Ahead of the Open: Grains, Soy Pause Amid Trade Tensions, Small U.S. Planting Window

Posted on 06/07/2019 7:37 AM

Grain Calls 

Corn: Down 1 to 3 cents
Soybeans: Down 2 to 4 cents
Wheat: Down 1 to 4 cents

General Comment: Grain and soybeans are seen weaker today, as this week’s back and forth trade continues. Farmers are taking advantage of a brief late-planting window to sow some of the record amount of corn and soybean acreage that was left to plant on June 2. The Midwest weather forecast is drier than it has been but there will still be some showers around the next five days. Yield uncertainty is unprecedented and that should keep a floor under prices into pollination.

Talks between the U.S. and Mexico are set to continue into a third day in a bid to reach an agreement that would stop the imposition of 5% tariffs on American imports from its southern neighbor on Monday. Mexican Foreign Minister Marcelo Ebrard confirmed that his government has offered to send about 6,000 national guard troops to Mexico’s southern border with Guatemala to help stem migration, while Vice President Mike Pence said it is still the U.S. plan to go ahead with the tariffs. He said he would talk to President Donald Trump over the weekend to update him on developments ahead of the deadline.

Meanwhile, Trump said on Thursday he would decide whether to carry out his threat to hit Beijing with tariffs on at least $300 billion in Chinese goods after a meeting of leaders of the world's largest economies late this month. Relations between the United States and China have deteriorated since Trump in early May accused Beijing of reneging on commitments to change its ways of doing business with the rest of the world. People’s Bank of China Governor Yi Gang said his country has “tremendous” monetary and fiscal policy space to make adjustments to the economy should the trade war worsen. He also said that his meeting this weekend with U.S. Treasury Secretary Steven Mnuchin would probably be a “productive talk, as always.” China’s markets are closed for a holiday today, but the offshore yuan fell the most in three weeks to trade at the weakest level since November, in the wake of the governor’s comments.

The grain markets will find light support today from a weaker dollar and rebound in oil prices. The U.S. Dollar Index fell to the lowest in more than two months this morning after the U.S. reported a weaker-than-expected job story in May. That shows the trade tensions are beginning to bite into the economy and may lead to the Federal Reserve lower interest rates later this year. A barrel of West Texas oil is up about 1.5%, bringing its two-day advance to more than 3% after Saudi Arabia and Russia reiterated their commitment to work together to keep the global market balanced. The kingdom’s top oil official said he was sure that OPEC and its allies would agree to extend production cuts into the second half of the year after holding talks in St. Petersburg.

USDA daily reporting service said private exporters reported 110,000 metric tons (MT) of soybeans were sold to Egypt. Of the total, 55,000 MT is for delivery during the 2018-19 marketing year and 55,000 MT is for delivery during the 2019-20 marketing year.

Corn: Futures head for first weekly drop in four weeks. This is a pause to refresh before the first USDA crop conditions report and planting update on Monday and the monthly supply and demand forecasts scheduled for Tuesday.

Soybeans: Futures are heading for a week decline, following corn but also concerned that acres intended for grain may be planted to soybeans.  

Wheat: futures seen defensive, waiting for more clues that recent improved overseas demand for U.S. supplies will continue. Flour millers in Asia have been caught on the wrong side of a rally in wheat prices as they waited for the market to decline, according to trade sources. That could see fresh tenders on in the weeks ahead on any price weakness. Russian Ag Minister Patrushev says the country will extend its 0% grain export duty for 2019-20. This signals a lack of concern about this year’s production prospects and strong export competition. Argentina Wheat Association sees wheat planting this year rising 1.24 million acres to 16.8 million, the most in 18 years after the recent surge in domestic prices. Argentina harvested a record 18.7 million metric tons (MMT) last season.

Livestock Calls:

Cattle:  Mixed

Hogs: Steady to weak

Cattle: Futures seen opening steady to mixed. Wholesale beef was mixed Thursday with Choice up 14 cents and Select slipping 2 cents. Load count was moderate.  The story going forward was the unexpected large drop in steer carcass weights for the week ended May 25. Weights fell to 842 lbs., down 7 lbs. from a week earlier and 6 pounds lower las a year ago. That’s a new low for the year and the lowest for that week since 2014. Weather and active marketings leave the market very current and that likely means stronger cash cattle bids going forward. Vegan burger maker Beyond Meat reported net revenue of $40.2 million in the first quarter and reported net loss of $6.6 million, both beat estimates. Still, the stock, which had already quadrupled since its initial public offering a month ago surge more than 15% in after-hour trade on Thursday, boosting its valuation to a spectacular $6.8 billion.  

Hogs: Futures seen steady to weak. The national average cash hog prices fell 73 cents on Thursday and pork carcass cutout values rose just 18 cents after prices were reported up $2.28 at midday. Sales slowed as slaughter this week is up 107,000 head from a year ago. The average hog weight for the week ending June 1 was 287.2 pounds, up from 285.5 pounds the week before and up from 280.9 pounds a year ago. This adds to short term supply. Packers margins are healing but are still slightly negative. Traders are hoping that the Administration doesn’t levy tariffs on goods from Mexico that may prompt retaliation. Pork export sales for the week ending May 30th were 33,800 MT, compared with the average of the previous four weeks at 32,750 MT. Pork sales to Mexico were lower than previous weeks. Pork sales to China were 17,400 MT, down from the last two weeks.

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