Ahead of the Open: Choppy Trade After Early-Week Gains; Looking for China Trade Clues

Posted on 03/15/2019 7:47 AM

Grain Calls

Corn: Steady to mixed

Soybeans: Steady to up 2 cents

Wheat: Steady to down 2 cents

General Comment:  Look for a choppy trade to finish the grain trading week after earlier gains have futures heading for a higher weekly close. China suggests linking an official state visit by President Xi Jinping to a completed U.S. trade deal, CNBC reported Thursday. Since the countries brokered a temporary truce, U.S. negotiators have sought commitments and concessions up front, while Chinese negotiators have looked to shelve complicated issues for Xi and President Trump to settle in person. But that dynamic changed, the three people briefed on the talks said, when Trump walked out of talks with Kim Jong Un in Hanoi, Vietnam, after North Korea sought an end to sanctions. Timing of a deal remains cloudy but delayed until April at the earlier. It also appears that an accord will happen first before there is an official signing ceremony.

North Korea threatened today to suspend negotiations over its nuclear arms program with the U.S. and said its leader, Kim Jong-un, would soon decide whether to resume nuclear and missile tests.

China will not resort to quantitative easing as it sets policies to support the economy, Premier Li Keqiang said Friday. Policy makers are happy to stick to targeted interventions such as tax cuts to combat unemployment running at the highest level in two years. Li’s comments come at the end of the annual gathering of leaders in Beijing for their policy summit, which included opening China’s market to foreign investment, protection of intellectual property and prohibits the forced transfers of IP from foreign firms to enter the Chinese marketplace. The end of the Chinese Parliament meeting should increase China’s focus on the trade talks.

Treasury Secretary Steven Mnuchin told lawmakers Thursday the Trump administration will work out a solution on steel and aluminum tariffs with Canada and Mexico as part of its efforts to get the new U.S.-Mexico-Canada Agreement (USMCA) passed through Congress.

USDA’s daily export sales reporting services said no large sales were reported in the past 24 hours, a small disappointment with some looking for additional soy sales to China or some improving in corn and wheat business after recent signs that prices have quit going down.

Corn market is seen stead-firm. It was an active overnight session, but prices were stuck in a narrow 3-cent range. For the past three days, prices opened steady weak and closed higher, heading for a higher weekly close in three weeks. Some optimism improvement over perceived progress between the U.S. and China over trade issues and short covering of large fund bearish bets will continue to provide underlying support. Cash prices are firming poor weather hampering logistics as well as the continued lack of producer selling. Rural roads continue to deteriorate – in Iowa, even school buses must stay off county gravel roads. A week of dry weather will aid melting snow and slowly allowing flood waters to recede before a more active weather pattern and rain returns and planting delay concerns increase.

Soybean futures seen higher on signs of progress in a U.S/China trade discussions is keeping new fund selling at bay. Thursday’s weekly export sales were strong in the week ended March 7 at more than 70 million bushels with 62.7 million sold to China. NOPA crush is set for release later this morning with the trade estimating 158.7 million bu. No concerns over South American weather.

Wheat futures seen slightly weaker this morning, paring some of this week’s gain, which is heading for the largest in more than three months. Funds are covering near record large short positions despite slow U.S. export sales. French winter wheat crops rated 85% in good and excellent condition on March 11, down from 86% a week earlier and up from 80% a year ago.

South Korea bought 33,700 MT of U.S. and 30,800 of Australia wheat

Livestock Calls:

Cattle: Steady to weak

Hogs: Steady to firmer

Cattle futures seen steady to weak on lower cash trade. Futures are heading for the first weekly drop in four weeks after prices reached new contract highs earlier this month. The average cash steer prices this week is $126.98, down from $128.34 last week. Wholesale beef prices were lower on Thursday with Choice down 54 cents and Select slipping 52 cents. Movement was moderate.  Winter weather cut the slaughter Thursday to 99,000 head, down from 116,000 a week earlier and 119,000 a year ago.

Hog futures seen opening steady to higher on rising U.S. cash markets and a surge in Chinese purchases of U.S. pork. The average U.S. cash hog price rose $1.08 to $51.86 on Thursday and up $7.06 in the past week. Pork cutout values rose 95 cents to $68.80, up $4.55 from a week ago. China made its biggest purchases of U.S. pork in nearly two years last week, USDA data showed on Thursday, as Chinese hog prices surged higher. China's WH Group, which owns Smithfield Foods, said on Friday its fourth-quarter net profit fell 7% to $290 million, as African swine fever in China and the Sino-U.S. trade war hit the income of the world's top pork producer. Also, the China-U.S. trade war cut U.S. pork shipments 45% last year. In April, China slapped a 25-percent import duty on most U.S. pork products in response to U.S. tariffs on Chinese steel and aluminum products. Pork products were also included in a second round of tariffs of 25 percent introduced in July.  Elimination of the 50% tariffs could see U.S. pork sales stay very strong.

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