Morning CME Globex Update:
Outside markets are quiet and mixed with the Dow futures down 73 points following Thursday's Dow Jones average gain of 122 points. February crude oil is down 30 cents, and remains some $10 per barrel above the low set recently. The U.S. dollar index is down 0.2640, and February gold is $6 higher.
|U.S. Dollar Index:||Lower|
Corn was a bit firmer in the overnight and getting back about a third of Thursday's loss. Thursday began with the updated Brazilian production forecasts from the well-regarded CONAB, about as official as any estimate in the absence of the USDA. That forecast had Brazilian corn production a tad better at 91.2 million metric tons (mmt) and soybeans at a much better than expected 118.8 mmt. The corn estimate, though shy of USDA's 94.5 mmt previous estimate, suggested little impact on first crop corn from the recent heat and dryness. That bearishly construed report, coupled with no further clarity from the recent 3-day U.S.-China trade meeting, sent buyers to the sidelines, had sellers taking profits, and funds liquidating longs. Commodity funds are estimated to have unloaded 16,000 contracts of their net long on Thursday, still leaving them with a net 56,000 contracts long, including options. Despite the bevy of rumors in the past few weeks suggesting that China would purchase large quantities of corn, the cash market at the Gulf and PNW hinted at no real demand with the basis softening. Part of Thursday's weakness may also be attributed to the perception that the Democrat-controlled House is likely to stall approval of the new USMCA trade pact and impact Mexico trade. Also bearish was the Rosario Exchange's updated corn production which pegged Argentine corn production at 44 mmt compared to 42.5-43 mmt previously. A mildly bullish input is that ethanol margins have improved with energy markets gaining and now are positive in some Midwest locations. Weather continues to be a threat to not only the first corn crop, but also the safrinha corn crop in Brazil, which now is expected to reach a record-large 70% of total production. March corn is once again nearing trend line support at $3.74-$3.75, and on a bounce higher, the $3.80 area will be first resistance, with $3.85 next. December corn, topping at $4.05 recently, was just 3 cents above the trend line as of Thursday's close, with that $4.05 area likely to provide resistance again. DTN's National Corn Index closed at $3.44 on Thursday with an average basis of 32 cents under March, unchanged.
Following Thursday's bloodbath, which saw spot soybean futures plunge 17 1/2 cents, overnight trade is resulting in a modest 5-cent bounce. After weeks of continuous rumors, and trade certainty that China had already bought from 5 to 6 mmt of U.S. beans, the longs became impatient as day 21 of the U.S. government shutdown prevents any confirmation. China's post-meeting statement lacked any clarity. That, coupled with what was a higher than expected CONAB production update on Brazil soy production of 118.8 mmt, sent the market reeling. That 118.8 mmt was just slightly lower than their previous 120 mmt, and just shy of last year's record soy production. With all of the talk of the heat and dryness sapping Parana and Mato Grosso do Sul yield potential, this estimate was a disappointment to bulls, and encouraged funds to add to their shorts, selling an estimated 12,000 contracts along with 9,000 contracts each of meal and oil. Ag Rural was a bit more bullish in their assessment at 117.6 mmt, having dropped it over 4 mmt from their last estimate. Thursday's plunge came despite many weather services touting a 2-week forecast of mostly hot and dry conditions in those already dry portions of Brazil. The next 2 weeks promises below to much below precipitation with rising temperatures. The next 30 days of weather will be critical. On the other hand, Argentina's soy planting is now 96% complete, with 49% of the crop rated good to excellent compared to 40% last year. On a rally, look for $9.17-$9.18 to provide some resistance on March, with $9.28 above that. DTN's National Soybean Index closed at $8.15, and reflects an average basis of 91 cents under March.
After Thursday's plunge, wheat has retraced all of the losses thus far in the overnight. Wheat began Thursday on a sour note, as despite the realization that both U.S. SRW and HRW wheats on a FOB basis were the cheapest in the world, Russia's aggressive export stance and a freight advantage had them picking up all 415,000 metric tons (mt) of the split February-March Egypt tender. Commodity funds were credited with selling an estimated 7,000 contracts of Chicago wheat on Thursday, adding to a modest net short, called about 40,000 contracts now. HRW wheat at the Gulf was still said to be some $8/mt cheaper than Russian on a FOB basis Thursday, providing hope for a pick-up in U.S. export business. Wheat was also likely pressured by the wetter forecast for the southern Plains and Delta, while much of the Midwest remains dry with above normal temperatures. The supportive idea of lower than expected winter wheat acreage promoted by some advisory firms is having little impact in the absence of the January USDA report. Despite Thursday's weakness, it still appears that both Chicago July and December wheats may be forging a double bottom, with a similar look to the KC chart. DTN's National HRW index closed at $4.73, and the average basis is at 26 cents under March, weaker.
Dana Mantini can be reached at email@example.com
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