DTN Before The Bell Grains

Corn, Wheat Plunge in Early Tuesday Trade

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

Morning CME Globex Update:

Dow Jones futures are 109 points lower early Tuesday. August crude oil is up 26 cents per barrel, the U.S. index is up .1500 and August gold is down $5.40 an ounce.

Other Markets:

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

Corn:

Despite a lower condition rating than many in the trade had expected, corn futures are plummeting to begin Tuesday. The 57% good-to-excellent reading on Tuesday's Crop Progress report was 1% above last week, but remained the poorest condition rating since 2012; the Eastern Corn Belt states of Illinois, Indiana, Ohio and Michigan continue to be well below normal. The 57% rating is well below last year's 75% good to excellent. There are heavy rains moving through the Northern Plains and parts of the western Midwest to begin Tuesday, but the overall pattern is one of warmth and dryness over the next 10 days. Obviously, many in the trade view this as beneficial for a crop that is so far behind, and the wetter 11- to 15-day portion of the forecast, plus a 16- to 30-day forecast that promises a good mix of sunshine and rain, have changed the mindset from Sunday night's gap higher opening. Corn silking progress, at just 8% versus a normal 22%, suggests pollination will not occur until late July and early August. Exports of U.S. corn continue to falter with much cheaper alternatives available to world buyers. Last week's shipments of 22.5 million bushels (mb) were behind the average weekly exports necessary to reach USDA's projection and the total of 1.672 billion bushels (bb) lags last year's 1.860 bb. It is likely USDA will drop corn exports by 50 mb to 150 mb in Thursday's report. One of the primary competitors -- the Ukraine -- is projecting a new record-large corn crop of 36 million metric tons (mmt) and with Brazil's second corn crop harvest 36% complete as of Monday, it is looking like that crop will be huge at over 100 mmt. Managed money funds are thought to be still long an estimated 165,000 contracts to begin Tuesday trade. December corn remains stuck in a $4.20 to $4.50 trading range, with a breakout from either extreme likely to signal the next trend. DTN's National Corn Index closed at $4.27 on Monday, with an average basis of 13 cents under September.

Soybeans:

Soybeans are also under pressure early Tuesday despite crop conditions actually falling by 1% to just 53% good to excellent and also the worst reading since 2012. Many in the trade had expected a rise of 1% to 2% in good to excellent from last week's 54%. Key state Illinois fell 6% to just 38% good to excellent, with Ohio and Missouri having the worst conditions. Soybeans are 90% emerged, meaning roughly 8 million acres failed to emerge as of July 1. Nevertheless, soybeans are selling off and approaching a pivotal chart point on November beans -- the $8.85 area. It is likely a solid close under that level could begin another leg down on soybeans. Demand continues to suffer, with export shipments now 25% below a year ago at 1.391 bb compared to 1.859 bb last year. There have been rumors the past few days about China buying U.S. beans for August-September, but no confirmation has been forthcoming, and China's unshipped open sales of 212 mb are worrisome with just 9 weeks left in the crop year. U.S. and China representatives continue to talk regarding trade, but it is unlikely any final resolution will occur in time to affect old-crop soybeans. November soybeans are just 4 cents from the 50-day moving average at $8.88 and a fall under $8.85 on a closing basis is unlikely to find much solid support until $8.60. On the upside, $9.20-$9.30 will be major resistance. Funds remain net short roughly 55,000 beans to begin Tuesday and could be adding to that short. DTN's National Soybean Index closed at $8.06, reflecting an average basis of 73 cents under August.

Wheat:

The winter wheat markets are crashing and burning to begin Tuesday and both Chicago and Kansas City appear to be breaking out of bearish flag chart patterns. Chicago September is still 5 cents above the 50-day moving average of $4.97, with a fall below that likely leading to a further sell off. With winter wheat harvest now 47% done, yields continue to impress, and final crop production is likely to be higher than earlier estimates, especially in the hard red winter (HRW) category. Couple the impressive yields and acceleration of harvest with a sharp gain in spring wheat ratings, and wheat will be hard pressed to rally much in the short term. Spring wheat conditions improved 3% to 78% good to excellent. Key states of Minnesota and North Dakota were both higher, rated from 81% to 83% good to excellent, respectively. Heavy rains are moving across the Northern Plains early Tuesday morning as well. Despite the well-advertised heat wave in Europe and the Black Sea region, so far only minor changes in production might result. Combined production in Russia, Kazakhstan and Ukraine is expected to be 10 mmt higher than a year ago, and France pegs their crop at a record-large 37 mmt -- a gain of 8.5% versus last year. Competition will continue to challenge U.S. wheat, although U.S. exports thus far, at 95 mb, are well above last year's 64 mb at this time. Algeria is said to have bought 480,000 mt of wheat -- higher than the 360,000 mt originally reported. All of that is likely to be sourced from France. DTN's National HRW Index closed at $4.19 and the average basis is at 22 cents under September.

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

Follow him on Twitter @Mantini_r

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Dana Mantini