First Thing Today: Crop Concerns Mount Amid Wet Forecast
Firmer start to the week... Corn futures are around a penny higher to start the week, while soybeans are up 3 cents. Wheat futures are also enjoying gains around 3 to 4 cents in the HRW wheat market and around 2 to 3 cents in the SRW and HRS wheat markets. The U.S. dollar index is down slightly, while crude oil futures are posting gains.
Crop concerns mount amid wet forecast... Concerns about getting crops planted/replanted are mounting after wet, cool weather kept many farmers out of the field late over the weekend and periodic showers are expected for the Midwest throughout the week. The National Weather Service forecast for May 27-31 calls for wet conditions in southern and eastern areas of the Corn Belt, with normal conditions expected elsewhere. Cool temps are expected in the far western Belt, with heat likely in Ohio. Other areas of the Midwest should see normal temps. Meanwhile, a flash flood watch is currently in effect for Gulf Coast regions, and into Georgia after heavy weekend rains.
Week ahead features budget efforts, Branstad vote and health-care estimates... President Donald Trump’s fiscal year 2018 budget proposals and, more importantly, the House Budget Committee's are likely to include mandatory budget cuts, including agriculture subsidies. On the hearing front, topics include Environmental Protection Agency rulemaking, Russia, international trade, IRS oversight, Iran, atomic energy and more. The House will take up a measure easing permit requirements for pesticide usage, and the Senate is expected to approve Iowa GOP Governor Terry Branstad as the U.S. ambassador to China late today. On Wednesday, the Congressional Budget Office releases its analysis of the House-passed health-care reform bill.
ADM completes big port expansion in Brazil... The Brazilian unit of Archer Daniels Midland Co. (ADM) recently announced it had completed a 33% expansion in its Santos port terminal's export capacity. It will now be able to ship 8 MMT of grain per year. ADM is also analyzing a project to improve rail infrastructure around the port area, in collaboration with other operators. Brazil recently announced it would extend the duration of operating licenses, which has helped attract investment for such plans.
Analysts disagree as to whether Egypt will continue to buy U.S. wheat... Last week, Egypt purchased U.S. wheat for the first time since February 2015, as the combination of inexpensive HRW wheat supplies and lower freight prices helped the U.S. made prices competitive. Some traders say this business was more of a stopgap measure until Egypt's favored Black Sea region supplies become more readily available. But others disagree, noting that if the U.S. can remain competitive, it could help us work through a hefty stockpile.
China to hike sugar import tax... China will introduce another tariff on sugar imports aimed at stemming imports that have "seriously damaged" its domestic industry. Currently, China allows 1.94 MMT of sugar imports at a 15% tariff, as per its World Trade Organization commitments, and imports beyond that are subject to a 50% tax. The new ruling will add an extra 45% tax to these imports, taking the total tax to 95% for fiscal year 2017. In FY 2018, that level will fall to 90% and in FY 2019 it will drop to 85%. While the added duty could slow imports from countries like Brazil and Thailand and help align sugar import prices with domestic ones, traders note the duties will likely increase smuggling of the sweetener through China's southern border. In addition, some third-party nations that are excluded from the tariffs may begin shipping sugar from bigger producers looking to bypass the tariffs.
Details on U.S./China beef deal may be in place by end of June... Talks to restart U.S. beef exports to China have advanced quickly and final details should be in place by early June, USDA said Friday. This timeline should enable beef companies to to sign contracts with Chinese buyers that meet the deadline for shipments to begin by July 16. Ranchers are logging animals' movement and are preparing to stop the use of beta-agonist growth drugs, as per the terms of the deal. The market access comes at a key time, as Brazil is dealing with corruption scandal after scandal, several of which involve its meat sector.
Cold Storage report out today... At 2:00 p.m. CT, USDA will release its update on the amount of frozen meet in the nation's freezers as of April 30. Last month's report showed frozen beef stocks lighter than expected at 464.469 million lbs. at the end of March, with frozen pork stocks at 555.052 million pounds, which was a bit higher than traders anticipated.
Cattle futures start week at double-digit discount to cash... Cash cattle trade took place at mostly $134 last week, which is roughly $10 above where June live cattle settled on Friday. While cash prices are expected to soften near-term, that spread is quite wide. Meanwhile, boxed beef prices pulled back late last week, confirming ideas the market was near a top. USDA's Cold Storage Report will provide additional product market insight today.
Lean hog seasonals favor market bulls... Cash hog bids softened to close out a mixed week of price action. But we do not expect cash weakness to last since hog and pork production typically falls to annual lows in late June and early July. Plus, the Memorial Day to July Fourth period is peak grilling season.
Weekend demand news... South Korea bought 55,000 MT of soybean meal, likely from South America. Saudi Arabia bought 1.5 MMT of animal feed barley.
Today's reports:
- 10:00 a.m., Weekly Export Inspections -- AMS
- 2:00 p.m., Chickens and Eggs -- NASS
- 2:00 p.m., Cold Storage -- NASS
- 3:00 p.m., Crop Progress -- NASS
