Ahead of the Open: Record Slow U.S. Corn, Soybean Planting Keeps Funds Covering Shorts

Posted on 05/21/2019 7:40 AM

Grain Calls

Corn: 5 to 7 cents higher
Soybeans: 6 to 8 cents higher
Wheat: 5 to 9 cents higher

General Comment:  Corn, wheat and soybean futures continued to push higher overnight on active volume on speculation that rain-delay planting and potential wheat-damaging wet weather will reduce the U.S. crop production. Record-late summer row crop planting progress and more rain in the forecast has corn the upside leader.  

 Widespread rainfall arrived slightly earlier than expected in central and southern Illinois over the last six hours, including the few areas of the Corn Belt that missed significant totals over the weekend. Rains will also affect much of Indiana this morning, and possibly reach Ohio as the cluster dissipates. Otherwise, heavy totals affected much of the central and southern Plains and Missouri overnight. The central U.S. will remain sharply divided by unseasonable coolness northwest and mildness across the southeast over the next 10 days.  Large- and small-scale systems ride the colliding air masses, triggering rain in varying amounts and areas each day. Rains will be less frequent over May 29 through June 5, but overall wet weather is expected into early June.

About 49% of the U.S. corn crop had been planted as of May 19, a 19-point gain from the week prior but still well behind the five-year average pace of 80% completed at this point in the growing season. Cool, wet weather has also hindered emergence. Just 19% of the crop has emerged, which is 30 points shy of the five-year average.  Soybean planting advanced just 10 percentage points over the past week to 19% complete, which is well behind 47% finished for the five-year average. Just 5% of the U.S. soybean crop has emerged, which compares to 17% on average and 24% last year at this point.   

Trade roar, trade war. China unveiled a new fight song overnight that pledges to fight the latest tariffs and not cave to U.S. trade pressure. Chinese officials continue to warn that the country will retaliate for the U.S. blacklisting of Huawei Technologies Co., while also refusing to say what form that response might take. U.S. chipmakers came under pressure in the wake of the ban, which the Commerce Department yesterday eased slightly by granting a 90-day reprieve for certain U.S. companies and customers using the manufacturer’s equipment. Chinese stocks rose on Tuesday as investors took hear from the temporary easing on Huawei restrictions. Economic growth in China and the United States could be 0.2-0.3% lower on average by 2021 and 2022 if the two countries do not row back on tit-for-tat tariffs in their dispute that has dampened the global economic outlook, the OECD said on Tuesday.

Meanwhile, U.S. Ambassador to Japan William Hagerty said the top trade negotiators for the U.S. and Japan may come up with an agreement “in months.” President Donald Trump is scheduled to arrive in Tokyo later this week for summit talks with Japanese Prime Minister Shinzo Abe, where trade and security issues are set to be on the agenda.  

USDA daily export sales reporting service did not report any new large export sales in the past 24 hours.

Corn: July corn futures rose to the highest in more than three months, up more than 15%, or 53 cents, since reaching new contract lows last week. The supply paradigm is changing by the hour. The traders who were looking at corn acres to fall 2 to 3 million acres and national average yields dropping to 170 to 172 bushels per acre (BPA) are now talking that corn plantings may fall 3 to 5 million and national yields falling to 165 to 168 BPA. This is an intense new dynamic that is changing by the hour and forecast by forecast. As a result, traders are factoring in more potential acreage and yield reductions and funds are covering short positions. Since May 14, funds likely covered more than half of the net-short position of 282,918 contracts with more buying expected. China's corn futures rose to a six-month high on Monday, boosted by fears of tight supplies as  the fall armyworm, a pest that ravages grains crops like corn and sorghum, has been found in several Chinese provinces and regions since it was first detected in the country earlier this year

Soybeans: Futures rallied overnight on U.S. planting delays that have the funds covering large short positions.  Funds added 8,283 contracts to their net short soybean position that was a record-large 168,835 futures and options contracts as of May 14.  China shipped out 7.6 Mil Bu of US soybeans or 41% of the total last week, according to USDA data on Monday. So far, China has not shown an indication that they are going to end their old crop US shipping program. Anything is possible, but the US is still loading out US soybeans to China.

Wheat: Weather is also supportive for the wheat market along with some signs of improving export demand as consumers start to increase forward coverage. Still, USDA now says that 66% of the U.S. winter wheat crop is in “good” to “excellent” condition, a two-percentage-point gain from last week whereas traders anticipated a one-point decline.  The planting of the 2019 U.S. spring wheat crop advanced 25 percentage points in the latest week to reach 70% complete. This was just above the high-end of published trade. Not one of the six major producing states are running ahead of its respective latest five-year average, and combined they are about 10% behind average.

Livestock Calls:

Cattle:  Steady to mixed

Hogs: Steady to firm

Cattle: Cattle futures seen mixed after failing to hold opening gains on Monday. Wholesale Choice beef prices rose $1.14 while Select cutouts fell 25 cents. Sales were moderate. Last week’s negotiated fed cattle trade volume was the lightest since February at 72,000 head, with 45,000 head traded for delivery in 1-14 days and 27,000 head for 15-30 days out. Cash averaged about $3.69 cheaper live last week at an average of $116.65 but still $2 higher than a year ago. Boxed beef prices on the other hand, were $9 cheaper than a year ago for the same week. Packer margins, while over $100 per head black, are not as profitable as a year ago. Marketings are current after slaughter last week was 660,000, down from 671,000 the prior week and 668,000 the same week a year earlier.

Hogs: Hog futures seen steady to firm after wholesale pork cutout values rose $1.26 to $86.53, erasing all of last week’s decline. The national average cash hog prices slipped 23 cents to $80.92 on Monday but should firm as packers will be buying for a holiday-shortened slaughter schedule next week due to the Memorial Day holiday. While last week’s export sales cancellations by China and rising trade rhetoric have been negative, the markets are support by news that Mexico and Canada would be removing pork import tariffs as U.S. lifts its metal tariffs. China confirmed a new outbreak of African swine fever (ASF) in the northwest region of Ningxia.

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