Ahead of the Open: Look For A Quiet Trade Ahead of the Weekend, USDA Reports Next Week

Posted on Fri, 06/26/2020 - 08:16

GRAIN CALLS

Corn: Steady 

Soybeans: Down 1 to 2 cents

Wheat: Down 1 to 3 cents

GENERAL COMMENTS: Corn futures on Friday may eke out a small gain on profit taking, halting a four-day drop this week. Still, the market is poised for a weekly decline with mostly beneficial U.S. weather lifting expectations of a bumper harvest. Rains are falling again today from Nebraska and South Dakota to Wisconsin and Indiana. Soybeans are set to end the week lower, halting a four-week rally on Midwest rain and concerns about the lack of confirmations of new Chinese business. Wheat remained pressured by the advancing Northern Hemisphere winter wheat harvests. Investor concerns about rising coronavirus outbreaks worldwide leading to fresh lockdown measures are keeping pressure on commodities. Oil prices erased earlier gains and are now down more than 1%.

The markets are likely to be quiet today with the USDA schedule to release its update on U.S. acreage and June 1 quarterly inventories. These reports have a history of producing surprises, both bullish and bearish.

Weather forecasts lean negative for the market. The next two weeks will change from scattered showers and thunderstorms in many Midwestern, northern Plains, Delta and southeastern states in this first week of the outlook to rain that is mostly confined to the northern Plains, upper Midwest and Great Lakes region and in the Gulf of Mexico coastal states in week two. Areas in between and in the southern Plains will likely experience a more limited rainfall pattern during the second week of the outlook and these second week trends could prevail into week three, according to World Weather Inc. Some net drying may eventually develop in the lower Midwest and in the south half of the Plains in early July but it not a major concern today.

Drying soils in France will continue as rainfall is limited for the next ten days. Some expansion of the drying trend into Germany and Poland may occur during the second week of the outlook. Crop conditions in eastern Ukraine and Russia’s Southern Region looks to be quite dry into July which may promote quick winter wheat maturation and eventual good harvest conditions, but summer crops in the region will become more seriously stressed over time.

This morning’s daily USDA export sales reporting program announced private exporters sold 132,000 metric tons (MT) of soybeans to China for new-crop delivery. That confirms reports of light purchases earlier this week but not large enough to provide much support. USDA announced that 203,500 MT of sorghum were sold during the past week to unknown destinations with 135,500 MT sold for old-crop delivery and 68,000 sold for delivery in the 2020-21 season. 

Brazilian grain exporters should not give China the guarantees it requested that their cargoes are free of the novel coronavirus, as that would require extensive testing, according to ANEC, an association representing local grain traders. The exporters' response to the Chinese request will emphasize that there is no evidence the coronavirus can be transmitted by food, Marcos Amorim, director of ANEC's contract committee, said during a webinar hosted by law firm Mattos Engelberg on Thursday. ANEC's members include U.S.-based Cargill and China's Cofco, as well as many of the world's major agricultural commodity traders. As for exporters declaring they comply with Chinese laws, ANEC recommends against doing so.  "The Brazilian exporter cannot declare this because they do not know [Chinese laws]," he added. "Even the largest companies do not know."

Global stocks are pushing higher despite rising Covid-19 cases in the U.S. dampening optimism for a quick economic recovering. The MSCI world equity index, which tracks shares in 49 countries, was up 0.4%, extending gains from late on Thursday. Investors seem to be counting on policy makers to cushion any blow from the pandemic. However, U.S. stocks futures point to a lower opening on Wall St.

U.S. consumer spending rebounded sharply in May, but the gains are not likely to be sustainable, with income dropping and expected to decline further as millions lose their unemployment checks starting next month. The Commerce Department said on Friday consumer spending, which accounts for more than two-thirds of U.S. economic activity, jumped 8.2% last month. Consumer spending tumbled 12.6% in April, the largest drop since the government started tracking the series in 1959.  

The euro zone is "probably past" the worst of the economic crisis caused by the coronavirus pandemic, but the recovery will be uneven, European Central Bank President Christine Lagarde said on Friday. Speaking as fears of a second wave shook investors and the general public across the world, Lagarde struck a constructive tone but urged authorities to use the truce currently offered by the virus to prepare. Lagarde cautioned that the rebound would be "uneven", "incomplete" and "transformational", meaning some companies in industries such as air travel and entertainment would never recover while others would come out stronger.    

There's no sign of the coronavirus pandemic receding globally. A record 37,000 new cases were recorded in the U.S. on Thursday, topping the peak seen in April, after many Americans let down their guard on social distancing. Some U.S. governors are reversing plans to reopen their states, in a growing recognition that the contagion is increasingly dictating events in much of America. The U.K. health secretary is warning he could close beaches to head off a potential new round of infections. The Asia-Pacific region’s economic toll from Covid-19 will be near $3 trillion, S&P Global Ratings said.

The focus of the pandemic has moved to the U.S. West and South, including more sparsely populated rural areas, from the early epicenter around New York. Governors are halting reopening plans with Texas, North Carolina, Louisiana, Oregon, Utah and Kansas all hitting the pause button. The silver lining to the surge in cases is that deaths are not climbing at the same rates, possibly due to more vulnerable members of the population remaining cautious. Trump administration officials have again said there will be no repeat of the lockdowns that pummeled the economy in March. Beyond the U.S., Germany's infection rate fell, and Russia reported the lowest number of new cases since April.  

CORN:  Focus now turns to the June 30 USDA stocks report to gauge old-cop supplies. Ethanol production and gasoline demand improved in the past week and needs to continue to grow to help prices stabilize. A bipartisan group of 16 senators led by Sens. Amy Klobuchar (D-Minn.) and Joni Ernst (R-Iowa) asked EPA to deny 52 retroactive biofuel usage waivers requested by refiners. Retroactive waivers “would only worsen the unprecedented economic challenges facing the biofuels industry and the rural communities that it supports,” the letter said.

SOYBEANS:  Futures will get a small lift from the China sales announcement but more are needed to turn the bearish sentiment.  

WHEAT:  The EU cut its wheat crop estimates to 117.2 MMT, down from 121.5 MMT previously and more than 10% lower than a year earlier driven by the adverse weather conditions that wheat crops have faced over the course of this season. European wheat futures have firmed for a second session but continue to struggle with larger U.S. crop prospects and expected strong global competition for world markets. Worries continue about reduced travel and another surge in Covid-19 that may curb demand. Food security will keep buyers looking to stock inventories but only on prices weakness. The Buenos Aires Grains Exchange continues to warn that “the lack of rain affecting a large part of the western, northern and central (farming) areas puts at risk the completion of work on the remaining area of ​​planting.” Planting is now estimated to be 71.3% complete.  

LIVESTOCK

CATTLE: Weak

HOGS: Weak

Cattle: Cattle seen weak to start trading on sliding cash market bids and lower beef prices. The cash market is down $3 to $6 this week on light demand despite a small uptick in this week’s processing from a week ago but still estimated 11,000 head below the same four days a year ago. Beef prices fell on Thursday and sales slowed from earlier this week. USDA actual slaughter data for the week ended June 13 was disappointing. The actual kill fell short of the estimated kill by 13,000 head and was 24,000 head below a year ago. The steer and heifer kill was 26,000 below a year ago as fed kill continues to suffer more than cow kill. Actual steer carcass weights for that week increased 4 pounds to 896 pounds, 36 pounds above the 5-year average, 47 pounds over a year ago. Boxed beef prices are down into support but worries about a second wave of the Covid-19 outbreaks may curb restaurant sales, an important demand factor.

Hogs:  Lean hogs seen on the defensive to start. Yesterday’s Quarterly Hogs & Pigs Report yesterday showed supplies are larger than expected and set to be record large into September but producers have begun to cut future output. Sow farrowings remained on a record clip in the March through May period, rising 1.2% from year-ago, despite Covid-19 marketing disruptions. It will likely take into the fourth quarter before slaughter rates drop under year-ago.  U.S. hog producers intend to have 3.123 million sows farrow during the June-August 2020 quarter, down 4.6% from the actual farrowings during the same period one year earlier. Analysts on average estimated that figure down 4.8%. Intended farrowings for September-November 2020, at 3.09 million sows, are down 5.4% from the same period one year earlier. Trade expected that number to be down 4.5%. The cuts probably needed to be larger to turn trade sentiment, but it was not a bearish surprise. Demand is key but keeping slaughter plants operating and increasing production is needed the next two months to reduce the backlogged supply of hogs.