DTN Before The Bell Grains

Morning CME Globex Update:

Outside markets are mixed with Dow futures down 100 points, U.S. dollar index is lower by .404, and crude oil is up another 71 cents per barrel. February gold is $4.40 higher.

Other Markets:

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

Corn:

March corn is predictably a bit weaker to begin. After gapping higher in overnight Sunday trade, the market would like to see some concrete evidence of China's pledge to immediately buy significant quantities of U.S. ag and energy products. There has been no sign yet, so markets are leaking back toward the trade gaps left in Sunday trade. Those gaps, though smaller, still exist in beans, corn, meal and bean oil. Weather continues to hamper the last remnants of the harvest, with the Dakotas thought to still have 10-15% of corn yet in the fields. Weather in South America is mostly beneficial and there is no threat on the horizon. U.S. export inspections were decent last week, at 40.8 million bushels, and remain some 80% above year ago levels. Argentina appears to be the cheapest corn offer, but the U.S. is close and should remain very competitive, while Brazil appears to be 17-20 cents above on a FOB basis. Brazil did export 4 million metric tons (mmt) in November versus 3.5 mmt last year and 3.2 mmt in October. Commodity funds bought an estimated 9,000 contracts of corn on Monday and remain a combined (futures and options) modest net short. Trade is holding out hope that the recent China agreement will involve purchases of U.S. ethanol and DDGs, and Ag Secretary Sonny Perdue suggested that purchases could include poultry as well as pork, milo and possibly U.S. wheat. March corn DTN's National Corn Index closed at $3.45 on Monday, with an average basis of 37 under March.

Soybeans:

January soybeans set back toward the break-out support area of $8.95 to $9.00 overnight, leaving the gap unfilled thus far, and has now bounced a bit. Typically, markets will retest a break out area, in this case from the triangle chart pattern. Soybean traders would like to see some evidence that China will indeed buy large quantities "immediately" before this change in trend will resume. Commission houses are reporting that there was large farmer movement of cash beans on the sharp rally yesterday, which was up 29 cents at one point on Sunday night. Commodity funds, who came into the G-20 meeting with a significant short position in both soybeans and oil, began to cover some of that short, buying an estimated 11,000 contracts beans and 4-5,000 contracts of meal and bean oil each on Monday. Soybean export inspections showed a slight increase from the previous week, but remain a horrid 42% lower than the previous year so far. At the DTN Ag Summit, Ag Secretary Sonny Perdue reiterated that China pledged to buy U.S. ag products immediately, especially soybeans. Some news outlets see China soy buying around January 1, as limited supplies will be available from Brazil. So far, the U.S. soybean basis has not reflected any immediate buying. The soy/corn price ratio, of 2.36 to 1 does not yet discourage a shift from soybean acreage, so trade is concerned over a possible back-to-back one billion bushel ending stocks number. Couple that with a record Brazil soy crop on the way and the potential is for a continued bearish supply and demand environment in soybeans. DTN's National Soybean Index closed at $8.17, and reflects an average basis of 89 cents under January. With any hint of a fulfilled promise by China, expect a resumption of the Sunday move higher.

Wheat:

With limited China purchases of U.S. wheat likely even with the China trade truce, it is wheat that has been disappointing with Kansas City March now having set back roughly 15 cents from the Sunday night highs, and filling the gap left. Chicago also backed up to fill the gap. U.S. wheat export inspections continue to lag the amount needed to reach the USDA projection, and shipments remain some 17% below year ago levels. However, word is that the U.S. is the cheapest offer to Iraq on their 50,000 metric ton (1.8 million bushels) tender. There are a host of other wheat tenders over the next two days, with Bangladesh, Jordan, Taiwan and Syria all in for wheat. ABARES has dropped the Australian wheat crop to 16.9 mmt from October's 19.1 mmt, but many privates are even lower, at 15-16 mmt. With China a decent buyer of Australian wheat, there is a chance that U.S wheat could pick up some of that demand. Funds also covered shorts in wheat on Monday. Wheat futures continue to be underpinned by the ongoing and closely watched Russia-Ukraine conflict, which also has demand implications for U.S. wheat. Chicago and Kansas City March DTN's National HRW index closed at $4.72, and the average basis is at 34 cents under March, improving 4 cents since Friday.

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

Follow Dana on Twitter @mantini_R

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