DTN Before The Bell Grains

Morning CME Globex Update:

Following a Thursday decline of 220 points on the Dow Jones average, Dow futures are down 93 points, March crude oil is up 19 cents, the U.S. dollar index is down 0.0970, and April gold is up $4.40 an ounce.

Other Markets:

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

Corn:

Following Thursday's sharply lower ag markets, corn is up in what could be the calm before the storm, and what could be the most important WASDE report of the year. Thursday's unexpectedly harsh sell-off appeared to be fueled not only by weak outsides, with equities and energy down and the U.S. dollar higher for the sixth straight day, but some talk regarding the trade talk progress. Indications that a meeting between Presidents Trump and Xi Jinping is unlikely prior to the March 1 deadline was taken as bearish, but later comments suggested that higher tariffs would be delayed as talks continue. Following delayed export sales data from USDA, it was revealed that U.S. corn exports for November were the largest in 11 years, and first quarter corn exports, at 633 million bushels (mb), were 284 mb higher than last year. U.S. and Argentine corn remain the world's cheapest, and some $7-$8/metric ton (mt) below Ukraine offers. Basis at U.S. ports would suggest demand continues to be strong. Traders will be watching to see if this strong export pace might result in a December stocks number that is below the average estimate, with a number below 12 billion bushels (bb) thought to be bullish. On the other side of the coin, trade fears a larger than expected cut in corn usage for ethanol (50-100 mb), and a possible reduction in feed and residual. While weather appears to be turning to a more favorable wetter pattern in Brazil (with a boost in soil moisture likely over 60-70% of the belt in the next 10 days), reports about Argentina's corn crop are glowing, with several private analysts now looking at the potential for a 45 to 47 million metric tons (mmt) crop versus the USDA's last estimate at 42.5 mmt. Trade looks for U.S. corn yields and production to fall on the USDA report, with the average estimate on yield some 1.1 bushels per acre (bpa) lower. The largest yield reduction November to final is 2.4 bpa. March and December corn continue to coil in a narrow range and today could see a break out either way. DTN's National Corn Index closed at $3.48 on Thursday, with an average basis of 28 cents under March.

Soybeans:

Soybeans fell hard along with wheat Thursday on some negative China trade talk comments, as the focus of that rhetoric seemed to suggest that the talks are not all about soybeans, but larger technology issues. The focus on Friday's USDA report will be December stocks, estimated at 3.743 bb compared to 3.161 bb last year. Yield is expected to be lowered by maybe 0.4 bushel, and U.S. ending stocks lowered to an estimated 926 mb versus 955 mb, and still an all-time record large carryout. World soybean stocks, while still near record large, are expected to drop by nearly 3 mmt. A major focus will be China demand, with many private analysts doubting the USDA 90 mmt import number for China, instead looking for that to fall to 85-90 mmt, due to both African swine fever and substitution of other feed ingredients for soy meal. Also key to Friday's action will be the extent of any downward revision in Brazil's soybean crop from the December 122 mmt estimate, with the trade looking for a 117 mmt number. CONAB will also be out with their revised soy estimate early Friday morning, and that will be compared to 118.8 mmt in December. As in corn, soybeans have been trading in a narrow range; watch for beans to break out on any surprise move. A rally and close above the $9.31-$9.41 range on March would be significant, and above $9.70 on November. A key area of support will be trend line support on March at $8.95-$9.00. On November, trend line support is down near $9.35-$9.40. DTN's National Soybean Index closed at $8.25, and reflects an average basis of 88 cents under March.

Wheat:

Wheat fell hard Thursday as the U.S. dollar index rose for the sixth consecutive day, and spreads, which have been steadily tightening on presumed new export business, weakened ahead of the impending index fund roll (where they roll their longs by selling the spot month). The HRW Gulf basis also fell back, signaling that demand has waned. U.S. wheat exports continue to suffer relative to last year, but the U.S. does remain at a sizeable discount still to Russia, of roughly $12/mt on a FOB basis. Expectations for wheat are that acreage will be lowered, with the average estimate around 32.1 million acres, which would be more than a century-low reading. News that Iran is signing a deal with both Russia and Kazakhstan to supply their wheat needs suggests that the U.S. may no longer get any of that business. While the U.S. is well positioned in the short run to get some new export sales, the 2019 picture may not look so great for wheat, with some estimates out there for major wheat export competitors to produce much more. Estimates seem to indicate that the EU might produce 15 mmt more, with Russia's production possibly 8 mmt more, and Australia up 7 mmt from the past year. The USDA report is expected to show U.S. wheat ending stocks higher at 989 mb versus 974 mb, with some fearing a 1 bb number as export sales and shipments continue to lag. DTN's National HRW index closed at $4.73, and the average basis is at 23 cents under March, firmer.

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

Follow Dana on Twitter @mantini_r

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