Ahead of the Open: Corn, Soy Drop as Strong U.S. Crop Ratings Raise Trade Crop Estimates

Posted on Tue, 08/04/2020 - 07:43

GRAIN CALLS

Corn: Down 2 to 3 cents
Soybeans: Down 3 to 5 cents
Wheat: Down 2 to 5 cents

GENERAL COMMENTS: Soybeans are heading for the first decline in four sessions on stronger U.S. crop ratings that is pushing traders to raise yield and crop forecasts. Corn is set to open near last week’s low and just above contract lows as traders are looking for USDA to raise its production forecast in the Aug. 12 first survey-based estimates. Wheat continues under pressure from lower world prices and better yield report from Europe and Russia than expected earlier this harvest season.

Some underlying support is coming from forecasts for drier and warmer weather into mid-August. Unseasonably cool mornings have occurred across the U.S. Midwest and Great Plains the past two days while a heat wave builds in the western part of the nation. Tropical Storm Isaias will race into Canada from the middle Atlantic Coast States today and once the storm clears out of the continent the cool air will shift to the Atlantic Coast and the heat will build into the Plains and western Corn Belt. The warming trend has some concerned that August will be the hot, dry, month. But ridge of high pressure and associated warmer weather is not expected to last much more than ten days. The upcoming warming may be of short duration and one that may benefit late-season crops more than harm them because recent rainfall, while sporadic across the Midwest, may help to minimize the number of areas suffering from dryness.

On Monday, USDA again surprised with an unusual increase in crop condition ratings, adding another percentage point to the “good” category to push the overall “good” to “excellent” (G/E) rating up to 73%. Analysts surveyed by Reuters on average expected a steady 72% rating. Recent cooler weather and some timely rains did the U.S. soybean crop some good. Soybeans have only rated higher for the date in 1994 and 1992 since data began in 1986. Both years, USDA raised its July forecast by more than 5.3% in the August update and further increased yields into the final estimates in January.  USDA again rated 72% of the U.S. corn crop in G/E and 7% “poor” to “very poor,” unchanged from last week and right in line with expectations.

StoneX, the commodity brokerage formerly known as INTL FCStone projected the U.S. corn crop will total 15.320 billion bu. on an average yield estimate of 182.4 bu. per acre. The firm projects Iowa will average 202 bu. per acre, with Illinois at 212 bu. per acre and Nebraska at 196 bu. per acre. StoneX’s survey work and other factors points to a U.S. soybean crop of 4.496 billion bu. on an average yield of 54.2 bu. per acre. That includes yield projections of 68 bu. per acre for Illinois, 60 bu. per acre for Iowa and 55 bu. per acre for Minnesota. These are some big numbers and USDA’s NASS tends to top the firm’s production forecasts.

USDA’s daily export sales reporting program did not announce any new large grain or soybeans sales by private exporters this morning. The lack of new buying is a disappointing for soybeans and not expected for the grain markets.   

Brazil exported 10.37 MMT of soybeans during July, which represented a 39.4% surge from the year prior amid continued aggressive Chinese buying, according to government trade data. The country’s corn exports also picked up, though exports of 4.15 MMT were down 29.7% from July 2019. Exporters have had to compete with the livestock sector for corn. Brazil exported 169,200 MT of beef last month, which represented a 27.0% year-over-year jump. Pork exports climbed 46.7% to 90,200 MT. Chicken exports were the outlier, dropping 9.2% from year-ago to 337,500 MT.  

Global coronavirus cases surpassed 18 million as the pandemic is now adding a million infections every four days, prompting more lockdowns around the world. The U.K. is looking at all options for tackling flare-ups, following reports that a London-wide lockdown is being considered. Any remaining hope that coronavirus would take a holiday has been all but crushed. At its current pace of about 250,000 or so new cases a day, there could be more than 50 million infections worldwide by the end of 2020. The virus is expected to remain a formidable adversary until a first generation of effective vaccines can be rolled out, which many experts expect in 2021. Wealthy countries are first in line, with about 1.3 billion doses of potential shots secured by the U.S., EU, Britain and Japan.

On Sunday, Bitcoin crossed above $12,000 for the first time since August 2019, before plunging by more than 10% within minutes. The cryptocurrency’s notable moves during two consecutive weekends recall a similar phenomenon in 2019, when outsized gains took place numerous times during Saturday and Sunday trading as the price rose from a few thousand dollars into five-digit range.

Global Covid-19 cases topped 18.2 million as the rate of infection jumped in Germany and Poland. Melbourne, Australia, the nation’s second biggest city faces new strict lockdowns starting Sunday after a record spike in coronavirus cases yesterday. On a more positive note, California and Arizona reported fewer new cases after battling a surge in infections last month. Kosovo's Prime Minister was the latest European leader to self-isolate after contracting the disease. Covid-linked deaths in Iran may be triple the official tally, the BBC reported, while experts warn that India hasn't properly recorded fatalities.  

Markets are mixed as investors await news on U.S. stimulus plans before the Senate leaves on an extended break Friday. Overnight, the MSCI Asia Pacific Index added 1.7%, while the Japanese Topix gained 2.1%. In Europe, the Stoxx Europe 600 Index fell 0.4%. S&P 500 futures were down, the 10-year Treasury yield was at 0.538% and gold and oil prices were lower.  

U.S. stock futures pulled back on Tuesday as President Donald Trump's moves to force China-owned TikTok into a sale of its U.S. operations drew a sharp rebuke from Beijing, ratcheting up tensions as the world slides into a pandemic-fueled recession.  Friction between the world's top two economies took a back seat in the first half of 2020 as the COVID-19 pandemic crushed global growth, and an escalation now would hamper the recovery of some exporters and importers and fan fears of a deeper economic slump. With Microsoft looking to buy short-video app TikTok's U.S. operations, Trump said on Monday the U.S. government should get a "substantial portion" of any deal price. On Tuesday, state-backed newspaper China Daily said the country will not accept the "theft" of the technology company.

The July Non-Farm Payrolls report comes out Friday. Economists are looking for the unemployment rate to fall to 10.5% from 11.1% and the creation of 1.5 million new jobs.  The recovery is showing signs of slowing with small business hurt the most. Total job postings on a year-over-year basis starting to roll over after peaking in early July. Another way to view this is that job openings are actually at a fairly "normal" level right now compared to trends in previous years. But that's after plunging into such a massive hole during March so you would hope to be seeing a lot more catch up. They aren’t.

Corn: December corn fell to test last week’s low at $3.25 ½ overnight and is just above the contract low at $3.22 on rising U.S. crop forecasts. Meanwhile, Ukraine’s grain traders union UGA hiked its corn production forecast by 2.1 MMT to 38.9 MMT. This also fueled a 2.7 MMT jump in its corn export forecast that now stands at 30.3 MMT. With two months remaining in the marketing year, total U.S. ethanol use stands at 4.017 billion bushels. USDA forecasts total corn use for ethanol production will hit 4.85 billion bu. in 2019-20. To hit that forecast, total corn use would have to hit 833 million bu. for July and August combined, which seems doable based on weekly reports from the Energy Information Administration. We expect USDA to maintain its 4.85 billion bu. ethanol use forecast in its Aug. 12 update.

Soybeans: Soybeans are paring the recent three-day advance. November fell below the 20-day moving average overnight near $8.92. Key support is last week’s low at $8.80 3/4. The U.S. crushed 177.3 million bu. of soybeans during June, which was just a bit lighter than the 177.8 million bu. expected but easily the largest June crush on record. The June crush was down 1.3% from May. Soyoil stocks dropped more than expected to 2.271 billion lbs. at the end of June, which was a 176.6 million lbs. retreat from the month prior as biodiesel usage is stronger than expected. Malaysian palm oil prices rose another 1% overnight on lower production.

Wheat: December SRW wheat are heading for a second straight session, falling to the lowest in almost four weeks on rising Russian crop forecasts.  Spring wheat harvest advanced four percentage points over the past week to 5% complete, versus expectations for harvest to reach 8% finished and the five-year average completion rate of 10%. USDA raised the amount of top-rated spring wheat three percentage points, with crop ratings now in line with year-ago levels and pointing to strong yields.

LIVESTOCK 
Cattle: Steady-firm 
Hogs: Steady-weak

Cattle: After choppy early trading, live and feeder cattle futures closed into new swing highs and near session highs. Buying in August live cattle limited to some degree by its premium to the cash market. Cash cattle traded at an average price of $98.66 last week, up slightly from the week prior and more than $4 below where August live cattle settled on Monday. Boxed beef movement has slowed amid higher prices in recent days, which is a bit concerning. Just 104 loads changed hands yesterday, with Choice climbing $1.40 and Select rising 51 cents. Slaughter was 113,000 head, down from 120,000 head a year ago.  

Hogs:  Futures slumped Monday but held support with most contracts trading inside of Friday’s wide-ranging higher trade. That suggests some underlying support, but the national average hog prices fell 66 cents yesterday amid abundant supplies.  Look for another test of support in early trading. However, the pork cutout value climbed $1.47 to start the week amid solid movement of 393.09 loads. All cuts except hams climbed, with bellies leading to the upside. BLT season is underway. But the pork cutout value is still down several dollars from week-ago levels.