Ahead of the Open: Narrowly Mixed Waiting for More Insights into U.S./China Trade Talks

Posted on 03/11/2019 7:50 AM

Grain Calls

Corn: Up 1 to 2 cents

Soybeans: Down 1 to 2 cents

Wheat: Down 1 to 3 cents

General Comment: Trade policy again will be a key topic this week amid widespread pessimism and fund selling last week in the grain markets. U.S. Trade Representative Bob Lighthizer appears Tuesday before the Senate Finance panel on World Trade Organization issues.  President Donald Trump on Friday said he plans to send the new U.S.-Mexico-Canada Agreement (USMCA) to Congress very soon, which would start a 90-day clock for lawmakers to approve or reject the plan without any changes.  

China and the United States are still working day and night to achieve a trade deal that matches the interests of both sides and the hopes of the world, including eliminating tit-for-tat tariffs, Chinese Vice Commerce Minister Wang Shouwen said Saturday. Wang said he was optimistic about negotiations with Washington but added any trade mechanism achieved must be equal and fair. It is unclear when or where senior negotiators from both sides will next meet. China thought it was getting close to a deal but now realizes that won't be so easy to achieve, a Chinese source familiar with the situation told Reuters. Thus, the agreement will be completed in full before Trump and Xi meet for a photo opt at their Trade Summit. This makes the announcement of the Trade Summit more important than the actual pact signing ceremony.

China does not systematically give subsidies to its state-owned firms, said Xiao Yaqing, head of the State-owned Assets Supervision and Administration Commission on Saturday.  China is working on standardizing subsidies to create a level playing field for companies of all types and sizes, he added. It was unclear whether standardizing subsidies refers to adjustments of subsidies or their removal entirely. China's central bank on Sunday pledged to further support the slowing economy by spurring loans and lowering borrowing costs, following data that showed a sharp drop in February's bank lending due to seasonal factors. “The global economy still faces some downward pressure and China faces many risks and challenges in its economy and financial sector,” People's Bank of China (PBOC) Governor Yi Gang said at a press conference on the sidelines of the country's annual meeting of parliament. PBOC data on Sunday showed new bank loans in China fell sharply in February from a record the previous month while policymakers continue to press lenders to help cash-strapped firms stay afloat

Impressive weekend snowfall occurred across the northern U.S. Plains and a small part of the upper Midwest with as much as 15 inches snow reported. The storm expanded the deep snow cover in the north-central states and further raises the potential for significant flooding in the next few weeks, according to World Weather Inc. The next storm by midweek promises to produce rain and some snow across the upper Midwest and northern Plains resulting in some significant snowmelt and runoff possibly inducing the first round of flooding in a part of the region. Drier weather follows a week to 10 days with no big storm expected. Wet conditions are expected to remain in place from Texas through the Ohio River Valley into mid-April.

USDA’s daily export sales reporting services said this morning private exporters sold 926,000 metric tons of soybeans to China for delivery this marketing year. On Friday, USDA said China bought 664,000 MT of U.S. soybeans, which confirmed China's first purchase of U.S. supplies since promising to buy an additional 10 MMT as part of trade talks.

Corn market are called slightly higher in a corrective rebound from after May fell to new contract lows and rebounded slightly. On Friday, corn futures came under pressure after the USDA in a monthly report raised its forecast of U.S. corn stocks remaining at the end of the 2018/19 marketing year to 1.835 billion bushels, matching the highest in a range of trade expectations Exports are reduced 75 million bushels and ethanol production expected to use 25 million bushels less.  Funds held a net-short position of 176,777 futures and options contracts on March 5, up from 104.459 a week earlier and the second-biggest short for this time of the year. In the same week, commercials nearly cut in half their net short position to 76,749, the smallest ever for the date and just 21% of the average short position since 2006.

Soybean futures seen slightly weaker after failing to hold overnight gains after touching the lowest since November. Fresh sales to China this morning should help put a floor under prices today. Traders will be watching today’s USDA weekly export inspections report for any signs of a slowdown in recent U.S. shipments. Funds held a net-short position of 50,302 futures and options on March 4, up from 35,982 a week earlier, CFTC data on Friday’s showed.  That’s the most since November and the second-biggest behind 2016 for this time of the year.

Wheat futures seen weaker after overnight gains evaporated after bouncing from new contract lows on Friday. Iraq's state grain board bought 100,000 MT of wheat equally divided between U.S. and Canadian supplies.  Syria's state grain buyer bought 200,000 MT of Black Sea origin wheat in its latest international purchasing tender as expected. With improved price competitiveness, EU wheat is now positioned to take a more prominent role in supplying wheat to major importing countries in Africa and the Middle East. As of last Tuesday, Funds were net short 72,449 futures and options in SRW up from 58,567 a week earlier and the most for the date since 2016. Funds were net short a record 44,870 HRW futures and options.

Livestock Calls:

Cattle: Steady to mixed

Hogs: Steady to firm

Cattle futures seen mixed to start the week after Friday’s rally. Cash cattle ended up just slightly higher after talk of better deals. Wholesale beef inched higher on Friday with Choice up 9 cents and Select up 24 cents on light sales. Funds were net-long 129,079 cattle futures and options on March 4, up from 122,157 a week earlier and the most for this time of the year since 2014. USDA Cattle on Feed report showed cattle held in feedlots rose 0.4% from a year ago, slightly more than the 0.2% increase expected.  Placements fell 5.3% in January as marketings of fed cattle rose 2.8%. The report is neutral for fed cattle and should be friendly to feeders especially when combined to previous reports with more heifers going onto feed and more cows killed in 2018.

Hog futures seen firm this morning after national hog prices rose $1.21 on Friday and Iowa/Minnesota jumped $1.83.  Wholesale pork carcass values rose 79 cents to 65.04, the highest since Feb. 12. However, sales were slow on Friday and long-term resistance is $5.30 higher. Slaughter last week rose to 2.548 million head, up 5.7% from a year ago and likely to limit gains. On Friday, USDA cut its 2019 export forecasts 175 million lbs. (2.8%) to 6.125 billion lbs. despite the recent uptick in weekly sales. Unshipped sales as of Feb. 28 are up 3.5% from a year ago but shipments are down 5.8%. USDA export projection is still up 4.3% from last year and that may be too low, depending on the outcome of U.S./China trade talks.


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