Ahead of the Open: Grains, Soy Seen Weak to Start New Quarter on Big Supply Concerns

Posted on Wed, 04/01/2020 - 07:00

GRAIN CALLS

Corn: Down 4 to 6 cents
Soybeans: Down 8 to 13 cents
Wheat: Down 5 to 10 cents.

GENERAL COMMENTS:   It’s the start of a new month and quarter and funds appear to be setting new short positions after Tuesday’s USDA reports failed to provide a strong new bullish input. Managed funds cut net shorts and even starting to buy in soybean, soymeal and wheat in March. USDA reports showed smaller March 1 inventories, but farmers signaled they would plant more acres this year than expected. Lower US soybean and wheat acres could be supportive but the renewed weakness in the  financial and energy markets on demand fears from the Covid-19 virus curbs buying interest in the ag markets. Despite the lower prices, the USDA projected that 10 major crops will make a stellar recovery in acreage. Of the 10 major crops, U.S. growers reclaimed 15.3 million acres. This brings the 10 major crop intentions to their highest level since 2015.

However, the pandemic could lead to longer lasting changes in the grain market. Countries that rely on imported grains to feed their populations may build larger strategic food reserves and become less reliant on a just-in-time stream of imports. Countries right now are showing that they want to import sufficient stockpiles in case there's a lockdown of shipments from exporting nations. However, trade sentiment wants to see that buying sustained over several months and result in better U.S. sales to lift futures.

This morning’s daily USDA export sales reporting service did not announce any new large private exporters sales during the past 24 hours. The lack of new sales on a report day is not a surprise. Daily sales are key to stabilizing the weakness developing this month if plantings get off to a good start.

Economic recession worries remain front and center. Factories fell quiet across most of Europe and Asia in March as the coronavirus pandemic paralyzed economic activity, with evidence mounting that the world is sliding into deep recession. Manufacturing activity has tumbled, purchasing managers' index (PMI) surveys showed on Wednesday, with sharp slowdowns in export powerhouses like Germany and Japan overshadowing a modest improvement in China. The virus pandemic has infected more than 850,000 people around the globe and forced factories, shops and schools to close amid government-imposed lockdowns.

Wall Street stock futures were sharply lower overnight, following stark predictions of a rising U.S. death toll and economic damage from the coronavirus outbreak. European shares tumbled on fears of a deep global recession. Japan’s Nikkei plummeted as investors braced for a potential lockdown of Tokyo, and sharp cuts in corporate earnings and dividend payouts. The dollar rallied against riskier currencies, while gold rose on safe-haven demand. Brent crude prices slid on oversupply concerns. The yield on 10-year U.S. Treasuries slipped 0.09 percentage points to 0.613% and trading just above the record lows hit on March 9.

President Donald Trump has signed off on a plan to defer U.S. tariffs on goods from countries with most-favored nation status for three months, to help ease the economic fallout of the coronavirus, but there are no signs of easing Chinese tariffs.

World oil production to fall by 10 million barrels a day, according to consultancy IHS Markit. The price crash, free-falling demand, and a lack of storage will cause world oil production to decline by up to 10 million barrels per day from April through June. Corn and soybean oil remain tied to the weakness in oil prices. 

U.S. biodiesel production rose to 134 million gallons in January from 133 million gallons a month earlier, the U.S. Energy Information Administration said in a report on Tuesday. Soybean oil remained the largest biodiesel feedstock, with 521 million lbs. used in January. In December, soyoil used in biodiesel production was 541 million lbs.

CORN:  Futures are sitting just above the contract lows from March 18.  March 1 U.S. corn stocks came in around 175 million bushels below the average trade expectation at 7.953 billion bu., that’s down a full 660 million bu. from last year but still the fourth-highest March 1 total since 1987. Chinese corn futures fell overnight but cash markets continue to rise.  The spread between the north and south cash prices is getting narrower which makes it more economical to import corn. Prices near are above $7.30 compared with U.S. prices closer to $3.30.

SOYBEANS: May fell overnight to a four-session low, failing to hold gains above the 40-day moving average. Chinese Dalian soybean futures fell 1.2% overnight but cash prices continue to firm and trading near $19 a bushel. Dalian soybean meal futures tumbled 3.1% last night, erasing last week’s gain, on increasing Brazilian soybean deliveries.  Brazilian soybean exports in March are on track to hit a record 13.1 million tons, Lucas de Brito, an executive at the National Association of Cereal Exporters (Anec), told Reuters on Tuesday. That would break the previous monthly record of around 12 MMT

WHEAT: Futures slid to a five-session low overnight on fund long liquidation. However, look for prices to uncover support on weakness as U.S. planted acreage will fall to the lowest  over a century. Dryness in the Black Sea is offering a bid for world wheat futures and will become more important after the Easter Holiday  

LIVESTOCK 
CATTLE: Steady to weak
HOGS: Steady to lower

Cattle: Futures seen steady to weak after wholesale beef prices plunged on Tuesday. Choice fell $7.82 and now down more than $14 from the peak last week. Select tumbled $9.18 yesterday on overall light sales. Prices remain well above last fall’s highs. Slaughter slowed to 236,000 head the first two days of the week from 240,00 last year. Live and feeder cattle futures posted sharp to limit gains on Tuesday, an encouraging shift from similar losses in recent days. Limits for live cattle expand to $4.50 tomorrow. Look for support to emerge on early weakness from the futures wide discount to last week’s cash cattle trade that averaged around $119. Early expectations are for a bit of a pullback in cash prices. Packers continue to enjoy eye-popping profit margins of $422.25 a head as of yesterday, according to HedgersEdge.com.       

Hogs: Futures seen steady to weaker after falling to new lows on Tuesday. However, prices did bounce off the early lows yesterday and those levels will be key support in the near term for any base-building price action. Wholesale pork values plummeted $5.67 with every cut marked lower and the cutout value falling to the lowest since Feb. 28. Sales were modest despite the lower prices. Cash hogs fell 82 cents on Tuesday. Slaughter is slowing, up 3.6% from a year ago during the first two days of this week. China detected a new case of African swine fever in piglets transported to Sichuan from outside the province, the agriculture ministry said on Wednesday. China reported several new cases of the deadly African swine fever disease in March. China will auction another 20,000 MT of pork tomorrow. New Hope, a Chinese feed and meat company, saw its stock trade into new all-time highs today after they reported 2019 net profit up 195.8%. They said they were looking to raise 4 billion RMB in capital for hog breeding projects. The revenue of the hog business was up 132.2% from a year ago.