DTN Before The Bell Grain Comments

Soybeans Could Revisit Contract Lows

Elaine Kub
By  Elaine Kub , Contributing Analyst
(DTN photo by Greg Horstmeier)

Morning CME Globex Update:

Additional tariffs on China announced early Wednesday spooked global markets, including stocks and consumer commodities. Although the soy complex is the most sensitive to trade bearishness, corn and wheat futures are moving lower, too, in sympathy with this overall tone. Fresh contract lows have been established on the corn charts, but soybeans haven't yet pierced last week's lowest levels.

Other Markets:

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

Corn:

Tasseling corn fields will face warm weather Wednesday, above 90 degrees in most U.S. locations and especially in the western Corn Belt, but the crop has sufficient moisture and pleasant nighttime lows in the 60s and 70s, which will likely allow satisfactory pollination. The resulting confidence in a 14-plus billion bushel crop sustains a bearish tone in the futures markets, and the new crop December contract dug itself a fresh contract low overnight: $3.55 3/4. A higher U.S. dollar, gloomy stock markets, and double-digit losses in soybeans are likely to keep the corn market pointed lower through the day. As long as domestic demand for U.S. corn remains robust, this market may be somewhat insulated from trade war considerations, but in the overall feed sector, soybean meal prices have fallen below $330 per ton, and corn and soybeans generally tend to maintain an expected price relationship. The DTN National Corn Index, an average of cash bids around the country, was $3.16 Tuesday, showing national average basis steady at 32 cents under the September futures contract. There were 249 issues and stops in the daily deliveries report for the expiring July corn futures contract.

Soybeans:

Overnight, the new crop November soybean contract traded within two cents of last week's $8.53 1/4 contract low, driven lower by new information about Trump's trade war. A fresh list was released of imported Chinese products on which a 10 percent tariff is now proposed, and although the new items will damage U.S. manufacturing costs more than the U.S. soybean market, it was nevertheless a reminder of how much cheaper U.S. soybeans will need to be in comparison to our international competitors in order to account for the increased transaction costs that will be necessary during the trade war. Further reminders are likely to be seen Thursday in the weekly export sales report, and ultimately, in the USDA's supply and demand estimates, which will include the projected impact of the tariffs. In the cash soybean market, average soybean basis bids were steady at 60 cents under the August contract Tuesday, leaving the DTN National Soybean Index at $7.96 per bushel. There were 447 issues and stops in the daily deliveries report for the expiring July soybean futures contract and 878 issues and stops for the expiring July soybean oil contract.

Wheat:

Despite the bearish tone spilling over from the row crop markets into wheat futures Wednesday morning, all three U.S. wheat charts are staying 7 to 20 cents above last week's lows. Compared to the drought-challenged Kansas crop, HRW yieldsin Nebraska and Colorado, and SRW yields in Michigan, are now adding heftier amounts of wheat supply to the U.S. The September KC wheat chart on Tuesday filled the gap left above $4.87 during last week's volatile rally. Paris milling wheat futures are also moving lower in a correction to that rally. Steep losses are noted across the board for consumer commodities, with crude oil down $0.80 per barrel, suggesting that investors' fears about the health of the global economy have been renewed. DTN's collected SRW Index came to $4.67 Tuesday (25 cents under the September Chicago contract); the HRW Index came to $4.73 (21 cents under the September KC contract); the Spring Wheat Index came to $5.13 (24 cents under the September Minneapolis contract). There were 70 issues and stops in the daily deliveries report for the expiring July KC wheat contract, representing warehoused Hard Red Winter wheat.

Elaine Kub can be reached at elaine@masteringthegrainmarkets.com

FollowElaine on Twitter @elainekub

(KR)

Elaine Kub