Ahead of the Open: Soy Leads Grain Rally on U.S./China Trade Talk Progress

Posted on 02/01/2019 7:39 AM


Grain Calls

Corn:  Up 2 to 3 cents
Soybeans: Up 10 to 13 cents
Wheat: Up 1 to 3 cents

General Comment:  While both the U.S. and China cited progress at the high-level trade talks in Washington this week, they stopped short of announcing a breakthrough that would end the conflict. U.S. President Donald Trump said on Thursday he will meet with Chinese President Xi Jinping soon to try to seal a comprehensive trade deal as Trump and his top trade negotiator both cited substantial progress in two days of high-level talks.  U.S. Trade Representative Robert Lighthizer and Treasury Secretary Steven Mnuchin were invited to bring a U.S. negotiating team to Beijing around mid-February, with dates still pending. At the end of two days of high-level talks Chinese Premiere Liu He, Beijing’s chief trade negotiator, told Trump that China would make a new, immediate commitment to increase soybean purchases. An administration official later clarified the amount as a total of 5 million metric tons, effectively doubling the amount bought by China since resuming limited purchases in December. USTR Lighthizer acknowledged that the announcement on Chinese purchases of U.S. soybeans was a surprise. Still, a person familiar with the discussions told Reuters that a broad range of concerns about access to Chinese agricultural markets were raised in the talks but little progress was made. The White House said in a statement that a scheduled March 2 tariff increase on $200 billion of Chinese goods to 25 percent from 10 percent was a "hard deadline" if no deal was reached by March 1. Trump said he did not think he would need to extend the deadline. "I think when president Xi and I meet, every point will be agreed to," Trump added.

The January U.S. jobs report showed a larger gain in new jobs, extending a run of adding jobs to 100 consecutive months. Wages were up 3.2% from a year ago, a positive for boosting consumer demand for meats and dairy.

In Argentina, storms linger into tomorrow across the north, but drying is already underway in wet central and southern areas, and only scattered rain returns to wet areas next weekend.  In Brazil, driest areas remain drier and warmer than normal through Monday-Tuesday, followed by significant rainfall the next five days that follow. Weather in South America will cap gains heading into the weekend.

Corn is seen opening stronger, but prices remain below key resistance to accelerate gains. Brazil's corn exports in January totaled 3 MMT, 30% more than in the same month a year earlier, grain exporter group Anec said Friday. Brazilian corn exports seen falling to around 1.2 MMT in February as the country's grain export flow turns to soybeans. Argentina's 2018-19 corn crop is estimated at 45 MMT, the Buenos Aires Grains Exchange said in a report Thursday, citing better-than-expected yields for increasing its previous forecast of 43 MMT and above the current USDA forecast of 42.5 MMT.

Soybeans seen firming on China’s pledge to buy U.S. soybeans with gains limited by no clear timing for the purchases or shipments.  Brazil's soybean exports in January reached 2.3 MMT, up 56% compared with the same month a year earlier, exporter group Anec said. About 95% of the total were shipped to China.

Wheat futures will follow the lead of corn and soybeans amid hopes for China to also agree to buy U.S. wheat supplies.  Russia's Sovecon agriculture consultancy said on Friday it had upgraded its forecast for the country's 2019 wheat crop by 2.7 million metric tons (MMT) to 80 MMT because of heavy snow cover.

Livestock Calls

Cattle: Weaker

Hogs: Steady-mixed

Cattle futures tumbled sharply lower Thursday after rising to new contract highs and carryover selling is expected to start today’s trade. Wholesale beef prices were lower Thursday with Choice plunging $2.66 and Select down 12 cents. Sales were moderately active.  Beef demand is good and should help cattle uncover some underlying buying interest.

Hog futures seen steady to mixed with some underlying support developing after prices fell to more than four-month lows. The pork cutout value firmed $1.08 Thursday, as all cuts except bellies posted strong gains. However, movement was light and cutout value for the end of January is the lowest since 2009.  Cold weather cut slaughter so far this week by 252,000 head. That backlog along with heavier supplies than expected this year remain a negative for cash markets. National cash hog prices were 49 cents lower on Thursday.

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