DTN Before The Bell Grains

Grains, Soybeans Gap Higher on U.S.- China Trade Conflict Truce

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

Morning CME Globex Update:

Outside markets are showing some optimism over the weekend G-20 agreement between the U.S. and China to halt new tariffs and continue discussions for 90 days, with Dow futures up 435 points, crude oil up $2.40 per barrel, and the U.S. dollar index down .251. February gold is up $11.60. Over the weekend, 41st President George H.W. Bush passed away and Wednesday the Dow and NASDAQ will close in honor of him.

Other Markets:

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

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Corn:

March corn is getting a much needed boost not only from the G-20 U.S.-China trade truce, but also the signing of the U.S.-Mexico-Canada trade agreement known as USMCA. Congress must approve the USMCA same before it takes effect. China's promise to buy an unspecified amount of U.S agricultural, energy, industrial and other products has yet to be quantified. Although the trade reaction was to move higher, the agreement has not specified if China will buy more ethanol, DDGs or pork from the U.S. Weather was not conducive to any remaining harvest in the Midwest and upper Midwest, as a large storm rolled through over the weekend with below normal temperatures. Weather in South America is overall beneficial with the exception of perhaps too much rain in northern Brazil. DTN's National Corn Index closed at $3.38 on Friday, with an average basis of 40 cents under March. We'll see if the initial euphoria of the overnight trade can last throughout the day without any concrete evidence yet that Chinese tariffs will be removed.

Soybeans:

January soybeans moved sharply higher on Sunday night as positive news of the trade agreement emerged. Some had called markets to open lower on the theory that the 90-day truce had merely "kicked the can down the road" in the ongoing trade war. Sharply higher equities and crude oil set the stage for the bullish ag market reaction, as commodity funds, short a significant amount of both soybeans and bean oil, began to cover some of those shorts. China and the U.S will continue to discuss IT and cyber issues, including intellectual property, and though promising to buy "unspecified, but significant quantities" of U.S. ag, energy and industrial products, the grain trade will need some concrete proof soon to keep the bullish break out going. Expect that a possible test of the sideways trend break out will see January beans set back to that $9.00 to $9.06 area at some point. Weekend weather and unharvested grain has many feeling that we could see a downtick in both corn and soy production on the January final USDA report. Brazil will begin to harvest a record soybean crop in a few weeks so trade will need to see some China soybean purchases soon. February 1 will be an important date to see if China has stuck to its promise and to see if a long term trade understanding is forthcoming. DTN's National Soybean Index closed at $8.07, and reflects an average basis of 88 cents under January.At 8 a.m. USDA reported 147,000 mt of soybeans sold to unknown destinations for delivery in 2018-2019.

Wheat:

Chicago and Kansas City March wheats also moved higher, but remain up just 4 cents as wheat is less impacted by the ongoing trade war. However, the escalation of the Russia-Ukraine conflict has buoyed the wheat market on ideas of potential for improved U.S. export sales. News that Russia had sent 80,000 troops to the Ukraine border has some concerned that Ukraine's wheat supplies to port could be hampered. While Kansas City and Chicago saw zero wheat deliveries Thursday night, Friday night was a different story in Kansas City, where a commercial made intentions to deliver a hefty 400 contracts of wheat, sending Kansas City expiring December wheat down for the overnight and some 12 cents below the opening. Cash wheat is said to be at 3-month highs. DTN's National HRW index closed at $4.62, and the average basis is at 38 cents under March.

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

Follow Dana on Twitter @mantini_R

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Dana Mantini