DTN Before The Bell Grains

Rally Extends on a Very Wet Forecast Next Week

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

Morning CME Globex Update:

The Dow Jones average on Wednesday was 116 points higher, with Thursday morning Dow futures are up 87 points. June crude oil is up 83 cents per barrel, the U.S. dollar index is up 0.1240, and June gold is down $6.40 per ounce.

Other Markets:

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

Corn:

Despite the late session sell-off on Wednesday, corn futures are right back up again on Thursday morning with July sitting 33 cents above the new contract low set on Monday. After another day or two of dry and warm weather, the forecast turns very wet, with widespread and heavy rains likely over much of the primary Corn Belt. The period of May 25-30 promises from 1" to 5" of rain in areas such as Kansas, Nebraska, Missouri, Iowa, South Dakota and Minnesota. Total rainfall of as much as 5" to 7" are possible in parts of Kansas, Nebraska, Iowa and Minnesota. Planting progress will come to a halt. In addition to a two-week forecast that looks very wet, NOAA sees June as possibly wetter than normal. Funds continue to exit part of their massive and record-short corn position, and through Wednesday had covered an estimated 50,000 to 60,000 contracts. The best estimate coming into Wednesday night trade is a still hefty short of 260,000 contracts. Ethanol production last week was up 1.5% to 309 million gallons for the week, with stocks again lower, but margins are said to hold a slight negative of 15-20 cents per bushel on average in the Midwest. There is more and more talk of a large prevent plant number in the U.S. with comparisons to 2013 and even 2011. Last year's prevent plant was 1.9 million acres and the five year average is 3.8 million. In 2013, prevent plant in corn alone was 3.6 million acres. Taiwan's MFIG is said to have bought 65,000 metric tons (mt) of optional corn overnight from either U.S. or Brazil for July shipment. Look for July corn to continue to see big resistance at $3.80 to $3.81 and December corn to encounter big selling at $4.00 and above. Export sales for the week ended May 9 were 21.8 million bushels (mb) for 2018/19, with total commitments of 1.846 billion bushels (bb) now 11% lower than last year, while shipments of 38.7 mb are up 8% versus last year, but below the 44 mb needed to achieve the USDA projection. DTN's National Corn Index closed at $3.44 on Wednesday, with an average basis of 25 cents under July.

Soybeans:

Soybeans are again higher, with July and new crop November futures having rallied 50 cents above the contract lows. Funds were caught short a record soybean position, and have covered an estimated 25,000 contracts through Wednesday. They remain net short an estimated 165,000 contracts. China talks have been put on the back burner, with the next meeting likely to be at the G20 in late June. The Brazil and Argentine soy basis has rallied sharply in the past few weeks, with China rumored to have bought large quantities of Brazilian soybeans. Brazil premiums are said to have risen 65 cents in the past few weeks. The good news is that U.S. soybeans are now priced favorably into non-Chinese destinations. There is talk from Treasury Secretary Steve Mnuchin that the steel and aluminum tariffs on Mexico and Canada could soon be lifted. That would be a positive sign for trade. On the other hand, as the U.S.-China conflict has taken a turn, there is a story on Bloomberg that U.S. soybean cargoes could be prevented from offloading at Chinese ports. China is said to have 6 million metric tons (mmt) (220 mb) of unshipped U.S. soy sales on the books, and the fear is that those could be canceled in the absence of a deal. NOPA crush was a lower than expected 160 mb last week, but crush margins remain very strong in the U.S. May 1 soybean stocks are expected to be up 37% from a year ago, and the largest on record due to the China trade spat and African swine fever. July and November beans remain just below the 20-day moving average, and with both U.S. and world ending stocks record large, will be hard pressed to rally very far unless funds decide to cover the entire short, or weather issues persist. Export sales for the week ended May 9 were 13.6 mb for 2018/19, making total commitments down 18% versus a year ago, while shipments of 22.6 mb are down 25% versus a year ago, and below the 31 mb needed each week to achieve USDA's projection. DTN's National Soybean Index closed at $7.51, and reflects an average basis of 85 cents under July.

Wheat:

Wheat is again higher following Wednesday's late day plunge which saw Kansas City July fall 21 cents from the daily high. There are a few problem spots around the world that are creeping into market commentary despite what is expected to be a large production increase from the U.S.' major export competitors. Strategie Grains lowered EU soft wheat by nearly 1 mmt to 143.9 mmt due to ongoing dryness, while Australian production ideas continue to slip based on the same issue. In the U.S. very heavy rains in the upper Midwest and western Plains is likely to cause some issues with spring wheat, and the excess water in eastern and Delta soft red winter (SRW) areas has created more concern about quality, with fusarium likely in many soft red areas. Funds remain net-short a significant wheat position as well, and have been covering part of that short in the past few days. However, with U.S. ending stocks burdensome and above 1.1 bb and world stocks record large at 293 mmt, the upside appears to be limited as we approach harvest. Export sales for the week ending May 9 for 2018/19 were just 4.2 mb making the total commitments of 943 mb 9% higher than a year ago, while shipments of 30.7 mb were 4% above a year ago, and above the 25.6 mb needed each week. DTN's National HRW index closed at $3.87, and the average basis is at 15 cents under July.

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

FollowDana on Twitter @mantini_r

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Dana Mantini