DTN Early Word Grains

Grains Quiet as Markets Await Trade Talk Outcome

6:00 a.m. CME Globex:

March corn is down 3/4 cents per bushel, March soybeans are up 1/2 cents, and March K.C. wheat is down 1 1/2 cents.

CME Globex Recap:

Financial markets are mostly higher around the globe this morning as optimism reigns regarding to the U.S.-China trade talks. Wednesday evening, President Trump mentioned he would be open to a 60-day extension to the trade talks now that things appear to be progressing well. As many analysts have pointed out, to come all this way and not produce a meaningful change in U.S.-Chinese trade relations would be a major opportunity wasted. Grains are mostly weaker but inside ranges as we await trade war developments. The spring insurance guarantee prices look to set up an interesting acreage tussle between corn, soybeans and wheat, especially across the Northern Plains.

OUTSIDE MARKETS:

Previous closes on Wednesday showed the Dow Jones Industrial Average up 117.51 at 25,543.27 and the S&P 500 up 8.30 at 2,744.73 while the 10-Year Treasury yield ended at 2.708%. Early Thursday, the March DJIA futures are up 106 points. Asian markets are lower with Japan's Nikkei 225 down 157.89 (-0.44%) and China's Shanghai Composite down 1.37 points (-0.05%). European markets are higher with London's FTSE 100 up 25.66 points (0.36%), Germany's DAX up 44.37 points (0.4%) and France's CAC 40 up 41.4 points (0.82%). The March Euro is down 0.000 at 1.130 and the March U.S. dollar index is up 0.047 at 96.985. The March 30-Year T-Bond is up 5/32nds, while April gold is down $6.00 at $1,309.10 and March crude oil is up $0.56 at $54.46. Soybeans on China's Dalian Exchange were down -0.4% while soybean meal was up 0.08%.

BULL BEAR
1) Ethanol production bounced back sharply last week, trading above last year's same week production for the first time in 12 weeks. 1) At 24% complete, Brazilian soybean harvest is more than double the average pace, supporting the record export pace currently being seen.
2) The DTN National Cash Corn Index settled at $3.51 on Wednesday, implying a national basis of 26 cents under the March contract, the strongest since 12/11. 2) European hard wheat offers are trading a $2-3 per metric ton (mt) discount to U.S. HRW at the Gulf as it would appear Europe still has wheat to sell.
3) Spring wheat continues to be impacted by severe weather and poor railroad performance. Both basis and spreads were sharply higher Wednesday. 3) Ukrainian corn exports continue at a strong clip with 14.3 million metric tons (mmt) shipped so far in 2018/19 vs. 8.3 mmt a year ago. Ukraine has now shipped roughly half of the USDA's 28.5 mmt Ukrainian export projection.

MORE COMMODITY-SPECIFIC COMMENTS

CORN Corn is softer Thursday morning, blunted on Wednesday's rally by the 50 and 100-day moving averages which now act as near-term resistance. Equities and soybeans seemed to take solace in President Trump expressing a desire to make a deal by March 1 or by extending the "trade war truce." The corn market is crossing its fingers that a larger deal with China, if it takes place, will include purchases of DDGs and ethanol, or even whole corn. Otherwise, weekly ethanol production bounced back in a big way, increasing by 62,000 barrels per day (bpd) to 1.029 million barrels. The drastic slowdown in production last week was likely attributable to the polar vortex slowing movement. Ethanol stocks fell by 481,000 barrels last week to 23.446 million gallons, although remain at a seasonal record. The poor movement continues to support cash basis at both export hubs as well as across the Midwest. The DTN National Cash Corn Index showed a national average basis level of 26 cents under the March contract which is stronger than the 30 cents under the March contract a year ago. Despite the stronger cash trade, calendar spreads are showing no interest in rallying away from recent lows. $4.00+ December corn futures feel as though they are buying acres at this stage.

SOYBEANS Soybeans are a little firmer Thursday morning, playing tag with major moving averages. Trade war headlines continue to dominate market discussion as the two-day, high level negotiations begin Thursday in Beijing. Reports Wednesday evening suggested Trump is proposing a 60-day extension to the "trade war truce" as talks continue favorably. Lower-level talks have been taking place all week, but the Thursday meeting will include Secretary Mnuchin and U.S. Trade Representative Lighthizer. Vice Chairman Liu will represent China while President Xi will greet the U.S. delegation when they arrive in China. Difficult to believe the major sticking points have been resolved, especially as China continues to reject the idea of an independent auditor holding the country's feet to the fire. The SH/SK remains within 0.25-cent of contract lows, even with stronger cash markets. Trade chatter Wednesday suggested China purchased 10-15 cargoes of Brazilian soybeans for March-July shipment. A purchase of that size and delivery window would imply another round of U.S. purchases is not imminent but we will wait for reactions from the latest round of talks on Friday.

WHEAT Wheat markets are weaker Thursday morning as Kansas City looks for another lower close after posting its first higher session in the last six. Minneapolis spring wheat futures continue to garner the most attention as the horrific logistics across the Northern Plains support both cash and spreads. The MWH/MWK calendar spreads rallied to a high of +9.00 cents yesterday with some elevators choosing to roll bids to the May contract to avoid dealing with the inverse. The spread rally supported basis on the spot floor with 15.0% protein indicated up 10 cents to +160H while 14.5% was indicated at +185H which was up 25 cents from the last trade a week ago. Adding to the fireworks is the fact managed funds pushed their net short position to -11,168 contracts which was the largest net short since late July. Impossible to know where that position is now but appears safe to suggest funds are caught out of position in a volatile market. They don't call Minneapolis futures the roach motel for nothing: "it's very easy to get in, but it can be impossible to leave." MW/KW inter-market spreads have rallied sharply, trading overnight to +90.00 cents, the strongest since November 27. Firmer cash and spreads to not beget weaker futures, so it would seem unlikely wheat is about to embark on another leg lower.

DTN Cash Change From National Contract Change from
Commodity Index Prev Day Avg. Basis Month Prev Day
Corn: $3.51 $0.01 -$0.27 Mar $0.004
Soybeans: $8.30 $0.00 -$0.87 Mar $0.010
SRW Wheat: $4.97 $0.04 -$0.25 Mar $0.015
HRW Wheat: $4.74 $0.02 -$0.20 Mar $0.004
HRS Wheat: $5.42 $0.02 -$0.38 Mar -$0.004

Tregg Cronin can be reached at tmcronin31@gmail.com

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

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