DTN Before The Bell Grains

Morning CME Globex Update:

Dow futures are currently down 84 points, erasing nearly all of Wednesday's Dow Jones gain of 91 points. February crude oil, which has now rallied some $10 per barrel from the low set on Christmas Eve, is down 54 cents. The U.S. dollar is up 0.1700, but has steadily fallen since mid-December, and February gold is up $.50. The Fed Open Market Committee meeting on Wednesday suggested a more dovish stance on rate increases in 2019.

Other Markets:

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

Corn:

March corn is slightly weaker in quiet overnight trade. Following the three-day trade discussions with Chinese trade representatives, there was much optimism with a continued pledge from China to buy more ag, energy and manufactured products from the U.S. Without any USDA sales reports, the trade will lack confirmation that any corn or corn by products have been bought so far, but rumors continue of China buying corn, ethanol, DDGs, and pork. U.S. corn is said to be one of the world's cheapest feed grains on a FOB basis. South Korea bought 69,000 metric tons (mt) overnight for March-April from optional origin. CONAB came out with their updated Brazilian production estimates, and for corn, there was little change. They pegged the corn crop at 91.2 million metric tons (mmt), compared to 91.1 mmt in December, and last year's 80.8 mmt. The USDA's last estimate was a more lofty 94.5 mmt. Other private estimates are in the 92-93 mmt range. Weather in Brazil is becoming more bullish with the next 7-10 days promising more of the hot and dry pattern that has plagued Parana and Mato Grosso do Sul recently. Wednesday's EIA report indicated that U.S. ethanol production had fallen again to the lowest level in many months, and stocks rose again. Ethanol margins continue to pressure that industry. Look for the $3.85 level to once again be resistance on March, with $3.90 a more formidable resistance area. On a setback, the $3.78 area should support. DTN's National Corn Index closed at $3.50, near its recent high on Wednesday, with an average basis of 32 cents under March.

Soybeans:

Soybeans are weaker following slow overnight trade as the market mulls the results of the second trade meeting between the U.S. and China. The mood was certainly optimistic, and though China appears to have bought close to that minimum 5 mmt level of U.S. beans or more, cash markets suggest that interest has backed off. The big news Thursday morning is CONAB's updated Brazilian soybean production estimate at 118.8 mmt, likely higher than many had expected, compared to 120.1 mmt in December, and 119.3 mmt last year. CONAB did not drop Brazil soybean exports at all from the last report. Consultancy firm Ag Rural is a bit more bullish with their Wednesday update with a 116.9 mmt crop the result, down 4.3 mmt from last month. There are other private estimates suggesting that if the heat and dryness continues into the end of January, Brazil production could fall into a range of 110-115 mmt. The weather forecast suggests just that with the areas of Parana and Mato Gross do Sul expected to be hotter and drier, stressing both soybeans and corn for the next 10 days. Also providing underlying support to the soybean complex is the fact that the U.S. dollar has fallen versus the Brazilian real in the last few months. The Federal Reserve's more dovish stance on interest rates as detailed on Wednesday, has pressured the U.S. dollar which is bullish for U.S. exports. Bearish for the vegetable oil markets is the fact that Malaysian palm oil stocks ended the year at a record high 3.2 million tons, the highest in some 20 years. With all of the bullish talk of a China-U.S. trade agreement, the bull needs to be fed and there is no sign that USDA sales data will be up and running any time soon. Look for resistance on March beans at $9.41-$9.42, and support $9.10-$9.15. DTN's National Soybean Index closed at $8.33, and reflects an average basis of 91 cents under March.

Wheat:

Wheat is under a bit of pressure Thursday morning as the trade is disappointed that even though U.S. FOB values for SRW and HRW on the Egypt tender were the cheapest, Russia ended up garnering the entire 415,000 mt purchase with the freight advantage. The U.S. was said to have sold a portion of the 550,000 mt purchase of milling wheat by Algeria. There were no additional rumors of China purchases of U.S. wheat, talked about early in the week. Underpinning the wheat market is not only the newfound competitiveness of U.S. wheat offers, but also the recent fall in the U.S. dollar, making our exports more attractive to importers, but Russia continues to be aggressive. Weather in the U.S. is expected to be mostly warmer than normal and dry over the next week, but the southern Plains wheat areas could get some welcome moisture. There is more conjecture over the lower than expected winter wheat acreage, but in the absence of a USDA report, this will continue to be just a rumor. The trade estimate for the USDA report would have been just a minor drop, while a few private estimates have acreage nearly 1 million lower. DTN's National HRW index closed at $4.80, and the average basis is at 25 cents under March, firmer.

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

Follow Dana on Twitter @mantini_r

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