Ahead of the Open: Markets on Pause Before USDA Supply and Demand Updates

Posted on 07/11/2019 7:59 AM

RAIN CALLS:

Corn: Down 2 to 4 cents
Soybeans: Steady to down 2 cents
Wheat: Mixed to down 2 cents

General Comment: Corn and soybeans are seen on the defensive ahead of the USDA monthly supply and demand updates at 11 a.m. CST this morning. After recent USDA surprises, few want to take new positions ahead of the new projections.  Wheat seen retreating ahead of the USDA production report this morning and rains aiding crops in Canada, U.S. spring wheat crop and Black Sea region.

Crop uncertainty will continue as next week’s rainfall coverage and amounts are taking on increased importance amid drying soils. Warmer to much-warmer than normal weather affects the central U.S. over the next two weeks as upper-level high pressure floats near the central U.S.  Near-normal rainfall in northern growing areas generally contrasts with below-normal totals south, except for heavy rain in the Delta from a tropical storm July 12 to 15. There is a minimal chance at this point for significant rain in the southeast Corn Belt from the tropical storm remnants July 16 to 17. Some hints of cooling exist in 12 to 14 days, but it most likely marks the brief passage of a cool front as opposed to a pattern change. 

Nearly one-third of oil and gas production in the Gulf of Mexico was shut down Wednesday in preparation for the storm. The U.K. Navy was forced to intervene to stop Iranian vessels from blocking a BP Plc-operated oil tanker from leaving the Persian Gulf, according to a British government statement. Oil prices rose to the highest in seven weeks as the Iranian tensions and output halt in the Gulf.

Fed Chairman Jerome Powell is in the Senate today for his second day of congressional testimony, scheduled to begin at 9:00 a.m. CST. His prepared statement given to the House yesterday was seen by markets as all but confirming a rate cut at the July 30-31 monetary policy meeting. He was viewed as so dovish during yesterday’s testimony that traders have moved on from whether there will be a cut to how much the Fed will cut, with some looking to a 50 basis point reduction. Easing monetary policy may help to stimulate global growth and weaken the dollar, potential boosts to ag product exports.  

The U.S. is to investigate French plans to tax technology giants like Facebook and Amazon over concerns the move “unfairly targets American companies.” That’s the same grounds the White House used to impose tariffs on China. The threat also drives a wedge between Germany and Paris, since auto giant Germany is keen to move ahead with talks on a limited U.S.-EU trade deal that are stalled amid French opposition to including agriculture in any accord.

Meanwhile, China has reshuffled its negotiation team, which reportedly has some White House officials nervous about the prospect of progress, according to an article in the Washington Post, which says, “Commerce Minister Zhong Shan, regarded by some White House officials as a hard-liner, has assumed new prominence in the talks.” Dennis Wilder, a former China analyst for the CIA, told the newspaper, “I am sure his instructions are to get tougher with the U.S.”

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

Corn: Prices drifting until the USDA report. This morning’s weekly export sales report showed an improvement in old-crop business with 505,400 metric tons (MT) sold in the week ended July 4, topping trade estimates for 150,000 to 400,000 MT. However, USDA reported net sales reductions of 108,400 MT, led by Japan reducing prior sales by 120,000 MT. 

Soybeans:  Solid gains this week reflect a growing concern about the health of the U.S. crop. Today’s weekly export sales report will limit further gains this morning before the USDA monthly supply and demand updates. Old-crop sales were 132,200 MT and new-crop sales rose 129,500 MT, both below most trade estimates.

Wheat:  This morning’s weekly export sales report is a reminder of the slowing overseas demand for U.S. wheat. Sales were 284,400 MT, at the low-end of trade estimates calling for 250,000 to 500,000 MT of new business.  Strategie Grains reduced its monthly forecast of this year's European Union soft wheat harvest by more than 2 MMT as it factored in a late-June heatwave that brought record temperatures to western Europe. The firm's analysts pegged 2019 EU soft wheat production at 140.6 MMT, down from 142.8 million projected last month but 11% above a drought-hit 2018 volume. French agricultural groups InVivo, Axereal and NatUp have formed a grain export joint venture to improve their competitiveness in overseas markets increasingly dominated by Black Sea producers. Russia’s ag minister told reporters earlier today that he thinks the country’s grain exports will reach 45 MMT for 2019-20, including 36 MMT of wheat. This is steady with the ministry’s previous projections.

LIVESTOCK CALLS:

Cattle: Mixed to firmer
Hogs: Steady to weak

Cattle: Futures Beef sales rebounded to 182 loads on Wednesday, but it occurred at lower prices with Choice down 31 cents and Select cutout values dropping $1.20. USDA weekly export sales report showed 21,500 MT of beef sold last week, up 26% from the prior four-week average. Shipments slowed 17% from the four-week average.

Hogs: Sluggish export sales will put initial pressure on the hog market today. USDA said pork sales fell 53% from the four-week average and shipments were down 3%. There were no new Chinese purchases, but China and Mexico were the top destinations for pork last week.  Look for lower futures trade to uncover some light support from stronger cash hog bidding. The national average price was up 64 cents, a third straight gain and Iowa/Minnesota bids jumped $1.36 yesterday. However, fresh pork cutout values fell $2.17 as slaughter the first three days of this week is up 24,000 head from a week earlier and 76,000 head from a year ago. China confirmed a new outbreak of African swine fever in Hubei province today.

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