DTN Before The Bell Grains

Wheat Gives Back Some Gains

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

Morning CME Globex Update:

Outside markets are quiet Tuesday morning, with neutral implications for corn, soybeans, and wheat. The ag markets may stay in a sideways holding pattern until Wednesday’s monthly look at USDA supply and demand estimates. After a technical glitch delayed Monday afternoon’s Crop Progress report, it will be released for the market to review at 11 o’clock (Central) Tuesday morning.

Other Markets:

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

Corn:

Corn harvest proceeds in the Delta and as far north as Kansas (watch for official Crop Progress numbers to be released Tuesday morning), and yield reports are disappointing compared to last year, but remember this region struggled with widespread drought through the peak of summer, and 2018’s poorest yield reports are likely to be front-loaded out of the south. Hurricane Florence is forecast to hit the East Coast as a potentially catastrophic Category 4 or 5 hurricane by Thursday. North and South Carolina together have accounted for over 1 percent of the U.S. corn crop in recent years (their 2018 production was last estimated at 142 million bushels), and much of that crop will be vulnerable to harvest losses. The average trader guess for 2018 U.S. corn yield is 177.4 bushels per acre, ahead of Wednesday’s monthly round of World Agricultural Supply and Demand Estimates from the USDA, which as always might spark some volatility in the otherwise quiet corn market. The DTN National Corn Index, an average of cash bids around the country, was $3.24 per bushel Monday, with the average basis bid steady at 43 cents under the December futures contract. At 8 a.m. USDA reported 138,000 mt of corn were sold to South Korea for delivery in 2018-2019.

Soybeans:

U.S. soybean futures aren’t sharing in the excitability of foreign oilseed markets, up less than a penny at the start of Tuesday. Meanwhile, soybean futures at the Dalian exchange in China were higher again overnight as traders there explored the implications of a pocket of frost damage in China’s northeastern region. Much of the Dalian soybeans’ high volume of trading activity is coming from speculators, and the price burst could be short-lived. The arbitrage relationship between Chinese and U.S. soybean prices is of course gummed up by some inherent transportation costs, but also by those infamous 25 percent retaliatory tariffs. No meetings are scheduled and nothing is currently expected to change in that poor U.S-China trading relationship, and in fact the trade war is now even more entrenched, with the U.S. administration threatening further tariffs that would cover virtually all Chinese exports to the U.S. In any case, U.S. soybean merchandisers are still expecting to have a lot of beans sitting around with nowhere to go when this year’s large harvest heats up. They weakened their already-weak country basis bids even further Monday, now averaging 99 cents under the November futures contract. The DTN National Soybean Index was $7.46 per bushel. USDA reports unknown destinations cancelled 192,000 mt of soybeans set for delivery in 2018-2019.

Wheat:

The December contracts for Chicago, KC, and Minneapolis wheat jumped higher Monday by 17, 16, and 10 cents, respectively, but even more interesting than that, the nearby futures spreads simultaneously cranked tighter, suggesting the commercial outlook for domestic wheat supplies may not be so bearishly burdensome after all. The Dec-to-March KC wheat spread, as a representative example, has tightened from 25 cents wide three weeks ago to now 20 cents wide Tuesday morning. The carry offered by Minneapolis futures for storing spring wheat during that same timeframe has tightened 2 1/4 cents during the past two trading sessions. The wheat charts have since pulled back some of Monday’s gains and are 4 to 7 cents lower alongside losses in most other agricultural commodities Tuesday morning. Further volatility is possible in coming sessions, especially if Wednesday’s upcoming WASDE report suggests tighter-than-expected wheat ending stocks, which would surprise large numbers of speculative traders who have recently been amassing bearish short positions in wheat. This week’s Crop Progress report was delayed by technical difficulties Monday afternoon and will be released Tuesday morning at 11 o’clock (Central), giving us a look at winter wheat planting progress, which could be enthusiastic this fall given the poor outlook for soybean profitability in 2019. DTN’s collected SRW Index was $4.80 Monday, (average basis at 48 cents under the December Chicago futures contract); the HRW Index was $4.89 (steady at 42 cents under the December KC contract); and the Spring Wheat Index was $5.17 (steady at 63 cents under the December Minneapolis contract).

Elaine Kub can be reached at elaine@masteringthegrainmarkets.com

FollowElaine on Twitter @elainekub

(KR)

Elaine Kub