DTN Before The Bell Grains

Grains, Soybeans Continue on China Watch

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

Morning CME Globex Update:

Outside markets are positive following the recent plunge in equities, attributable to not only fears of recession, but the recent arrest of a Chinese CFO of a tech company, instilling fear that the situation might undermine progress on the recent G-20 agreement between the U.S. and China. The Chinese Commerce Minister, however, has put forth very positive comments, suggesting that China would act immediately to buy U.S. ag, energy and auto products, stating that the goal is to end all tariffs. The Dow futures are up 33 points, January crude oil is up $2.32 per barrel, the U.S. dollar index is down .089, and February gold is $5.40 higher.

Other Markets:

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

Corn:

Despite the recent meltdown in equities, corn futures have held up very well, still respecting the Sunday night gap left on charts. Thursday's ethanol report showed a surprising 2% gain in production to 314 million gallons, using an estimated 113 million bushels (mb) of corn and milo. This comes despite the continued negative margin environment, said to be a net loss of 40-50 cents per bushels in the Midwest. Corn export sales were pegged to be 1 to 1.1 mmt, and were reported at 1.18 mmt or 46.4 million bushels (mb). Totals are now up 17% versus last year. The Census report detailed an October corn export total of 224 mb, which would be record large for this time and more than 100% above year-ago levels. U.S. corn is now said to be roughly 10 cents per bushel cheaper than Brazil, but on a par with Argentina. Fierce export competition is expected by Argentina and Ukraine. Even though U.S. corn exports are a bright spot so far, some feel that due to Ukraine's corn crop growing by over 2 million tons, U.S. exports could be trimmed on the Dec 11 USDA report. Corn remains above key moving averages awaiting any positive Chinese news. March corn should continue to be well supported in the $3.78-$3.80 area. DTN's National Corn Index closed at $3.46 on Thursday, with an average basis of 37 under March.

Soybeans:

January soybeans are now moving higher, and with all of the negative news, that is positive for soybean bulls. Export sales were expected to be in a range of 600 to 800,000 mt, were reported a bit better at 890,900 mt, or 32.7 mb. That remains down 33% from year ago levels. U.S. soybean export pace is said to be the slowest since 2011. On a positive note, soybean meal exports for October are record large, and some 42% above year ago levels. Although there has been no sign of China buying off the PNW so far, one ag news service is reporting that Sinograin is once again back taking offers from the PNW. There has been no noticeable bump in U.S. bean basis, but Brazil's basis continues to leak lower such that U.S. soybeans now, in the absence of tariffs, are said to be on a par with Brazil soybeans landed in China for January. All the talk around Brazil lately is bearish with some estimating a record high 130 mmt of soybeans. Also, according to SLC Agricola, Brazil is capable of adding another 106 million acres of new land into production. Weather in South America continues to be yield conducive with a wetter forecast for Argentina and southern Brazil, and drier forecast for northern Brazil on the horizon. A warmer forecast for the central U.S and Canada is expected in mid-December into January. Without any bad news, January soybeans should continue to be well-supported in the $8.88 to $8.94 area on any setback. DTN's National Soybean Index closed at $8.22, and reflects an average basis of 88 cents under January.

Wheat:

All three wheat markets are recovering this morning with the recently battered Kansas City market leading the way. The markets are up despite Egypt's GASC buying five cargoes of Russian and one cargo of Ukraine wheat. No U.S. offers were seen. Recent news has been bearish, such as the EU soft wheat crop rising, and Thursday's Stats Canada bump in all wheat production to 31.8 mmt compared to September's estimate of 31mmt. Taiwan bought 110,000 mt of U.S. wheat, and Japan took 63,000 mt of U.S. on a total purchase of 144,000 mt. There are a host of other wheat tenders lurking. Wheat export sales were estimated to be 450,000 to 500,000 mt, ended up at 711,800 mt, or 26.2 mb. Sales remain down 11% from a year ago. Recent weakness was also tied to new deliveries in both Chicago and Kansas City, but world is that some receipts in Kansas City are being loaded out. Hard wheat basis in Minneapolis and Kansas City is said to be stronger. Wheat DTN's National HRW index closed at $4.60, and the average basis is at 36 under March. At 8 a.m. USDA reported 224,000mt HRW sold to unknown destinations for delivery in 2018-2019.

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

Follow Dana on Twitter @mantini_R

(KR)

Dana Mantini