DTN Early Word Grains

Weaker Grains as Trade Talks, Government Shutdown in Focus

6:00 a.m. CME Globex:

March corn is down 3/4 cent per bushel, March soybeans are down 3/4 cent, and March K.C. wheat is down 2 3/4 cents.

CME Globex Recap:

In global financial markets, the focus is on the resumption of trade talks between the U.S. and China this week in Beijing as well as efforts to avoid another U.S. government shutdown on Friday. High-level talks, including U.S. Trade Representative Robert Lighthizer and Treasury Secretary Steven Mnuchin, will begin later this week after lower-level talks starting Monday. Talks to avoid another government closure remain deadlocked over President Trump's border wall. Grains are weaker Monday morning following Friday's USDA report release. The market seems to have quickly decided much of the data we received was dated, and until reports get current, our markets are likely rangebound.

OUTSIDE MARKETS:

Previous closes on Friday showed the Dow Jones Industrial Average down 63.20 at 25,106.33 and the S&P 500 up 1.83 at 2,706.05 while the 10-year Treasury yield ended at 2.632%. Early Monday, the March DJIA futures are up 90 points. Asian markets are mixed with Japan's Nikkei 225 down 418.11 (-2.01%) and China's Shanghai Composite up 35.66 points (1.36%). European markets are higher with London's FTSE 100 up 69.31 points (0.98%), Germany's DAX up 124.49 points (1.14%) and France's CAC 40 up 56.02 points (1.13%). The March euro is down 0.002 at 1.130 and the March U.S. dollar index is up 0.209 at 96.625. The March 30-Year T-Bond is down 6/32nds, while April gold is down $8.50 at $1,310.00 and March crude oil is down $0.44 at $52.28. Soybeans on China's Dalian Exchange were up 1.6% while soybean meal was down -0.35%.

BULL BEAR
1) The USDA said 2019-20 winter wheat acreage will be the smallest since 1909 as producers faced a wet fall seeding campaign. 1) USDA cut Chinese 2018-19 soybean imports to 88.0 million metric tons (MMT), the smallest since 2015-16.
2) Total corn stocks as of Dec. 1 fell to 11.95 billion bushels (bb), a three-year low as the percent on-farm fell to a four-year low. 2) U.S. wheat ending stocks for 2018-19 are projected over 1.00 bb for the third straight year and could move higher if exports are cut.
3)

The November soybean/December corn new crop ratio traded at 2.40 to 1 overnight, the highest trade since June as soybeans seemingly battle for acres this spring.

3) The Baltic Dry Freight Index fell to 610.00 on Friday, the lowest value since June of 2016 as Chinese economic fears grow.

MORE COMMODITY-SPECIFIC COMMENTS

CORN Corn prices are slightly lower Monday on the first full session following the bevy of USDA reports released Friday. For all of the fanfare, the reports were rather mundane in terms of market-moving data. That said, with the reports behind the market, traders are free to focus on final South American crop prospects, trade war developments, ethanol margins, cash markets and 2019 acreage ideas. The February crop insurance pricing period rolls on, with the December corn average price so far calculating at $4.02 per bushel versus $3.96 last year and the highest since 2015. This would certainly argue for more corn acres this spring, but the SX9/CZ9 ratio has been rallying as of late with soybeans trading at the best values relative to new-crop corn since June 2018. The USDA reduced ethanol demand for corn on Friday's WASDE by 25 million bushels (mb), but we fear additional cuts could be made unless profitability improves soon. While still outdated, the CFTC did release updated positions as of Jan. 7 on Friday. As of that date, funds were net-long 24,454 contracts versus a six-week average of 6,087 contracts. Until the CFTC gets caught up, these data sets will have limited usefulness. From a technical standpoint, the buying exhaustion candle left on charts following Friday's session will be a glaring blemish until those highs can be reclaimed. Momentum, volatility and on-balance-volume are all trending down as March corn sits below the 50, 100 and 200-day moving averages.

SOYBEANS Soybeans are slightly weaker Monday, adding to Friday's gains, which looked anything but clear through much of that session. The soybean market received an incredibly mixed bag of data Friday with smaller South American production estimates, smaller Chinese imports, smaller U.S. exports, larger U.S. crush and a major revision to South American soybean stocks going all the way back to 1999-2000. The changes to South American supplies resulted in higher Brazilian old-crop stocks and lower Argentine ending stocks. Of most importance in our opinion is the further cut to Chinese soybean imports as the trade war and African swine fever continue to impact demand. This will result in the first year-over-year decline in Chinese soybean imports in 15 years. While this trend could be reserved as quickly as next year, it is important to recognize the impact to global soybean trade when the world's growth engine throws down the anchor. Elsewhere, we remain impressed and a bit confused at the SX9/CZ9 new-crop ratio as soybeans would appear to be bidding for acres despite a balance sheet that screams for less supply. Granted, cash prices remain historically low across the Midwest and could be giving off a stronger price signal than futures.

WHEAT Wheat markets are weaker Monday as traders continue to weigh the improvement in U.S. wheat exports versus a comfortable balance sheet and prospects for a rebound in Northern Hemisphere production this summer. Traders were emboldened by the purchase of 120,000 metric tons (MT) of U.S. soft red winter (SRW) wheat on Friday by Egypt's GASC, especially considering many more cargoes could be purchased by the time new-crop supplies hit bins. In addition, the lowest winter wheat acres in 110 years helped set the stage for additional risk premium until U.S. wheat breaks dormancy this spring. Even with the lower acreage, U.S. wheat supplies should be comfortable assuming yields do not track well below trend. Some slight drought conditions exist in North Texas, but for the most part, the U.S. Drought Monitor looks vastly better than on this same date a year ago. Spring wheat insurance prices are tracking below a year ago and about the same futures spread against soybeans as 2018, which would not argue for a major shift away from soybeans and to spring wheat in the Northern Plains. The DTN National Spring Wheat Cash Index closed Friday at $5.31 per bushel versus soybeans at $8.26 per bushel, a spread of $2.95. On this same date a year ago, that spread closed at $3.47 per bushel.

DTN Cash Change From National Contract Change from
Commodity Index Prev Day Avg. Basis Month Prev Day
Corn: $3.46 -$0.02 -$0.28 Mar $0.001
Soybeans: $8.26 $0.01 -$0.88 Mar $0.001
SRW Wheat: $4.93 $0.04 -$0.24 Mar -$0.004
HRW Wheat: $4.72 -$0.01 -$0.22 Mar $0.015
HRS Wheat: $5.32 $0.06 -$0.37 Mar $0.023

Tregg Cronin can be reached at tmcronin31@gmail.com

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

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