DTN Before The Bell Grains

Morning CME Globex Update:

The Dow futures are pointing 97 points higher following Monday's 175-point higher finish. March crude oil is down 53 cents per barrel, the U.S. dollar index is up 0.0590, and April gold is up 30 cents.

Other Markets:

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

Corn:

Corn continues to trade in a narrow range, gravitating around the 20, 50 and 100-day moving averages for nearly five weeks now. Corn inspections continue to be the bright spot in ag, with total shipments at 884 million bushels, some 51% above last year's 586 mb. Another welcome positive for corn is that ethanol prices hit the highest level since August, and margins have improved. Ahead of the much anticipated USDA February 8 report on Friday, trade is looking for a corn yield and production drop, but also a likely cut in ethanol production. Brazil's safrinha (second) corn crop is said to be nearly 35% planted already and that is record fast, and final acreage planted could be larger than earlier thought. Weather in Brazil, following a very dry December-January in some key growing areas, is expected to change to above normal rain in the northern one third with some decent rain totals. In the 6 to 10 day portion of the period, dry south and central areas are the target for expanding rains. Although corn spreads would not suggest that there is China corn buying going on, multiple brokerage houses are floating rumors of large Chinese corn purchases as part of the eventual trade deal. There are also thoughts that ethanol and DDG exports will be part of the package. Corn is the only commodity in which funds remain long, with the estimates of the combined futures and options positions now a modest 45,000 contracts. Look for March corn to continue in the $3.75-$3.83 range ahead of the USDA report, which could be a game changer. December corn will continue to face stiff resistance on any rally above $4.05. DTN's National Corn Index closed at $3.50 on Thursday, with an average basis of 29 cents under March, firmer.

Soybeans:

All eyes are on the soybean market, with multiple brokerage and trading firms claiming that China has already booked the additional 5 million metric tons (mmt) of U.S. soybeans in the past two days. Before Tuesday morning, only 612,000 metric tons (mt) (22.4 million bushels) of that had been confirmed. Soybean sales and shipments have lagged badly from last year's totals, with inspections just 788 million bushels (mb) compared to last year's 1.275 billion bushels at this stage. However, the trade feels confident that both COFCO and Sino Grain, the two state owned entities, have completed the additional 184 million bushel (mb) purchase, and with a total of 368 mb, some analysts are beginning to drop their U.S. ending stocks number toward a much less burdensome 600-700 mb from 955 mb. Barge values at the Gulf had firmed 8-10 cents in the past week, as have PNW values, a solid indication of some large transactions. Even as the weather looks to be evolving into a more normal rain pattern in Brazil, production ideas continue to slide. Ag Resource (commodity analyst) is the latest to drop their production ideas to 116 mmt, along with Ag Rural at 116.9 mmt. INTL FC Stone is well below this at 112.2 mmt. Brazil statistical firm CONAB's last estimate was 118.8 mmt. A Brazilian farmer's union group suggested that the Brazilian crop could fall to as low as 101 mmt. I don't think anyone agrees with a number anywhere close to that! Brazil's soy harvest is now 19% complete, compared to just 6% last year. The November soybean crush for the U.S. came out at a record large 178.1 mb on Monday. The trade will be closely watching President Trump's Tuesday night State of the Union for any news regarding the China trade issue and progress on the border wall issue. The China and U.S., though making progress on the ag front, are reported to have a long way to go regarding other issues. Weather is expected to turn into a more yield friendly pattern in the next week or so in dry regions of Brazil, with some weather models even suggesting a wet second half of February. Look for the $9.25-$9.30 range to continue to provide resistance for March soybeans, and a rally above $9.41 to be clearly bullish, and support to be in the $9.10-$9.15 rabge, with trend line support down near $8.95. DTN's National Soybean Index closed at $8.30, and reflects an average basis of 88 cents under March, firmer. At 8 a.m. USDA reported 2,603,000 mt of soybeans sold to China and 274,000 mt sold to unknown destinations, both for 2018-2019 delivery.

Wheat:

Wheat is trading right around unchanged, but many in the trade sense some expanded U.S. wheat business as nearby futures spreads in both Chicago and Kansas City continue to tighten. KC has moved to a 7-cent carry from 9 1/2 cents a few weeks ago. The basis has likewise gained. Some suspect that flat price could be next. However, wheat sales and shipments continue to lag, and until the USDA catches up on export sales, it is a guessing game. Last week's wheat inspections once again disappointed at just 16.2 mb, and total shipments of 545 mb are down 11% from last year's 612 mb at this juncture. The big news continues to be that U.S. soft red (SRW) and hard winter (HRW) wheat are well below Russian values, with Russian FOB values said to be $253-$256/mt FOB compared to U.S. HRW at $240-$242/mt as of Monday. The lower ocean freight values of late also bode well for making U.S. wheat more competitive on a C & F basis into many destinations. Rumors continue circulate about China potentially buying some 6 to 8 mmt of U.S. wheat, with no indication that has happened yet. On KC March wheat, look for support to be near $5.03-$5.04, with resistance near $5.17-$5.20, and a close above $5.17 considered bullish. Stats Canada will be out Tuesday with updated wheat numbers, and all wheat stocks are estimated at 23.4 mmt, with durum at 5.2 mmt. DTN's National HRW index closed at $4.88, and the average basis is at 22 cents, under March, firmer.

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

Follow Dana on Twitter @mantini_r

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