DTN Before The Bell Grains

Soybeans Lower, Wheat & Corn Higher to Start Friday

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

Morning CME Globex Update:

Dow Jones futures are down 14 points following Thursday's 135-point lower finish, June crude oil is down $1.29 per barrel, the U.S. dollar index is down 0.0760, and June gold is $3.60 per ounce higher.

Other Markets:

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

Corn:

Corn is up two cents to start, having bounced eight cents above the new contract low established on Thursday. Perhaps markets have become overdone to the downside as non-commercials have recently added to the growing net-short position, and momentum indicators had become deeply oversold. Managed money funds, who have added to last week's record large net-short in corn are thought to be holding a new record-short that is approaching 370,000 contracts. Friday's CFTC Commitment of Traders report will give us a better idea. Export sales on Thursday at 30.7 million bushels (mb) saw the lion's share go to Japan and Mexico, and shipments of 49.2 mb last week were slightly above the amount necessary to reach the USDA projection. However, sales currently reflect only 75% of the USDA total versus an average at this time of year of 87%. Turkey was said to have purchased 300,000 metric tons (mt) of corn on world markets, likely to be sourced from the Black Sea due to freight considerations. Light to moderate rains are moving across the Eastern Corn Belt Friday and adding to an already wet profile for Indiana and Ohio. It is dry elsewhere so corn seeding should make good advances. The seven-day forecast, however, is wet and fieldwork delays are likely into the first part of May. Some snow is expected in both the Dakotas and Minnesota. Worrisome to U.S. grain and soy traders is the idea that the U.S. has talked of sanctions on China in May if they buy Iranian crude oil. China last year is said to have bought nearly 30 million metric tons (mmt) of Iranian crude. July corn should have plenty of overhead resistance, but not until we rally to $3.65-$3.68. The $3.50 area should continue to support July. DTN's National Corn Index closed at $3.28 Thursday, with an average basis of 20 cents under May.

Soybeans:

Soybeans are down again to begin this Friday and technical indicators show a very oversold market. Managed money funds, as in corn, have been adding to a growing net-short position, which in soybeans is estimated to be 127,000 contracts ahead of Friday's CFTC report. Export data continues to be a huge disappointment to the market with last week's sales of 21.9 mb, as South American values reflect a large discount to U.S. offers. Shipments, at a dismal 14.6 mb, were well under the weekly amount of 35.6 mb needed to achieve the USDA projection. U.S. soybean sales at this point are just 88% of the USDA projection compared to the average of 96%. There is a growing likelihood that without a China trade deal, we could see a U.S. soybean carryout approach 1 billion bushels (bb), by far an all-time record, and in the face of a surge in South American soy production. Soybean meal on Thursday rallied $5.60 per ton and held up the soy market as fears of a risk default in Argentina along with ideas the Argentine soy crop is low in protein, added to strength in the U.S. where domestic demand had already been strong on the highest crush margins in quite some time. USDA's June report is expected to reflect grain lost during the recent floods. Although soybeans are close to their recent lows, there has been little positive to buoy the markets, and July would have to rally all the way to $8.90 to find chart resistance versus $8.70 now. The trade will continue to await word from Beijing, where U.S. representatives will again meet next week, followed by a May 8 meeting in Washington. DTN's National Soybean Index closed at $7.80, and reflects an average basis of 79 cents under May.

Wheat:

Wheat futures are hovering just above recently established contract lows in a market that remains severely oversold. Funds have also been building a larger net-short position with Kansas City a record large net-short. The good news is that U.S. wheat sales and shipments have been narrowing the gap to last year, but the bad news is that U.S. ending stocks will still be near 1 bb, excessive in light of the expected surge in production in the Black Sea and EU markets in 2019. Russia's IKAR pegs 2019 Russian grain production to be 128.7 mmt compared to last year's 113 mmt, and of that, 80.1 mmt is expected to be wheat compared to 71.7 mmt last year. Last week, Sov Econ was even more optimistic with a 83.4 mmt wheat crop estimate. The European Commission also raised the standard wheat crop to 141.3 mmt from 140.2 mmt last month, while raising 18/19 EU wheat exports by 2 mmt to 21 mmt, and projecting 19/20 exports to be 25.5 mmt from that region. As if we needed more bearish world wheat news, the three-month outlook for western Australia, the largest wheat growing area in that country, is for above normal moisture which is good news for Australian wheat growers who saw last year's production fall to an 11-year low due to drought. Tunisia was said to have bought 92,000 mt of milling wheat on Thursday, but not sure of the seller. Saudi Arabia announced a 600,000 mt tender for 12.5 pro milling wheat and hopefully the U.S. has a shot. Upcoming weather is conducive to the hard red winter (HRW) crop with rains projected to fall in the southern Plains, while rains in the eastern Belt are not as welcome, where Indiana and Ohio are saturated. The Kansas Wheat Tour begins next week, and we'll get a better idea about the HRW crop, which, at 62% good to excellent, is one of the better rated crops in years. The wheat futures market has been pressured of late by the surging U.S. dollar, but the U.S. dollar index early Friday is weaker to start. DTN's National HRW index closed at $3.93, and the average basis is at 11 cents under May.

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

FollowDanaon Twitter@mantini_r

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Dana Mantini