Ahead of the Open: Rising Optimism for U.S./China Trade Truce Lifts Grains

Posted on 11/30/2018 7:48 AM

Grain Calls

Corn: Up 1 to 2 cents     
Soybeans: Up 4 to 6 cents
Wheat: Up 1 to 3 cents

General Comment: President Donald Trump and Chinese President Xi Jinping are preparing for their first face-to-face meeting in more than 12 months. The two leaders head into tomorrow’s dinner with different goals in the high-stakes bid to keep trade tensions from spiraling into a new cold war.  Markets will find support after U.S.  Trade Representative Robert Lighthizer said this morning that he would be surprised if Saturday's dinner "wasn't a success.” That sounds like some type of framework has been completed.

Trump's revised trade deal with Mexico and Canada was signed today in Argentina. All three leaders praised the new deal that each said would benefit North American trade and economic growth, though issues over steel and aluminum tariffs remain and the pact needs to be ratified by lawmakers. Argentina on Thursday said it had signed a $1 billion contract with a Chinese state builder for improvements to a rail line that transports raw materials, including the South American country's main cash crop of soybeans. The project with China Railway Construction Corp. will repair or renovate 1,020 kilometers (634 miles) of railway. The country's once-vibrant grains cargo railway system has fallen into disrepair, leaving farmers to rely on trucks to transport soy, wheat and corn to the ports that dot the banks of the Parana River. Meanwhile in India, tens of thousands of farmers are in the nation’s capital today, demanding debt waivers and better crop prices. The giant two-day protest in New Delhi underscores the challenges facing Prime Minister Narendra Modi before national elections next year, with about 800 million of India’s 1.3 billion people depending directly or indirectly on farming. It’s the last trading day of the month and that can lead to unusual swings in prices as funds and traders  position for the last month of the year.

Corn is seen steady to slightly firmer. March corn is lower for the month and would need to rally above $3.75 ¾ to erase this month’s decline. There were just 2 deliveries against the expiring December contract on first notice day.

Soybeans are expected firmer as short continue to cover position ahead of the Trump/Xi dinner on Saturday. January soybeans are up about 15 cents this month and headed for the highest month close since July. Deliveries against December soymeal were 211 contracts and soybean oil deliveries today were 1,188 contracts. This morning, USDA reports that private exporters sold 120,000 metric tons of soybeans to unknown destinations for delivery before Sept. 1.  This should add some light support this morning. 

Wheat futures are seen a little firmer after no deliveries were posted against the December SRW or HRW futures today. Both winter wheat contracts are headed for a fourth straight monthly decline, leading to some light short covering amid rising tensions between Russia and Ukraine. Russia has moved 21 detained Ukraine sailors captured Sunday to a Moscow jail from Crimea. Bitter cold air settled into portions of interior southern Russia, extreme northern Ukraine and northwestern Kazakhstan this morning.  Most of the subzero degree Fahrenheit temperatures occurred in areas with good snow coverage.

Livestock Calls

Cattle: Steady to mixed

Hogs: Steady to mixed

Cattle futures are seen steady to mixed. Wholesale beef was mixed on Thursday with Choice down 67 cents and Select up 3 cents. A stronger winter storm probable for cattle in Nebraska, South Dakota, and parts of Kansas, Iowa and Minnesota on Saturday and Sunday. Futures have turned its attention to expected beef weakness in the second half of December with demand seasonally soft and supplies still plentiful.

Hog futures seen steady to mixed. Fresh pork prices rose 70 cents on Thursday on light sales.  The average national direct cash hog price fell 39 cents on Thursday, erasing Wednesday’s 26-cent gain. Slaughter this week is up 36,000 head from a year ago, a reminder that live hog supplies continue to rise. The market will continue to find support from Thursday’s weekly USDA export sales report that showed China was buying U.S. pork for delivery in both 2018 and 2019.  On Friday, China confirmed a new outbreak of African swine fever in the municipality of Tianjin.

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