DTN Before The Bell Grains

Grains, Soybeans Higher on China Optimism

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

Morning CME Globex Update:

Dow futures are reflecting a 119-point gain following Tuesday's 256-point rally in the Dow Jones average. February crude oil is up another $1.42 per barrel and heading for the eight straight higher close, and is above $51 again. The U.S. dollar index is down 0.1350, and February gold is up $.40.

Other Markets:

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

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Corn:

March corn is again higher after selling off on Tuesday, likely influenced by late-day Index fund selling and no new China corn purchase rumors to fuel recent strength. Optimism regarding the U.S.-China trade meeting in Beijing, which lasted an extra day, has the trade hopeful this morning that corn or its by-products could be included in any purchase deal. News early in the week that China had approved fine new GM seed varieties, with one of those being corn, also underpinned the corn market. Although last week's corn shipments left much to be desired at just 19.7 million bushels (mb), the current pace of inspections is still 61% above year ago levels. Ethanol continues to be a bearish influence for corn, with margins still thought to be some 20-30 cents per bushel in the red for most producers. Today's EIA report will give us an indication of ethanol production and stocks. Spot cattle futures again made a new contract high on Tuesday, the one bright spot for domestic corn demand. Funds remain long corn futures and options. Resistance will continue to be first at $3.85 and then $3.90 on March corn, with support down near $3.75. DTN's National Corn Index closed at $3.48 on Tuesday, with an average basis of 32 cents under March.

Soybeans:

Soybeans have recovered part of Tuesday's losses in the overnight as optimism reigns regarding the recently concluded U.S.-China trade meeting in Beijing. The trade is awaiting some sort of statement regarding the outcome, but the word is that much progress has been made. The good will gesture by China in approving some genetically modified seed varieties of soybeans and canola is a bullish input. News that there are three vessels in the PNW lineup to load soybeans for China is also a bullish input, while rumors, without government confirmation, suggest that China could have made plans to buy as much as 6 million metric tons (mmt) of U.S. soybeans since the G-20 agreement. If we had a USDA report this week, it likely would have resulted in a 2-3 mmt decline in the Brazil soy crop versus the USDA's last estimate of 122 mmt. Many private estimates now look to be in a range of 116 to 119 mmt due to the hot and dry pattern which has likely lowered yield potential in some key areas. Even with a 116 mmt Brazil crop and a 56 mmt Argentine soy crop, South America would still have some 15-16 mmt more soybeans than the previous year. Brazil's CONAB will be out on Thursday morning with their updated estimate of Brazil's crop, and compared to their last at 120.3 mmt, it is likely to fall by 3-4 mmt. Some private estimates of U.S. ending soy stocks, using rumored but not confirmed recent China purchases, are closer to 750 mb, versus the USDA's last estimate of 955 mb. That would still be a record large ending stocks number for the U.S. Funds remain net short a modest amount of soybeans. Resistance on a further rally will be the double-top high of $9.41-$9.42, with support likely to be $9.10-$9.15 on a sell-off.
Trade will continue to monitor both China news and South American weather in coming days. DTN's National Soybean Index closed at $8.28, and reflects an average basis of 90 cents under March.

Wheat:

Wheat is higher, but has faded from overnight highs. News that Algeria bought a total of 550,000 mt {12.1 mb) of milling wheat for February-March in their tender, with offers said to be split between the U.S. (said to be HRW) and Argentina, along with Egypt's GASC tender for Feb-March wheat overnight has supported the market. U.S. wheat is said to be very competitive to many world destinations, and a host of other tenders are on the docket in the next week. Also underpinning wheat markets has been the perception, without any USDA confirmation coming on Thursday, that winter wheat acres could be surprisingly lower than the trade had previously thought. After a very strong start on Tuesday, wheat futures likely sold off on the well-advertised closing sell orders from Index funds and their rebalance effort. If we had a USDA report this week, it would have likely shown a gain in Russian wheat production, and a decline in both Australian and Argentine wheat production due to adverse weather. However, despite the recent rejection of an Argentine vessel of wheat due to low falling numbers and sprout damage, I have also read that the quality of the Argentine wheat crop is also very good. DTN's National HRW index closed at $4.78, and the average basis is at 27 cents under March.

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

Follow Dana on Twitter @mantini_r

(KR)

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Dana Mantini