Ahead of the Open: Slightly Firmer Grains, Soy Ahead of Thursday's USDA Report; Livestock Seen Higher

Posted on Wed, 04/08/2020 - 07:31

ADVICE: Livestock producers: Extend soybean meal coverage… With futures near levels that have attracted value buyers since early February, the market is poised for a short-term upside rebound. We advise livestock producers to extend soybean meal coverage another six weeks in the cash market through the end of May.  

GRAIN CALLS

Corn:  Up 3 to 5 cents
Soybeans: Up 5 to 7 cents
Wheat: Up 4 to 7 cents

GENERAL COMMENTS: Corn, soybeans and wheat seen firmer. The markets are supported by slowly increasing global buying interest for U.S. supplies and slow U.S. planting progress amid colder and wetter weather forecasts. Forecasts are looking drier this morning for the bulk of the Brazilian safrinha corn areas, increasing issues for developing crops. Corn may struggle with new weekly Ethanol production and inventory data at 9:30 CT this morning.

This morning’s daily USDA export sales reporting service announced no new large sales of grain or soybeans. More Chinese purchases are needed to push prices higher. Thursday’s weekly export sales report will be closely examined for signs of improving business.   

Thursday’s USDA WASDE Report will implement the March 1 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.  The agency announced Tuesday that it would resurvey farmers in Michigan, Minnesota, South Dakota and Wisconsin who reported unharvested 2019 corn and/or soybean acreage and publish adjustments in its May 12 crop production report, if warranted. USDA also said producers in North Dakota would be contacted later for new harvest data.  

Covid-19 statistics continue to offer reasons to be cautious. Italy reported its fewest new infections since March 13 as the government considers easing some containment measures, while France recorded fewer new cases too, even as the total number of deaths rose sharply and Paris banned daytime outdoor exercise. U.K. science chiefs are hopeful about the infection rate in Britain too, even as daily deaths hit a new high. Spain, however, reported an increase in both daily fatalities and new cases. Over in China, the exodus from Wuhan is underway after the government relaxed its months-long lockdown. However, the total death toll in the U.S. from coronavirus rose sharply to more than 12,900, according to data compiled by Johns Hopkins University. Confirmed infections in the U.S. neared 400,000, more than double the number of any other nation. New York, New Jersey, Louisiana and Illinois reported their highest daily number of coronavirus deaths

The White House is developing plans to get the U.S. economy back in action that depend on testing far more Americans for the coronavirus than has been possible to date, according to Bloomberg News, citing people familiar with the matter. The effort would likely begin in smaller cities and towns in states that haven’t yet been heavily hit by the virus. Cities such as New York, Detroit, New Orleans and other places the president has described as “hot spots” would remain shuttered.

Economists at RBC Capital Markets calculate that most of the workers laid off thus far were relatively low-income and therefore will likely receive more money through direct-payment checks and scaled-up unemployment insurance than from their prior wages.

European stock futures are slightly lower as equities in Asia ended a two-day rally. In the U.S., the S&P 500 rocketed into a new bull market, at least technically, but closed lower Tuesday and are looking slightly higher this morning. While President Donald Trump may waver on the quickest way to return the U.S. economy to health, investors are most reassured by a flattening curve. Oil is still a major focus as investors weigh whether output cuts being discussed by the world’s top producers will be enough to offset demand destruction.  

Technical traders will be keeping an especially close eye on U.S. equity futures Wednesday after a bearish pattern formed in S&P 500 contracts on Tuesday. Front-month futures gave up gains of as much as 4% to close lower Tuesday, which can often signal the end of an uptrend if it’s followed by further weakness. The bearish reversal came just as the U.S. equity benchmark briefly met the technical definition of a bull market -- a gain of 20% from its March low.  

CORN:  Futures are supported by increased Asia buying of U.S. corn this week. The weakness in ethanol demand continues to weigh on cash and futures ahead of the OPEC+ video conference tomorrow. Brazil's chicken and pork processors will need to import corn starting in May as domestic prices of the cereal are historically high, according to projections by meat lobby group ABPA. The country will likely first turn to Argentina and Paraguay. While Brazil sometimes brings in corn from the United States, the record devaluation of the real against the dollar makes U.S. supplies less attractive. Meanwhile, Ukrainian corn export prices have lost $2-$4 per MT in the past few days amid some strengthening of the hryvnia currency and a decrease in domestic demand, APK-Inform agriculture consultancy said Wednesday

SOYBEANS: May soybeans are testing the 20-day moving average this morning and a close above $8.61 would be positive but stronger resistance is at $8.90. China has released another 500,000 MT of soybeans from its state reserves for state-owned COFCO to use for commercial crushing, according to two sources cited by Reuters. Recent heavy rains slowed shipments of the oilseed from Brazil, dropping Chinese soybean inventories to record lows and forcing some plants to idle operations. The reserve beans should help major crushing firms to sustain soybean meal production until big supplies arrive from Brazil later this month.  Shipping data from Williams indicates Brazil exported a record-high 12.6 MMT of soybeans during March, with at least 60% of those beans heading for China. China may go from shortage to surplus.  Meanwhile, Malaysia's biggest palm oil-producing state, Sabah, will continue to close palm operations in six districts as part of its coronavirus containment measures until it has enough details that the plantations and mills are safe to reopen.

WHEAT: Futures are resuming a recent firming trend on technical buying and speculation demand for U.S. supplies will increase. Kazakhstan plans on increasing its monthly export quotas from wheat and flour from their current levels of 200,000 MT and 70,000 MT, respectively, says Deputy Ag Minister Aidarbek Saparov. He provided no details about how much larger the new quotas would be. The country enacted these quotas last month amid the coronavirus outbreak.

LIVESTOCK 
CATTLE:  Firm
HOGS: Firm

Hours after a labor union reported what may be the first poultry-worker deaths associated with the coronavirus in the U.S. on Thursday, Vice President Pence urged American food workers to continue to “show up and do your job” and said their work was vital. The Retail, Wholesale and Department Store Union that represents thousands of poultry-processing workers across the southern U.S. reported that two members at a Tyson Foods facility in Camilla, Ga., died from the virus.

Cattle: Futures are should build on limit up gains today but slower slaughter this week may cap rallies despite the continued wide discount to cash markets. Expanded limits of $4.50 for live cattle and $6.75 for feeder cattle will be in effect today. Some light cash cattle action got underway at $105 in Kansas and Nebraska yesterday, down roughly $6 from last week’s average price. Average slaughter weights have been up sharply from year-ago. Boxed beef prices were mixed yesterday, with Choice sliding $2.17 and Select rising $2.72. Value-conscious consumers amid the economic crisis are likely to turn to lower-graded meat, which could help Select values to stabilize. Yesterday’s movement also picked up notably to 162 loads.

Hogs: Futures seen adding to limit up gains Tuesday with daily trading limits expanding to $4.50 today. Futures’ wide discount to the cash market triggered aggressive covering of short positions on Tuesday, with more volatile price moves likely near-term. The rally came despite confirmation of fears that Covid-19 would slow processing at the nation’s meat plants. The pork cutout value dropped another $2.96 yesterday, but movement was again impressive at 439.8 loads. Average hog weights fell last week in Iowa/Minnesota from both a week earlier and a year ago. However, slaughter is down 25,000 head from a week ago and up only 5,000 head from a year earlier, so weight may start to rise. China will auction off another 20,000 MT of frozen pork from its state reserves on April 10. The country has released 250,000 MT of pork from its reserves this year to ease supply tightness in the wake of an African swine fever outbreak.