Ahead of the Open: Wheat Extending Recovery; Corn, Soy Trending Weaker

Posted on Thu, 05/21/2020 - 05:28


Corn: Down 1 to 2 cents
Soybeans: Down 1 to 4 cents
Wheat: Up 3 to 5 cents.

GENERAL COMMENTS:  Soybeans and corn seen steady to weaker today on warmer midwest weather and regular showers. Underlying support remains the hope for new Chinese demand although the deteriorating U.S.-China relations has dampened trade optimism. Wheat continues its rebound amid rising crop risks in the U.S., EU and the Black Sea region. Rains are in the forecast maps again, but the coverage looks limited and will not offset the deficits that have been building. Cool temps have minimized the damage so far. Russia continues to see record high domestic wheat and flour prices and this does not look to change much until new crop supplies start to hit the market in July  Russia's IKAR agriculture consultancy said on Thursday it had cut its forecast for Russia's 2020 wheat crop to 76.2 MMT from 77.2 MMT, below USDA’s projection for 77 MMT.

The weekly export sales showed better soybean business, but in line with trade estimates. It also showed tepid wheat sales and disappointing corn exports. USDA said old-crop soybean sales rose 80% above the prior four-week average to 1.205 million metric tons (MMT) with new-crop sales at 464,000 MT. China was the top buyer with much of the business reported in the daily USDA updates. Soymeal sales were 59% above the prior four-week average. Corn sales fell 10% below the prior four-week average to 884,200 MT in the week ended May 14. However, new-crop corn business showed a net reduction of 29,400 MT. Old-crop wheat sales fell 39% below the four-week average as the season comes to a close. But new-crop sales were light at 252,400 MT.

The daily USDA export sales reporting service announced failed to announce any new large sales of grains or soybeans by private exporters this morning. The lack of new sales to China this morning may add to the negative tone in the corn and soybean markets this morning.  

China is expected to receive a shipment of U.S. ethanol later this month, which is likely the first such shipments since the two sides reached the Phase 1 trade deal. Ethanol was one of the beneficiaries of China’s tariff waivers, so the market has been on watch for shipments. The oil tanker SC Chongqing loaded a cargo of about 9,000 MT in Oman and is expected to arrive in China’s Jiangsu province Friday, according to Refinitiv shipping data. One of Reuters’ sources indicates the vessel was carrying ethanol that originated from the U.S. but had been resold to China. Several sources have confirmed the shipment, but there are differences regarding where and when the shipment is expected to arrive.

China will begin auctioning corn from its state reserves on May 28, the National Grain Trade Centre said yesterday. This move had been rumored earlier this week. NGTC’s notice detailed that 4 MMT of corn from the country’s northeastern Corn belt will be offered at the sale. Analysts expect weekly sales to occur through the end of October, when new-crop supplies arrive. Chinese corn supplies have been tightening amid better-than-expected demand, hence the auctions. The shift from back yard farming to large operations has also increased the country’s feed needs. Corn processors’ inventories stand at around 4 MMT, which is under 5.5 MMT at this time last year and under the three-year average, according to a report from COFCO Futures. Zhang Dalong, an analyst with COFCO, noted that it’s not clear how much corn the government plans to release, but the country is hoping to “whittle down inventories” and cool prices. Chinese purchases of U.S. soybeans and corn earlier this month had raised hopes of an acceleration in exports as part of a trade agreement, but a lull in new sales announcements has tempered market optimism this week.

Equity markets slipped on Thursday on concerns about the long-term impact of Covid-19 and simmering U.S.-China tensions, though those worries couldn't stop oil prices from marching to a 2-1/2 month high. Purchasing manager index surveys (PMIs) from Germany and France confirmed that economic activity has begun to return, though they were far from stellar. In Asia overnight, Japan's Nikkei stock index slid 0.2% after data there showed the country's exports collapsed 21.9% in April. Another dismal trade report came from Korea where 20-day exports declined by 20.3% year-on-year and imports fell by 16.9%. Shares in China lower after more sparring with Washington over the coronavirus and Hong Kong and Taiwan emerged. Friday's annual National People's Congress (NPC) meeting was also looming after a 2-1/2 month delay due to COVID-19.The focus will be on Premier Li Keqiang's 2020 work report where he is expected to announce key economic targets and details on fiscal stimulus plans.

President Donald Trump upped his attacks on China as the coronavirus continues to take a heavy toll in the U.S. Unusually, he targeted President Xi Jinping, without naming him, saying the disinformation comes "from the top." The White House released a broad critique of Beijing's economic and military polices without detailing any specific response from. The deterioration of relations between the world's two largest economies ahead of the start of China's annual parliamentary session on Friday has some traders increasingly worried the progress that led to the signing of the phase-one trade deal will be completely lost.

U.S. Secretary of State Mike Pompeo took fresh aim at China over the coronavirus on Wednesday, calling the $2 billion Beijing has pledged to fight the pandemic "paltry" compared with the hundreds of thousands of lives lost and trillions of dollars of damage. Pompeo rejected President Xi's claim that Beijing had acted with transparency after the outbreak in China, and said if Xi wanted to show that, he should hold a news conference and allow reporters to ask him anything they liked.

Meanwhile, the U.S. Senate passed legislation on Wednesday that could prevent some Chinese companies from listing their shares on U.S. exchanges unless they follow standards for U.S. audits and regulations. However, it must pass the House of Representatives and be signed by President Donald Trump to become law. The measure also would require public companies disclose whether they are owned or controlled by a foreign government. The bill is written to apply to all foreign companies, but it is targeted at China, and follows intense criticism from both Republican and Democratic lawmakers.

The hunt for a coronavirus vaccine intensifies. The United States has secured almost a third of AstraZeneca's one billion possible COVID-19 vaccine doses by pledging up to $1.2 billion, as the world's biggest powers scramble for medicinal supplies to get their economies back to work. While not proven to be effective against the coronavirus, vaccines are seen by many world leaders as the only real way to restart their stalled economies, and even to get an edge over global competitors. "This contract with AstraZeneca is a major milestone in Operation Warp Speed’s work toward a safe, effective, widely available vaccine by 2021," U.S. Health Secretary Alex Azar said. The U.S. deal allows a late-stage - Phase III - clinical trial of the vaccine with 30,000 people in the United States. AstraZeneca, based in Cambridge, England, said it had concluded agreements for at least 400 million doses of the vaccine and secured manufacturing capacity for one billion doses, with first deliveries due to begin in September. A Phase I/II clinical trial of AZD1222 began last month to assess safety, immunogenicity and efficacy in over 1,000 healthy volunteers aged 18 to 55 years across several trial centers in southern England. Data from the trial is expected shortly. Only a handful of the vaccines in development have advanced to human trials, an indicator of safety and efficacy, and the stage at which most fail.

CORN: July corn held support at the 20-day moving average overnight and stayed above Wednesday’s session low. The markets remains in a sideways range with support at $3.10 to $3.14 1/2 and resistance at $3.25 ½ to $3.31. Total DOE fuel ethanol production rebounded for the third straight week to 663,000 barrels per day, 100,000 bpd above the bottom four week ago, but still more than 400,000 bpd behind the comparable week last year. The last eight weeks of data, since output dipped below already depressed levels just above a 1.0 bpd, reduced the corn grind about 300 million bu. USDA has cut it 2019-20 corn use for ethanol by 475 million bu. in the last two months.

SOYBEANS:  July beans were locked inside of Wednesday’s range overnight after an early rally failed to take out yesterday’s high. Malaysian palm oil futures jumped over 2.2% on Thursday as the country pledged to bolster its trade ties with top palm importer India, while expectations of a rise in May exports also boosted sentiment. Top producers Indonesia and Malaysia announced plans to continue their respective biodiesel programs, alleviating concerns that the plans would be scrapped amid low crude prices.

WHEAT:  Wheat is trying to confirm an early seasonal low. High-range weekly close will be required to shift the trend higher. The Virtual Kansas Wheat Tour found an average yield of 42.5 bu. per acre for west-central Kansas, with southwest Kansas finding a lower average yield of 32.9 bu. per acre. Last year on Day 2, scouts measured an average yield of 47.6 bu. per acre for southwest Kansas. That brings the two-day virtual tour average to 42 bu. per acre for 2020. USDA is calling for an average Kansas yield of 47 bu. per acre this year. The group will produce a state crop forecast later today after touring south-central and southeast fields. Scouting in Oklahoma earlier this month produced an average crop projection near 96.5 million bu. crop. But the crop may be closer to 85 to 90 million bu., Mike Schulte of the Oklahoma Wheat Commission said yesterday on the call.  On May 12 USDA forecast a crop of 102.6 million bushels.


CATTLE: Steady to weak

HOGS: Steady to weak

USDA will release its Cold Storage Report for April at 2:00 p.m. CT today, with the report likely to get more scrutiny given Covid-19-related school and restaurant closures, a surge in job losses, government aid payments and major processing disruptions over the reporting period.  

Cattle:  Cattle may start defensive as weekly net export sales fell to a marketing-year low of 4,000 MT, 47% below the prior four-week average. Shipments also fell 16% below the four-week average.  Yesterday, live cattle moved to the bottom of their recent trading range, but feeder cattle dropped under last week’s lows. Backlogs of feeder cattle are reportedly quite severe, as limited processing in recent weeks has limited feedlot demand. Processing is picking up steam—quicker than many anticipated. An estimated 101,000 head were processed Wednesday, which is “just” 20,000 head under year-ago levels. The uptick helped cash prices to strengthen this week, with more sales taking place at $120 on Wednesday in Kansas, Texas and Nebraska. Beef cutouts were mixed yesterday with Choice down $5.43 but still well above $400 and select rebounded $2.31. Nearby futures remain stubbornly under the $100 per cwt. Mark and should provide support to futures. On Friday, USDA is set to release the April Cattle on Feed Report. Traders look for on feed numbers to fall about 5% from a year ago on May 1 as placements last month fell about 22% and marketings dropped 25% from last year.

Hogs: Futures seen weaker after USDA reported a net reduction of 5,800 MT last week as China canceled 12,600 MT. Shipments were a new high for the year at 49,700 MT, up 36% from the prior four-week average. China was the destination for 19,800 MT. Lean hog futures were choppy yesterday and more of the same should be expected today before the monthly cold storage report. Traders are uncertain whether the recent move to the downside was simply a correction or a signal of more pressure to come. Pork processing continues to improve, with Wednesday’s kill representing 84.8% of year-ago levels. The national average cash hog prices slumped 41 cents on Wednesday. However, wholesale pork cutout values rose $2.22 on strength in hams, ribs and loins. Sales were moderately active.