DTN Before The Bell Grains

Wheat, Corn Falter in Overnight Trade

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

Morning CME Globex Update:

Dow Jones futures are up 139 points early Tuesday, July crude oil is up 21 cents per barrel, the U.S. dollar index is up .1260, and August gold is up $13.70 per ounce.

Other Markets:

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

Corn:

After a rally of $1.21 from low to high in just one month, the corn market is taking a breather Tuesday morning. Monday's crop progress report revealed corn at 92% planted, on the high side of expectations (89% to 92%). However, the report is confusing, with comments about Michigan -- one of the major planting laggards -- suggesting the percent of the corn advance in planting (up 21% on the week) was made by the decision of farmers to opt for prevented planting. Michigan advanced 21% to 84%, but there were just 1.9 days suitable for fieldwork. The 92% planted on U.S. corn compares to the 100% average. Ohio is just 68% planted. Emergence of corn was just 79% compared to the average of 97%. There are an estimated 7.4 million acres of corn left unplanted. Tuesday shows light to moderate rains in the central Plains and Midwest, but the 7-day forecast promises more heavy and unwanted rains in the Midwest and Southern Plains. The area of concern continues to be Illinois, Ohio, Michigan and Indiana. Export inspections revealed on Monday showed a yearly total of 1.607 billion bushels down 4% from a year ago, and U.S. corn, on the rally, has priced itself out of contention in world markets. Meanwhile South American corn crops continue to ratchet higher, with crop consultant Agroconsult raising Brazil production to 101.2 mmt, while Ag Resource suggests the final tally could amount to 103 mmt to 104 mmt compared to 100 mmt by USDA. Brazil's safrinha (second) corn harvest is just 10% done. Also, bearish for corn demand is more talk of hard red winter wheat working into southern Kansas feedlots. Funds are thought to be holding a net-long corn position of an estimated 160,000 contracts. On a further break, look for the $4.35 area to be initial support on July corn, while the $4.53-$4.54 area on December corn should support. DTN's National Corn Index closed at $4.33 on Monday with an average basis of 22 cents under July.

Soybeans:

While corn has stolen the spotlight in the last several weeks, soybeans' tardy planting pace is starting to get more attention. Soybeans are slightly lower to begin Tuesday. Soy planting, at 77% done, was slightly lower than trade expectations for 79% to 81%, and compares to the 93% average pace. Illinois, Indiana, Ohio, Michigan and Missouri are all more than 20% behind the average pace. Emergence, at just 55%, is well behind the normal 84%. The trade is now expecting USDA to lower soybean yield in its July report, and thoughts of prevented planting soy acres are on the rise. There are an estimated 19.7 million intended acres of soybeans left to plant with a 7-day weather forecast that has 1 1/2 to 4 inches possible, with even higher local totals in the Midwest and Eastern Corn Belt. Soybean demand continues to suffer with last week's export inspections bringing the total of 1.309 billion bushels to 26% below a year ago. China still has 6.3 mmt of unshipped purchases and rumors are that China could roll forward some 2.5 to 3 mmt of that total. July soybeans have now rallied $1.21 from the mid-May low to Monday night's high price as funds exited their large net-short soy position. New-crop November beans have seen a similar rally, running into major resistance in the $9.40-$9.50 area. Look for a setback to $9.15 to be the first support. Overall, the soybean market remains one of mostly bearish fundamentally, with a huge supply able to withstand some acreage and yield losses. In the meantime, South America continues to garner any China demand as that trade battle remains unresolved. DTN's National Soybean Index closed at $8.36, reflecting an average basis of 77 cents under July.

Wheat:

Wheat markets have been on a tear, led by Chicago July, which has rallied $1.30, but is leading the way lower to begin Tuesday. Funds have likely covered all their net short in wheat now. Winter wheat conditions, revealed at 64% good to excellent on Monday, are still the best in 9 years, and spring wheat conditions, though down 4% week on week at 77% good to excellent, remain higher than the 5- and 10-year averages. Key states of Minnesota and North Dakota are 86% and 83% good to excellent. Winter wheat harvest at just 8% complete is severely lagging the 20% average, with Oklahoma just 16% done versus a 56% average, Kansas just 1% versus 12%, and soft red producing state Illinois at just 6% compared to a normal 21% done. However, early yields from hard red winter (HRW) areas are said to be huge with some Texas and Oklahoma yields as high as 75 to 90 bushels per acre, according to Ag Resource. The HRW protein is assumed to be very low this year. Aside from head scab, there has so far not been the quality issues many had expected. It's early and the 7-day forecast does not bode well, with more heavy rains slated for both Kansas and Oklahoma. The late June forecast does appear to show a pattern change with warmer and drier weather, and that will be welcomed. In other news, the Canadian Prairies are expected to continue to get some rains. Australia continues to deal with drought issues, and ABARE -- the Bureau of Agricultural Research and Economics -- has dropped Australian wheat exports by 18% to 11.7 mmt compared to 14.2 mmt in March as predictions for crop production have fallen 11%. As in corn, U.S. wheat has priced itself out of contention with U.S. soft red (SRW) said to be a huge $32/mt premium to EU soft wheat. On Monday, reports were that HRW wheat worked into southern Kansas feedlots at roughly a 7 cent per bushel discount to corn. DTN's National HRW Index closed at $4.55, and the average basis is at 21 cents under July.

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

Follow him on Twitter @Mantini_r

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Dana Mantini