DTN Before The Bell Grains

Wet Weather, Fund Short-Covering Lead to Grains Surge

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

Morning CME Globex Update:

Dow Jones futures are down 173 points, June crude oil is 9 cents per barrel lower, the U.S. dollar index is down 0.0990, and June gold is up $1.10 per barrel.

Other Markets:

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

Corn:

Corn futures gapped higher in the overnight with July having rallied 46 cents per bushel in one week and new crop December up close to 40 cents in that same time frame. Heavy rain and even snow over the weekend further delayed an already tardy planting effort with the estimate for planting from Monday's crop progress report to be corn at 45-49%. That would be severely behind the average pace of 81%. Monday's weather promises moderate to heavy rains again in the western and Southern Plains, with corn seeding delayed and damage to ripening wheat possible. Eastern Kansas, eastern Nebraska, northern Missouri and parts of Iowa could see 5 to 8" of rain over the next 10 days with flooding an issue. Corn is going for its sixth straight higher close Monday, and fueling that rally is a net managed money fund short that was 298,000 contracts as of last Tuesday. Granted, since Tuesday, funds have been covering some but remain short a significant amount. Some key states, such as Illinois, are well behind and the speculation about the amount of corn going into prevent plant will rage on this week. There are ideas that as much as 2 to 7 million acres that could go into prevent plant. Yield drag is also being talked about as we are past the optimal date for yields now. July corn is approaching a significant resistance area of $3.95, and December corn is right within the big resistance zone of $4.00 to $4.08. A rally and close over $4.08 on December would be a bullish signal. DTN's National Corn Index closed at $3.58 on Friday, with an average basis of 25 cents under July.

Soybeans:

While the soy market is certainly the laggard in the overnight, July has regained a good portion of its Friday plunge. July and November are still below the 20-day moving average. With the halt in China trade negotiations and heightened rhetoric from both sides, this issue is far from being resolved. The next meeting is likely to be the late June G-20 meeting between Presidents Trump and Xi Jinping. U.S. soybean demand continues to suffer, not only due to the trade dispute, but also due to African swine fever. Another Chinese province reported an outbreak on Monday. More than 120 cases have been reported and every province in China has been impacted. The first outbreak in Hong Kong was noted over the weekend, further illustrating the lack of containment of this demand-dampening disease. Soybean planting also is far behind the average pace, estimated to be 19-22% done as of Sunday, compared to double that on average. As we get closer to June, look for more attention to be paid to soybeans, where as of last Tuesday, the CFTC reported that managed funds are net-short a record large 171,000 contracts, likely a bit less to start this week. Look for a rally and close over $8.48 on July beans to be considered bullish, but that is still 14 cents above early Monday prices. DTN's National Soybean Index closed at $7.39, and reflects an average basis of 83 cents under July.

Wheat:

All three wheat futures markets are surging higher Monday morning with Kansas City leading the way. Extremely wet weather and severe storms over the past weekend, and forecast for the next 7 to 10 days, threatens to impact developing wheat with lodging and disease becoming more of a concern. While hard red winter (HRW) has been to this point in the best condition in years, the extreme weather is fueling fears of fusarium and even vomitoxin in HRW, as it has in soft red winter (SRW) areas, which continue to be deluged with rains. Kansas wheat fields have and will be pummeled with unwanted rains. Key soft red states such as Illinois and Missouri are in line for even more rains. Spring wheat planting this weekend took another hit, with rain and even snow retarding planting progress, which is expected to be near 60% done. As in corn and soybeans, the CFTC report on Friday detailed a still very large fund short in both Chicago and Kansas City (close to a record net 57,000 contracts short as of last Tuesday). In fact, as of last Tuesday, the net short of corn, soybeans and all three wheat markets by managed funds totaled 619,000 contracts! Both Kansas City and Chicago July futures have vaulted above their key 50-day moving average and are now 57 and 59 cents above last week's lows. Much of the strength we see this Monday is likely more fund short-covering. The recent rally in U.S. wheat has made our wheat less competitive in world markets as well. DTN's National HRW index closed at $4.05, and the average basis is at 15 cents under July.

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

FollowDana on Twitter @mantini_r

(KR)

P[L1] D[0x0] M[300x250] OOP[F] ADUNIT[] T[]
P[L2] D[728x90] M[320x50] OOP[F] ADUNIT[] T[]
P[R1] D[300x250] M[300x250] OOP[F] ADUNIT[] T[]
P[R2] D[300x250] M[320x50] OOP[F] ADUNIT[] T[]
DIM[1x3] LBL[] SEL[] IDX[] TMPL[standalone] T[]
P[R3] D[300x250] M[0x0] OOP[F] ADUNIT[] T[]

Dana Mantini