DTN Before The Bell Grains

Morning CME Globex Update:

Dow futures are pointing higher (currently up 143 points) after Thursday's gain of 162 points. February crude oil is up 59 cents per barrel. The U.S. dollar index is down 0.0070 and February gold is down $9.40. As in grains, the day begins mostly risk-on for outside markets.

Other Markets:

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

Corn:

It was a quiet day before a midday surge, led by Kansas City wheat, sent corn and soybeans sharply higher in unison Thursday, touching off buy-stop orders along the way. Trade struggled to find an answer for the sudden rally during what looked to be another boring sideways day. The rally continued in the overnight, and as China rumors were discredited, the recent futures price weakness in both corn and wheat surely has uncovered export demand. With corn, it was this week's buying binge by South Korea (thought to have purchased at least 400,000 metric tons) that got things rolling. There continues to be talk of multiple feed grain importers being active -- Egypt, Japan, Malaysia, Turkey, Iran and Latin American nations. Corn basis at the Gulf hinted at some business being done. Also supporting corn prices on Thursday, Dow Jones reported China is willing to import U.S. poultry. A late day comment by Treasury Secretary Steve Mnuchin about rolling back tariffs on China helped fuel the fire. Also supportive to corn is the ongoing weather pattern in central and southern parts of Brazil, where some relief was expected over the weekend, but the second week forecasts on Thursday turned noticeably drier. As safrinha corn planting has begun, the net drying of soils and the return to hot and dry weather is sure to impact corn futures more. Funds on Thursday were credited with buying some 20,000 to 22,000 contracts of corn futures, and their net position, with options included is pegged at net long 70,000 contracts. Without any CFTC data, it is all a guessing game. March corn is currently sitting just above all of the key moving averages, which are now at $3.78-$3.79. Look for March resistance to be strong at $3.85, with support likely at $3.77-$3.78. December corn is approaching a major selling area of $4.08-$4.10 and may have a hard time getting through that level short term. DTN's National Corn Index closed at $3.48 on Thursday, with an average basis of 32 cents under March.

Soybeans:

With absolutely no indication in cash markets at either port that soybeans were seeing a lot of new buying interest, it appears that the soy market may have been the big beneficiary of the KC wheat inspired midday surge. Also, some late session comments about the U.S. possibly rolling back tariffs ahead of the next round of China-U.S. talks on January 30 helped to shock the soy shorts. Trade representative Robert Lighthizer appears to differ with Steve Mnuchin on such an idea. Soybeans likely were fueled by a change in the weather pattern on Thursday, which suggested that after the weekend respite from the hot and dry pattern affecting parts of central and southern Brazil, the unwanted pattern would quickly return, increasing stress on pod-filling soybeans and leading to more crop losses.
With the U.S. government shutdown extending into its 5th week now, the trade has no idea of additional Chinese demand over and above the 5 mmt purchase that most assume. Cash markets of late would not hint at additional business, with both ports searching for bids. Funds bought an estimated 12,000 contracts of soybeans on Thursday, leaving them still net short an estimated 57,000 contracts including options. Look for March soybeans to see resistance at $9.20-$9.25, and support on a break near the $9.00 area. November soybeans will encounter resistance up around $9.60. China is said to be trying to develop a vaccine for African swine fever, which has decimated pig herds and cut into feed demand. DTN's National Soybean Index closed at $8.16, and reflects an average basis of 92 cents under March.

Wheat:

In an otherwise dull start to trade Thursday, it was Kansas City wheat which forced shorts to run for the exit door. In a market that has been mired in a quiet and sideways trade, it was this 10 to 15 minute surprise rally that changed the complexion of all three markets. At first, it was of course China wheat buying rumors that became the explanation, and later, a much more plausible sale of HRW wheat to Egyptian private buyers that got the credit. This is a rumor that in cash markets had more credence, as a major exporter bought up HRW trains to the Texas Gulf in the past few days. The rumor began as two cargoes of HRW, and evolved into possibly 5-7 cargoes. For sure, U.S. wheat, on the recent break, and in conjunction with the Black Sea rally in prices has become much more attractive to world buyers. With Nigeria, Morocco, Tunisia and Ethiopia all in the market seeking wheat, U.S. became much more feasible. News that the Russian ag minister will regulate Russian domestic grain prices to bring stability bolsters the U.S. standing to importers. U.S. wheat is said to be the cheapest FOB offer to multiple destinations. However, the new demand, if true, is sorely needed with shipments well behind last year, and a nearly one billion bushel carryout to contend with. Look for KC March wheat to see resistance up around $5.20 should the bounce extend. DTN's National HRW index closed at $4.80, and the average basis is at 24 cents under March, firmer.

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

Follow Dana on Twitter @mantini_r

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