DTN Before The Bell Grains

Grains, Soybeans Surge Sharply Higher on Optimistic Trade Talk

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

Morning CME Globex Update:

Following a modest 63-point gain on Wednesday on the Dow Jones average, Dow futures are down 35 points this morning. April crude oil is down 27 cents per barrel, the U.S. dollar index is down 0.1430 and April gold is down $9.40 per ounce.

Other Markets:

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

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Corn:

In an all-around bullish overnight, corn is up 6 cents and has now rallied eight cents above the low set on Wednesday. For the first time I am seeing an optimistic outlook on the U.S.-China trade agreement. In an effort to beat the March 1 deadline, the two sides are reportedly working on several memorandums of understanding (MOU), commitments in writing covering U.S. demands for structural change (intellectual property rights, etc). Corn futures have been the most stable following President Trump's comments that China would buy a lot more corn than anyone thought possible. U.S. corn also continues to be very competitive in world markets, and is at parity with Brazil/Argentina into Asia for March-April. World corn consumption this year is on an upward trajectory, and the prospect for China to buy U.S. corn looks very promising. South Korea continues to buy corn, but last night's 66,000 metric ton (mt) purchase was optional origin. They are also in for 60,000 mt of optional feed wheat. Brazil's safrinha corn crop is now over 50% planted, with thoughts that seeding is up over 4%, and weather has turned much more yield friendly. Although Argentina is currently on pace for a potential record large crop, the last two weeks has been rather dry and rain is needed, with some coverage expected this weekend. In the U.S. there is just beginning to be talk of a delay in planting activity in the south and east, with heavy rains and possible flooding, with LA and MS planting likely to be slowed. In the northern Plains, with huge snow piles and more on the way, one might expect a wet spring. USDA's Outlook Forum promises to release acreage numbers this morning on both corn and soybeans. In addition to the release of delayed export sales, and USDA S & Ds, Friday will also feature the Cattle on Feed report, expected to show on feed at 102%, placements at 101%, and marketing at 100% of last year. March corn has already reached its first resistance at $3.77, and look for $3.80 to provide more selling activity. December corn is approaching the strong $4.05-$4.08 resistance. DTN's National Corn Index closed at $3.43 on Wednesday, with an average basis of 27 cents under March.

Soybeans:

Following this week's bearish onslaught, soybeans are surging Thursday morning as news from Washington on the China trade talks takes a more positive turn. China and the U.S., though still far apart on structural issues, are apparently ready to make commitments on paper, and both would like to see a resolution by March 1. The U.S and China, according to multiple news sources, have drafted six "memorandums of understanding" (MOU) on key structural issues of the trade dispute. Soybeans had become very oversold on the charts, and the fact that March was able to stay above $9.00 prevented an acceleration of the bear move. Bearish to the soy market is the continued spread of the deadly African swine fever (ASF) in China, and another case was reported on Thursday in Shandong, the first such case in this major livestock area. That and news that it had spread to Vietnam is troublesome for demand. China has reportedly been buying Brazilian beans in the past few weeks and shopping Argentine beans. Brazil's soybean harvest is now 40% done, well ahead of average. Weather is now more conducive to yields in Brazil, but only 15-20% of the soy crop will likely benefit from recent rains. A poll of analysts reportedly pegged Brazil's production at 114.6 million metric tons (mmt), compared to 117 mmt by USDA. I think most are in the range of 115-116 mmt now. Argentina's growing weather continues to be mostly favorable. The trade is anxiously awaiting the Friday release of six weeks of export sales, and hoping that total China purchases might be above the 10 mmt that most expect. March soybeans are right at the 20 and 50-day moving averages again on Thursday and the next resistance will be at $9.20-$9.25. DTN's National Soybean Index closed at $8.16, and reflects an average basis of 86 cents under March.

Wheat:

Wheat is surging on Thursday, especially Kansas City wheat, now up 10 1/2 cents. That is market that plunged nearly 60 cents just since February 6, and had become very oversold on the charts. Kansas City wheat had made yet another new contract low on Wednesday, and the RSI (relative strength index) momentum indicator was at the most oversold level since more than two years ago. Despite another disappointing Egyptian wheat tender, where the U.S. failed to even make an offer, the U.S. on the recent break remains competitive, with the Gulf HRW discount to Russia said to have widened to $15/mt in favor of the U.S. However, with U.S. sales lagging badly from both last year and from USDA projections, U.S. wheat exports need to pick up the pace, or risk another carryout over 1 billion bushels (bb). Egypt's GASC ended up buying 360,000 mt from a combination of France, Russia, Ukraine and Romania. France had a $10/mt freight advantage over the U.S., while U.S. SRW was likely as cheap on a FOB basis. While the U.S. has mostly been shut out on recently concluded tenders, there are several more tenders pending over the next week. Kansas City wheat will have plenty of stiff resistance on any rally, but the major selling will be found up around $4.80-$4.90 versus the current price of $4.60. DTN's National HRW index closed at $4.32, and the average basis is at 18 cents under March, firmer.

Dana Mantinican be reached at dana.mantini@dtn.com

FollowDana on Twitter @mantini_r

(KR)

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Dana Mantini