Ahead of the Open: Quietly Firm on Weather Uncertainty, Export Demand and Bullish Charts

Posted on Thu, 12/24/2020 - 08:07

We wish you and your family a safe and joyous Christmas. 
Markets close early today and will be close for the holiday on Friday.
We will not produce a Market Snapshot today and no reports Friday.

GRAIN CALLS

Corn: Steady to firm
Soybeans: Up 7 to 10 cents
Wheat: Mixed

GENERAL COMMENTS Funds continue to build larger long positions in soybeans, corn and wheat as the labor strike and dry weather may curb Argentina supplies from the world markets. The Buenos Aires Grains Exchange yesterday warned that Argentina’s 2020/21 soybean plantings estimate of 17.2 million hectares (42.5 million acres) could be reduced due to central/southern dryness; they pegged planting pace at 77% this week, with 61% of corn planted and 79% of wheat harvested.

Soybeans rose to a new 6-1/2-year high overnight, extending this month’s rally. Corn is heading for a tenth consecutive daily gain, trading near a 17-month high. Wheat was also firm, holding near a two-month high. It should be a quiet session with the early close, with some profit taking likely ahead of the 3-day holiday weekend.

Argentine oilseed workers and grains inspectors on Wednesday said they will spend Christmas on strike, further hampering agricultural exports in a two-week-old labor dispute. Argentina is the world's largest exporter of soymeal and soybean oil and also a leading supplier of soybeans, wheat and corn. The Argentine Ag Ministry kept estimates steady at 17 MMT for Argentine wheat production with exports at 10.0 MMT. Rosario Grain exchange lowered estimates to 16.5 MMT with Buenos Aires Grain Exchange was unchanged at 16.8 MMT.

Coupled with recent drought in Brazil, supply concerns in Argentina have put the soybean market on edge at a time of record Chinese demand and shrinking U.S. supply. Uncertainty about the South American weather into January limited the impact of the marketing-year low in weekly U.S. corn and soybeans reported by USDA on Thursday. Wheat traders were monitoring the risk of Argentine shipments being disrupted, just as Russian exports are expected to slow due to measures to curb domestic prices.

Shower and thunderstorm activity in Argentina will be erratic through next Wednesday; though, coverage of rain will be greatest Sunday through Tuesday due to a frontal boundary. West-central and northwestern production areas of Argentina will be wettest and meaningful moisture in eastern and southern parts of the region will be more localized. Conditions in Brazil will be mostly favorable for crops. Rain will increase in the far south later next week. Bahia and some immediate nearby areas will likely continue to be driest.

Before the reopening, USDA failed to announce any new large daily sales this morning. That’s a little disappointing for market bulls that were betting on new soybean sales amid talk China has been shopping for U.S. supplies this week.   

China, the world's top grain consumer, loses more than 35 MMT of grain each year in the storage, transportation and processing stages, state-owned Xinhua News said late on Wednesday, citing a government report. The heavy pre-consumption loss is due to several factors, including outdated storage facilities, logistics equipment and processing techniques. Reducing grain loss and food waste has become an essential part of safeguarding food security, the report said, noting that "despite sufficient grain reserves, the country maintains a tight balance between supply and demand."  That explains the record imports of commodities by China this year and supports speculation that China will be a long-term buyer until its adopts more modern grain production and storage.

Meanwhile, China has launched an antitrust investigation into Alibaba Group monopoly practices and will summon the tech giant's Ant Group affiliate to meet in coming days, regulators said, in the latest blow for Jack Ma's e-commerce and fintech empire. Regulators have warned Alibaba about the so-called "choosing one from two" practice under which merchants are required to sign exclusive cooperation pacts preventing them from offering products on rival platforms. It’s a bit early to tell how this will play out in China and how it might impact on foreign investments in China and foreign companies operating in China.  The global markets will be watching to see if the regulators are targeting the private sector only while leaving state monopolies intact.

U.S. stock index futures rose on Thursday ahead of a shortened trading session on hopes of a gradual economic rebound, Gold prices rose on Thursday backed by a weaker dollar ahead of a widely expected Brexit trade deal, with uncertainties around a new variant of the coronavirus overshadowing vaccine optimism. Investors also cheered reports that Britain and the European Union were on the cusp of striking a narrow Brexit trade deal.  

CORN: March touched $4.49 3/4, matching the contract high yesterday. Prices have eased by from overnight highs. Short-term support remains at $4.41 to $4.39 1/2. Stronger resistance is at $4.64 1/2.

SOYBEANS:  Beans, meal and oil all scored fresh contract highs overnight, erasing small losses at the open last night. The markets continue to rise on speculative buying, a lack of farmer sales from South America or the U.S. and speculation China will continue to be record buyer of global soybeans throughout 2021 to feed its growing hog herd.    

WHEAT: Wheat futures broke above resistance yesterday. After a minor pullback overnight, prices are back near unchanged at the break. The next strong resistance for SRW wheat on a continuous will be the $6.77 mark from December 2014. March HRW futures closed at the $5.88 resistance yesterday, leaving $6 the next logical barrier.  Paris futures are pushing higher for a third session, lending support to U.S. values. Market bulls are betting on higher prices to slow the current EU export pace.  That pace probably needs to slow by 40% from January to June to prevent a drop in EU ending stocks to just 3 MMT. Weather models showed no big changes with the distribution of precipitation suggested with the storm system in the Hard Red Winter Wheat Region Monday into next Wednesday. Significant precipitation is expected in the eastern hard red winter wheat areas, such as central Oklahoma into central Nebraska and possibly into at least part of western Nebraska as well. Some precipitation is likely in west-central and southwestern wheat areas; though, not as much as the eastern part of the region  

Cattle: Steady to mixed
Hogs: Steady to mixed

Cattle: After Wednesday’s strong rallies, the futures may see a quiet consolidation today ahead of the holiday. Light cash cattle sales occurred around $110 in the Southern Plains Wednesday, which was up about $2 from the bulk of last week’s trade in the region. Some light trade at firmer prices was also reported in the northern market. But most feedlots passed on the firmer bids in hopes of even stronger prices from packers today. However, renewed weakness in beef prices may derail further strength next week with Choice down $3.13 and Select falling $1.66 with sales light to moderate on Wednesday.

Hogs:  Futures seen consolidating big gains yesterday amid weakness in cash markets with the average direct hog prices falling 88 cents. Pork cutout values rose $1.18 but sales were very light. Wednesday’s Hogs & Pigs Report showed all hogs fell 0.9% from year-ago as of Dec. 1, which was basically in line with expectations. Market hog inventories signal slaughter levels should trend below year-ago through winter and spring. But farmers indicated they intend to farrow 1.6% more sows this winter, despite a 3% smaller breeding herd as of Dec. 1. The report data didn’t have enough surprises to greatly impact price action today. Exports to China now key to price direction in 2021. Measures to allow imports of pork from hogs produced using the feed additive ractopamine were approved by Taiwan’s parliament, despite efforts to halt the action by the main opposition party.