DTN Before The Bell Grains

Corn Lower; Soybeans Higher Again; Wheat Mixed

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

Morning CME Globex Update:

Dow Jones futures are 49 points lower early Wednesday. August crude oil is up $1.41 per barrel, the U.S. index is down .3310 and August gold is up $10.50 an ounce.

Other Markets:

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

Corn:

Corn is lower once again as recent warmth and showers accelerate corn growth; the outlook is for more of the same in the days ahead. Early Wednesday, showers and storms moved across the central U.S. Tuesday saw some much heavier totals with up to 6" of rain in central Nebraska. Although the next 5 days promise some drier weather, temperatures remain warm, which is beneficial at this point, and the latter half of July forecasts appear to be a bit cooler and wetter. Trade analysts and traders are looking for a mostly bearish USDA report Thursday as USDA uses a revised acreage number of 91.7 million. Although the average estimate for ending stocks is close to 1.6 billion bushels (bb), some see that moving closer to 1.8 bb as U.S. exports may be cut by up to 150 million bushels (mb) on weak demand. U.S. corn is overpriced to the world right now, with Argentine corn on a FOB basis called 50 cents per bushel cheaper, and Ukraine corn 30 cents below U.S, while even feed wheat from the Black Sea is said to be a discount of $4 to $8 per metric ton (mt) to U.S. corn. The Philippines bought 60,000 mt of Black Sea feed wheat on Tuesday. Managed funds have been liquidating some of their large net long in corn, which as of last Tuesday was called 182,000 contracts, and which is estimated to be 150,000 contracts to begin Wednesday. December corn appears to be stuck in a $4.20 to $4.50 range right now, and a break out either way will determine future price action. DTN's National Corn Index closed at $4.21 on Tuesday with a stronger average basis of 11 cents under September.

Soybeans:

Soybeans are higher again to start Wednesday and appear to be caught in an $8.90 to $9.20 range on new-crop November. A fall under $8.85 will likely lead to a new leg lower, while major resistance on a rally will be up around $9.20-$9.30. U.S. and China trade representatives have restarted talks via phone and word is that those talks have been constructive, but we have heard that optimism many times before. However, it is the demand impact of African swine fever that is being debated, as the U.S. ag attache on Tuesday dropped both 2018-19 and 2019-20 estimates of China soy imports. For 2018-19, they fell 1 million metric tons (mmt) to 84 mmt, and 2019-20 imports are pegged at just 83 mmt -- a drop of 4 mmt. Compare that to ideas that China would import over 100 mmt of soybeans just a few years ago. On Thursday's USDA report, it is expected USDA will use the 80 million acreage projection and the average trade estimate for the soy crop is 3.871 billion bushels compared to 4.150 bb in June. There is also the expectation that soy yield could be slashed by 1 bushel per acre. Although ending stocks on U.S. soybeans could decline by 200 mb, the world and U.S remain awash in soybeans, while demand from the world's largest buyer sags. Look for $9.15 to $9.20 to repel the current bounce on November soybeans, and a fall under $8.85 to accelerate selling. DTN's National Soybean Index closed at $8.14, reflecting an average basis of 72 cents under August.

Wheat:

Wheat has recovered from overnight weakness early Wednesday and the ability for Chicago September wheat to remain above the 50-day moving average of $4.98 is a plus. However, it still appears wheat may be breaking out of a bear flag chart pattern, which would suggest sharply lower prices ahead if true. As in corn, U.S. wheat remains very uncompetitive to most destinations. Egypt's General Authority for Supply Commodities (GASC) again purchased much cheaper Romanian and Ukrainian wheat, taking 240,000 mt (8.8 mb) with 17 cargoes in total offered. No U.S. offers were put forth. U.S. hard red winter (HRW) harvest continues to advance rapidly, and yields continue to impress. A likely increase in production of HRW will be forthcoming. U.S. spring wheat continues to flourish, with plentiful storms rolling across the Northern Plains. Monday's crop progress report showed a 3% gain in good to excellent for the entire spring wheat crop to 78%, while key large producers North Dakota and Minnesota were rated at 81% to 83% good to excellent. Such a rating at this point would project spring wheat yields to be 5% to 10% above trend. Wheat was pressured Tuesday also by the plunge in EU wheat values, with both French and German wheat values hitting new lows despite the well-advertised heat wave across Europe. A sharp uptick in both Black Sea and European wheat production will continue to challenge U.S. wheat exports, although U.S. shipments at this point are well above a year ago. Look for a drop below $4.95 on Chicago September and $4.30 on Kansas City September to lead to further price erosion. DTN's National HRW Index closed at $4.18 and the average basis is at 21 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