Agrivisor Morning Marketwatch - Chinese interest rate reduction

Friday, October 23, 2015
   ***Good Morning***

***** Grains are mostly mixed to start the day; soybeans up 2-down 1/4, corn up 1/2-down 1/2, with wheat up 2-3. *****

   # The biggest news to end the week is the cut in rates by the Chinese central bank.  They cut their key interest rates by .25%, with the 1 year lending rate now at 4.35%.  They also cut reserve requirements by 50 basis points, effectively cutting rates for most banks another .5%. The move triggered a modest wave of buying in stocks and selling in Treasury Bonds. 
   # The biggest thing being talked about in commodities this morning is the steady tightening of the basis, and the slow, steady tightening of spreads in the corn and soybeans.  Wheat spreads have tightened to a lesser degree of recent, but had tightened some after harvest last summer.
   # Much of the basis tightening has come from the lack of producer sales at harvest.  It’s lagging in the western part of the Corn Belt, but harvest is still 7-10 days from starting to wrap up. 
   # There is a story out of China that came to the forefront this week about the government looking into the possibility U.S. DDGs have been dumped into China at below market rates.  This is causing some problems for them to boost demand for their newly harvested corn crop, one said to be 228 mmt.  We suspect the move is to scare end-users into buying domestic corn more aggressively.
   # Wheat tender activity is getting some attention.  Ethiopia is said to be setting a 1 mmt. tender to buy wheat, a massive one for them.  There’s some skepticism as last month that unsuccessfully tendered for 222,000 tons.  There is some talk Asian buyers are shopping more aggressively. And U.S. wheat is becoming competitive with other origins. Corn meanwhile is carrying a discount to S. American and Ukrainian origins.
   # Weather remains a key variable as it pertains to new crops around the world.  Corn Belt weather is expected to continue to be mostly good for harvest, with mostly dry conditions across the Corn Belt and N. Plains. Rains have been good in the S. Plains, and more may be on the way next week as a residual of the Pacific hurricane coming into Mexico.  Some areas have had flooding.  Showers have occurred in parts of Ukraine and Russia, at least temporarily ending the dry spell.  But temps are cool, so crop development will remain slow.  
   # In S. America conditions are good from southern Brazil into Argentina.  But the center/west area of Brazil, and places to the east remain mostly hot, dry.  Rain chances are in the forecast for this week, but they may not be very good, nor well placed.
   # Argentines will head to the polls Sunday to elect a new President.  The outcome of this election will be monitored closely to gauge the potential implications for ag. policy. But, all of the candidates are expected to be better for the economy than the current regime.  
   # Other than the Chinese rate move, there isn’t much significant in the forex markets today.  But in the wake of the Chinese news and the ECB easing talk this week, there will be a lot of attention on next week’s Fed meeting.

***** Cattle should start steady/firm; lean hogs slightly lower. *****  

   # Wholesale beef is mixed/higher, with volume still suggesting the move up may be stalling for now.  Pork prices are lower, but this week’s volume has been better than anticipated.  Still, the trade is starting to look ahead to the drag November usually places on red meat demand.
   # Cash hogs should be steady/weak.  Feedlots are said to be asking $140-$142 for cattle with packer bids at $136-$137.  We’d expect animals to trade between the 2, and likely under $140.