Ahead of the Open: Grains, Soy Quietly Firmer Waiting on USDA Report Friday

Posted on Wed, 04/07/2021 - 06:36

GRAIN CALLS

Corn: Up 1 to 4 cents
Soybeans: Up 2 to 6 cents
Wheat:  Up 1 to 4 cents

GENERAL COMMENTS: Soybean futures gained more ground on Wednesday while corn rose for a second session, as concerns over lower U.S. planting intentions and tightening U.S. and global supplies in Friday’s USDA Supply & Demand Report. Wheat edged higher after closing lower on Tuesday. Cash corn and soybean basis continues strengthen. Decatur, Ill. soy basis is no above St. Louis bids, a rare occurrence but reflecting a shift from an export-led cash market pull to a crush-focused cash market focus.

Before the reopening USDA did not announce any daily private exporter sales. USDA releases is weekly export sales report Thursday morning.

Brazil in on track for an all-time high soybean crop this year, although harvesting and shipments have been delayed due to rains. Agribusiness consultancy Agroconsult reported Brazilian farmers will harvest an estimated 137.1 MMT of soybeans, a record volume despite weather-related challenges. However, Brazil's second corn yields will fall by an estimated 3.6% this year, as most growers were forced to sow the cereal outside the ideal climate window after delays in the soy harvest, according to Agroconsult.  There continues to be a need for significant rain soon from Mato Grosso do Sul into Sao Paulo due to dryness leading to an increase in crop moisture stress. Some shower and thunderstorm activity will occur in this area Saturday through next Tuesday; however, follow-up rain will be important in week 2 of the outlook and this rain may not be very great. In Argentina, conditions will continue to be good for late maturing summer crops.

The bulk of the nation’s corn-producing areas are drier than normal heading into planting season, except for the far south and southern Plains—ideal for all crops at this point—though forecasts have shifted a bit overnight, with wetter conditions this week followed by colder air going forward. But there are few concerns about material delays currently. Soils should be able to absorb modest rains quickly in their current condition which allows fieldwork to resume quickly.

U.S. producers can amend their intentions at any time between now and the final plant date. Anecdotal reports indicate the Midwestern farmer is using the weather as a regulator, not so much the insurance dates to tell him when and what to plant. Rains fell in the central Plains and northern Plains and corn belt overnight, lingering today in the western Midwest. This week continues to bring active precip (through Saturday) with heavy amounts expected in most of the central and eastern Midwest. The forecasts maps for next week are wetter in the southern Plains but dry conditions reign otherwise. Temperatures are below-normal next week but may begin warming by later this month.  

Brazil will likely boost soybean plantings by 1.5 million hectares (3.9%) in 2021-22, pushing planted acreage to 40 million hectares, according to a U.S. attaché there. That would likely push production to 141 MMT, a 7-MMT from what the post expects the country to harvest this season. The attaché says that current “strong demand, high prices, and a favorable exchange rate” are likely to persist well into 2021-22, bolstering production. The post expects the country to export a record 85 MMT of soybeans this season, followed by 87 MMT in 2021-22. “Healthy returns will leave growers well capitalized to make future investments,” the attaché observes.

Jamie Dimon said he’s optimistic the pandemic will end with a U.S. economic rebound that could last at least two years. “I have little doubt that with excess savings, new stimulus savings, huge deficit spending, more QE, a new potential infrastructure bill, a successful vaccine and euphoria around the end of the pandemic, the U.S. economy will likely boom,” the JPMorgan Chase & Co. chief executive officer said Wednesday in his annual letter to shareholders. “This boom could easily run into 2023.”

Meanwhile, China's once-a-decade census is expected to show a further fall in the percentage of young people in its fast-aging population as high living costs and an aversion to having children among urban couples push China closer to a demographic crunch. Policy makers are under pressure to come up with family-planning incentives and arrest a falling birth rate, with the world's most populous country at risk of entering an irreversible population slide if effective measures are not found.  In 2010, the proportion of the population aged 14 or younger plunged to 16.60% from 22.89% in 2000, an effect of a decades-old one-child policy. Citizens aged 60 and older accounted for 13.26%, up from about 10%. The continuation of those trends will undermine China's working-age population and weigh on productivity. A shrinking pool of working adults will also test its ability to pay and care for an aging nation.

CORN: May corn is gaining on December futures for a second day. After touching more than $1.02 premium on March 31, the May futures’ premium fell near 61 cents on Monday and this morning it is near 73 cents. A move back above resistance at 85 to 90 cents premium would be a fresh bullish signal. Later this morning the market will be focused on the weekly EIA ethanol report with traders looking for production to slip slightly and stocks rising fractionally. Rising vaccine distribution and increasing reopenings and travel will support better gasoline and ethanol demand into the summer.  

SOYBEANS:  Futures were well contained inside of Tuesday’s ranges overnight. Old-crop soybean futures need to rise above last week’s high to reduce the chances of an important top forming. November futures continue to consolidate above the prior highs from early March but may need a fresh weather or demand new event to begin trending higher.  Chinese soybean crushing remains slow even as Brazil soybean arrivals increase, leading to a potential glut in the market and increasing speculation that some of the unshipped purchases from the U.S. will be cancelled or more likely rolled into new-crop delivery. Malaysian palm oil futures rallied 1.1% overnight to a two-week high on rising exports this month and a tightening global vegoil supply situation. Meanwhile China’s Dalian soyoil rose 1% and palm oil futures gained 1.7%.

WHEAT: Wheat prices are trying to build a new base of support and the narrow premium to corn suggests the market will follow corn over the next several weeks until more is discovered about the health of the U.S. winter crop and if rains reach the Northern Plains and Canadian Prairies.  Egypt’s GASC yesterday bought 345,000 MT of wheat for August 1-10 shipment, including 290,000 MT from Russia and 55,000 MT from Ukraine, with prices ranging from $251-$253 per MT Japan’s Ag Ministry is seeking 91,000 MT of milling wheat in their regular weekly tender, including 66,000 MT from the U.S. and 25,000 MT from Canada.

CATTLE: Steady to higher
HOGS: Steady to firm

CATTLE: Cattle futures have been anticipating the rally in cash and beef and may need a pause, but the long-term outlook remains positive. Cash cattle trade got started at $121 in Kansas on Tuesday, with the early start hinting packers were short bought on needs. That’s up a sharp $4 from prices last week in the state. Trade was quiet in other locations. Today, the online Fed Cattle Exchange auction should provide some additional market insight. Packer profit margins have soared nearly $137 over the past week to $525.35 a head, according to HedgersEdge.com, with soaring beef prices outpacing modest cash market gains in recent weeks. Choice beef shot another $4.10 higher on Tuesday, with Select jumping $1.44. Movement was also solid considering lofty prices at 124 loads.  

HOGS: Nearby lean hog contracts pared losses into the close, with the market encouraged by strong morning pork movement despite higher prices. Movement held strong into the afternoon, with 414.14 loads changing hands on a dime rise for the pork cutout value. Stronger load counts are impressive with cutout values over $109 a hundredweight. Cash hog bids edged 27 cents lower on Tuesday, but the CME lean hog index has climbed to its highest level since October 2014.  Underlying support remains optimism about strong Chinese demand for pork imports amid rising case of African swine fever. Traders will be eager to see if Thursday’s weekly USDA export sales report shows sustain gains after sales rose to a marketing year high in last week’s tally.