Ahead of the Open: Strong Meal Rally Signals Increasing Physical Demand, Supports Soybeans, Corn

Posted on 08/14/2018 7:57 AM

Grain Calls 

Corn: Up 1-2 cents

Soybeans: Up 6-9 cents

Wheat: Mixed to up slightly

 

General Comment: China’s economic growth is slowing. Industrial output, retail sales and investments all slowed in July amid escalating U.S. trade dispute and rising borrowing costs. China's Finance Ministry told local governments on Tuesday to speed up issuance of special bonds used to fund infrastructure projects, as Beijing looks to boost investment amid trade headwinds. Funding in the first half of the year was equal to just 22% of the China government’s annual target. China stocks were lower, bucking the higher trend in most global markets overnight. U.S. Congressional Budget office lower its growth forecast to 3.1% this year, down from 3.3% in April and warned that trade tariffs may slow growth in 2019 to 2.4%.

 

Corn reopening seen slightly firmer after USDA pared the amount of corn rated in “good” to “excellent” condition a percentage point to 70%. That’s in line with trade estimates with the crop rushing to maturity, increasing trade uncertainty the crop can reach USDA’s third-highest ear weight forecast last Friday. Demand continues strong with consumers using recent weakness to increase forward coverage with global inventories of feed grains as a percent of use forecast to fall to a 45-year low.  Monday’s low at $3.66 is key near-term support in December futures with a close back above $3.77 to $3.80 a new bullish signal.

 

Soybeans seen starting slightly higher this morning on follow through to gain on Monday after sharp losses last week. The soybean meal market continues to lead to the upside this morning on improving sales and shipments of U.S. supplies as drought reduced production in Argentina boosts demand. The monthly soybean crush report on Wednesday is expected to show processors used a record 161.75 million bushels in July, up from 144.72 million a year earlier. We forecast 164 million crush. A second day of gains today would be a positive technical signal and may lead to fund buying to cover short soybean positions. Gains will be slowed by favorable U.S. finishing weather, forecast for record production and lack of strong Chinese demand for U.S. soybeans.

 

Winter wheat seen following European wheat prices slightly higher this morning after the recent weakness to a two-week low uncovered demand. Lingering heat and dryness in the Australia, U.S. and Canada may curb output below USDA forecasts last Friday. Egypt seeking wheat today for delivery in September and October, with the lowest offers from Romania. Spring wheat will be on the defensive after USDA reported a slight uptick in crop conditions this past week amid rapid harvest progress.

 

Livestock Calls

 

Cattle: Prices may open steady-firm on a surge in wholesale beef prices as Choice jumped $1.82 and Select gained $1.89 on light to moderate demand. Slaughter Monday rose to 118,000 from 115,000 a year earlier and unchanged from a week earlier. Market waits for the cash cattle trade to develop for better price direction.

 

Hogs futures seen steady to lower after higher pork prices at midday Monday ended down slightly in the afternoon report. Lower ham, belly and butts offset gains in loins, hams and picnics. Packers processed 467,000 head on Monday up from 449,000 a year earlier and 395,000 a week ago. Average cash hogs were $1.21 lower on Monday. Large discounts October and December hogs hold to cash prices is limiting selling interest with funds reported on July 7 to be holding the largest short bet since  April 2013.

 

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