DTN Before The Bell Grains

Grains, Soybeans Weaken on Plunging Equities and Outsides

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

Morning CME Globex Update:

World and U.S. stock markets are plunging Thursday morning on news of the Canadian arrest of the CFO of Huawei on suspicions that she was violating Iran trade sanctions. Dow futures, after tumbling nearly 800 points on Tuesday, fell another 395 points, while S & P was off another 47 points after falling 159 on Tuesday. Crude oil is down $1.80, the U.S. dollar index is down .160, and February gold is trading close to unchanged to slightly higher.

Other Markets:

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

Corn:

Corn is down a bit, but still remains above the Sunday night chart gap. China, despite the Huawei arrest, has pledged to act quickly on buying U.S. ag and energy products. They have also demanded a prompt release of the executive, arrested by Canada at the request of the U.S. Trade is anxiously awaiting the removal or reduction of import duties on U.S. ag goods, but fears of a disruption in the recent trade truce pervade markets Thursday morning. After having bought in over 21,000 contracts the first two days of the week, funds sold a modest amount of corn on Wednesday, and remain short a small net position, including options. The EIA energy report will be out Thursday, and ethanol production is expected to be unchanged to up a bit, with stocks up slightly. Negative ethanol margins continue to run at an estimated 50-55 cents per bushel in the Midwest. Brazil corn exports are said to be 16-17 million metric tons (mmt) higher than last year, and at record high levels. The faster-than-normal soybean planting pace has traders thinking that safrinha corn will be planted in an ideal time frame and under good weather conditions. Lofty estimates of Brazil's total corn crop abound, ranging from 89 to 104 mmt, the top end being a record large. DTN's National Corn Index closed at $3.48 on Wednesday, with an average basis of 36 under March. At 8 a.m. USDA reported 198,120 metric tons of cornsold to Mexico. Of the total 106,680 metric tons is for delivery during the 2018/2019 marketing year and 91,440 metric tons is for delivery during the 2019/2020 marketing year.

Soybeans:

January soybeans are weakening, and now off close to 9 cents, once again approaching the gap area. A fall below $8.95 would be a blow to technical bulls. The weakness is undoubtedly tied to not only a lack of concrete proof of Chinese buying of U.S. soybeans, but also the outside forces mentioned above. The weakness comes despite China's pledge again last night to adhere to the G-20 agreement, and rumors now are that the China soybean purchase could approach as much as 20 mmt (735 million bushels), compared to the 5-8 mmt talked about on Wednesday. That would surely be a game changer, but the market shows much doubt. Although the U.S. export basis has not yet reflected any behind the scenes purchases, the fall in both Argentina's and Brazil's soy export basis is a hint to many that U.S beans will be bought. In addition to the rumors of the large soybean purchase by China, there is also talk about pork, crude oil and LNG purchases from the U.S. Weather in the U.S. and Canada warms up in the 8-16 day forecast and that warmth is expected into January. There is some premature concern of high pressure ridging in south central Brazil which could impact beans were it to last, but so far beneficial weather has prevailed, with the soy crop looking record large. DTN's National Soybean Index closed at $8.26, and reflects an average basis of 87 cents under January.

Wheat:

Wheat continues to be under pressure after having rallied Sunday night on the G-20 news. A host of bearish factors hit wheat early in the week, with large deliveries of HRW, Egypt's failure to open lines of credit for already purchased wheat, the re-opening of Ukraine's Azov shipping channel, and an increase yesterday of the EU's soft wheat crop by 1.8 mmt to 129.2 mmt. Add to that a drought-busting wetter forecast for parts of Europe and the Black Sea into late December, and ongoing slow U.S. exports, and one can see why wheat futures have been everybody's short leg. Stats Canada will be released Thursday, and expectations are also for a bump up in production to an average estimate of 31.4 mmt of all wheat versus 31 mmt in the last report. Egypt's GASC did announce a tender last night for Jan 21-30, but will the trade be reluctant to make offers? Egypt did apparently guarantee payment for 295,000 metric tons of the roughly 1 million tons in question. Wheat tenders abound in the next few days, with Iraq, Syria, Bangladesh, Taiwan, Japan and Ethiopia all seeking wheat. DTN's National HRW index closed at $4.62, and the average basis is at 36 under March.

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

Follow Dana on Twitter @mantini_R

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Dana Mantini