DTN Before The Bell Grains

Morning CME Globex Update:

Global stock markets are starting out mostly weaker with Dow futures at 197 points lower overnight, following Friday's 23-point drop. April crude oil is up 36 cents per barrel, the U.S. dollar is down .0490, and April gold is down $4.00 per ounce.

Other Markets:

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

Corn:

Corn got a modest bounce in the overnight markets following Friday's surprisingly bearish ending stocks number. Corn as well as the other markets had already been beaten down ahead of Friday's USDA report, which featured a surprising drop of 75 million bushels (mb) in U.S. corn exports, along with an expected 25-mb reduction in corn used for ethanol. Those changes sent U.S. ending stocks to 1.835 billion, 100 million above the average pre-report estimate. Many in the trade also feel that further ethanol cuts may be coming in future reports. When you couple the U.S. larger supply with a potential sharp gain in acres and a South American corn crop that is estimated to be 26.5 million metric tons (mmt) (1.043 billion bushels) larger than last year, it is a market that is hoping for the much rumored purchase of corn, ethanol and DDGs, if a China deal is struck. Currently, South American corn is $16 to $18 per metric ton (mt) cheaper than U.S. corn landed in Asia. South Korea has been a very active buyer of corn, but much of the recent optional origin sales are expected to come from South America. Perhaps a bullish igniter of higher prices, is the fact that managed funds have piled onto the short side, having added 73,000 contracts of shorts last week, bringing the total net short to over 170,000 contracts. Also bullish is the larger-than-expected on feed number in Friday's Cattle on Feed report (100.4%). The market focus will now turn to weather in the next 4 to 6 weeks for South American corn and bean crops. Recent rains have improved Brazil's safrinha corn potential, while Argentina is in position for a possible record large corn crop. May corn on Friday made a new recent low, and staying above that $3.62 level will be important. Next support is at $3.58, while resistance above is $3.70, and then $3.75. DTN's National Corn Index closed at $3.34 on Friday, with an average basis of 30 cents under May.

Soybeans:

Although there were few changes in Friday's USDA report, ending stocks dropped 10 mb to a still-burdensome and record large U.S. carryout of 900 mb. The report only dropped Brazil by 500,000 mt to 116.5 mmt, which is just 4 mmt below last year's record large production. When combined with Argentina's estimated 55 mmt crop, South America is expected to have a combined 13 mmt (478 mb) more soybeans than last year. World soybean stocks were raised to a record large 107.2 mmt. There was no change in the China import forecast, which, at 88 mmt, is thought to be too high by many, with African swine fever having decimated pig herds there. China's pig herd dropped 13% in January, according to the Ministry of Agriculture, and China's hog prices have hit the highest level in fourteen months due to the shortage. China's imports of soybeans in February are estimated to be just 4.46 mmt -- the lowest in four years, and compared to 7.38 mmt in January. With the ongoing snowpack in the Northern Plains, and heavy rains in the Delta and southeast, the prospect exists for U.S. soybean acres to be higher than earlier thought, perhaps leading to a more bearish scenario. Funds have also added to soybean shorts, but are thought to be a modest 50,000 contracts short. China has begun to buy part of the second 10 mmt purchase of U.S. soybeans that they committed to several weeks ago, with 664,000 mt (24.3 mb) reported on Friday. There are mixed reports of the U.S.-China trade discussions, but the move to delay the late March meeting between Presidents Trump and Xi was not well received by a trade clamoring for a quick settlement. With the breach of the key $9.00 on May soybeans on Friday, that will now provide some resistance, with the $9.10 to $9.15 area next. Weather in South America along with any trade talk news will be key drivers in the next few weeks, but little has changed the overall bearish soybean supply and demand. DTN's National Soybean Index closed at $8.06, and reflects an average basis of 90 cents under May. Private exporters reported to the U.S. Department of Agriculture export sales of 926,000 metric tons of soybeans for delivery to China during the 2018-19 marketing year.

Wheat:

Wheat was again slightly lower in Sunday night trade, and is hovering just above new contract lows established last week. The surprisingly large cut in U.S. wheat exports -- 35 mb -- has sent U.S. ending stocks to 1.055 bb. With current shipments of 650 mb, and with shipments of over 25 mb per week needed in the next three months to achieve the 965-mb export number, some see ending stocks headed for a more burdensome 1.1 bb. When coupled with the expected surge in both Black Sea and European wheat production this coming year, it's a scenario that will continue to weigh on wheat prices. On a bullish note, the pile on by managed money funds, who are now thought to be close to 100,000 contracts net short in Chicago, and a record short 45,000 contracts of Kansas City (they added 15,000 contracts in the latest CFTC report), it is that short that will be a catalyst for a sharp short-covering rally at some point. Right now, however, the funds have little reason to cover, as the "trend is your friend." World wheat ending stocks were increased on Friday by 3 mmt, and are now just 9 mmt under the record large stocks last year. Look for Kansas City May to have resistance in the $4.37 to $4.40 area and above that at $4.55. DTN's National HRW Index closed at $4.11, and the average basis is at 20 cents under May.

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

FollowDana on Twitter @mantini_r

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