DTN Before The Bell Grains

Morning CME Globex Update:

Dow futures are currently 21 points lower following Wednesday's loss of 73 points in the Dow Jones average. April crude oil is up 3 cents, the U.S. dollar index is 0.0020 lower, and April gold is $1.00 higher. The U.S. dollar index has now fallen nearly 2 points since February 14. Equities are lower on the lack of any concrete agreement so far from the second U.S.-North Korea meeting.

Other Markets:

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

Corn:

Corn has fallen nearly 12 cents per bushel this week as funds have hit the market hard, selling an estimated 66,000 contracts in the past three trading sessions. News that Index funds, those who buy a basket of commodities as a hedge against inflation, have shed nearly 75,000 contracts of corn length recently, has also pressured corn futures. Some analysts claim that trend-following funds are now short over 100,000 contracts of corn on a combined futures and options position. This appears to be a market that is becoming tired of all talk and no action regarding rumored China purchases of corn and its by-products. There were 910 contracts of corn delivered against expiring March this morning. While port values for both corn and beans have surged due to weather and logistics problems, basis at delivery points have not as the corn is having trouble moving. South Korea's KFA bought 128,000 metric tons (mt) of optional corn on Wednesday, but that is likely South American origin as Argentine corn is said to be roughly a $13/mt discount to U.S. corn landed. EU corn values also slipped to one-year lows on Wednesday, highlighting the stiff competition for export bushels. Ethanol production rebounded last week, up 3.2% to 302 million gallons, and margins have improved to close to break even, up from 35 cents per bushel losses in early February in some areas. South Africa is projected to have a 2 million metric tons (mmt) drop in corn production possibly flipping them to a net importer of corn. Weather in South America bodes well for improved yields in Brazil, with Argentina already looking for a record large crop. Weather in the U.S. will continue to hamper movement with snowpack 40" to 50" in the north, likely leading to planting delays. February crop insurance price discovery ends today and is near $4.00 on corn. Export sales on corn for the week ended February 21 were 48.8 million bushels (mb) better than expected, and the pace of sales and shipments are considered neutral. DTN's National Corn Index closed at $3.39 on Wednesday, with an average basis of 35 cents under May futures. At 8 a.m. USDA reported 168,000 mt of corn sold to Mexico and 133,000 mt of corn sold to South Korea, both for 2018-2019 delivery.

Soybeans:

Although optimism continues to be high regarding a final deal with China, the soybean market is still in a sideways to lower pattern. There were 820 contracts of soybeans delivered against expiring March this morning. As Brazil's new harvest expands, and U.S. values rise at shipping ports due to transportation issues, both barge and rail, Brazil values are dropping. Brazil soybean offers are said to land in China at a $12 to $13/mt discount to U.S. soybeans. That discount goes out to June. Argentina is cheaper as well. Many in the trade feel that any additional China purchases are unlikely, and concrete evidence of recent purchase have not been forthcoming. African swine fever continues to expand and the extent of its impact on China soy demand is yet to be determined. Also adding pressure to soybean futures is the idea that a late spring could add to soybean acres in the northern Plains. There continues to be talk that China is inquiring daily about U.S. soybean and corn offers. A drop in tariffs would surely be needed for additional business. At current industry average estimates, South America will still have 10-12 mmt more soybeans to market, on top of what are record large U.S. stocks. The trade will be watching for the next meeting between President's Trump and Xi Jinping. The soon to be determined February crop insurance price is close to $9.55. Funds, who have been sellers of soybean futures, are now thought to be net short over 70,000 contracts when you add option positions. Export sales of soybeans for the week ended February 21 were a hefty 80.6 million bushels, but overall sales and shipments remain bearish. A sale of 1.8 mmt to China was included. DTN's National Soybean Index closed at $8.21, and reflects an average basis of 97 cents under May.

Wheat:

Even the most oversold technical conditions in many months could hardly get a bounce out of wheat. Only Kansas City is a bit higher to start on a lack of KC wheat deliveries. Funds have also been laying into wheat markets, with the Chicago net futures/options position estimated at 85,000 contracts, and the KC short thought to be close to 25,000 contracts. This will surely provide fodder for a sharp short-covering rally if and when wheat has a reason to move higher. U.S. wheat continues the EU and Black Sea still aggressive sellers, and the outlook for sharply higher world wheat production in the coming year, has cast a bearish pall over the wheat markets as well. Indonesia is said to have booked one million metric tons of Argentine wheat this week, and Thailand bought 110,000 mt of Black Sea wheat. Following weeks of rumors, there have been no China purchases of U.S. wheat to this point. Wheat futures continue to be wildly oversold, but in trending markets, that can continue longer than expected. Bullish for wheat is the sub-zero temperatures in the Midwest likely to impact unprotected wheat in KS, NE and OK and the extreme wetness in the mid-South with standing water in some areas. Export sales on wheat for the week ended February 21 were as expected 17.5 million bushels, but the trend of sales and shipments remains bearish. DTN's National HRW index closed at $4.21, and the average basis is at 27 cents under May.

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

FollowDana on Twitter @mantini_r

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