DTN Before The Bell Grains

Morning CME Globex Update:

Following Thursday's gain of 217 points on the Dow Jones average, fueled by dovish Federal Reserve comments and an encouraging jobs report, Dow futures have reversed and are showing down 161 points. April crude oil is down 80 cents per barrel, the U.S. dollar is up 0.3250, and April gold is up $4.10 in the overnight.

Other Markets:

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

Corn:

Corn is the current star of the show, having now rallied more than 18 cents above the contract low set March 12. May corn is right at the 50-day moving average, while new crop December has vaulted above the 50-day average and is approaching a major resistance level of $4.05-$4.08. The news that appears to be fueling the recent strength is rumors of Chinese demand, with one closely followed Chinese analytical firm, JCI, speculating that once a deal is finalized, China could buy more than 20 million metric tons (mmt) (788 million bushels) of U.S. corn. Even if not China business, recent market action and a jump of 8-10 cents in the Gulf barge basis has the trade assuming that some demand is going on. Also supporting corn is the ongoing flooding and the realization that grain supplies are being destroyed. It is likely that planting will be a big challenge, leading to reduced corn planting and increased prevent plant. Last week's corn export sales were decent at 33.7 million bushels (mb), making total sales now 1.644 billion bushels (bb), down 7% versus last year. U.S. corn has recently missed much of the business to Asia as Ukraine and South American values have been cheaper, and the U.S. logistical woes make satisfying grain sales nearby a real challenge. The recent rise in energy markets, with nearby crude oil hitting $60 per barrel, has rallied ethanol and improved margins to 15-20 cents per bushel positive on average, but production for the past week must have taken a hit with plant closures. While the devastating floods have receded some in NE, the MO flood situation looks to worsen in coming weeks, with a dire flood warning from the government's NOAA promising more flooding in many areas, and the above normal precipitation and below normal temperature forecast for the northern Plains troublesome. Look for May corn to resist at $3.80 and encounter big selling at $3.85, while new crop selling should be abundant at $4.05-$4.08. DTN's National Corn Index closed at $3.48 on Tuesday, with an average basis of 28 cents under May. At 8 a.m. USDA reported 300,000 mt corn sold to China for 2018-2019 delivery.

Soybeans:

Soybeans have been reluctant to follow corn on its upward path with mixed messages emerging from the ongoing U.S.-China trade discussions held in Beijing this week. With export sales last week a dismal 14.7 mb, total sales remain 17% below a year ago, with shipments also down sharply, and no daily sales announcements for over ten days now.Also weighing on the soy market is the growing problem of African swine fever. With 114 outbreaks in China since August, the Chinese pig herd is said to be nearly 17% smaller, with a 19% drop in sows, and pork prices have risen 37% in the last year. That has propelled U.S. hog futures to sharp gains with another limit up move in hogs on Thursday even with the expanded CME limits. Spot hog futures have now rallied $26 per cwt in just a month as U.S. pork exports are thought to be a beneficiary of ideas that China will have to import up to 2 mmt of pork. South American weather is mostly favorable, and the supply of soybeans both here and globally looks to expand even further in the face of the sharp fall in demand due to swine fever. While the late spring planting outlook may steal corn acres, the same outlook is likely to add more unwanted soybean acres. With U.S. trade representatives heading to China, the soybean market demands a settlement to the dispute, or risk falling to much lower levels. Look for May soybeans to be repelled at $9.10-$9.15, with more solid resistance at $9.20-$9.25. DTN's National Soybean Index closed at $8.23, and reflects an average basis of 87 cents under May.

Wheat:

Wheat is slightly higher again with Chicago spot futures up 30 cents from the contract low and Kansas City 41 cents higher than the low set on March 11. Wheat export sales were a very poor 11 mb last week, but total sales at 850 mb exceed last year by 25 mb. However, shipments have lagged severely, and with just eleven weeks remaining in the marketing year, U.S. wheat ending stocks could be headed for 1.1 bb. As in corn, the wheat market has risen as funds overextended, with a record combined net short of all three wheat markets that led to dramatic oversold levels. It is that fund short which will add fuel to a bullish fire, that could be ignited with a China trade deal. Other than routine business from South Korea, Mexico, Japan and Taiwan, U.S. exporters, have lost business to the EU and Black Sea, with logistics in the U.S. transporting grain to destination a challenge. The ongoing flooding issues are likely to impact some of the U.S soft red winter (SRW) crop in the Delta, southeast and southern Midwest. The Army Corp of Engineers state that 28 levees on the Missouri river have been breached or overtopped, according to Linn Group. The expected flooding with the snowpack melt in the northern Plains has traders expecting a fall in spring wheat acres at the expense of soybeans in coming weeks. While the bounce in Kansas City wheat may be overdone, only a rally to $4.85-$4.90 will find chart selling on May futures. DTN's National HRW index closed at $4.35, and the average basis is at 15 cents under May.

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

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