DTN Before The Bell Grains

Soybeans Lead the Way Higher on China Trade Optimism

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

Morning CME Globex Update:

Outside markets are supportive Wednesday morning with Dow futures up 239 points and January crude oil up 68 cents. The U.S. dollar index is .2830 lower, while February gold is up $3. Optimism is rising on a statement from China that they intend to reduce import tariffs on U.S. autos from 40% to 15%. Global equities markets are mostly higher.

Other Markets:

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

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Corn:

March corn futures continue to march slowly higher, despite Tuesday's USDA and WASDE report showing a larger than expected boost in U.S. and world ending corn stocks. The U.S. raised ending stocks by 45 million bushels (mb) on the heels of a drop in corn for ethanol of 50 mb. Such a change is understandable with spot ethanol margins said to be a net loss of 50-60 cents per bushel. World stocks were up 1.3 million metric tons (mmt), with much of the gain attributed to Ukraine and the EU, offset somewhat by a 1 million ton decline in South Africa's corn crop. U.S. corn export pace, now some 263 mb higher than last year, is a major bright spot in U.S. grains so far. Ukraine will continue to be stiff competition with that crop up 1.5 mmt to a record 35 mmt. CONAB on Tuesday pegged the Brazilian total corn crop at 91.1 mmt, which is well below the USDA's 94.5 mmt estimate, and well under some private forecasts that are near or even above 100 mmt. Look for resistance on March corn to be near $3.90, and of course support will continue to be the gap area of $3.78-$3.80. DTN's National Corn Index closed at $3.48 on Tuesday, with an average basis of 37 cents under March.

Soybeans:

January soybeans are up 6 3/4 cents and challenging the recent high as many news stories have emerged about an imminent announcement of 5 to 8 mmt of China purchases of U.S. soybeans. There is some speculation that, despite Tuesday's bearish WASDE report on world ending soybean stocks (3.3 mmt higher than last month), that the rally from Tuesday lows and Wednesday's strength could partly be attributed to China buying futures ahead of any announcement. U.S. ending soy stocks were left completely unchanged by WASDE at a burdensome 955 mb while last year's Brazil crop was adjusted up by a half million tons, and this year's crop was raised another 1.5 mmt to a new record large 122 mmt. Though a record, this is still well below what some private estimates are reflecting. January beans are now approaching the post G-20 highs, and once above that, the next stop would likely be the summer high of $9.32 3/4. The USDA left both China imports and U.S. export sales untouched, reflecting some optimism for a China-U.S. trade agreement soon. U.S. sales and shipments continue to lag badly from last year. Although the recent new crop soy versus corn ratio does not suggest a large switch in acres from soy to corn, some analysts, such as RJO, have penciled in a 4 million acre switch to more corn and less beans. Tuesday's USDA and WASDE report did nothing to suggest that the bearish S & D on soybeans, both here and in the world, has been reversed. Most rumors suggest a China purchase soon of from 5 to 8 mmt. A purchase of 8 mmt (294 mb), though sorely needed, would still leave a large 600 mb carryout for the U.S. with a record Brazilian crop on the way. Support for January beans will continue to be down near the gap area and $9.00. January soybeans DTN's National Soybean Index closed at $8.27, and reflects an average basis of 88 cents under January. At 8 a.m. USDA reported 130,632 mt of soybeans sold to Mexico and 110,000 mt of soybeans sold to unknown destinations, both for 2018/2019 delivery.

Wheat:

Tuesday's USDA and WASDE report dealt another bearish card to the already downtrodden wheat market by dropping HRW exports by 40 mb and moving U.S ending stocks to a burdensome 974 mb. World wheat ending stocks also rose by 1.4 mmt to 268.1 mmt, with increases in the EU, U.S. and Canada being partially offset by a drop of 500,000 mt of Australian production to the lowest level since 2007/2008 (17 mmt). Russian wheat exports were boosted by 1.5 mmt, and competition from both Russia and Ukraine should continue unabated. Egypt's GASC came back in last night for a tender for February wheat, and like last time, the trade feels that the U.S. may not offer, with Russia having the upper hand. There are other wheat tenders with Bangladesh, Syria, Colombia, Brazil and Indonesia all seeking wheat. Rabobank made a statement on Tuesday that wheat is the most bearish crop for the coming year. DTN's National HRW index closed at $4.73, and the average basis is at 32 cents under March.

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

Follow Dana on Twitter @mantini_R

(KR)

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Dana Mantini