- Chicago prices are higher at midday on fund buying and the hope that China is securing US soybeans and grain. China confirmed overnight that it will buy US ag commodities, but as you can expect, it did not provide tonnages or the timing of shipments. The purchase confirmation by China is a step forward to the US/China ratifying the Phase 1 Trade Pact. We would note that this trade pact is expected to include China ramping up its ag purchases to $40-50 billion dollars by 2021. Nearby, we expect that China will secure what China needs in terms of foodstuffs. On its nearby shopping list is; US pork, soybeans and cotton with some exporters hinting that China could also secure US HRW wheat.
- We look for a firm Chicago close with traders eying whether March corn can reach above $4.10 and March soybeans above $9.75. March Chicago wheat is trading at $5.25 and could rise another $).05-).15 depending on China buying interest. The hard part of the China rumours is trying to decipher just what they will secure on this purchase round. We hold a view that much of China’s purchasing will be completed by early November, before the APEC Meeting.
- Chicago traders estimate that funds have bought 5,200 contracts of soybeans, 4,900 contracts of corn, and 3,600 contracts of Chicago wheat. In soy products, funds have bought an estimated 3,100 contracts of soymeal and 2,700 contracts of soyoil.
- Tyson Fresh Foods is banning the feed additive ractopamine in market hogs that it buys from its farmers beginning in February of 2020. The move is likely related to Chinese demand for US pork. It is estimated that eliminating the feed additive will trim US pork production by 90-120 million pounds annually either by slowing feed conversions or keeping pigs on feed longer (thereby slowing movement through production facilities). Friday’s weekly FAS export sales report is expected to show additional demand by China for US pork. South Korea and Mexico have been slower buyers of US pork, but the ongoing rally in cash hogs amid record large kills argues for a demand led bull for now.
- The USDA will resurvey harvested acres in MN and North Dakota to gauge if farmers have changed their plans. Snow and cold hit the region last week and the resurvey will likely to produce a modest reduction in harvested acres. We would argue that regional yield will be impacted more than harvested acres. Our estimate is that the weekend cold /snows reduced US corn production by 140 million bu of corn and upwards of 20-30 million bu of soybeans.
- US White House Economist Kudlow indicated a lot of cooperation over the Phase 1 US/China Trade Pact. However, tech transfer may be pushed into Phase 2.
- CME Livestock futures are pressure from comments from China’s Veterinary Bureau forecasting a return to normal pig numbers in 2020. We are extremely doubtful of this forecast with ASF uncontrolled and China’s pig herd in sharp decline. We argue that it will be years before China’s pig herd returns to anything close to the size when it was discovered in June 2018. Cold Canadian air follows with a frost/freeze into the Central US.
- A tropical storm in the Gulf of Mexico has reduced the chances of Central US rain this weekend. Only limited totals are expected through Sunday with improved rain chances for the N Midwest starting Monday through Wednesday. Dry weather follows with the next chance of rain starting on Friday Oct 25. This rain looks to impact the E Midwest with totals of 0.25-1.00″. Dry /cool weather follows. The Central US harvest pace should advance normally in coming weeks.
- It is a firm day, but before any trader chases a rally, they will want confirmation of China buying. Our advice stays the same, don’t chase rallies or breaks. Political markets do not follow through.