DTN Before The Bell Grains

Morning CME Globex Update:

Dow futures are down 72 points following Wednesday's 141-point higher close. There is some fear that if the government shutdown were to continue much longer it could send the U.S. economy into contraction. Concern over slowing world growth has been a bearish headwind for equities. February crude oil is down $1.02 per barrel despite the reported 2.7 million barrel draw last week. Crude stocks have fallen some 13.4 million barrels since November. The U.S. dollar index is little changed at up 0.0420, and February gold is down $3.20 per ounce.

Other Markets:

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

Corn:

March corn is just slightly higher in the overnight market, and is sitting just below that broken trend line. Resistance for March will likely be $3.77 and then $3.80, with the next support on a fall at $3.68-$3.70. In the past few days, South Korea, on 3 separate tenders, has bought 266,000 metric tons (mt) (10.4 million bushels) of optional origin corn, but much of that is likely to be U.S. corn off the PNW. U.S. corn and wheat continue to be very price competitive to world importers. Weather in Brazil has been a concern primarily for soybeans, but the first corn crop has also been hurt a bit, with some 30% of the corn growing regions experiencing stress. Celeres from Brazil lowered the first crop corn by 1 mmt to 28 mmt, which is still on the high side. Should the mostly hot and dry pattern continue in Brazil, it is the second, or safrinha crop (which comprises some 70% of Brazil's production) that could be impacted. The EIA's ethanol report on Wednesday gave corn a bit of a boost, with production expected to be up 2.5% to 3% on improving margins, instead coming out at 5.1% higher, with stocks up 0.4%. Most Midwest ethanol producers are still said to be operating at a loss. With the new crop soy versus corn ratio still at roughly 2.35 to 1, producers are not incentivized to make a big switch from soybeans to corn yet. Commodity funds are thought to be net long about 40,000 contracts of corn still, with options included. Some estimates have them at 100,000 contracts long futures alone. Turkey and Iran are in for corn this week, with the former likely to be sourced from the Black Sea. Corn looks to continue in a sideways and defensive mode in the absence of any USDA sales reports. DTN's National Corn Index closed at $3.42 on Thursday, with an average basis of 32 cents under March.

Soybeans:

Soybeans were able to hold the uptrend line once again, but barely, and are up 3-4 cents to begin. With no new soybean purchase announcements, the focus is squarely on Brazilian weather. The fact that both the Gulf CIF basis and that of the PNW fell on Wednesday, suggests that there is little new business being transacted. The Gulf fell to 19 over spot futures nearby and 22 over for February-March and looking for bids, and Brazil's FOB basis fell another 6 cents to 27 over spot futures as their harvest expands in Parana and Mato Grosso. At the PNW there are reports of no bid through May for soybeans. Weather in the dry areas of Brazil may have a brief respite from the dry trend over the weekend into Tuesday, but the intensity of showers seems to have lessened, and a return to the hot and dry pattern is projected after that. Celeres from Brazil was the latest to lower their production estimate, lowering it by 5 mt to 117.2 million metric tons (mmt). South Central and NE Brazil are expected to remain mostly dry and more crop losses are expected. However, with the largest U.S. carryout ever, and with global soybean stocks pegged at 15 mmt higher than last year, the bearish landscape will still exist for soybeans. Soybean meal also stayed above the trend line, and the one positive is U.S. crush, which is setting monthly records due to plentiful beans and profitable margins. The impact of African swine fever on demand continues to be debated, with many feeling that hog culls are being severely underreported. In China, all hogs versus last year are down nearly 4.8%. Rabobank has perhaps the most dire projection, suggesting that China's hog herd for 2019 could fall by 20%. The next meeting between trade representatives of the U.S. and China will not be until January 30. Look for March bean resistance to be at $9.05-$9.10 and support at the trend line around $8.90. DTN's National Soybean Index closed at $8.03, and reflects an average basis of 91 cents under March.

Wheat:

Wheat is just slightly higher, and though U.S. wheat appears to be the cheapest on a FOB basis, no one knows just how much business we are doing. There is a belief that with Black Sea wheat supplies tightening that demand will likely be shifted to the U.S., but Russia has not backed off from their aggressive stance yet. Russia's grain crop for 2019 is called 114.3 mmt by the ag minister, and that compares to 112.8 mmt last year. Russia's wheat crop is being called 72 mmt. Russia has so far exported 29.4 mmt of grain from July to Jan 10, with 24.7 mmt of that wheat. Ultimately, the U.S. should garner more of the Algerian and Bangladesh business once Russia slows down. While the government shutdown extends longer, we are not only left without export sales data, but also no indication of acreage, which some feel could be much lower than trade estimates. There is no guarantee that China will buy U.S. wheat, but there have been rumors to that effect. So far, China has bought U.S. soybeans, some pork, and U.S. crude oil. The trade is in the dark on the rest of the "substantial quantities" of U.S. ag products. DTN's National HRW index closed at $4.71, 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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