DTN Before The Bell Grains

Grains Weaker Overnight

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

Morning CME Globex Update:

Following a Dow Jones average gain of 172 points on Tuesday, Dow futures are pointing to a slightly higher start, up 21 points. March crude oil is down 16 cents per barrel, the U.S. dollar index is up 0.1110, and April gold is down $0.80 per ounce.

Other Markets:

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

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Corn:

Corn continues to trade in a narrow range between $3.75 and $3.83 on March ahead of the possible game-changing WASDE report Friday morning. Corn export sales and shipments continue to be the bright spot for U.S. exports, and CIF barge values at the Gulf suggest that demand remains strong. February bids are said to be 58 cents over the March futures with few offers, while March is 57 cents over bid, and 60 cents over offered. Black Sea values have hit seasonal highs, making the U.S. one of the cheapest feed grains in the world. With Argentine weather mostly favorable in key growing areas, their corn production has recently been ratcheted up to close to 45 million metric tons (mmt), compared to USDA's last estimate at 42.5 mmt. That would give Argentina a crop that is 13 mmt (512 million bushels) more than last year. Brazil's total crop is pegged in a range of 91 to 95 mmt, compared to 82 mmt last year. There is a long time to go on the second (safrinha) crop, which is said to already be 35% planted, a record pace under dry soil conditions. This pattern is expected to turn more favorable in coming days for the driest areas of Brazil. Although rumors have been rampant about China buying U.S. corn under the trade agreement, there has been no indication that purchases have occurred yet. However, with corn prices said to be close to $7.00 per bushel in some major Chinese feeding areas, and with ocean freight weaker, the possibility certainly exists. EIA (Energy Information Association) will release their weekly ethanol report on Wednesday. Some analysts feel due to the negative margin atmosphere that we have seen for many months, USDA will be inclined to drop corn for ethanol usage by some 50 to even 100 million bushels (mb), perhaps offsetting the anticipated decline in yield and production. Look for March corn to remain in the range above until Friday, with December corn, now into the new insurance averaging period, continuing to struggle above $4.05. DTN's National Corn Index closed at $3.50 on Tuesday, with an average basis of 29 cents under March.

Soybeans:

Soybeans are a bit weaker to start despite confirmation China bought at least 3.5 mmt of the promised second purchase of 5 mmt. That amount was reported as sold to China and unknown in the past two days. It is assumed that China has so far bought a total of 368 mb since trade talks began. Export values have firmed at both the Gulf and PNW, with Gulf values having risen 10-15 cents per bushel in the last few weeks. Weather in Brazil has recently taken a turn for the better, with more seasonal and wetter conditions expected to reduce stress in the northern one third of Brazil. That rain then moves into the central and southern regions. However, the damage has been done, and it will be interesting to see what WASDE comes up with for Brazil soybean production with most crop scouts/analysts in a range of 112-117 mmt now, compared to the last USDA estimate of 122 mmt. Brazil harvest is now 20% done with variable yields. Argentina's soy crop is pegged to be in a range of 53-56 mmt, well above last year's drought-ravaged 37.8 mmt crop. Treasury Secretary Steve Mnuchin and U.S. trade representative Robert Lighthizer travel to Beijing next week for further trade talks, followed up by President's Trump and Xi Jinping's meeting in late February. Optimism is running high as China has agreed to widen trade talks to include hacking and other technology issues. Expect March soybeans to continue in a $9.10 to $9.30 range at least until Friday, and November beans will encounter very stiff resistance anywhere close to $9.70-$9.80. DTN's National Soybean Index closed at $8.30, and reflects an average basis of 89 cents under March. At 8 a.m. USDA reported 586,000 mt of soybeans sold to China (523,000 for 2018-2019 and 63,000 mt for 2019-2020) and 182,000 mt soybeans sold to unknown destinations for 2018-2019 delivery.

Wheat:

Although U.S. wheat export sales and shipments continue to lag, the recent nearby futures spread action and firming basis suggested there is new export business occurring. The Kansas City March-May spread has moved into a 5-cent carrying charge from 9 1/2 cents a few weeks ago. As Russian and Ukraine values have priced themselves out of contention, and the Russian ag minister says that Russia will slow exports short term, the U.S. has been the cheapest FOB wheat offer out there. Wheat has also received some support from ideas that winter wheat acreage on Friday's report could reveal the lowest in over 100 years, and the recent cold snap may have clipped yield potential for unprotected wheat. This week will again see single-digit temps in much of KS and NE, without the benefit of snow cover in some areas. Jordan recently bought 60,000 mt of optional milling wheat, and that was from CHS (Cenex), and thought to be U.S. There are other tenders around for hard milling wheat the U.S. could be involved with. We won't know for a few weeks as the USDA plays catch-up on export sales. Tuesday's Stats Canada report contained no surprises with all wheat stocks at 23.2 mmt versus the 23.4 mmt expected. Look for KC March to be supported near $5.03-$5.04 with strong resistance at $5.17-$5.20, and a close above $5.17 likely bullish. DTN's National HRW index closed at $4.88, and the average basis is at 22 cents under March, firmer.

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

Follow Dana on Twitter @mantini_r

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Dana Mantini