Ahead of the Open: Warmer, Drier Weather Seen Lifting Grains, Caution Ahead of July 11 USDA Report

Posted on 07/08/2019 7:58 AM

GRAIN CALLS:

Corn: Up 2 to 4 cents
Soybeans: Up 1 to 3 cents
Wheat: Steady to up 2 cents

General Comment: Corn is seen rising for a fourth consecutive session as forecasts for hot, dry weather increase yield risks for the U.S. crop. Soybeans rose from two-week lows on Friday and wheat followed the corn rally. Traders will be cautious ahead of the USDA Supply & Demand Report on July 11 after the acreage surprises in the June 28 report.

Warm to hot weather across large portion of Midwest during next 2 weeks attracted new buying interest last night. Cool weather with adequate rain is needed to maintain yield potential after some scattered rains this week. A sharply warmer period begins July 12 as upper-level high pressure begins to bounce within the central U.S., producing maximums in the mid-80s to upper-90s and holding minimums in the 70s for an extended period.  Occasional thunderstorms form in the north with this setup, but coverage and amounts diminish with southward to leave at least the southern half of the central U.S. much drier than normal over the next two weeks. That means July has the potential to be drier and warmer than the 1990, 1995, and 1996 analogs to the 2019 season. Long-range European models released late last week showed a major change with August forecast to be warmer and drier across much of the central U.S.

Still, USDA is expected to show crop conditions improved through the week ended July 7 with corn rated in “good” to “excellent” condition rising to 57% to 58% from 56% a week earlier while soybeans rise 1 to 2 percentage points from 54% rated “good” to “excellent” a week earlier. Look for Spring wheat conditions may rise 2 points to 77% rated in “good” to “excellent” condition.

China continues to demand that the U.S. remove all US tariffs on its exports as a condition for reaching a trade deal ahead of talks this week. Separately, USDA Ag Attaché pegs 2019 China soy crop at 16.8 million metric tons MMT, up 5.7% from 2018. Increased production and lower feed demand are expected to cut soybean imports to 83 MMT, below the 87 MMT current USDA forecast. Cargill, characterizing the estimated 24% drop in China’s hog herd as conservative, and says it may be a decade before China recovers from African swine fever.

China and the rest of the world must co-exist, Vice President Wang Qishan told the World Peace Forum at Beijing's elite Tsinghua University on Monday, in an indirect jab at the United States. The United States should not blame China for the problems it is facing, Vice Foreign Minister Le Yucheng told the forum later. Tariff, trade, finance and science and technology wars are "turning back the clock on history," Le said. "The consequences will be extremely dangerous." China's Defense Ministry on July 5 denied U.S. accusations that the Chinese military had recently carried out missile tests in the disputed South China Sea, saying instead that they had held routine drills that involved the firing of live ammunition. The South China Sea is one of a growing number of flashpoints in the U.S.-China relationship, which include a trade war, U.S. sanctions and self-ruled Taiwan, which is claimed by China as its own.

The U.S. labor market is seemingly indestructible, shaking off recession fears with its 105th straight month of growth, a record. In the short term, the July 5 report showed that employers added 224,000 jobs last month, more than expected and raises doubts about whether the Fed will cut interest rates at its policy meeting later this month. But, the year-over-year rate of job growth has slowed lately, and unemployment has fallen mostly because people keep dropping out of the labor market. Some say that a truly strong job market would see wages rising, kids foregoing college and retirement-age workers coming in off the sidelines. That all happened in in the 1990s, none of it is happening now.

USDA daily export reporting service did not report any new large sales this morning.

Corn: December corn gapped higher overnight and fell short of key overhead resistance. Prices are back where they opened as the morning session is set to begin. Key resistance is a close above $4.54. this week.  Indian farmers have planted 23.4 million hectares with summer crops, down 27% from this time a year ago, according to the Ministry of Agriculture & Farmers' Welfare, reduced by patchy monsoon rains that slowed down sowing in the country. India announced a tender for an unspecified amount non-GMO corn overnight. 

Soybeans: November beans pushed up near Friday’s highs on the opening last night and is now trading near the session lows ahead of the reopening. Momentum is pointing lower.

Wheat: Traders are looking for USDA to slightly raise its total U.S. wheat production forecast 3 million bu. to 1.908 billion bu. from last month. It is looking cooler and wetter across eastern Europe and the Black Sea regions the next two weeks, aiding spring crops. Still, SovEcon said on Monday it had lowered its preliminary forecast for wheat exports for the new 2019-20 marketing season to 33.0 million metric tons (MMT) from 37.6 MMT earlier. The agriculture consultancy sees the wheat crop for 2019 standing at 76.6 MMT.

LIVESTOCK CALLS:

Cattle: Mixed
Hogs: Steady to weak

Cattle: Cash cattle prices strengthened a bit as the week progressed last week, with action ranging from $109 to $114. That should result in an uptick in the national average steer price and could help futures to extend their strong move to the upside on Friday. Meanwhile, Choice and Select boxed beef values slipped $1.58 and 56 cents, respectively, and movement was a modest 109 loads. The market will keep an eye on the product market today for additional insight regarding weekend beef demand.

Hogs: Futures seen testing recent bottoming action this week. The national average cash hog bid fell $1.32 on Friday amid plentiful supplies. Lean hog futures softened on Friday, paring its weekly advance. The pork cutout value surged $2.01 on Friday thanks in large part to an $11.41 surge in picnics. Movement was light, however, at 218.01 loads. China's southwestern region of Guangxi has confirmed a new outbreak of African swine fever, the agriculture ministry said on Saturday. It was the second report of an African swine fever outbreak in the Guangxi Zhuang Autonomous Region in a week.

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