DTN Before The Bell Grains

Corn, Soy Pare Sharp Overnight Gains, Wheat Crumbles

Dana Mantini
By  Dana Mantini , Senior Market Analyst
(DTN photo by Greg Horstmeier)

Morning CME Globex Update:

Dow Jones futures are up 179 points early Tuesday morning. July crude oil is down 50 cents per barrel, the U.S. dollar index is down 0.0800, and June gold is down $1.50 an ounce.

Other Markets:

Dow Jones: Higher
U.S. Dollar Index: Lower
Gold: Lower
Crude Oil: Lower

Corn:

Following Monday's crop progress report showing a corn planting pace that was much slower than the trade had anticipated, corn shot sharply higher and for 4 of the past 5 trading sessions, July and December have challenged recent highs. While corn is still higher, the rally was once again repelled at $4.38 on July and $4.54 on December. Once the market gets through those resistance levels we are likely to see a new leg higher. The 67% planted as of Sunday June 2 was below an average trade estimate of 71%, and some estimates up to 76%. That planting pace compares to last year at 96% and the 5-year average of 96%. An estimated 30.3 million acres of corn remain unplanted, with key states of Iowa, Illinois, Indiana and Ohio accounting for 19 million acres, with 4 million left in the Dakotas and nearly 2 million in Minnesota. Illinois, at just 45% done compares to an average of 98%, and Indiana, at just 31% complete, is usually 94% planted at this time. Emergence is said to be 20% behind the slowest pace ever, at just 46% compared to an average of 84%. Last week's export inspections of corn at 29.3 million bushels (mb) were well under the average needed to achieve the USDA projection, with total shipments of 1.548 billion bushels (bb). Planting progress in the Plains and upper Midwest should advance with a mostly warmer and drier forecast to mid-June, but the outlook for eastern and southern states is for more rains to crimp progress. Analysts, such as Ag Resource, have begun to put new S & Ds together, with Ag Resource seeing a U.S. ending stocks number closer to 1.5 bb rather than the 2.485 bb from the last USDA report. Yields from South America are so impressive that traders are now talking of a possible Brazilian corn crop of 100-103 million metric tons (mmt) and an Argentine crop of 51-53 mmt versus 100 mmt and 50 mmt previously. U.S. corn has surely priced itself out of competition in the short run, and competition will be stiff throughout the summer. Funds are thought to have covered all of their once record net-short in corn and are slightly long now. DTN's National Corn Index closed at $3.97 on Monday, with an average basis of 27 cents under July.

Soybeans:

Soybeans are still higher, but are now nearly a dime lower than the overnight Monday high. Soybean planting at just 39% complete was a few percentage points below the pre-report estimate of 41%, and compares to the 5-year average of 79%. Soybean farmers have a final planting date of from June 5 to June 15 to get full insurance and planting is expected to be heavy, but challenges will continue in the soggy Eastern Belt. South Dakota remains the major laggard in soy planting, with a meager 14% done versus an average of 82%. Emergence of soybeans, at just 19% trails the 56% average. Analysts are adding acreage to soybeans, with some estimates 2 million acres higher as switches from corn occur. With soybean export inspections now 27% below a year ago, it is very likely that soybean ending stocks finish above 1 bb. China has vowed to import the 7.5 mmt of unshipped sales from the U.S., but are unlikely to buy the 7 mmt more that they had promised as the prolonged trade war continues. Demand continues to be an issue in China, with African swine fever there and now spreading in Hong Kong and Vietnam. China has vowed to give financial aid to hog farms to encourage production. Funds, which have covered some of their record soybean short, are thought to still be short a large 120,000 contracts, but seem less concerned with covering. There are 51.6 million acres of soybeans left to plant, but in all but the Eastern Belt, planting should surge in the coming week, with a warmer and drier pattern expected in some areas of the belt. Watch for the $9.20-$9.30 area on November soy futures to continue to be one of major resistance. DTN's National Soybean Index closed at $7.97, and reflects an average basis of 82 cents under July.

Wheat:

Wheat has done an about-face in the overnight, surging to new highs and then collapsing early Tuesday morning. Chicago July wheat is getting rejected at major resistance and falling 20 cents below the overnight highs. Winter wheat crop conditions at 64% good to excellent came out about 5% above pre-report estimates, and again one of the best conditions in years. Many traders had expected quality declines from disease and lodging due to heavy rains, flooding, hail and winds in both HRW and SRW wheat areas. Major hard red winter states Kansas and Oklahoma did drop, and they face even more rains in the coming week. Spring wheat planting came in at 93% done versus a 5-year average pace of 96%. South Dakota is the laggard at 86% planted compared to a normal pace of 99%. It is thought that as much as one million acres of spring wheat may not get planted. The big surprise was that the first condition report on spring wheat showed 83% good to excellent. The trade was expecting something on the order of 60%! That initial rating is said to be the best in nine years. Wheat had been supported by a mostly warm and dry forecast for Russia and the Ukraine, and that has moderated a bit on Tuesday morning. At this point, EU and Black Sea wheat production combined is expected to be from 27 mmt to 30 mmt above last year, insuring continued stiff competition for U.S. wheat exports. Should Kansas City wheat close at or below $4.75, we could have a bearish engulfing bar reversal signal on wheat, but there is a long way to go until the close. DTN's National HRW index closed at $4.67, and the average basis is at 20 cents under July.

Dana Mantini can be reached at dana.mantini@dtn.com

FollowDana on Twitter @mantini_r

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Dana Mantini