DTN Before The Bell Grains

Spooked Investors, Bearish Supply Reports Threaten Grain Prices

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

Morning CME Globex Update:

Sudden panic selling in the stock market spilled over into crude oil, soybeans, and other commodities Wednesday, setting grain and oilseed prices lower for the week even before the USDA announces any potentially bearish adjustments to its supply and demand tables. It finally stopped raining in the Corn Belt, but now comes the flood, and the market shouldn't assume row crop harvest will resume immediately or without yield losses and quality losses.

Other Markets:

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

Corn:

Thursday is the chosen date this month for the USDA to release its World Agricultural Supply and Demand Estimates (at 11 o'clock Central), and the corn market is expecting a bearish set of numbers. When polled and averaged, traders indicated they're expecting to see a nationwide corn yield of 181.8 bushels per acre, implying a 14.85-billion-bushel crop and 1.932 billion bushels of ending stocks in the 2018-19 marketing year. Over the past three weeks, corn prices have rallied roughly 20 cents off the September low ($3.42 1/2 on the December chart), but a bearish jolt Thursday could put an end to that trend. The outside markets are extremely unhelpful: U.S. stock prices dropped more than 3 percent in a sudden panicky sell-off Wednesday, and they're expected to keep dropping Thursday morning. Ostensibly, the collapse was led by tech stocks but was triggered by rising interest rates, which affect agricultural producers, too. Futures trade for 10-year treasury notes overnight was more moderate, and the interest rate bullishness may have peaked Wednesday afternoon with 10-year rates at 3.24 percent. The DTN National Corn Index was $3.20 Wednesday afternoon, showing national average basis steady at 43 cents under the December futures contract.

Soybeans:

Dry skies have finally arrived for the Corn Belt Thursday, although fields are still too wet to harvest, and soybean pod splitting and seed sprouting have been noted in widespread regions over the U.S. in recent days. Soybean farmers in the Dakotas are still waiting for Wednesday's snow to melt, and soybean farmers in Illinois, Iowa, Missouri, and Kansas are experiencing major flooding. How much of this crop damage will manifest as a grading factor at the elevator door, and how much will result in outright yield losses when the soybeans fall to the ground, is un-knowable at this time. The futures market certainly isn't adding on any fresh risk premium, and has instead dropped twenty cents so far this week ahead of an expected bearish WASDE report Thursday. Traders, on average, are expecting the USDA to raise its soybean yield projection from September's guess up to 53.4 bushels per acre. The monthly report has no way to effectively account for whatever damage was done to yield in recent days, and to be fair, harvest losses are a rare market-mover. The exception to Thursday's dry weather is the Carolinas, where Hurricane Michael is now swirling. North Carolina still has over a quarter of its soybean fields to harvest and about 10 percent of its corn fields. Nationwide, the DTN National Soybean Index was $7.51 per bushel Wednesday, or $1.02 under the November futures contract, still showing historically weak average basis bids.

Wheat:

U.S. wheat futures are steady to a penny higher Thursday morning, on an independent path from the lower corn and soybean prices and the bearish outside markets. In last month's WASDE report, the USDA lowered its Australian wheat production estimate by 2 million metric tons and its Canadian wheat production number by 1 million metric tons. But some unhappy things have happened since then -- a killing frost in Western Australia; a snowy, late harvest on the Canadian prairies -- and further cuts could be justified in Thursday's upcoming WASDE report. Traders are expecting to see the world wheat ending stocks trimmed to a somewhat less bearish number: 261.1 mmt. Surprises in either direction could knock the benchmark Chicago wheat chart off its recent path of consolidation between $5.05 and $5.30. The weekly export sales report has been pushed back by the federal holiday and will be released Friday morning. Wheat basis bids strengthened by a penny for all three classes of wheat Wednesday: DTN's collected SRW Index was $4.72 Wednesday (38 cents under the December Chicago futures contract); the HRW Index was $4.78 (38 cents under the December KC futures contract); and the Spring Wheat Index was $5.34 per bushel (58 cents under the December Minneapolis contract).

Elaine Kub can be reached at elaine@masteringthegrainmarkets.com

FollowElaine on Twitter @elainekub

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Elaine Kub