DTN Early Word Grains

Grains Weaker with China Closed, WASDE Looming

6:00 a.m. CME Globex:

March corn is down 1/4 cent per bushel, March soybeans are down 3/4 cents, and March K.C. wheat is down 1 cent.

CME Globex Recap:

Quiet financial markets around the globe this morning as the trade front could be stale with China closed all week due to the Lunar New Year celebrations. There does seem to be growing optimism surrounding a trade deal after another Trump-Xi Summit was announced for the end of February. However, until the current Chinese tariffs on U.S. goods are removed, it feels as though the can could be kicked further down the road. Energy markets are stronger with crude oil trading to the highest levels since late November but global shipping indices continue to carve out multi-year lows. Grains are quiet overnight and likely to remain that way until we get our first WASDE report on Friday since the beginning of December.

OUTSIDE MARKETS:

Previous closes on Friday showed the Dow Jones Industrial Average up 64.22 at 25,063.89 and the S&P 500 up 2.43 at 2,704.10 while the 10-Year Treasury yield ended at 2.691%. Early Monday, the March DJIA futures are up 2 points. Asian markets are higher with Japan's Nikkei 225 higher 95.38 (0.46%) and China's Shanghai Composite is closed. European markets are lower with London's FTSE 100 up 19.61 points (0.28%), Germany's DAX down 29.79 points (-0.27%) and France's CAC 40 down 26.91 points (-0.54%). The March Euro is down 0.001 at 1.150 and the March U.S. dollar index is up 0.165 at 95.465. The March 30-Year T-Bond is down 2/32nds, while April gold is down $7.00 at $1,315.10 and March crude oil is down $0.00 at $55.26. China's Dalian Exchange is closed all week due to Lunar New Year celebrations.

BULL BEAR
1) CIF bids for SRW and HRW made new highs Friday, hitting the highest levels of the marketing year as export demand improves for U.S. wheat. 1) Despite the improvement in sales last week, wheat and soybean export sales estimates are in jeopardy of being cut on this week's WASDE report.
2)

Another cold blast is set to grip the Northern Plains and Western Corn Belt this week, snarling logistics and squeezing end users.

2) The Baltic Dry Freight Index made new lows Friday at 668.00, the lowest value since 8/12/16. Given China's importance to this index, the weakness does not bode well for the overall economic health of that country.
3) A prominent commodity brokerage cut their estimate of Brazilian soybean production to 112.2 million metric tons (mmt), one of the lowest in print. 3) Even with firming cash markets, corn and soybean time spreads remain weak, tying contract lows much of last week.

MORE COMMODITY-SPECIFIC COMMENTS

CORN Corn prices are starting the week off on a softer note, but much like the past couple of weeks, prices remain firmly entrenched in the recent range. As we've pointed out before, the 50 and 100-day moving averages have become one indicator as price has consolidated to the point of no volatility. That could be set to change this week, however, as the first WASDE report since early December will be released on Friday. Most in the trade expect the final production report of the year will show a smaller corn crop but estimates of ethanol and feed demand could also prove smaller than originally thought. We remain impressed with the strength in cash markets as illustrated by the DTN National Basis Index firming to firming to 28 cents under the March futures contract, the strongest level since June 27. The outright DTN National Cash Index closed Friday at $3.49 per bushel. Frigid temperatures again this week could slow physical movement, supporting cash prices even further. Stronger cash markets are not resulting in firming spreads, however, as the CH/CK traded 8.75 cents carry overnight, tying contract lows. Corn prices will remain sensitive to trade talks between the U.S. and China, especially if any larger deal includes purchases of corn, ethanol or DDGs. Ethanol prices enjoyed a strong surge to close last week, trading to the highest spot price since October.

SOYBEANS Soybeans are a bit lower Monday morning as March soybeans have dropped back below their 200-day moving average. On Friday, prices rallied sharply on trade talk optimism, only to see most gains given up by the closing bell once traders began to question the level of Chinese purchases. Even though an unofficial announcement suggested China would buy another 5 mmt of U.S. soybeans, it feels as though this is just more lip service from the Chinese to buy time and keep the flow of cheaper Brazilian soybeans steady. With tariffs still in place, Brazilian soybeans remain 25% cheaper than their U.S. counterparts unless the beans are headed for government reserves. Also concerning is the overall health of the Chinese economy and how many soybeans they will actually take this marketing year based on economic indicators like the Baltic Dry Freight indices. China is a huge driver of the global freight market, and when these indices are hitting multi-year lows, it is difficult to think the world's second largest economy is not slowing more than expected. The DTN National Soybean Basis Index closed at 89cents under the March futures contract on Friday, the strongest since December 21.

WHEAT Wheat markets are also lower Monday morning, unable to build on Friday's surge. Supporting wheat last week were CIF markets pushing higher to the strongest levels of the marketing year for both HRW and SRW. This was certainly supported by strength in calendar spreads as the WH/WK traded to 3.00 cent carry overnight, the strongest trade since 8/2 while the KWH/KWK traded to 7.75 cent carry overnight, the strongest trade since 8/8. The wheat market has been promised stronger exports since November and it would appear that demand is finally surfacing. However, much work remains for the wheat market to justify the lofty 1.000 billion bushel export target from the USDA on their December WASDE. To reach that level, it would take the largest February-May export program since 2000. Also on the wheat radar this week will be the Winter Wheat Seedings report which was delayed from January. The general consensus of the trade seems to be unchanged acres from 2018/19 or as much as a 5% decline due to difficult sowing conditions this past fall in Kansas and much of the SRW belt. Neither the HRW or SRW balance sheets look tight with less acres but it does raise the importance of a solid yield this growing season.

DTN Cash Change From National Contract Change from
Commodity Index Prev Day Avg. Basis Month Prev Day
Corn: $3.47 -$0.05 -$0.30 Mar $0.001
Soybeans: $8.25 -$0.06 -$0.90 Mar $0.001
SRW Wheat: $4.94 $0.01 -$0.22 Mar $0.013
HRW Wheat: $4.76 -$0.02 -$0.23 Mar $0.010
HRS Wheat: $5.32 -$0.01 -$0.38 Mar $0.006

Tregg Cronin can be reached at tmcronin31@gmail.com

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

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