DTN Before The Bell Grains

Morning CME Globex Update:

Dow Jones futures are down 60 points early on Wednesday, July crude oil is down $1.48 per barrel, the U.S. dollar index is down .0570 and August gold is up $7.90 an ounce.

Other Markets:

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

Corn:

Following Tuesday's surprising USDA report and 12-cent gain in corn futures, corn is up again Wednesday morning. Most in the grain trade expected a modest cut in both acreage and yield on corn; the WASDE report instead dropped planted acres by 3 million and slashed yield by a huge 10 bushels per acre -- a record for the June report. The net effect was an ending stocks number that is the lowest since 2013 at 1.675 billion bushels. This compares to one month ago when USDA had penciled in one of the largest ending stocks number ever at 2.485 bb. The 810 million bushel drop in ending stocks came from the 166 bushels per acre yield, lower acreage (89.8 million acres) and a combined cut of 425 mb of usage -- 300 mb in feed and residual and another 125 mb in exports. Tuesday's shocking drop in yield -- not customary for the typically conservative USDA -- was testament to the unique circumstances during planting in 2019. Excess water and flooding has seemed relentless and, as of Sunday June 8, the U.S. corn crop was still only 83% planted, leaving some 15 million acres left to go. USDA's willingness to slash corn prospects this early set the stage for many private analysts who had been calling for much lower production to come forth with their revised and bullish estimates. The remaining acreage will continue to face challenges with mostly light showers and dry fields Wednesday, but the 7-day revised forecast calls for below-normal temps and some more heavy rains. With the Tuesday estimate, U.S. corn stocks-to-use ratio, at 10.5%, is the lowest since 2012. While the U.S. will be challenged with supply, not so in South America, where corn exports are expected to be 30 mmt higher. South Korean firms were buying corn on Tuesday with MFIG and KFA said to have bought 65,000 mt each -- the first from Brazil and the second optional U.S. or Brazil. After Tuesday's sharp gain in corn futures, it appears a large bullish flag chart pattern is forming and a break through the upper trend line with a close above $4.50 on December likely to lead to another leg higher. DTN's National Corn Index closed at $4.04 on Tuesday, with an average basis of 24 cents under July.

Soybeans:

While Tuesday's USDA report set a very bullish tone in corn, that was not the case in soybeans as USDA chose to leave both acreage and yield alone and even reduced old 2018-2019 exports by 75 million bushels, leading to what appears to be back-to-back 1-billion-bushel U.S. ending stocks. However, in the July report USDA is expected to revise soybean estimates, including acreage and yield. However, the acreage revision in beans is likely to be higher, according to Robert Johansson, chief economist of the USDA, as some corn acres are switched to soybeans. Except for a very slight fall in world soy carryout to a still hefty 112.66 mmt, there was little in Tuesday's report that could be considered bullish. The revised U.S. ending stocks of 1.070 bb for 2018-2019 is record large and 2019-2020 does not get much better at 1.045 bb. Adding to the soybean longs' misery level was the cut of 1 mmt in China soybean imports for 2018-2019 to 85 mmt -- a far cry from the 94 mmt total that we are used to seeing. Not only has the U.S.-China trade conflict hurt demand, more importantly the still uncontained African swine fever is the big culprit. For 2019-2020, WASDE left China's soy imports at 87 mmt. The thought is that China is moving toward more poultry consumption as hog herds have been depleted by the so far incurable disease. The soybean market is hanging in there better than one would expect, tugged higher by corn, but a fall below the 20-day moving average on November futures at $8.79 1/2 could lead to a test of the open chart gap near $8.60. DTN's National Soybean Index closed at $7.80 and reflects an average basis of 79 cents under July.

Wheat:

Wheat and corn seem intertwined, and even though in wheat (as in soybeans) there was little in the way of any bullish news in Tuesday's report, wheat has been pulled higher by corn and is showing some strength to begin Wednesday. Chicago July is just a dime under major resistance and the recent high. Winter wheat production was raised slightly in the report to 1.903 billion bushels, and world wheat ending stocks rose to a new record large 294.3 mmt. The U.S. hard red winter (HRW) crop was pegged at 794 mb, up from 780 mb, while many private analysts see HRW at over 800 mb. The 64% good-to-excellent ratings suggest big yields, but possibly lower protein and quality. Perhaps the only friendly change in wheat was an increase in feed usage by 50 mb to 140 mb. With the prospects of large yields but potential quality and low protein issues, wheat is likely to increasingly make its way into feed rations. Many private analysts are already projecting wheat feeding to be 100 million bushels higher than the report suggested. Weather will not be kind to wheat harvest in the coming week with the revised forecast showing heavy rain in parts of Texas, Oklahoma and Kansas. With Oklahoma only 4% harvested as of Sunday -- 28% behind the 5-year average -- look for harvest delays to be more prevalent in the coming seven days. The technical structure of the wheat market suggests we are still in a bullish trend, with short-term averages higher than long term. However, with a bearish supply and demand table and harvest ahead, wheat may be hard pressed to rally far, unless corn explodes higher. DTN's National HRW Index closed at $4.39, and the average basis is at 19 cents under July.

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

FollowDana on Twitter @mantini_r

(CZ)

Copyright 2019 DTN/The Progressive Farmer. All rights reserved.