Ahead of the Open: Soybeans Head Lower on New U.S./China Trade Concerns; Grains Weaker

Posted on 12/06/2018 8:08 AM

Grain Calls

Corn: Down 1 to 2 cents              
Soybeans: Down 7 to 9 cents
Wheat: Mostly down 2 to 4 cents

General Comment Uncertainty ramped up even higher about Chinese ag product demand and the timing of any purchases, much less the ability of the U.S. and China to reach a trade deal.  The positive relations just days ago between the U.S. and China may have collapsed overnight when Canada confirmed it arrested Wanzhou Meng, chief financial officer of Huawei Technologies, one of China’s most important brands. The move, reportedly for alleged violations of U.S. sanctions against Iran, outraged China, which called for her immediate release. The U.S. wants her extradited. The company is key to Xi’s plans to dominate new technologies as the world’s largest telecommunication company. The arrest also puts Xi is tough place because he is already under pressure not to cave in too much to the U.S. president. This morning, the Commerce Department said the U.S. trade deficit jumped to a 10-year high on record consumer goods imports in October. The trade deficit with China increased 1.7% to $55.5 billion, the highest since October 2008 and the fifth straight increase. Global stocks are sharply lower for a third day and U.S. markets are down more than 2% ahead of the opening. Oil stocks head for the worst day in 2 ½ years as crude oil prices tumbled as much as 5% amid indications OPEC and Russia can’t come to an agreement to cut production to balance supplies. The world food price index from the Food and Agriculture Organization of the United Nations dropped to an average of 160.8 in November, down nearly 15 points from last year and the lowest level since May 2016. Prices for vegoils led the decline, while prices for dairy, cereal grains and meats were also lower.

Corn is seen steady to weak as amid stock and oil market losses that curb speculative buying interest. March corn is back below its opening price from Monday but well above the top of the upside gap left on the weekly chart to start this week. That gap from $3.78 to $3.80 is key support.  Some demand support may develop from this morning export sales announcement. USDA said private exporters sold 198,120 MT to Mexico with 106,680 MT for delivery in 2018-19 and 91,440 MT for shipment in 2019-20.

Soybeans are seen weaker to start and headed for the first drop in five sessions on a lack of any new Chinese purchases and ongoing good weather in South America for big crops. The largest market response to the US/China trade truce has been the dramatic narrowing of Brazilian premium to U.S. export values.  Futures rallies are limited due to competitive March-July Brazilian offers. China has agreed to buy 300,000 MT of Argentine soyoil from its 2018-19 crop, according to the chief of staff for the ag minister. That compares to purchases of 120,000 MT over the past three years. But China is not interested in buying Argentine soymeal at this time.

Wheat futures are expected to be under pressure to start after a defensive close on Wednesday and stronger Canadian production forecasts. Stats Canada said wheat production rose 6% to 31.77 MMT, up from 29.98 MMT last year and above the average trade estimate for a crop of 31.4 MMT.

Livestock Calls

Cattle: Steady to firm

Hogs: Weaker

Cattle futures seen steady to firm after cash lightly traded about $1 higher on Wednesday with more confirmation needed today to sustain a rally. Wholesale beef was mixed again yesterday with choice up 78 cents and Select falling $1.67. Sales were strong again as retailer lock in products for the run up to year end.

Hog futures seen weaker to start as the U.S. average cash hog prices fell 85 cents. Wholesale pork carcass values rose 23 cents as gains in bellies and loins offset the drops in butts, picnics, ribs and hams. Movements slowed to 351.3 loads on Wednesday from 419.1 loads on Tuesday. Slaughter is up 13,000 head this week from a year ago, indicating supplies remain more than adequate.  China’s ag ministry reports a case of African swine fever was found in the northern province of Shanxi. That will keep a firm tone to deferred futures on hopes for stepped up Chinese imports.

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