DTN Early Word Grains

Weaker Grains, Chinese Announcements Remain Thin

6:00 a.m. CME Globex:

March corn was down 3/4 cent, January soybeans were down 1/4 cent, and March KC wheat was down 4 1/4 cent.

CME Globex Recap:

Equity markets around the globe are mostly higher Wednesday morning with all eyes on the Federal Reserve decision on rates later this afternoon. In addition, bloodletting in the energy markets remains a major feature as spot crude oil futures traded below the 46-handle area before recovering. Grains continue their quiet, choppy trade as holiday mode kicks into high gear and Chinese announcements remain lacking.

OUTSIDE MARKETS:

Tuesday closes showed the Dow Jones Industrial Average up 82.66 at 23,675.64, the S&P 500 up 0.22 at 2,546.16 while the 10-yr Treasury yield ended at 2.807%. Early Wednesday, DJIA futures are up 191.00. Asian markets were lower with Japan's Nikkei 225 down 127.53 points (-0.60%) and China's Shanghai Composite was down 27.09 points (-1.05%). European markets are higher with London's FTSE 100 up 58.56 points (0.87%), Germany's DAX up 71.02 points (0.71%), and France's CAC 40 up 27.64 points (0.58%). The euro was up 0.00505 at 1.14365 and the U.S. dollar index was down 0.1730 at 96.8120. December 30-year T-Bonds were up 9/32nds while February gold was down $1.50 at $1252.00 and February crude oil was up $0.13 at $46.73. Soybeans on China's Dalian Exchange closed up 0.16% and soymeal closed up 0.48%.

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BULL BEAR
1) Cash traders suggested China was pricing in another 300,000-600,000 metric tons (mt) of soybeans Tuesday. 1) The Russian ruble traded to its weakest level against the U.S. dollar in over a month on Tuesday as crude oil continued its decline.
2) The calculation period for determining changes to variable storage rates begins today with both WH/WK and KWH/KWK priced to lower storage costs. 2) The ethanol/corn spread traded down to its lowest level this week since February 2013 as ethanol fails to cover the input cost of corn.
3) November 1 to-date rainfall anomalies in Brazilian soybean growing areas show a material deficit in the center-south region of the belt. 3) The Bloomberg Commodity Index made fresh 18-month lows Tuesday as crude oil hit its weakest level in 16-months, dragging on the entire commodity complex.

MORE COMMODITY-SPECIFIC COMMENTS

CORN Corn is weaker Wednesday morning but is mostly continuing its choppy trade as of late which seems to feature a close in the opposite direction of the previous day without fail. It was difficult to not take notice of the chatter on social media about the terrible status of U.S. ethanol producers. Multiple publicly traded ethanol producers saw their share prices hit multi-year lows Tuesday with several announcing more plant slowdowns or outright closures. It cannot be overstated the impact the small refinery exemptions are having on domestic ethanol demand. The current March corn price is around 30-35 cents higher than each of the last two years and is clearly cutting into ethanol plant margins. With the corn balance sheet's largest consumer of corn facing such a tough operating environment, it is difficult to see how price can be supported above current values. There is still optimism China will buy U.S. corn after the first of the year, but this doesn't appear to be a feature in today's market. Thursday's December 1 Quarterly Hog and Pig report is expected to show total inventories up 3.0% from a year ago, the breeding herd up 2.77% and market hogs up 3.08% as feed demand remains solid across the spectrum.

SOYBEANS Soybeans are a touch weaker Wednesday morning but well inside of recent ranges as consolidative trade continues. Traders were buzzing with reports China was buying more U.S. soybeans Tuesday. Reports varied between 300,000 and 600,000 mt, and most thought an even split between the Gulf and PNW was most likely. FOB basis levels across the Northern Plains have improved anywhere from 15-40 cents the last two weeks as demand has surfaced off the PNW. It is difficult to believe basis has a great deal of additional upside left, unless the Chinese demand continues to pick up and elevators must begin picking up temporary storage. Dryness in south central Brazil remains a focus with relief expected between December 24-28. If these rains do not verify, chatter will increase about a Brazilian soybean crop under 120 million metric tons (mmt) vs. USDA at 122.0 mmt currently. Expectations for how the U.S. producer will market his soybeans after being armed with the second half of the MFP payment are mixed. Some believe it will embolden him to hold for higher prices while others feel it could cause heavier marketing as the payment offsets the incredibly weak basis levels across the Midwest. Worth noting, canola futures are just barely off two-year lows while Paris rapeseed futures traded within a couple euro of 5-month lows.

WHEAT Wheat markets are lower Wednesday morning as the recent rally has run into overhead resistance and U.S. FOB offers are close to pushing themselves out of contention for swing export business. Wheat has been rallying on firming values in both Argentina and Russia, but the sharp selloff in the Russian ruble helped to offset some of that price strength Tuesday. Market moving news is light, but deliverable stocks continue to be of interest to us. Total wheat stocks in Duluth/Minneapolis fell by another 1.946 million bushels (mb) last week, bringing the total draw since November 1 to 8.457 mb. Total wheat stocks of 14.198 mb are the lowest for this week since 2011 and just 2.5 mb from the lowest stocks on record for this date set in 2008. Chicago-area stocks also fell 1.408 mb last week to 72.443 mb, down 16.213 mb from a year ago. KCBT stocks remain hefty at 115.816 mb vs. 113.335 mb a year ago. Variable storage rates (VSR) calculation periods for the H/K spreads begin today with the KWH/KWK trading around 45% of full carry while the WH/WK sits at 25% of full carry. As they stand today, both exchanges would see storage rates drop by 3 cents/month.

DTN Cash Change From National Contract Change from
Commodity Index Prev Day Avg. Basis Month Prev Day
Corn: $3.51 $0.02 -$0.35 Mar $0.001
Soybeans: $8.23 $0.05 -$0.85 Jan $0.015
SRW Wheat: $5.02 -$0.01 -$0.31 Mar $0.014
HRW Wheat: $4.88 -$0.05 -$0.29 Mar $0.000
HRS Wheat: $5.41 -$0.10 -$0.36 Mar -$0.015

Tregg Cronin can be reached at tmcronin31@gmail.com

Tregg can be followed throughout the day on Twitter @5thWave_tcronin

(KR)

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