Ahead of the Bell: Wheat Rallies on Demand, Corn, Soybeans Slump on Biofuel Weakness

Posted on Mon, 04/06/2020 - 05:18

GRAIN CALLS

Corn:  Down 2 to 4 cents
Soybeans: Down 2 to 5 cents
Wheat:  Up 8 to 12 cents

GENERAL COMMENTS: Corn futures heading for a seventh straight decline after touching the lowest since September 2016 overnight as a renewed slump in crude oil prices threatens to continue sap demand for the grain-based fuel ethanol. Soybeans slid to a two-week low, with prices weighed down by a bumper, albeit slightly smaller South American harvest and a lack of Chinese purchases of U.S. supplies. Oil prices slipped more than $1 a barrel on Monday, after the world's top producers delayed a meeting to discuss output cuts to Thursday that could partly alleviate oversupply in global markets as the coronavirus pandemic pummels demand. There was additional pressure on corn prices stemming from expectations of a large U.S. crop. Wheat futures are expected to rise for a second session on signs of increased demand.

This morning’s daily USDA export sales reporting service announced no large sales of grain or soybeans. On Friday, USDA reported private exporters sold 567,000 (MT) China, mostly for shipment after the fall harvest.

U.S. weather is less wet this week than the forecasts going home on Friday as warm temperatures will be warm. The risk is that much cooler temperatures will follow into late April, including some below freezing temperatures into the central Great Plains. Storms will begin sweeping in the northwest and it will remain wet in the Delta and Southeast. Russia and Ukraine are still dry in the southern areas with dryness also developing into Europe. But Brazil’s safrinha crops are forecast for some beneficial rain this week, adding to the pressure in the corn market.

We have a USDA report out on Thursday that will implement the stocks report into its numbers, but the markets are looking for slightly bearish U.S. corn ending stocks and mostly steady soybean and wheat ending stocks from a month ago. Traders will also be watching the expected crop cuts in South America from USDA and Brazil’s Conab on Thursday. 

On the COT report, large specs were larger net buyers in beans than expected in the week ended March 31, net buyers in the corn instead of the expected large net sellers, and larger net buyers in the wheat than had been expected.   But serious demand concerns across all markets turned them back into sellers late last week, and open interest has made a marked decline from normal levels amid coronavirus uncertainties. Combined open interest across Chicago corn, wheat and soybean futures and options in 2020 had looked very similar to the previous year through the end of February, but that changed in early March as the impacts of the virus were becoming more apparent. That combined number as of March 31 was 3,169,793 contracts, down 14% from the same week a year earlier and a six-year low for the date.  Funds’ net buying streak in meal extended to five weeks, buying a total of 126,731 futures and options contracts, the most ever for a five-week period. But meal futures crashed almost 6% over the last three sessions, the largest three-day fall since July 2017.  

World stock markets jumped overnight, encouraged by a slowing in coronavirus-related deaths and new cases. Europe’s four worst-hit countries reported declines in the pace of coronavirus deaths. Italy recorded its lowest daily number in two and a half weeks while Spain’s toll declined for a third straight day and fatalities also dropped in the U.K. and France. In the U.S., New York reported its first decline in daily deaths. Andrew Cuomo, the state’s governor, warned Sunday it was too soon to tell if the number of cases had peaked in New York. The U.S. surgeon general also warned that the coming weeks would prove to be “our Pearl Harbor.” U.S. health officials are telling citizens to brace for a challenging week, as infections are expected to hit a peak in many cities, including New York, Detroit, and New Orleans. Japanese Prime Minister Shinzo Abe pledged on Monday to roll out an unprecedented economic stimulus package, equal to 20% of economic outputs, joining the U.S. to take all steps to help to boost the economy from the Covid-19 outbreak.

CORN:  Futures extended last week’s drop to fresh contract lows in old-crop futures, December futures held above its contract low. Corn demand and basis is falling at U.S. ethanol plants. The biofuel sector sent a letter to USDA Secretary Sonny Perdue, urging USDA Commodity Credit Corporation assistance. The letter says approximately 3.5 billion gallons of annualized ethanol production has been idled since March 1, equaling 1.2 billion bushels of annualized corn demand.

SOYBEANS: May futures fell to the lowest since March 20 overnight on a combination of technical selling and worries about demand. Brazil shipped 3.35 MMT of soybeans last week. That is down from last week’s weekly record, but up 829,000 MT from year ago.  There were no exports reported from Argentina last week. Bottlenecks recently hobbling Argentine agricultural exports started to clear on Friday, despite measures by some mayors defying an order exempting overland freight and other trade activities from a nationwide lockdown to slow the coronavirus. A slowdown in commodities shipments from Argentina, the world's No. 3 soybean and corn exporter and top supplier of soymeal livestock feed, threatens to distort global trade flows as buyers look to rival grains exporting powerhouses Brazil and the United States to fill the supply gaps. Argentine grains inspectors and port workers have threatened to strike unless a temporary suspension of exports is called. But the government, keenly aware that food is the country's top source of export dollars as it struggles to avoid defaulting on tens of billions of dollars in dollar-denominated sovereign debt, has ordered the workers to stay on the job for now. Malaysian palm oil futures ended higher on Monday, snapping a four-day losing streak, as cargo surveyor data showed better-than-expected exports for the first five days of this month. Palm prices fell 5.6% last week on demand worries as more countries, including top buyer India, closed businesses and imposed lockdowns to stem the spread of the coronavirus. Palm oil exports during April 1-5 rose 10.6% from a month earlier.

WHEAT: Futures are looking for increased global demand for stock rebuilding. The emerging supply-chain disruptions are much different than the food crises of 2007-2008 and 2010-2012, when droughts in grain-producing nations caused shortages that led to higher prices, unrest and riots in several countries. Those price spikes were driven in part by state hoarding of rice and other staples. Now, staple grain supplies are relatively plentiful, but some exporter have announced quotas or bans on shipments. Indian rice traders have stopped signing new export contracts amid the nationwide lockdown to curb the spread of coronavirus, as labor shortages and logistics disruptions have hampered the delivery of even existing contracts, industry officials said. The halt in exports from the world's biggest exporter is allowing rival countries such as Thailand to raise shipments in the short term and lift global prices, forcing millions of poor consumers in Africa to pay higher prices. "Shipments have stalled as transport has become very difficult because of the lockdown.  Meanwhile, Egypt, the world's largest wheat importer, is considering changes to the way it buys the grain ahead of an anticipated purchase to boost strategic reserves, aiming to reduce trade risks arising from any possible export curbs by suppliers. Egypt's President Abdel Fattah al-Sisi had encouraged authorities to boost the country's reserves of strategic commodities last week amid rising global fears for food supplies due to the coronavirus pandemic. GASC had issued an international purchase tender for wheat on Wednesday and promptly cancelled it, a move that baffled traders who are now expecting the buyer to come back into the market seeking the grain soon.  

LIVESTOCK 
CATTLE: Lower
HOGS: Lower

Cattle: Futures expected lower on weakness in cash markets expected to continue this week. Cash prices slumped as last week progressed, with packers securing cattle at $105 at weeks’ end versus $112 to $113 earlier in the week and $119 the week prior. Live cattle limits remain expanded to $4.50 today, while feeder cattle limits revert to $4.50. This is still well above where futures start the week. The boxed beef price slide continues to show no sign of fading, with Choice dropping $2.20 and Select plunging $6.28 at week’s end. Movement remained light at 110 loads. Slaughter slowed 7.4% last week, with the kill coming in near in line with year-ago levels.  

Hogs: Futures seen on the defensive to start this week. Lean hog futures limits remain expanded to $4.50 as all but far deferred months faced heavy pressure on Friday, with several contracts settling at or near limit lower. The pork cutout value dropped $1.84 Friday, but recent heavy pressure was enough to spur some good product movement, with 403.45 loads changing hands on Friday. Slaughter slowed last week, dropping 6.9% from the week prior to 2.565 million head, which is up 4.1% from year-ago.