DTN Before The Bell Grains

Morning CME Globex Update:

Following a 221-point decline on Wednesday, the overnight Dow Jones futures are up 57 points early on Thursday. July crude oil is up 23 cents per barrel, the U.S. dollar index is slightly lower at down 0.0270, and June gold is down $1.00 an ounce.

Other Markets:

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

Corn:

Corn is back up again early Thursday morning following Wednesday's nearly 20-cent fall from the daily highs. As of early Wednesday, July corn had rallied 95 cents per bushel above the low set on May 13. Managed money funds, who just a few weeks ago were short a record large 344,000 contracts of corn, are thought to have covered all of that and likely even moved into a slightly long position, when including options. As the final planting date for insurance has passed (May 25) or will soon be here (May 31 to June 5 in eastern belt states), the debate rages on about how many farmers will opt to plant beyond the prevented planting date. Although rain is still crossing the Eastern Corn Belt this morning, not good news for very late Illinois, Indiana and Ohio farms, the forecast overall looks to be warmer and drier in the 10-day period. The estimates are that by June 2, there will still be an estimated 30 million acres of corn left to plant. Already some analysts are calling for a decline in supply of anywhere from 1.0 to 1.7 billion bushels (bb) of corn. While it is difficult to assess yield at this point, a few commission houses and even the University of Illinois have dropped yield from 5 to 8bushelsper acre (bpa) on corn even at this early date. It is thought that we won't know the full extent of prevented planting acres until August. For some reason, the $4.38-$4.39 level on spot futures have repelled rallies now three times since mid-2015. A rally above might send July to the $4.50 level. Bearish is the fact that both Brazilian and Argentine corn is offered at a sharp discount to the U.S., as they have a combined 1.4 bb more than a year ago. The exportable surplus in South America for 2019 is said to be 76 million metric tons (mmt) compared to 71 mmt last year. South Korea's FLC is said to have bought 60,000 metric tons (mt) of corn on Wednesday from COFCO and likely non-U.S., for fall delivery. DTN's National Corn Index closed at $3.90 on Wednesday, with an average basis of 28 cents under July.

Soybeans:

Soybeans are late to the rally party and are a bit more subdued on Thursday morning after having rallied nearly $1.02 per bushel on July futures just since the May 13 low. Funds, who had still been short a huge 157,000 contracts began to cover in the Monday night session with two evening gaps still on the chart. Soybeans, which as of Sunday had been only 29% planted versus a 66% average pace, have a bit more time, and thoughts are that we could still see a bump in soybean acres from March intentions. The estimate is that by June 2, there could still be 50 million acres of soybeans left to plant. However, in soybeans, unlike corn, there is a more bearish landscape with a record large U.S. and South American supply to buffer any losses. Some see a difficult path for U.S. soy ending stocks to even fall below 800 mb, still burdensome. Managed funds probably hold the key to an extension of the rally, with the estimate of their net short still around 120,000 contracts, in addition to a net short in both soy products. There has been huge farmer selling, especially from South America, as the rise in futures and fall in currency has provided attractive cash prices to South American farmers. With no clear path to a U.S.-China trade pact at least until the G-20, China has again turned to South America, and Brazil soy premiums rallied from 40 cents over to 120 cents over the nearby CME futures. On Wednesday, that farmer selling sent the Brazilian basis 10-15 cents lower. Currently, July and November futures are above the key 50-day moving averages typically a signal for funds to cover shorts. Major resistance on July looks to be in the $9.10-$9.20 range, and $9.20-$9.30 range for November. DTN's National Soybean Index closed at $7.90, and reflects an average basis of 82 cents under July.

Wheat:

Although well under the Wednesday highs, all three wheat markets are again higher on Thursday. Even though there appears to be a bit warmer and drier outlook for some areas of the Corn Belt, the Southern Plains is expected to continue to be challenged with too much rain. There is growing concern of not only disease in developing and mature wheat, but an expectation for a hard red winter (HRW) crop that is loaded with low protein supplies. That in itself could be construed as bearish in that low protein seems to make its way to the delivery market. Demand for high protein milling quality wheat is sure to be strong in 2019. Funds have been buying in their wheat shorts steadily, but remain short in all three markets. A few weather issues in other parts of the world are also playing into the recent bull story. Dryness and heat in southern Russian wheat, and continuing drought problems in Australia, may compromise what was once a huge uptick in foreign production versus last year. The Bureau of Meteorology in Australia has predicted that it will be hot and dry on the east coast for the next three months, and the entire country has a 70% chance of being warmer than normal for that period. U.S. Spring wheat planting, recorded at 84% complete as of Sunday, should have some open planting weather ahead, but laggard South Dakota will likely have sharply lower acres, with some figuring a loss of one million acres from the March planting intentions in total. If funds continue to cover, we'll go higher, but we do have a harvest ahead and a 1 bb carryout, so caution must be advised. DTN's National HRW index closed at $4.36, and the average basis is at 17 cents under July.

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

FollowDana on Twitter @mantini_r

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