DTN Before The Bell Grains

Slowest Corn Planting Pace on Record Sends Grains Higher Again

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

Morning CME Globex Update:

The Dow Jones June futures are up 161 points, June crude oil is 23 cents per barrel higher, the U.S. dollar index is up 0.0990, and June gold is down $6.10 an ounce.

Other Markets:

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

Corn:

Corn futures again gapped higher, the third gap on the charts, and have now rallied for seven consecutive days. July corn rallied 52 cents from the lows 7 days ago, while new crop December is up 46 cents. This year's planting pace, as revealed in Monday's crop progress report, is the slowest pace on record at 49% complete as of May 19, a gain of 19% on the week. That compares to last year's planting pace of 78% and the 5-year average of 80%. Key states are well behind, with Illinois now at just 24% versus an average of 82%, Indiana at just 14% and Ohio at only 9% done. The weather forecast for the next two weeks looks to make planting the balance of the crop a real challenge with lots of rain in the Plains and the Midwest. Heavy rains of up to 5" are expected to fall in key corn producing states with flood warnings again issued for Missouri and Iowa. The late planting and impending weather forecast suggests that we could see not only the need to replant some corn, but that which has not been planted will likely suffer yield drag, which historically accelerates past May 20. There have been some very lofty ideas on the total amount of corn acres that may use the prevent plant option. Last week it seemed to be 3-4 million acres, but now the possibility is for a much larger amount. Driving this rally are the commodity funds who have been quickly trying to escape their once record bearish bet on corn. Estimates are that funds bought another 20,000 contracts on Monday but may still be net-short close to 210,000 contracts to begin Monday night trade. The corn market likely faces big acreage and yield reductions as seven states remain more than 30% below the average planting pace. Last week's export inspections on corn were 32.8 million bushels (mb), with total shipments now at 1.474 billion bushels (bb) compared to 1.430 bb last year. Although there is little reason for corn to set back, the market is getting to a very overbought position and a temporary correction is possible. Key resistance is in this $3.95-$4.00 area on July, and December should see major resistance on a further rally to $4.15-$4.18, with a close above $4.08 positive. DTN's National Corn Index closed at $3.63 on Monday, with an average basis of 26 cents under July.

Soybeans:

Soybeans have been the laggard on this late planting and fund-induced rally, but that could soon change. Soybean planting pace was revealed at just 19%, a gain of just 9%, and that is said to be the slowest pace since 1995, and lagging the 5-year average of 47%. Soybeans have been reluctant to follow the lead of corn, as the bearish supply and demand scenario, stalled talks with China on trade, and concerns that corn acres might be shifted to soybeans have weighed on prices. Funds do remain short a huge amount of soybeans, estimated at still 169,000 and near record short, and soon funds may be inclined to buy more of those shorts in. On Monday, funds were estimated to have bought 9,000 contracts, and last night's strength sent both July and November futures above the 20-day moving average for the first time since mid-April. While corn has been the headliner, late planting on soybeans will also lead to yield drag, accelerating as we move into June. Perhaps the only friend to managed money funds now are the Brazilian farmers, who have seen the Brazilian real fall hard and incentivize soybean sales. U.S. farmers have little interest in selling, as the focus is squarely on planting. Heavy rains will continue to hamper seeding efforts into the first week of June. African swine fever continues to spread in Asia, with another case reported on Monday in northwest China. Chinese soymeal prices rallied 2 1/2% overnight to the highest level in 5 months on tightening supplies as the trade war rages on. U.S. soybean inspections were a dismal 18.3 mb last week and total shipment of 1.218 bb compares to 1.678 bb last year. There is little significant chart resistance above until another 30-40 cents higher, so if funds decided to cover s sizable portion of their short, this is where soybeans could be headed. DTN's National Soybean Index closed at $7.48, and reflects an average basis of 84 cents under July.

Wheat:

All three wheat markets have been on a bullish tear since a week ago as the fund record short has led to short-covering that has seen Chicago July rally 70 cents and Kansas City July 61 cents from just a week ago. Huge rain totals in the past few days, with much more to come has sent wheat higher on fears of negative yield impacts and disease in not only soft red winter (SRW), but now hard red winter (HRW), where Kansas is taking the brunt of bad weather just ahead of harvest. The crop progress report and wheat conditions reported on Monday painted a different picture, with winter wheat crop conditions improving another 2% in the good to excellent category to 66%, the best in years. Key states such as Kansas, up 2% to 60%, and Oklahoma now an amazing 88% good to excellent were impressive, but that could all change next week following major storms and flooding, especially in central and eastern Kansas. Excessive rains in Kansas look to compromise both quantity and quality in the largest HRW producing state. Spring wheat planting made better gains than most had expected last week, with 70% of the crop now planted, but that still lags the average pace of 80%. The remaining 20% could face real challenges in coming days with the cool and wet forecast. Funds as of Monday were still thought to be short over 90,000 contracts of Chicago wheat and over 50,000 of Kansas City, but are no doubt reeling in some of these losing bets. Wheat inspections last week at a respectable 27.8 mb put total shipments at 866 mb compared to 847 mb last year. As in the other markets wheat futures are getting very overbought, but both Chicago and Kansas City futures are now well above their 50-day moving averages. DTN's National HRW index closed at $4.19, 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