Corn: Up 6 to 7 cents
Soybeans: Up 8 to 10 cents
Wheat: Up 6 to 8 cents
General Comment: The grain and soybean markets posted strong followthrough gain overnight as fund managers are finally realizing that U.S. farmers may not get all their intended acres planted and later planted crops face declining yield risks. Even at current prices, they are not high enough to plant in less than ideal conditions, especially with forecasts for widespread coverage of 2 to 4 inches of rain starting later this week through much of next week. Some sources estimate as of yesterday’s close that funds were still net-short 78,000 futures and options contracts of SRW wheat; net-short 274,000 corn contracts and; net-short 165,000 contracts of soybeans.
While planting delays and rising yields risks are supporting this week’s strong rally, the China trade war also shows signs of increasing pressure on Beijing to reconsider U.S. demands. Chinese data for April largely pointed to a loss of momentum even before President Donald Trump raised tariffs on China exports last week. Growth in industrial output slowed more than expected to 5.4% in April from a year ago, pulling back from a 4-1/2 year high of 8.5% in March, which was boosted by seasonal and temporary factors. China on Wednesday also reported surprisingly weaker growth in retail sales for April, adding pressure on Beijing to roll out more stimulus as the trade war with the United States escalates. Sales rose 7.2% in April from a year earlier, the slowest pace since May 2003, data from the National Bureau of Statistics (NBS) showed today. That undershot March's 8.7% and forecasts for a gain of 8.6%. The data suggested consumers were now beginning to cut back spending on everyday products from personal care to cosmetics and continued to shun expensive items such as cars. Adding to worries about domestic demand, Wednesday's data also showed an unexpected stumble in investment. Fixed-asset investment growth slowed to 6.1% in the first four months of this year. Analysts had expected it to rise 6.4% from 6.3% in the first quarter of this year. Private sector fixed-asset investment slowed sharply to 5.5 percent growth from 6.4 percent, suggesting the sector continues to face difficulties despite central bank efforts to get more affordable loans to cash-strapped companies. The private sector accounts for the majority of jobs in China and about 60% of overall investment.
Besides the rain-delayed U.S. plantings, the market is also beginning to price in dry weather in China. Short to very short soil moisture conditions are not good for the planting, emergence or establishment of summer crops. Soil temperatures are warm enough for corn planting in most of the region. The lack of moisture in the soil and dryness in the North Chin Plain may lead to planting delays and/or poor emergence and establishment, according to World Weather Inc. The most important time of year for significant rain in northern China is late May and June. Not much improvement in the North China Plain moisture deficits until June, and even then, some of the relief will be questionable.
The daily USDA export report for large sales did not report any new business this morning.
Corn futures rose to the highest since March 31 overnight, rising through the 40-day and 50-day moving average. Next stop is the 100-day moving average near $3.82 and the March high at $3.90.
Soybeans futures rose above the downside gaps left after President Trump said China had reneged on the trade deal on May 6. A close above the gap would be a positive signal today. Members of the National Oilseed Processors Association (NOPA) are expected to report April soybean crush was a record 161.607 million bu., when the group reports later this morning. Soyoil stocks at the end of April are expected to be 1.779 billion lbs., up from 1.761 billion lbs. at the end of March. China’s planting of soybeans has increased this spring because of encouragement in the form of increased subsidies, the Ministry of Agriculture and Rural Affairs said. The area planted in soybeans is expected to expand by 667,000 hectares, up 8% from a year ago under the plant. The government's plan to increase soybean cultivation and improve productivity will reduce China's reliance on imports to meet domestic demand, the report said.
Wheat futures seen moving higher on signs that world prices have bottomed and signs of improving overseas demand for U.S. supplies. Australia will import its first shipment of wheat in more than a decade as a drought across the country's east coast wilts supply in the world's fourth largest exporter of the staple grain. Australia's Department of Agriculture and Water Resources said late on Tuesday that it has approved an import permit of Canadian wheat. "The shipment is expected to arrive in Australia in the next six to eight weeks," it said in a statement on its website.
Cattle: Steady to lower
Hogs: Steady to higher
Cattle futures seen steady to lower after the defensive close Tuesday and lower cash cattle indications. Initial asking prices are only $120 in the southern market, which is steady with where cattle traded last week, while initial bids are $4 lower. Even with the bearish cash cattle expectations this week, futures are undervalued with the June contract more than $10 below last week’s average cash price. Wholesale beef prices were mixed with Choice down $1.46 and Select up 8 cents. Movement was moderate to good.
Hog futures seen steady to higher. The average national direct cash price built on Monday’s 71-cent gain by firming another $1.14 Tuesday. Even after yesterday’s strong gains, June lean hog futures only carry roughly a $6 premium to the cash index, which would be a historically modest gain over the next month. Wholesale pork cutout values rose 40 cents on Tuesday on light to moderate sales. China's sow herd fell by 22.3% in April compared with the same month a year ago, the Ministry of Agriculture and Rural Affairs said; the overall pig herd fell by 20.8% from a year earlier, the ministry said; it does not give total herd figures. Credit Suisse upgrades Tyson Foods to outperform from neutral because it doesn't think the market is fully appreciating the impact of the African Swine Fever outbreak on global meat supplies over the next two years; no supply-shock event in recent history can compare to this one in terms of magnitude, it says as it cites the dramatic contraction in China's pig herd.