Ahead of the Open: Grains,Soybeans Seen Bouncing after Steep Declines Spur Demand

Posted on Wed, 08/05/2020 - 08:11

GRAIN CALLS

Corn: Up 1 to 2 cents
Soybeans: Up 1 to 3 cents
Wheat: Up 2 to 4 cents

GENERAL COMMENTS:  Ccorn and soybean futures are inching higher this morning as both the markets recovered from sharp declines yesterday, although expectations of bumper U.S. production curbed gains. Wheat is heading for the first gain in three sessions as Egypt's General Authority for Supply Commodities announced a tender to buy an unspecified amount of wheat from global suppliers for shipment in September. U.S. prices are not competitive versus Russian and Ukraine offers. Traders are also looking for some wheat buying from Lebanon shortly after the explosions in the Beirut port yesterday damaged the grain storage facility that held Lebanon’s wheat reserves.

A weaker dollar, gold trading above $2,000 an ounce and stronger oil prices are supportive for grain price recoveries this morning.

Corn futures plunged to the lowest since June 29, setting new contract lows in most contracts. Soybeans are bouncing back from the lowest since July 15.  USDA's weekly crop conditions report on Monday afternoon rated 72% of the U.S. corn crop and 73% of the soybean crop as 'good-to-excellent', bolstering expectations for big yields.

Patchy rains in U.S. Plains during the past 24 hours with heavy rains in Oklahoma this morning. There will be showers in parts of the northwestern Midwest today with more forecast for the weekend.  Current driest spots in Midwest include north and central Iowa, far southeast South Dakota, far southwest Minnesota and east-central Nebraska, that coverage about 10% to 15% U.S. corn and soybean growing regions, according to Commodity Weather Group. Showers next week will prevent expansion of the dry spots, but Iowa may be short-changed.  Warmer temperatures will develop after this week’s cool reading. However, the 6- to 10-day outlook is less hot in the Northern Plains and northwest Midwest.  Rains may aid late growth in Southeast with traders watching for more tropical storm development potential in August that could cause problems.

USDA’s daily export sales reporting program announced private exporters sold 192,000 metric tons (MT) of soybeans to China for new-crop delivery. The sales may add light support to the market on the reopening but more sales are needed to offset the rising U.S. crop outlook.  

The United States and China have agreed to hold high-level talks on Aug. 15 with the aim of assessing compliance by China with respect to a bilateral trade agreement signed earlier in 2020, the Wall Street Journal reported on Tuesday, citing sources. The talks will include U.S. Trade Representative Robert Lighthizer and Chinese Vice Premier Liu He, the newspaper reported, adding that they will focus on the phase 1 deal that called for China's commitment to boost U.S. imports by $200 billion over two years.

Crop estimates for Brazil’s new-crop outlook will cap corn and soybean rallies. The consultancy Agroconsult projects Brazil’s 2020-21 soybean crop at a record 132.6 MMT, with the firm calling for planted acreage to rise more than 1 million hectares to 37.9 million hectares (93.7 million acres). Agroconsult expects Brazil to export 80 MMT of soybeans in 2020, with even higher shipments in 2021 thanks to strong demand from China. The consultancy expects near-steady full-season corn plantings in 2020, but production is expected to climb from 27.1 MMT in 2019-20 to 28.4 MMT in 2020-21. Agroconsult expects safrinha corn acres to climb 5%, pushing the crop to a record 81.9 MMT. Agroconsult’s full-season corn crop projection of 10.3 MMT would represent a 9.0% spike from the current season.

Brazil will export 6.72 MMT of soybeans and 6.32 MMT of corn in August, according to the country's National Grains Exporter Association (ANEC) in its first estimate for the month.  That would be a 33% increase for soybeans over the same month last year. Corn exports would also be 33% higher, although less than projected earlier by the association.  July soybean exports were 8.02 MMT, ANEC said, below a projected 8.4 MMT. Corn exports in July were 5.07 MMT, also below an earlier projection of 5.4 MMT.

The U.S. dollar is weaker against many major currencies and could fall much further, if the U.S. Congress fails to reach a compromise on unemployment benefits this week. The current scheme ended July 31 and so far, lawmakers have been unable to agree an extension or a new package. Speaker of the House Nancy Pelosi has already cast doubt on an agreement this week before the Senate goes to summer recess, although that could be delayed by a few days if needed to get an agreement over the line. However, if no agreement has been reached, and a compromise still seems unlikely come Friday, the dollar could take another hit, especially if impending jobs data comes in worse than expected in Friday’s monthly update.

U.S. factory orders rose 6.2% in June, more than expected and boosted by a surge in demand for motor vehicles, after gaining 7.7% in May, the Commerce Department reported Tuesday. However, factory orders overall remain well below their February level, and June's reading was 10.1% below June 2019's level.

The global death toll from the coronavirus surpassed 700,000 on Wednesday, according to a Reuters tally, with the United States, Brazil, India and Mexico leading the rise in fatalities. Nearly 5,900 people are dying every 24 hours from COVID-19 on average, according to Reuters calculations based on data from the past two weeks. That equates to 247 people per hour, or one person every 15 seconds. President Donald Trump said the coronavirus outbreak is as under control as it can get in the United States, where more than 155,000 people have died amid a patchy response to the public health crisis that has failed to stem a rise in cases. Even in parts of the world that had appeared to have curbed the spread of the virus, countries have recently seen single-day records in new cases, signaling the battle is far from over. Australia, Japan, Hong Kong, Bolivia, Sudan, Ethiopia, Bulgaria, Belgium, Uzbekistan and Israel all recently had record increases in cases.

Corn: December corn fell to a new contract low at $3.20 yesterday. Corn broke key barriers in multiple contracts. Yet, likely last lines in the sand are 5 to 8 cents lower than yesterday’s lows. Bulls are severely wounded, but not quite put away. Demand perked up on lower prices with the Korea Feed Association buying 63,000 MT for November delivery and South Korea’s NOFI bought 69,000 MT for December delivery. South Korea’s KOCOPIA passed on a tender for 60,000 MT.

Soybeans:  November beans opened higher last night but have slipped back near the session low at the morning break. Tuesday’s low at $8.79 ¼ is key short-term support with better support at the July lows at $8.71 1/2. December meal held key support yesterday but a close below Tuesday’s low at $289.40 may cause pressure to grow.

Wheat:  Sustaining closes below recent lows  are key benchmarks that could opening up increased downside risks. Both HRW and spring wheat futures fell to new contract lows on Tuesday. Paris wheat is slightly higher this morning and cash premiums are firm with French, German and Baltic supported by slow producer selling and firm euro against the dollar. Germany will likely produce a 20.23 MMT wheat crop in 2020, the country’s statistics office forecast today. That would be a 12% slide from year-ago and is quite a bit lighter than the 22.46 MMT projected by Germany’s association of farm cooperatives.   France's farm ministry on Wednesday lowered its estimate of this year's soft wheat harvest to 29.71 MMT from an initial forecast of 31.31 million last month. That was 24.9% below last year's bumper harvest and also 15.9% lower than the average of the past five years, Wheat merchants who had committed to sell to Asian millers are now facing hefty losses after an unexpected spike in Russian and Ukrainian grain prices as farmers held on to their supplies, according to Reuters. Russian wheat with 11.5% protein was quoted around $236 per MT, including cost and freight (C&F), this week to Indonesia, up from sales committed at between $217 and $222 a MT in the last few months for August shipment. Russian wheat export prices eased last week after three weeks of gains, under pressure from the new crop harvest and a weakening ruble against the dollar, IKAR agriculture consultancy said in a note on Monday. But supplies remain tight in some areas and a few buyers need grain urgently to load approaching vessels.

LIVESTOCK 
Cattle: Steady-mixed 
Hogs: Steady-mixed

Cattle:  Small setbacks are welcomed in the cattle complex as long as the market pauses are limited to a few days. These pauses are healthy and common action in the cattle market. Live cattle saw light pressure for much of the session yesterday, with traders chipping away some of the premium futures hold to the cash market. Another week of steady to higher cash trade is expected, with some firmer bids reported in the south yesterday. So far, there has been some light trade in Kansas at $100 and in Texas at $99, up $2 to $3 from the bulk of trade last week in these states. Boxed beef movement improved notably on Tuesday, with 160 loads changing hands on mixed prices.

Hogs:  Futures ended mixed after testing support in early trading. Today’s closed could be an important clue to market direction amid hints that cash hog prices are bottoming.  However, the market typically softens seasonally during the third and fourth quarter of the year and big backlogs of market-ready hogs persist. Cash hog bids dropped $1.52 nationally yesterday, with the eastern Corn Belt leading the decline. The pork cutout value fell $1.28 on Tuesday but sales surged to 465.94 loads. Export sales on Thursday will be closely monitored to gauge Chinese demand. China announced it will auction 20,000 MT of frozen pork from its state reserves on Aug. 7. The country has sold well over 400,000 MT at auctions this year as it works to ensure adequate domestic supplies of pork.