DTN Before The Bell Grains

Morning CME Globex Update:

The Dow Jones average closed 207 points higher Wednesday and Dow futures are 29 points higher to begin early Thursday. July crude oil is up 41 cents per barrel, the U.S. dollar index is down 0.3960 and August gold is up $6.50 an ounce.

Other Markets:

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

Corn:

Corn has now fallen nearly 32 cents per bushel from the highs made just a few days ago, and both July and December are likely to test the open chart gaps at $4.05 and $4.20 respectively. Although storms are moving across Kansas, Missouri and into the Delta and Southeast on Thursday morning, a much warmer and drier forecast is still in the cards for much of the Corn Belt, and planting progress should improve. With President Trump set to impose a 5% tariff on Mexico imports beginning Monday, June 10, news that Mexico is buying Brazilian corn is also pressuring a market where demand has softened due to the recent rally and cheaper competitor prices. Intl FC Stone traders reported that Mexico had bought a cargo of 33,000 metric tons (mt) of Brazilian corn for June shipment, but another rumor has Mexico buying as much as 2.5 million metric tons (mmt) of Brazilian corn as protection against tariffs. U.S. and Mexico trade officials continue talks in Washington Thursday with hopes some resolution might be forthcoming. President Trump's willingness to link the porous southern border issues with trade has even some of his Republican supporters unable to get on board with punitive tariffs. Managed money funds covered all of their once record-large net-short on the recent 95-cent rally, and it appears no one is left to buy corn futures despite catastrophic projections of a decline in both planted acres and yield. One report from the University of Illinois suggests yield could fall 20-25% for corn planted in June. That sounds a bit steep and it is likely that July weather will have a big role. However, there are many analysts who see corn acres down from 6 to 8 million acres. Ethanol stocks reported Wednesday were down again from the previous week, but remain record-large for the month of May. Various news reports suggest USDA has decided prevented planting (PP) acres will not be eligible for Market Facilitation Payments (MFP), and any help would have to come from the recently passed disaster aid package. Look for July corn to find support at the $4.05 gap, down to $3.99. With little having changed from the bullish narrative of lost acreage and yield, this would appear to be a corrective break in a bull move. Export sales for the week ending May 30 were a net cancellation of 0.3 million bushels (mb) for 2018-2019, with total commitments of 1.899 billion bushels (bb) down 13% versus last year. Corn shipments of 30.3 mb, were below the weekly amount of 43.3 mb needed to achieve USDA's 2.300 bb estimate. DTN's National Corn Index closed at $3.88 on Wednesday, with an average basis of 27 cents under July.

Soybeans:

Soybeans have now dropped 35 cents from the highs made just 3 days ago, filling the open chart gap at $8.58 on July. The market has broken back down below the 50-day moving average. Even though soybean planting continues at a record-slow pace, there have been few willing to cut soybean yield, and weather in many areas should allow for rapid progress. As farmers decide whether to switch some corn acres to soybeans or take prevented planting, many analysts see a minimum gain of 1 to 2 million acres (ma) of soybeans from the March intentions of 84.6 ma. Treasury Secretary Steve Mnuchin is set to meet with Chinese central bank leader Yi Gang this weekend in Japan. This would be the first meeting between the U.S. and China in several weeks. Unlike in corn, managed money funds have retained a very large net-short in soybeans, and likely added to it in the past two days. It is estimated that to begin Thursday, funds are still short 124,000 contracts of soybeans along with shorts in soy products as well. President Trump has threatened to impose an additional $300 billion worth of tariffs on China without a deal. A bearish supply situation continues to overhang both the U.S. and world soybean markets, with a record large 113 mmt of ending soy stocks in the world and even a global oilseed supply projected to be a record large 125 mmt with trend yields in the U.S. When coupled with the impact of African swine fever, the bearish soy situation could be hard to overcome. U.S. soybean exports are estimated to be at least 75 mb too high. Difficulty in getting soybeans to port due to river issues could also jeopardize unshipped China sales. China soy meal prices fell 3.3% overnight after recently rallying sharply. Look for July soybeans to see decent support on a fall to $8.30-$8.40, with November support first at the 8.84 1/2 gap, and then the $8.60 area. Soybean export sales for the week ended May 30 were 18.7 mb and total commitments of 1.715 bb are down 16% versus a year ago. Shipments of 20.8 mb were well below the 33.6 mb weekly average needed to reach USDA's 1.775 bb estimate. DTN's National Soybean Index closed at $7.88, and reflects an average basis of 82 cents under July.

Wheat:

Wheat has led this correction to the downside, and Kansas City July wheat has now plunged 55 cents from the new high made just 3 days ago. Chicago July has plunged 40 cents in the same time. Despite the ongoing outlook for more heavy rains and possible flooding issues in developing wheat in Kansas, Oklahoma, Missouri and Arkansas, a more beneficial weather outlook in some world trouble spots, bearish crop conditions in both winter and spring wheat, and the advancing wheat harvest has sent buyers to the sidelines. The hard red winter (HRW) harvest has now advanced to northern Texas, soon to be in southern Oklahoma. The recent rally priced U.S. wheat out of contention. Offers of both Russian and German wheat were said to be $9 to $16/mt cheaper than U.S. Gulf HRW, with U.S. soft red winter (SRW) said to be even higher Wednesday. A better forecast for both Ukraine and Russia 6-7 days out as well as a more favorable rain forecast for parched Australian wheat areas is also pressuring wheat. Funds, which had been covering their wheat short, look to have resumed selling again, with the Chicago wheat short estimated to be as high as 70,000 contracts again coming into Thursday trade. Kansas City July futures will need to hold support above $4.35 or risk breaking down even more. Wheat export sales for the week ending May 30 were a net cancellation of 1.0 mb and total commitments of 930 mb are just above USDA's 925 mb projection. Shipments last week of 27.5 mb exceeded the 23.2 mb weekly average needed. DTN's National HRW index closed at $4.25, and the average basis is at 21 cents under July.

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

FollowDana on Twitter @mantini_r

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