DTN Closing Grain Comments

Wheat Continues Rapid Slide; Corn, Soybeans Stabilize

Dana Mantini
By  Dana Mantini , Senior Market Analyst
(DTN illustration by Nick Scalise)

General Comments:

March corn closed unchanged as did December corn. March soybeans closed up 4 cents and November soybeans were up 4 cents. March K.C. wheat closed down 5 cents, March Chicago wheat was down 2 3/4 cents and March Minneapolis wheat was down 2 1/4 cents. The March U.S. dollar index is trading down 0.095 at 96.710. The Dow Jones Industrial Average is up 356.38 points at 25,795.77. April gold is up $11.00 at $1,324.90, March silver is up $0.22 at $15.75 and March copper is up $0.0450 at $2.8190. March crude oil is up $1.03 at $55.44, March heating oil is up $0.0429, March RBOB is up $0.0620 and March natural gas is up $0.050.

For the week:

March corn closed up 2 cents and December corn was up 1 1/2 cents. March soybeans were up 2 1/2 cents while November soybeans were up 3 cents. March Kansas City wheat was down 17 3/4 cents, March Chicago wheat was down 14 cents, and March Minneapolis wheat was down 3/4 cent.

Corn:

Corn remains stuck in the $3.73 to $3.83 range we have seen since the third week of December. March corn is again hovering above an uptrend line. Corn demand has been steady with South Korea a large buyer the past few weeks and corn basis at both export ports very strong -- partly due to demand and rising freight costs and weather issues. USDA reported a new sale of 205,000 mt (8 million bushels) of corn for 2018/2019 to unknown on Friday. Rumors of China buying have been nonstop, but with little evidence to support them. Chinese consulting firm JCI suggests China corn imports are set to surge to 14.5 mmt in the coming year. The rumored amount of China U.S. corn purchases has been 8 mmt to 10 mmt, along with DDGs and ethanol. U.S. corn export sales remain some 19% above last year's pace. Perhaps next Friday's massive 4-week export sales dump, including the weeks of Jan 10 to Feb 14 might give us a better indication. U.S. corn has found competition from South America and the Black Sea lately. On the bearish side, a record large Argentine corn crop, with the highest estimate at 46.5 mmt, and yield-enhancing weather throughout Brazil's safrinha areas, are headwinds. Also, the prospect for a rise in U.S. corn acreage. For the past few years, corn usage has exceeded production and that looks to continue in the coming year, and that increased acreage will be demanded. Fund selling on Thursday was said to be 7,000 to 8,000 contracts, likely putting their net short, including options, at a modest level. New-crop December corn also continues to hover at the trend line, with the $4.05 to $4.08 level one of major resistance on a rally. DTN's National Corn Index closed at 3.48 on Thursday, and reflects an average basis of 27 under March.

Soybeans:

Following the Thursday donnybrook to the downside, soybeans are bouncing a bit just above the uptrend line on both spot futures and new-crop November. Funds sold an estimated 12,000 contracts as old news replaced the rumor trading that we have seen for the past few weeks. The six-week-old Jan. 3 export sales report showed a net reduction in sales, with much of that attributed to a large China cancellation. Also overhanging the soybean market is the pattern change in Brazil, which will stabilize yield, if not help late-planted soybeans, and Argentina's path to a crop that looks to be nearly 17 mmt above last year. China's soybean imports in January were a bright spot at a better-than-expected 7.4 mmt, but much of that was likely sourced from South America. One of the big questions is how much has African swine fever, and the substitute of other feed ingredients to replace soy meal impacted Chinese soy demand? WASDE lowered China soy imports by another 2 mmt to 88 mmt. However, there are several private analysts who see that total as 4 mmt to 5 mmt too high. Only time will tell. China soybean crush is being called down close to 10% versus last year. Recent soy complex weakness has come despite very positive comments from Beijing, and news that the U.S. and China would again meet in Washington next week. However, the longer this goes on, the more likely China is to source needs from new crop South America. In the past week, it is thought China has bought a total of 40 cargoes of South American beans. Weather is mostly favorable in South America, and Argentina's crop is rated at 54% good to excellent versus 11% last year. For March soybeans, the $9.00 to $9.03 area should be good support, while $9.15 to $9.20 should cap the upside short term. DTN's National Soybean Index closed at $8.17 on Thursday, 87 cents below the March futures contract.

Wheat:

Wheat was the hardest hit product in Thursday's ag market rout. Once some key levels were breached in both spot and new-crop wheat futures, sell stops were touched off and commodity funds piled on with selling. The net result is that in the last eight trading days, Kansas City March has fallen 41 cents, and Chicago is down 32 cents from the highs. In that same time frame the U.S. dollar has rallied, and the Euro and Russian Ruble have fallen, making those regions more competitive. Russian wheat on an FOB basis is said to have fallen by $11/mt in the past week. Wheat export sales continue to lag last year by 8%, with shipments off 11%. Although there are plenty of wheat tenders in the past few days including news that Algeria had bought 400,000 mt of French wheat and the Philippines bought 55,000 mt of Australian wheat, it is clear the U.S. has lost some competitiveness. Perhaps the sharp decline in the past two days will scare up some business. The delayed wheat export sales for Jan. 3 week were a disappointment to the trade. We'll see if next week's combined report covering four weeks of export sales will give us a hint if the many China rumors may be true. One thing is for sure, wheat is becoming very oversold on the charts. DTN's National HRW Index closed at $4.61 on Thursday, and that is an average basis of 21 under Kansas City March futures.

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

Follow him on Twitter @mantini_r

(CZ)

Dana Mantini