DTN Before The Bell Grains

Morning CME Globex Update:

Following Tuesday's 237-point fall in the Dow Jones average, Dow futures are showing another 195 points drop early Wednesday. July crude oil is down $1.81 per barrel, the U.S. dollar index is up 0.0430, and June gold is up $6.70 an ounce.

Other Markets:

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

Corn:

Corn once again gapped higher in the overnight and continues the meteoric rise that began May 13. July has now rallied 95 cents per bushel above the lows set on that day. U.S. corn planting was revealed at just 58% complete compared to the 60-65% expected and the average planting pace of 91%. Corn is just 32% emerged compared to a 70% average. Key states such as Illinois and Indiana, just 35% and 22% planted versus 94-97% last year, have analysts pondering a huge cut in corn production and supplies. The extreme wet and violent weather continues to hamper seeding efforts, with much more rain recorded overnight in Iowa, Illinois, Nebraska, Kansas, Missouri, Minnesota, Arkansas, South Dakota, moving across Illinois and Indiana this morning. Flooding is an issue in many areas, and transportation of grain hit an obstacle with St. Louis closed down and Gulf access shut off from many areas. Funds once again bought in short positions and are thought to be now going net-long in corn. Estimates of fund buying on Tuesday were as high as 55,000 contracts. While U.S. farmer selling is relatively light, South American farmers aided by weak currencies and huge corn crops have been sellers. Argentine corn is now thought to be a 50-cent per bushel discount to U.S. with Brazil corn 30 cents cheaper. There is a glimmer of hope for a pattern change beginning next week with a warmer and drier trend, but it will take 5-7 days at least to get back in some fields. With close to 39 million acres of corn unplanted, an obvious yield drag will occur, and for the corn that has been planted, nearly ideal summer weather will be needed to make up for lost bushels. Analysts are floating ideas of a massive hit to the balance sheet, with 1.5 to 1.8 billion bushels (bb) of lost supply being discussed. There is talk of as much as 10 million acres of prevented planting corn along with 3 million acres of soybeans. This is a straight up shot on corn with four gaps now on the charts; the overbought level continues to be more extreme each day. Corn export inspections at 43.3 million bushels (mb) were decent, but matters little at this time during a supply-driven rally. DTN's National Corn Index closed at $3.93 on Tuesday, with an average basis of 27 cents under July.

Soybeans:

Soybeans gapped higher for the second straight overnight session, with July and November having stopped for 8 straight days at the 20-day moving average, now both having broken out above a bull flag chart pattern. July soybeans rallied $1.01 per bushel from the contract low set on May 13, fueled by the record net fund short and a severely lagging planting pace that is starting to garner more attention. Soybean planting was revealed at just 29% complete compared to 74% last year and a 5-year average of 66%. Key states such as Indiana and Ohio are just 11% done, Illinois is only 14% done and South Dakota has a meager 6% planted. Over 60 million acres of soybeans are left to plant. There is a warmer and drier window on the horizon beginning Friday according to forecasts. Managed money funds, which had held a record net-short on soybeans, are finally starting to cover those shorts, with estimates that they bought 17,000 contracts of soybeans along with 10,000 soy meal and 6,000 soybean oil contracts Tuesday. Even Wednesday, funds were still thought to be short 117,000 to 127,000 contracts of beans. China imported 7.64 million metric tons (mmt) of beans in April, with 5.79 mmt from Brazil and 1.75 mmt from the U.S. With little progress being made on the U.S.-China trade talks, and fears that unshipped sales could be canceled, it was good news last week that three more boats of U.S. soybeans were shipped to China. U.S. soybean shipments still remain 27% below a year ago. Another case of African swine fever was reported in China Tuesday, according to the Ag Ministry there. On a further rally, look for the $9.10-$9.20 area to be one of major resistance on soybeans, but as the current fund short-covering has occurred in corn, major resistance has proven to be not so major. There is still some time for soybeans and a possible increase in acres, and a much more bearish supply situation than that of corn, but if funds choose to cover all shorts, as in corn, we will move higher. DTN's National Soybean Index closed at $7.74, and reflects an average basis of 82 cents under July.

Wheat:

Chicago and Kansas City wheat gapped higher again in the overnight, fueled by more massive storms and flooding having an impact not only on hard red winter (HRW) areas, but also key soft red winter (SRW) states. Heavy rain, hail and flooding struck Oklahoma, Kansas, Arkansas, Illinois and Indiana. Winter wheat conditions did fall 5% in the good to excellent category to a still favorable 61%, but hard winter states Kansas, Oklahoma (down 15%) and South Dakota took big hits. Funds, who had also come into Tuesday's overnight trade short both Chicago and Kansas City, bought in shorts on Tuesday and likely again in the overnight. Funds were estimated to have bought 18,000 Chicago contracts Tuesday. Spring wheat seeding was reported as 84% done on Tuesday's crop progress report versus a 91% average. South Dakota continues to lag badly, and received more rains overnight. It is estimated that close to 1 million acres of spring wheat may not get planted, but the spring wheat balance sheet can probably withstand such a loss. There is growing concern over not only lost quantity in hard wheat, but lost quality and low protein in the U.S. HRW crop, and milling quality and high-protein wheat could command a sharp premium in the coming year. Although not nearly as overdone as the corn market, wheat also is overbought, and we could see a set-back in coming days. DTN's National HRW index closed at $4.43, and the average basis is at 18 cents under July.

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

FollowDana on Twitter @mantini_r

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