DTN Early Word Grains

Quiet Trade Ahead of SOTU Tuesday, WASDE Friday

6:00 a.m. CME Globex:

March corn is up 1/2 cents per bushel, March soybeans are up 1/2 cents, and March K.C. wheat is unchanged.

CME Globex Recap:

Global equity markets were mostly higher Tuesday as solid economic data out of the eurozone supported growth forecasts in the European Union. Investors are also anxious for President Trump's State of the Union speech Tuesday night in which he could unveil additional details about the border wall and trade with China. Grains are mostly higher Tuesday as data sets slowly get repopulated and anticipation grows toward Friday's USDA reports. The trade will have a little over two hours to digest over two months' worth of data before markets close for the weekend.

OUTSIDE MARKETS: Previous closes on Monday showed the Dow Jones Industrial Average up 175.48 at 25,239.37 and the S&P 500 up 18.34 at 2,706.53 while the 10-Year Treasury yield ended at 2.724%. Early Tuesday, the March DJIA futures are up 88 points. Asian markets are lower with Japan's Nikkei 225 lower 39.32 (-0.19%) and China's Shanghai Composite is closed. European markets are higher with London's FTSE 100 up 95.51 points (1.36%), Germany's DAX up 126.27 points (1.13%) and France's CAC 40 up 48.35 points (0.97%). The March Euro is down 0.002 at 1.150 and the March U.S. dollar index is up 0.155 at 95.725. The March 30-Year T-Bond is down 9/32nds, while April gold is down $1.30 at $1,318.00 and March crude oil is up $0.37 at $54.93. The Dalian Commodity Exchange is closed.

BULL BEAR
1) Ethanol prices continued their recovery Monday, leaping to the highest level since August 22 and closing in on the 200-day moving average. 1) Corn and wheat export inspections missed the level needed to hit the USDA's forecast again last week.
2) Declining ocean freight raises concerns about China's economic health, but it is also making U.S. wheat more competitive into swing destinations. 2) The Baltic Dry Freight Index made fresh lows Monday, dropping to the lowest level since 8/11/16, raising global economic concerns.
3) November industry-wide soybean crush came in above expectations and was also a new record for the month. 3) USDA reported November ethanol production using 454.5 million bushels (mb) of corn, down from 460.1 mb in October and down sharply from November 2017's 475.7 mb. It is very likely USDA cuts ethanol production Friday.

MORE COMMODITY-SPECIFIC COMMENTS

CORN Corn is a shade higherTuesday morning, working on its third consecutive higher close although Friday through Monday's price action has been inside Thursday's range. Prices are still not threatening either end of the range, instead coiling for what should promise to be a swift breakout in one direction or the other. March volatility is moving higher, settling at 16.82% vs. 15.19% a week ago as excitement builds ahead of the first major USDA reports in two months. The most encouraging thing about corn as of late has been the upside breakout in ethanol prices which has the first chance to return profitability to that sector in months. The ethanol/corn spread is still negative, but is trading at its least negative values since Thanksgiving. Ethanol calendar spreads continue to rally, creating incentive to move the brimming stocks. Wednesday will see Census Export data which will give us an update on export activity during the month of November. Export inspections released yesterday were light at 35.5 mb vs. the 46.7 mb needed weekly, although total inspections are still up 50.9% from a year ago.

SOYBEANS Soybeans are also a tad higher Tuesday morning as they cling to the declining 200-day moving average inside the larger rising trend channel. USDA reported 612,000 metric tons (mt) of the unofficial 5 million metric ton (mmt) worth of Chinese soybean purchases Monday but the market still seems less than impressed. Until the tariffs are removed, and U.S. soybeans can compete freely into private crushers, it will be difficult to believe in the USDA's current soybean export forecast. Crush demand remains stellar with USDA reporting 178.1 mb being crushed in November vs. the average trade guess of 177.0 mb and the previous November record of 173.3 mb. First quarter crush demand was calculated at 531 mb vs. 495 mb a year ago, a 7.2% increase vs. the USDA forecast calling for just a 1.2% increase. Board crush values remain solid at 92-95 cent per bushel through December. South American crop progress remains solid with Brazilian soybean harvest at 17% complete vs. 6% last week and 6% average. Brazilian first crop corn harvest was seen at 11% complete vs. 7% average and second crop corn planting was 29% complete vs. 12% average as of 2/1. Soybean export inspections of 35.9 mb met the needed level of 34.7 mb but remain 38.2% below year ago levels. Unless the state-reserve purchases continue, USDA's estimate looks difficult to achieve in our opinion.

WHEAT Wheat markets are mostly weaker Tuesday morning, giving back a small portion of yesterday's gains but sitting well-inside recent ranges. Wheat markets continue to take solace in the reports of improved demand at the Gulf for SRW and HRW. Destinations of all shapes and sizes are being floated but confirmation isn't likely until USDA gets caught up on export reporting later this month. Statistics Canada will release grain stocks levels as of Dec 31 later Tuesday morning with all-wheat stocks seen at 23.4 MMT vs. 23.771 MMT a year ago. Canada is enjoying a phenomenal export program so far in 2018/19, so lower stocks from a year ago would not be a surprise. Calendar spreads continue to support higher futures and the rumors of export business. The KWH/KWK rallied to a 7.00-cent carry overnight, the strongest trade since 8/7, while the WH/WK is just off 6-month highs. Despite this, export data remains disappointing with just 16.2 mb inspected for export last week vs. the 24.4 mb needed weekly to hit the USDA mark. Total inspections of 544.6 mb are down 10.9% from a year ago. A cut to the USDA's export forecast on Friday is very likely.

DTN Cash Change From National Contract Change from
Commodity Index Prev Day Avg. Basis Month Prev Day
Corn: $3.50 $0.01 -$0.29 Mar $0.000
Soybeans: $8.30 $0.02 -$0.89 Mar $0.009
SRW Wheat: $5.01 $0.03 -$0.25 Mar $0.011
HRW Wheat: $4.88 $0.03 -$0.22 Mar $0.011
HRS Wheat: $5.38 $0.00 -$0.37 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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