DTN Before The Bell Grains

Morning CME Globex Update:

Ahead of Wednesday's Federal Reserve meeting comments, the Dow Jones had fallen 141 points. On Thursday morning, the Dow futures show 85 points lower again despite the dovish Fed report, which suggested no further rate increases in 2019. April crude oil is down 33 cents per barrel, the U.S. dollar index was up 0.2550 after dropping hard on Wednesday, and April gold is surging and up $16.30 an ounce.

Other Markets:

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

Corn:

Corn continues to bounce back and forth in quiet trade with May futures a bit firmer to begin. While U.S. corn exports have been undercut by cheaper competitor offers lately, U.S. exports still remain higher than last year, but that gap is closing. As the U.S.-China trade talks resume in China next week, the market is still hopeful that a deal will include not only large quantities of U.S. corn, but also ethanol, DDGs pork and beef. Rabobank says that China's hog herd fell 15% in 2018, a direct result from the unchecked African swine fever, which has now seen 113 outbreaks. Rabobank also sees China's pork production down 20% in 2019, and the need for China to import up to 2 million metric tons (mmt) of pork. The U.S. hog futures market in spot April has moved from contract low to contract high in just one month, and up $21/cwt, as Wednesday's finish was limit bid. Deferred hog futures are now at 4-year highs on hopes that China will import a sizeable chunk of U.S. pork. Ethanol production last week was little changed, but could see a sharp drop in the next report reflecting closures from the floods. Ethanol stocks were up sharply to a record high 24.4 million barrels as the floods and snow have slowed U.S. transportation. The weather forecast for much of the central Midwest and upper Midwest appears to be drier for the next ten days, but another storm is brewing out west, and the 16 to 30 day portion of the forecast reflects a wetter than normal pattern, a risk of more damaging flooding. The talk of a delay in planting is getting more press with an increase in prevent plant, and lower than expected corn acres a real possibility. Commodity funds, having reached an all-time record short position last week, remain heavily short, estimated to be 240,000 contracts. Export sales last week for 18/19 at 33.7 million bushels (mb) leaves total commitments down 7% for the year. DTN's National Corn Index closed at $3.44 on Wednesday, with an average basis of 28 cents under May.

Soybeans:

Soybeans are mildly higher in the overnight, but trading in a low volume and tight range. Trade continues to speculate about the finalization of a U.S.-China trade pact, with mixed signals coming from China and Washington. The most recent indication from President Trump may just be a scare tactic, but suggested that tariffs would remain in place for a long time to make sure that China adheres to commitments. As in corn, funds are now close to an all-time record net short in soybeans, thought to be close to 90,000 contracts, and very unusual for mid-March. Most notable is that hedgers are holding a net futures long position. In the past, such a market profile has led to sharp rallies. However, soybeans are facing an increasingly grim supply and demand outlook, even with the China deal. World record soy supplies and a U.S. ending stocks number that appears destined for 1 billion bushels (bb), and the failure so far for China to have purchased the last 8 mmt of the second 10 mmt promised, is weighing heavily on the soy complex. Also weighing on the complex is the expanding African swine fever, and idea that China soy buying could sink even lower in the coming year, and the undersold farmer. In Argentina, which expects to have 17 mmt more soybeans this year, farmers so far have marketed just 16.2% of those soybeans compared to 30.5% last year. Farmers there often consider soybeans a currency and inflation hedge. While supportive in the short term, those beans will have to come to market. Weather in South America continues to be mostly favorable for crops, while in the U.S., the widespread snowpack and flooding in the Midwest, and excess rain in the Delta and southeast bodes well for increased soybean acres at the expense of corn and spring wheat. That is not what the market needs. Export sales for last week at just 14.7 million bushels puts total commitments for 18/19 at down 17%. DTN's National Soybean Index closed at $8.19, and reflects an average basis of 87 cents under May.

Wheat:

Wheat was the stronger market on Wednesday but is setting back a bit to begin Thursday. The late and sharp break in the U.S. dollar Wednesday sent all three wheat markets to a firm finish, but the dollar is higher to start on Thursday. While the initial reaction to the news that Brazil would allow a tariff-free quota of 750,000 mt of wheat from the U.S. late Tuesday was euphoria, that was amended to reflect a global quota, not just U.S. on Wednesday. The recent strength in wheat is related to a surging domestic basis on hard winter and spring wheats, as poor logistics from flooding have forced mills to pay up to secure bushels. U.S. export demand remains very poor, with exports down over 6% versus USDA's early year projection for an increase of 7%. As in soybeans, U.S. carryout is likely headed for a higher level without a pick-up in demand the next eleven weeks. While Japan and Taiwan are in for U.S. wheat, the tender line-up is scarce this week. The melting snowpack and expected severe flooding in the northern Plains has traders expecting a reduction in spring wheat planting. Heavy rains in AR, TN, MO and KY could adversely impact the soft red wheat crops there. NOAA is expected to release their monthly and seasonal weather projections on Thursday. As in corn, managed money funds are thought to now have a combined record large net short in all three wheat markets, estimated to be 130,000 contracts, with a record short in Kansas City alone. INTL FC Stone projects that the Brazilian wheat crop will rise 1 mmt to 6.6 mmt from the previous estimate, but that imports will decline to 5.7 from 7 mmt. Export sales of just 11 million bushels last week puts total commitments for 18/19 at up 3%. DTN's National HRW index closed at $4.28, and the average basis is at 16 under May.

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

FollowDanaon Twitter@mantini_r

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