Ahead of the Open: Corn, Soy Push to New Highs on Dry South America Weather, Demand

Posted on Mon, 11/23/2020 - 08:12

GRAIN CALLS

Corn: Up 5 to 7 cents
Soybeans: Up 13 to 17 cents
Wheat: Up 4 to 8 cents

GENERAL COMMENTSSoybean futures rose to their highest in 4-1/2 years on overnight, touching $12 a bushel as nearby corn futures rose to the highest since July 2019 as drier than expected weekend weather and dry forecasts for Brazil and Argentina stoked supply concerns. Almost perfect South American crop weather is needed to meet expected Chinese buying with U.S. supplies moving lower.

Before the reopening, USDA announced private exporters sold 334,000 metric tons (MT) of corn to unknown destinations for delivery this marketing year. For many this confirms talk of Chinese feed producers shopping for corn last week.  

Customs data shows China imported an impressive 1.14 MMT of corn during October, a dramatic increase from negligible imports the year prior. That pushes the country’s total corn imports for 2020 to 7.82 MMT, 97.3% above the year prior and above its official 7.2 MMT low tariff rate quota (TRQ) for 2020. The Phase 1 trade deal required China to fulfill its TRQ obligations for the first time. Its wheat TRQ is at 9.36 MMT, and the latest update shows China has imported 6.69 MMT of wheat with two months remaining in the calendar year. That’s up 163.6% from year-ago

Argentine soy planting advanced sharply over the past week after rains in key drought-hit areas, the Buenos Aires Grains Exchange said last Thursday, though much of the country remained dry. Meaningful South American precip in the next 10 days will be confined to northern Argentina, Paraguay, and far southern Brazil. Rain will no doubt be welcomed there, but widespread South American precip is absent from nearby outlooks. Assuming the forecast verifies, November rainfall in Mato Grosso, Mato Grosso do Sul and Goias will be less than 50% of normal.

 For a second consecutive week, U.S. fund positions in the grains was smaller than expected with funds cutting net longs in the grains and soy futures and options markets by about 30,000 contracts. Surprisingly, SRW wheat saw a decline of more 18,000 contracts of net length while soybeans were off 12,320 contracts. Funds cut corn longs by 1,946 contracts. Fund managers appear to be comfortable with their overall position and are adjusting around chart-based performance—taking profits on rallies but looking to buy breaks. December contract open interest numbers are already substantially below year ago numbers, telling you that a lot of speculators simply don’t want to play the game this week in front of deliveries on the 30th, and have already rolled out of their front end positions.

Meanwhile, the U.S. Dollar Index fell to the lowest since Sept. 1, and a break below this year’s low at 91.75 would likely trigger a new wave of fund buying. Global stocks are moving higher for a third straight Monday on positive vaccine news. AstraZeneca said its COVID-19 vaccine could be around 90% effective, giving the world another weapon to fight the global pandemic and potentially cheaper to make, easier to distribute and faster to scale-up than rivals.

Corn:  December corn made new highs overnight, but March corn only matched the Nov. 11 high at $4.35 3/4.  Today’s daily sales announcement to unknown destination should set up a quick test of that high in early trading.

Soybeans: Soybeans topped $12 on the weekly chart for the first time since June 2016 last night but the January meal once again failed to make new contract highs. Rallies may slow but until there are widespread rains across South America, look for new buying on any near-term price corrections. Malaysian palm oil futures reversed early losses to rise 1% on Monday, as concerns over declining output outweighed shrinking November exports and losses in rival Dalian vegetable oils. Earlier in the session, the contract had dropped 3% to a near two-week low. The market is supported by talk of rare shipments from Indonesia to Malaysia on expectations of the former raising export levies next month to a range of $120/ton to $160/ton in a bid to keep funding its biodiesel program.

Wheat:  Wheat prices are following the corn markets higher with added support from talk of new Russian export taxes. Reports of a Russian grains export tax have surfaced again this morning, with Russian flour millers and animal meat producers reported to have submitted an appeal to Prime Minister Mishustin to set a tax. The potential replacement of the quota with this tax could cause an increased outflow of exports in anticipation of its implementation. China sold 708,462 MT of wheat in its state reserve auction, representing 18% of its total offer. This comes on Chinese Customs data this morning showing China imported 630,000 MT of wheat in October, up 127% from a year ago. The rapid pace of imports from China continues to lend support to the wider wheat complex on heightened demand. The increasing population of hogs there means a greater volume of grain is required for feed.  Pakistan purchased 340,000 MT of wheat from optional origins with further purchases expected to be made by Pakistan with import requirements not yet believed to have been met. Meanwhile, Tunisia has issued a tender for durum and soft wheat today. 

LIVESTOCK 
Cattle: Steady to mixed
Hogs: Steady to mixed

China imported 330,0000 MT of pork during October, an 80.4% jump from the year prior but a 50,000 MT (13.2%) dip from the month prior, the government reported today. China has imported 3.62 MMT of pork, according to customs data, a 126.2% jump from year-ago. The country also imported 170,000 MT of beef last month, a 12.2% jump from year-ago. This pushed its calendar-year-shipments to 1.74 MMT.

Cattle: futures ended mixed Friday but well above sharp early lows. The ability to show resiliency was a positive technical development but further gains this week would confirm the recent retreat was just a correction. Boxed beef prices were higher on Friday, extending weekly gains but sales were sluggish. Cash cattle ended soft on Friday, giving back early-week gains, and closing about steady for the week. Slaughter was up 3,000 head last week, easing fears about Covid-19 shutdowns that triggered much of last week’s selloff. Friday’s USDA Cattle on Feed reports showed cattle placed in feedyards last month fell more than expected, resulting in a lower number of animals on feed than traders were expecting on Nov. 1. Placements last month were the lowest in four years. Trading may be slow ahead of the monthly USDA Cold Storage Report for updates on beef demand.

Hogs:  In a dramatic reversal of Thursday, CME hog futures closed sharply higher after February futures fell below the 200 moving average near $62.92 and reversed. The rebound will need follow-through strength this week to confirm seasonal lows have formed. Cash hogs were mixed Friday, but pork cutout values continued to weaken. The kill was 28,000 head more than last year which suggested that warm Midwest weather and the coming holiday could produce a record slaughter in the week following Thanksgiving. There’s a glut of pork in Europe and prices are plunging. Germany, the European Union’s leading producer, has been shut out of top markets across Asia since a deadly pig-virus outbreak started in wild boar in September. That’s leaving a surplus on the continent just as the latest raft of Covid-19 lockdowns means more restaurants are closing. In Germany, pig prices have cratered more than -40% below March levels and carcass prices are at the lowest since 2016.