DTN Before The Bell Grains

Mixed, Quiet Overnight Trade in Corn, Soybeans

Dana Mantini
By  Dana Mantini , Senior Market Analyst
(DTN photo by Greg Horstmeier)

Morning CME Globex Update:

Following Thursday's quiet finish in the Dow Jones average, as global equities markets are higher on some positive China talk, Dow futures are pointing 105 points higher. April crude is down 44 cents, the U.S. dollar index is 0.0060 higher, and April gold is up $7.00 per ounce.

Other Markets:

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

Corn:

Corn is little changed to begin this Friday as news is scarce. Non-commercials were thought to have covered an estimated 10,000 contracts of their shorts Thursday, but the estimate of net-short with options as of today remains near 210,000 contracts. Friday's CFTC commitment of trader report will give us a better idea. U.S. corn has missed much of the recent export business, as importers are opting to buy cheaper South American supplies. Last week's export sales were an indication as a dismal 14.6 million bushels (mb) were sold. The U.S. basis at export ports continues to be firm, but seems more a function of logistics problems and transportation costs than actual business. PNW rail corn is said to be a hefty 130 cents over spot futures bid. Crops in South America are faring well and look to be large, with several weeks of key weather yet to endure. Brazil's safrinha corn crop is nearly 70% planted now, and Argentina looks in position to harvest a record large crop. No weather issues currently exist there. News that China's parliament has passed bills to open their market to foreign investors, protect intellectual property, and prohibit forced technology transfers is deemed a step in the right direction for a U.S-China trade pact. Ag Resource appears a bit more enthusiastic than many in the trade, and what current corn prices would suggest, estimating that a trade deal will result in China buying 12 million metric tons (mmt) (472 mb) of U.S. corn per year! That would certainly be a game changer, but I have seen that optimism nowhere else. They also project ethanol imports of 2 mmt. U.S. weather continues to be a major challenge, with blizzards and flooding in parts of NE, SD, IA and MO. Look for May corn to see resistance in that $3.70-$3.75 area. DTN's National Corn Index closed at $3.42 on Thursday, with an average basis of 28 cents under May.

Soybeans:

Soybeans start off this Friday a bit firmer and hovering right around the old support of $9.00 on May. On a bounce higher, resistance will be $9.10-$9.15. Funds were estimated to have bought 6,000 contracts of their estimated net short of 100,000 contracts (options included) Thursday. Even though last week's export sales were a hefty 70.2 mb, China was 89% of that, and China still has not bought about 8 mmt of the second 10 mmt that they promised to buy. Exports of U.S soybeans remains some 452 mb below last year, while the USDA is only projecting a 254-mb decline. As in corn, Ag Resource has lofty expectations if and when a U.S.-China trade deal is inked. They project that China will buy up to 42 mmt of U.S. soybeans! Few have such an optimistic outlook. This is largely based on talk that China will buy $50 billion of U.S. ag products. This would be about double the old record of purchases, and quite the change to the current year, which has China's purchases of U.S. ag at the lowest level in over fifteen years. China has confirmed that their hog herd had declined by 16% on the year with sows down 19%, a direct result of the African swine fever. A bright spot on the U.S. export scene is soybean meal, where exports are at a 3 to 4 year high. Sales of meal to date are 8.95 mmt compared to 8.31 mmt last year. NOPA crush is out on Friday and expected to be a lofty total, close to 159 mb. DTN's National Soybean Index closed at $8.12, and reflects an average basis of 86 cents under May.

Wheat:

Following the massive $1.00 drop since early February, the funds had become too short, the markets too oversold, and wheat has been on a bit of a bounce. This Friday morning, wheat is a bit lower, but seeks the first weekly higher finish in a while. U.S. wheat continues to miss export business, with Algeria, Tunisia and Turkey tenders going to the EU and Black Sea. Total U.S. wheat sales are a bit higher than last year at 815 mb versus 805 mb, but last week's sales of just 9.7 mb was very disappointing. Non-commercials, who are still short a sizeable position in both Chicago and KC wheat, have bought in some of those shorts the past few days, with an estimated 6,000 net fund purchases on Thursday. In wheat, the recent North American Miller's estimate of soft red winter (SRW) production of just 269.9 mb is well down from recent years, and that would leave a SRW carryout of 123 mb compared to 215 mb just a few years ago. U.S. SRW offers, though cheap on a FOB basis have been losing out on export demand due to cheaper freight from competitors. There are some world weather issues to watch, with heat and dryness at a crucial time in North African wheat areas, some impending dryness headed for the Black Sea and EU wheat regions, and a three month forecast for above normal temps in Australia, which had its wheat crop fall to an 11-year low due to ongoing drought. While wheat may not have turned the corner, look for the $4.25 area to provide a strong support base in the short term. DTN's National HRW index closed at $4.20, and the average basis is at 16 cents under May.

Dana Mantinican be reached at dana.mantini@dtn.com

FollowDanaon Twitter@mantini_r

(KR)

Dana Mantini