Ahead of the Open: Corn, Soybeans Fall on Unexpectedly Large Crop Rating Improvements

Posted on Tue, 07/28/2020 - 06:19


Corn: Down 3 to 4 cents
Soybeans: Down 8 to 12 cents
Wheat: Mixed

GENERAL COMMENTS: Corn and soybean futures fall overnight as unexpectedly large improvement in U.S. crop conditions raised yield prospects.  Soybeans fell as much as 1.5% to a 12-session low and corn is challenging key swing low support. Wheat is pressured by further weakness in European prices this morning but parred losses on Egypt’s tender for grain delivered in early September with 13 offers of Russian and Ukraine supplies. Results are expected later today. This fourth straight week of buying from the world’s biggest importer.

Timely rains and a break from the heat led to an unexpected three-point jump in the amount of U.S. corn rated “good” to “excellent” (G/E), with 72% of the crop now falling in the top two categories. As of Sunday, 72% of soybeans were rated G/E, also up three percentage.  It was the first time both crops rose three points in mid-July since 2001. Weather leans wet and mild with no severe heat to damage crops the next two weeks. Timely rain also helped spring wheat ratings climb two percentage points to 70% G/E as of Sunday.

USDA’s daily export sales reporting program did not announced any new large sales this morning, halting 10 straight sessions of new sales of corn, soybeans or wheat to China or unknown destinations. The lack of an announcement is not a surprise with little talk of new tenders on Monday. Nonetheless, the markets may see additional early pressure on the reopenings.

The Federal Reserve begins its two-day meeting on monetary policy today with no changes expected in the current policy of low rates for longer. Rates are so low that, adjusted for inflation, they’re turning negative. That is a problem for lenders and savers and pension funds trying to keep up with price increases. The Fed is expected to signal at the end of the meetings that negative yields are here to stay, for better or worse.

Senate Republicans presented their $1 trillion plan to bolster the pandemic-ravaged U.S. economy in a series of bills that would trim extra unemployment benefits, send $1,200 payments to most Americans and shield businesses, schools and other organizations from lawsuits stemming from coronavirus infections. The bill introductions were just the first step toward negotiating a compromise plan with Democrats, who have offered their own $3.5 trillion stimulus plan. House Speaker Nancy Pelosi delivered a harsh assessment of the proposal, calling it a “pathetic” approach and saying it wasn’t adequate to the country’s needs.

Gold prices surged to more than $2,000 overnight before turning lower this morning. In the debt market, the world's massive pile of bonds that cost investors money to hold has left them "desperately" searching for yield and a hedge against a downturn in stock markets, boosting buying in the precious metals.

If you blink, you might miss baseball in 2020. Last Thursday was opening day for what was already going to be a pandemic-shortened season. Just a few days later, several Miami Marlins tested positive for coronavirus, throwing the rest of the season into doubt. Airlines, retailers and other businesses know the feeling. Much of the world is now coping with a coronavirus resurgence.

The number of new daily cases has risen more than 20 percent in both Europe and Canada over the past week. It’s up about 40 percent in Australia and Japan. Hong Kong reported 145 cases yesterday, its highest one-day count yet and the sixth straight day of more than 100 new cases.  Even with the recent surges, the outbreaks elsewhere are much more contained and manageable than in the U.S. The U.S. has had about 15 times as many confirmed new cases, per capita, as Canada over the past week and 12 times as many as Hong Kong or Europe. All of these increases are worrisome reminders that crushing the virus is not a one-time event, at least not until a vaccine is available.  

The coronavirus-driven recession is creating two parallel economic realities and they are growing further apart by the day. Many people with financial assets and white-collar jobs have benefited from the economic downturn, while the rest of the country is doing its best to stay afloat. Evidence of a "K-shaped recovery" — in which some Americans' fortunes rise while others fall — is already visible, Peter Atwater, an adjunct economics lecturer at William & Mary, told Axios.

USDA and at least eight states are warning residents not to plant unsolicited packages of seeds arriving from China. Officials warn they could be an invasive species that could threaten crops or livestock. “At this point in time we don't have enough information to know if this is a hoax, a prank, an internet scam or an act of agricultural bioterrorism," Ryan Quarles, Kentucky's agriculture commissioner, said in a video. Photos from various state departments show a variety of seeds arriving in white or yellow packages, some of which are labeled as jewelry. USDA says it is working with the Department of Homeland Security and states to protect U.S. agriculture and prevent the unlawful entry of prohibited seeds

Corn:  December futures are back testing last week’s swing low at $3.30 this morning with stronger support at the contract low from June at $3.22. Agronomic and condition models currently favor a national yield between 178 bu. and 181 bu. per acre. These numbers are so close to the USDA’s current working number of 178.5 bu. that price direction will be determined by demand. The EIA expects this year will be the worst year-over-year decline in fuel demand on record, and that was made post July 7th when things were reopening. A second closure may expand that decline and may create what economist call a “long tail” or an aftershock that carries into 2021.  Still, Chinese cash prices in some markets are back to levels not seen since 2015. The corn market is getting incredibly overheated with prices in southern China, near $8.70/bushel. Expect more government intervention to attempt to cool the market which may lead to higher imports.

Soybeans: November soybeans broke below the 20-day moving average overnight, touching the lowest since July 16. A move through the overnight low may trigger new fund selling this morning. Brazil will likely boost soybean production 3.4% to a record-high 129.15 MMT in 2020-21, projects the ag consultancy Arc Mercosul. It expects farmers to expand planted acreage at the fastest clip since the 2014-15 season given their strong financial standing and robust Chinese demand for the oilseed.

Wheat: U.S. wheat futures are treading water. Funds have been rushing in and out of the market and that will continue to push prices. Demand is ahead of last year’s pace despite U.S. prices above many competing export values. Egypt is in for wheat for the 4th week in a row, and it will be a Russian or Ukrainian show again, French is too high, no Romanian wheat is available, and U.S. is too high. Prices fell on Monday as Russian wheat yields seen stronger than expected earlier this month with the consultancy IKAR increasing its production estimate to 78 MMT up 1.5 MMT from its previous number. Meanwhile, Kazakhstan officials issued new grain production estimate of 20.5 MMT up 2 MMT from previous,  

Cattle: Steady to weak
Hogs: Steady to mixed

McDonald's Corp on Tuesday reported a larger-than-expected drop in global same-store sales and missed profit expectations, as its restaurants were shut due to the COVID-19 pandemic, limiting operations to only drive-thru and delivery. Shares of the Chicago-based restaurant chain fell about 2% before the opening bell. Global same-store sales fell 23.9% for the second quarter. In the United States, where it operates more than a third of its restaurants, same-restaurant sales fell 8.7%, but were better than the 10% drop expected. Restaurants have been struggling to cope with the changing dynamics and consumer behaviors around the health crisis, forcing them to simplify menus and shift largely to online and mobile orders for pickup, delivery and drive thru. This uncertainty may weigh on boosting demand for meat and poultry into year end.

Cattle:  Today will be an important test for the cattle market bulls after prices jumped higher on the open on Monday and then closed sharply lower, forming an outside-day reversal pattern.  Cash cattle trade took place at an average price of $97.24 last week, which was up nearly $1 from the week prior. But futures have an even bigger premium priced in. Boxed beef prices were mixed to start the week, with Choice rising 78 cents and Select sliding 50 cents; movement slowed notably to just 94 loads. It will be important to see an improvement in wholesale trade today.

Hogs:  Hogs were mixed to start the week on Monday with nearby futures firming with cash market strength while deferreds were pressured by rising tensions with China.  The pork cutout value rose 77 cents yesterday, down from the midday surge of $6 as bellies prices pared earlier sharp gains. Movement was light as slaughter rose 27,000 head above a year ago on Monday. The good news is market weight slipped 1 lb. last week and the national average cash hog prices jumped $4.76 on Monday.