DTN Before The Bell Grains

Morning CME Globex Update:

Global and U.S. equities markets are under pressure following threats by President Trump to increase tariffs again on Chinese imports by this Friday. Dow Jones futures are down 476 points overnight, June crude oil is down 70 cents per barrel, the U.S. dollar index is up .1850, and June gold is down $2.20 an ounce.

Other Markets:

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

Corn:

Corn futures gapped lower on Sunday night following a Twitter-based threat from President Donald Trump to China regarding tariff increases by this Friday. After positive statements on Friday from the President following the return of U.S. trade representatives from Beijing last week, he made an abrupt about face. Bloomberg is reporting that China had backpedaled on some concessions, with the most notable involving technology transfers. July corn came within four cents of the contract low on Monday morning. Were it not for the tariff news, corn traders would be focused on the weather outlook, Monday's Crop Progress report, and the impending WASDE report later this week. The Crop Progress report is expected to show a lagging pace of 22% to 25% planted for corn compared to an average of 43% at this time of year. The forecast remains mostly wet for the next seven days. While the six- to 10-day period is a bit drier, rains return in the 11- to 15-day part of forecasts, further challenging seeding efforts. Flood watches are prevalent in Missouri, Arkansas, Oklahoma and parts of Texas. Some in the trade are beginning to pencil in a loss of corn acres of anywhere from 1.5 million to even 3 to 4 million acres, at the expense of soybeans or prevent-plant acres. The larger news prior to the Sunday tweet from President Trump, was the news that managed money funds had reduced their corn short a bit, according to Friday's CFTC report, but the combined wheat, corn and soybean net-short of 540,000 contracts, was still record large. Managed funds remained short a hefty 318,000 contracts of corn futures alone as of last Tuesday. Funds are no doubt adding back to those shorts to begin this week. All of this in the face of expanding South American corn production, where Argentine corn production now looks to be 48 million metric tons (mmt) to 50 mmt versus USDA's 47 mmt, and Brazilian corn could be 98 mmt to even 100 mmt, versus USDA's 96 mmt. DTN's National Corn Index closed at $3.45 on Friday, with an average basis of 26 cents under the July.

Soybeans:

Soybeans, with perhaps the most to lose from the lack of a U.S.-China trade deal, gapped lower and into new contract lows, and now are down nearly 25 cents per bushel, as President Trump's ill-timed tweet on Sunday had China responding with a possible delay of their arrival in Washington this Wednesday, which was expected to lead to a possible signing by May 10. According to the South China Morning Post, and foreign ministry spokesman, Geng Shuang, China trade representatives are still planning a trip to Washington this week. With soybean sales and exports for the U.S. already reeling from the trade impasse as well as the African swine fever impacting demand, and burgeoning South American soy production, it is soybeans that needed this trade pact the most. Managed funds added another 15,000 contracts of shorts last week to what is now a record 148,500 contract soybean short. Active weather in the next several weeks could lead to additional and unwanted soybean acres. Potential for another 1 1/2 to 4 inches of rain is slated to fall over the western and northern Midwest and Delta, with the already soggy eastern Midwest looking at up to 2 inches of rainfall. From eastern Texas to Louisiana, a heavier 5 to 8 inches is possible. Soybean futures are now at the lowest level that we have seen in quite a while. Just as the U.S. conflict with China is impacting exports and price, Canada's conflict with China also appears to be a growing problem, for which Canada is seeking U.S. help. DTN's National Soybean Index closed at $7.56, reflecting an average basis of 86 cents under July.

Wheat:

Wheat markets also gapped lower in the overnight in sympathy with the plunging corn and soybean markets. No new contract low has been established, but Kansas City is below $4 again, and now within two cents of the low. Wheat did set new lows last week, as the crop condition report detailed a winter wheat crop that is the best rated in years at 64% good to excellent, while the Wheat Quality Council Tour showed a HRW crop that looks to be 10% to 15% above trend yield. Although there has been talk of China ramping up their wheat buying from the U.S. as part of any trade deal, China has been a minor U.S. wheat buyer in the past few years. Along with a wheat ending stocks number that is headed toward 1 billion bushels in the U.S., the prospect for both EU and Black Sea production to increase sharply from last year, and an aggressive export stance, has challenged U.S wheat exports. The mid-May to mid-June timeframe for both of those wheat crops is the key weather period, and will be closely watched. The wet U.S. forecast, while likely benefitting hard red winter (HRW) production, has created more concern for the soft red winter (SRW) crop, which is facing floods and potential disease concerns. As in soybeans, managed money funds last week added to their bearish wheat bet, selling an additional 20,000 contracts and putting the combined Chicago and KC short at 142,000 contracts. The Kansas City net-short is now a record close to 60,000 contracts. While the wheat futures market had likely the least to gain from a China trade pact, it is any port in a storm selling on Monday that is pressuring an already downtrodden wheat market. DTN's National HRW index closed at $3.86, and the average basis is at 16 cents under the July.

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

FollowDanaon Twitter@mantini_r

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