the year. There was some positive news in this morning’s release: The EU showed continued strength in the labor market, with total employment expanding 0.3%.

There’s little of the volatility seen in recent weeks on display in global equity markets this morning. The MSCI Asia Pacific Index was down 0.1% overnight, while Japan’s Topix index closed 0.6% lower after the country confirmed its first death from coronavirus. The S&P 500 and Nasdaq futures, along with European shares hit record highs overnight as investors across geographies assessed whether the coronavirus outbreak would cause long lasting damage to global economy. Dollar buying improved amid the virus fear, while gold prices were little changed. Hopes of impact of the virus being short-lived pushed oil prices higher.  

Corn:  March corn futures opened lower last night and retest this week’s lows before rebounding back in the green. Prices slipped back to near the opening range before the break. Look underlying demand to surface on any early weakness. China has sold 1.32 MMT of corn to feed processing firms in southern provinces to ensure their supplies, the state planner said on Friday A total of 23 feed providers in the coronavirus epicenter Hubei province engaged in the auction during Feb.7-11, according to the National Development and Reform Commission (NDRC). Some poultry farmers in Hubei province had to destroy young birds due to a lack of feed caused by transport restrictions amid the coronavirus outbreak.

Soy: March beans tried to test Thursday’s low but failed to generate much buying interest last night. The market is poised for a second weekly gain with the daily momentum pointing higher and shorts on alert for the potential for new Chinese soybean purchases next weekMalaysian palm oil futures rebounded on Friday, paring its weekly drop as concerns continues about lower demand from both China and India. Earlier in the session, the contract touched its lowest since Feb. 3. The monthly National Oilseed Processors Association (NOPA) report due next Tuesday is expected to soybean crush rose to 173.748 million bu. in January, up from 171.630 million a year earlier. It would be the largest January crush and the third largest for any month. Crush estimates ranged from 171.000 million to 176.980 million bushels, with a median estimate of 174.000 million bushels. Soyoil supplies among NOPA members at the end of January were seen rising to 1.782 billion pounds, up from 1.757 billion at the end of December and 1.549 billion at the end of January 2019, according to a Reuters survey of analysts.

Wheat: Futures are paring this week’s declines, but funds require a fresh incentive to add to long positions. Russia could harvest 128 MMT of grain in 2020, general director of the ProZerno analytical center Vladimir Petrichenko said in a presentation at the Grain of Russia agricultural forum in Krasnodar on Friday. In January he said he expected a crop of 124 MMT to 125 MMT. Gross wheat output in 2020 could total 78.744 MMT, up 5.9% compared to 2019. Petrichenko said in the presentation.  Gross corn output could total 15.8 MMT, up from 13.929 MMT harvested in 2019. "We could see a record or near-record corn harvest of 15.8 MMT," the expert said. FranceAgriMer said in a cereal crop report that 65% of winter wheat was in good or excellent condition by Feb. 10. That was stable versus a week earlier but down from 73% in FranceAgriMer's previous report in early December and 85% in the corresponding week last year.  France's farm ministry this week reduced slightly its estimate of the winter soft wheat area for this year's harvest, putting it down 5.6% from last year.

LIVESTOCK

CATTLE: Steady to firm

HOGS: Steady to firm

Cattle: Cattle futures posted a solid rally Thursday and finished high range, which could lead to followthrough buying today. The market has been on the hunt for a bottom, but softer cash cattle trade, steady to lower boxed beef action and lackluster load counts have done little to excite market bulls. But big slaughter numbers so far this year have helped clean up market-ready supplies, which could signal a cash market low is near. 
Hogs: The cash hog market should be nearing a low, and recent sharp losses in bellies, hams and loins have sparked some value buying. This signals the lean hog market has likely put in a low, though the market has tested underlying support in recent days. Cash hog bids gained 28 cents Thursday, but the pork cutout value dropped 86 cents, with bellies dropping $5.97. Weekly pork exports remained strong last week at 94.5 million lbs., or more than double last year. Sales to China remain slow, while 30% of total US exports were shipped to China last week.

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