Ahead of the Open: Corn, Soy Firm Ahead of USDA Reports; Wheat Gains as Russia Considering New Tariffs

Posted on Tue, 01/12/2021 - 08:05

GRAIN CALLS

Corn: Up 1 to 3 cents
Soybeans: Up 5 to 10 cents
Wheat: Up 9 to 12 cents

GENERAL COMMENTS Corn and soybeans are firm and holding just below recent swing highs ahead of key USDA reports at 11:00 a.m. CT.  Wheat is rising as Russia is “considering” raising wheat export tariffs from the current 25 euros ($30) per MT to 50 euros per MT, from February 15 through June 30.

There are going to be a lot of numbers on this report as we get the final yield and production as well as Dec 1 stocks, but the most important figures are going to be U.S. and world carryouts with traders looking for further cuts from USDA. Keep in mind this has been a demand-led rally which has been led by overseas buying with U.S. corn exports already forecasted to increase from 1.778 billion bu. to 2.650 billion bu. and soybeans moving from 1.676 billion to 2.200 billion bushels. U.S. ending carryout is estimated at 1.600 billion, compared with 1.702 in the Dec report. Soybeans carryover seen falling to 139 million bu. from 175 million in December.  

The weather forecasts in South America are becoming less threatening which is helping to stabilize yield ideas but follow up rains are critical. Much-needed rainfall was noted in southern and portions of central Argentina over the weekend. The rain helped bolster soil moisture in areas that were previously lacking moisture. Coarse grain and oilseed development conditions will improve for a while. However, there are still moisture shortages at the subsoil level and additional rain will be needed especially as drier and warmer biased conditions evolve again this weekend for a minimum of one week. Brazil saw some rains fall far north and south over the past 24 hours but will see better overall coverage across the bulk of the growing region next ten days.

Soybeans are about $5.00 (57%) above the Aug. 12 reversal up low in a three-wave and extended rally. Daily momentum is overbought with several failing to make new highs to confirm the latest move to 6 1/2-year highs. Soybeans are in a position to produced “buy-the-rumor, sell-the-fact” response to USDA data later this morning. It also could take the remainder of the week or early next week to confirm that action. Corn is up about $1.60 (48%) above the Aug. 12 reversal up low. A break back below $4.82 1/2 would likely set in motion long liquidation and new selling as funds take profits on net-long positions that have risen from a net-short of 300,000 contracts to nearly 350,000 net-longs, the most since May 2011, more than the during the drought of 2012. The record was 429,000 net longs in October 2010. Commercials are net short a record 761,000 futures and options. You’ve heard the bullish rhetoric throughout the holidays, so don’t turn more bullish now.   

Before the reopening this morning, USDA announced new soybean sales. Private exporters sold 120,000 MT of soybeans to unknown destinations for delivery this season. That follows 132,000 MT of soybeans announced sold to China yesterday and Friday’s announcements of 204,000 MT of soybeans to China.

China’s ag ministry hiked its 2020-21 corn import projection by 3 MMT from December to 10 MMT, citing the “enlarging” price difference between domestic and international corn. Chinese corn prices hit new records this week. The ministry also lowered its 2020-21 corn production forecast from 264.71 MMT to 260.67 MMT, a move many have said is long overdue. The country’s expected corn deficit widened more than 2 MMT to 18.51 MMT. USDA in December pegged China’s corn crop at 260 MMT and imports at 16.5 MMT. The ag ministry also raised its soybean import projection from 95.1 MMT to 98.1 MMT, citing rising demand from its livestock sector for soymeal. USDA pegs Chinese imports at 100.0 MMT. Also of note, China’s cotton import projection edged 100,000 MT higher to 2.1 MMT.

Global stock markets stabilized after Monday’s losses, with investors feeling confident enough in the economic recovery and vaccine rollout to buy the dip in some risk assets. U.S. equity futures were slightly higher, while Europe’s Stoxx 600 Index traded little changed. Commodity prices rose as the dollar held steady and benchmark Treasury yields ticked higher. After Bitcoin suffered steep declines on Monday, the largest cryptocurrency bounced back above $35,000. The mood across markets is positive and investors are continuing to assess how the rise in Treasury yields changes the financial landscape. While progress on a vaccine gives reason to be hopeful, there are lingering concerns over the speculative excess and froth that’s driven stock markets to all-time highs in the middle of a pandemic.

CORN: March corn opened slightly lower last night, touching $4.89 ¼ before rebounding into the morning break to post small gains. Marketing year corn export shipments improved in recent weeks. Shipments to date still fall short of the seasonal pace needed to hit USDA's target, but the deficit has started to narrow over the past several weeks. As such, USDA won’t make any changed in its export forecast today. 

SOYBEANS: March opened lower and erased losses to trading slightly higher into the break and well contained inside of yesterday’s range. Some of the recent sales have been optional origin, which means that they could still be flipped to Brazil, but the opposite is possible as well. It all depends on the early harvest pace and movement of soybeans to the ports. That puts a big focus on what USDA does with its export estimate later today. Malaysian palm oil futures ended 2.5% lower on Tuesday, hitting a one-week low on concerns of weak demand as partial data showed a sharp decline in January exports. Exports of Malaysian palm oil products for Jan. 1-10 fell 29.7% from the same period in December. Dalian's most-active soyoil contract and its palm oil contract slumped 1.7%. U.S. soyoil futures followed lower overnight.

WHEAT: Futures started higher on news that Russia is considering raising tariffs. Prices are trading inside of yesterday’s reversal down range and a close above $6.51 ½ would be positive after the USDA update on winter wheat planted acreage later this morning. Traders are looking for plantings to rise about 1.1 million acres to 31.528 million from the 111-year low last year. It would be the first increase in eight years. Egypt passed on its tender for wheat overnight after receiving only four offers. The lowest offer in the international tender from Egypt's state commodities buyer GASC to buy wheat on Tuesday was believed to be $292.97 per MT FOB for wheat from Romania, up from $283.33 in its last tender Dec. 15 The unusually low number of four trading houses taking part in the tender was largely linked to reports of higher wheat export taxes in Russia. Snow and rain are still expected in much of western Russia, Ukraine and areas in both Russia’s Southern Region and far northwestern Kazakhstan. The precipitation will add moisture to the soil for use in the spring – at least when the snow melts.   

Cattle: Steady-mixed
Hogs: Steady to mixed

Cattle: Cash cattle traded at an average price of $111.27 last week, a 24-cent dip from the week prior and a bit of a disappointment after expectations for steady to higher action. But this week’s kill is off to a solid start. The product market was mixed on Monday, with Choice rising 89 cents and Select dropping 95 cents and a subdued 123 loads changing hands. Traders will look to today’s USDA balance sheet to see if USDA raises its 6% growth forecast for exports in 2021.

Hogs:  Packers aren’t tapping the brakes on production after slaughtering a record number of hogs last week. Monday’s kill totaled 498,000 head, a 2,000-head jump from year-ago and an 8,000-head gain from week-ago. That keeps attention on whether demand is there to meet the record-setting pork production. On Monday, 377.17 loads of pork changed hands on a $2.38 gain in the cutout value.  Exports have also been a bright spot, with USDA data showing U.S. pork exports have already registered annual records in terms of both volume and value, with one month yet to be reported for 2020. And the U.S. Meat Export Federation noted an uptick in demand from countries outside of China.  However, Taiwanese consumers are turning away from imported pork, driving up prices and frustrating meat producers’ hopes that the liberalization of the country’s pork market would offer new opportunities for U.S. suppliers, the Financial Times reports. On Jan. 1, Taiwan lifted a ban on U.S. pork containing the feed additive ractopamine.