Before the Open: Erratic Grain, Soy Trade with Focus on the Closes Amid New Covid-19 Concerns

Posted on Mon, 12/21/2020 - 07:43

GRAIN CALLS

Corn: Down 2-4
Soybeans: Up 3 to 6 cents
Wheat: Down 6 to 9 cents

GENERAL COMMENTS U.S. soybeans, wheat and corn fell on Monday as other global markets dropped on concern about the impact of a new coronavirus strain hitting Britain. Crude oil prices are paring losses this morning after early falling more than 5% on worries about a slower recovery in fuel demand. The dollar erased last week losses after hitting a 31-month low on Dec. 17.  Wheat is moving lower on some snow and rain in part of the Black Sea region and general profit taking after testing key resistance last week. Following last week’s wheat export duty, the Russian government is planning place an export tax on soybeans of $30/MT starting Feb.1 and continuing to the end of June. However, there is a minimum tax of $165 euros/MT or $5.40/Bu which will shut down Russian soy trade. Russia exported 48 million bu. of soybeans in 2019-20 and that will likely be cut in half. But in a world facing shortages, it is important nonetheless.

It rained on Friday and into Saturday over much of Argentina, but then turned drier and is expected to stay dry the next two weeks. Argentina temperatures will be warmer than usual during the next two weeks and that on combination with the limited rainfall will lead to moisture depletion, crop moisture stress and rising worry over 2021 production potential. Brazil got general weekend rains except over southern half of Mato Grosso and the west of Mato Grosso do Sul, and the week ahead promises rains overall, except for Rio Grande do Sul, which go moisture last week. There are enough differences in the forecasts to keep traders nervous this morning amid the selloff in global stocks and other commodities and stronger dollar. The GFS model has rains next weekend for Argentina while the European model does not. Lately the European model has been too dry.   

The markets are set up for an erratic finish to 2020 amid holiday-shortened trading weeks. Last week’s rally appeared to be support by those traders and commercials who got out of their longs for the end of the year and had to rush back in and buy the rally. While speculators were buyers of soybeans, soy products and wheat during the week ended Dec. 15, funds trimmed bullishness in corn for the third consecutive week. Money managers reduced their net-long corn position to 250,260 futures and options contracts from 269,583 a week earlier, according to CFTC data on Friday. Most were looking for a 15,000-contract increase. Funds were estimated buying 50,000 contracts the last three sessions of last week. Fund manager extended their net long in CBOT soybean futures and options by less than 5,000 contracts to 190,218 contracts, well below the 30,000-contract gain expected but still the first gain in five weeks. Funds flipped to a net long of 6,672 SRW wheat futures and options contracts from their net short of 5,692 a week earlier. However, trade estimates had pegged the buying at 28,000 futures contracts.

Before the reopening, USDA failed to announce any new large daily sales this morning and that may add to early pressure on the markets this morning.    

Meanwhile, China announced a plan to resume state corn sales last week. On Monday, Heilongjiang offered to sell almost 1 MMT to buyers. In the past two weeks, 1.3 MMT was sold to refineries and feed mills in Jilin and Heilongjiang.   

Investors are seeking safety as concerns rise about the mutant Covid strain in the U.K. and more travel restrictions. Overnight the MSCI Asia Pacific Index dropped 0.7% and Japan's Topix index closed 0.2% lower. In Europe, the Stoxx 600 Index is down about 3% with every industry sector firmly in the red. S&P 500 futures were down more than 1.5%.  Italy, the Netherlands and Belgium shut their borders to the British travelers, and others prepared to follow suit, amid the rapid spread of a mutant strain of the coronavirus in Britain that saw the government abruptly cancel Christmas and ramp up social restrictions.   

CORN: March corn hit a contract high at$4.40 overnight, the highest since July 2019 for the nearby futures. The contract is trading at Friday’s low at $4.32 at the break. A close below that level would form a key reversal down and indicate at least a temporary high may be forming. Since bottoming in August near $3.34, the market has rallied more than a dollar and may be due for a correction.

SOYBEANS:  The spot soybean contract broke through $12 per bu. on Dec. 17 for the first time since June 2016, and then moved Dec. 18 to the highest level for the nearby contract since August 2014. Soybeans have closed higher in 14 of the last 19 weeks, rallying almost $3.40 from August USDA report. March soybeans touched a new contract high at $12.36 overnight before turning lower and are trading about 17 cents below that level at the break. A close below Friday’s low at $12.05 3/4 would be negative. Malaysian palm oil futures snapped a three-day rally to trade over 1% lower on Monday, although the retreat was limited following a jump in exports and a weaker ringgit. Elsewhere, soy and palm oils on the Dalian Commodity Exchange rose 0.5% and 0.7% respectively.

WHEAT:  March SRW failed to close above the downtrend off the October highs last week and are lower after trading outside of Friday’s range overnight, setting up a potential reversal down day on the charts. IKAR cut its Russian wheat export estimate for the 2020-21 marketing year from 40 MMT to 37.5 MMT. The decline is due to export restrictions as well as expected production shortfalls. The USDA estimated Russian wheat exports at 40 MMT on the December WASDE. Germany’s federal statistics office estimates German farmers planted 2.83 million hectares (6.99 mil ac) of wheat this fall—up 3% from the 2019 planting season. 1.28 million hectares (3.16 mil ac) of winter barley was planted as well as 978,400 hectares (2.42 mil acres) of rapeseed.

Cattle: Steady to weak
Hogs: Steady to weak

Cattle: USDA’s Cattle on Feed Report last Friday was right in line with pre-report expectations. That should keep focus on the cash and product markets, with traders waiting on both to confirm lows. Boxed beef prices hinted at potential bottoming action last week, though Choice prices dropped 88 cents on Friday. The cash cattle market saw prices firm late last week from weaker levels earlier last week.  

Hogs:  Lean hog futures rallied Friday on hopes for a quick distribution of the Covid-19 vaccine and federal stimulus spending. Today, the market will be pressured by positioning and worries it will take longer to reopen economies. On Tuesday, USDA will release its monthly Cold Storage Report that has taken on added significance given China’s aggressive pork purchases this year and the shifts in consumption and processing due to the pandemic. On Wednesday, USDA will release its Quarterly Hogs and Pigs Report, which is expected to show a downward revision to past data and will signal whether producers backed off fall farrowings as much as previously indicated. USDA will also release its weekly export sales report on Wednesday due to Thursday’s holiday, with a particular focus on Chinese purchases of U.S. pork. China’s pig herd was nearly 30% larger than year-ago in November, according to the country’s ag ministry on Monday.