DTN Early Word Grains

Grains Easier Following WASDE Bump

6:00 a.m. CME Globex:

July corn is down 3 1/4 cents, July soybeans are down 5 3/4 cents, and July K.C. wheat is down 2 1/2 cents.

CME Globex Recap:

Mostly lower equity markets Wednesday morning as investors take note of economic data out of China overnight. Consumer prices rose 2.7% from a year ago in May, the fasted pace in 15-months and due largely to the rise in pork prices. Pork prices carry a greater weight in China's inflation index because of the importance of meat in the national diet. Grains are weaker, failing to follow through on the post-WASDE strength. Corn bulls got plenty to sink their teeth into on Tuesday but the narrative is quickly shifting to focus on yield-determining weather. Soybeans and wheat didn't get much for supportive news, and when left to their own devices, should have a hard time shaking their bearish fundamentals. The trade will now begin ramping up for the end of the month acreage and stocks report which could prove to be one of the more high volatility reports in recent memory.

OUTSIDE MARKETS:

Previous closes Tuesday showed the Dow Jones Industrial Average down 14.17 at 26,048.51 and the S&P 500 down 1.01 at 2,886.73 while the 10-Year Treasury yield ended at 2.14%. Early Wednesday, the June DJIA futures are down 61 points. Asian markets are lower with Japan's Nikkei 225 down 74.56 (-0.35%) and China's Shanghai Composite down 16.34 points (-0.56%). European markets are lower with London's FTSE 100 down 42.26 points (-0.57%), Germany's DAX down 57.05 points (-0.47%) and France's CAC 40 down 33.15 points (-0.61%). The June Euro is down 0.001 at 1.130 and the June U.S. dollar index is down 0.000 at 96.645. The September 30-Year T-Bond is up 10/32nds, while August gold is up $9.00 at $1,340.20 and July crude oil is down $1.46 at $51.81. Soybeans on China's Dalian Exchange were down -1.12% while soybean meal was down -0.24%.

BULL BEAR
1) USDA cut 2019/20 corn acres and yield on the June WASDE, producing the smallest carryout estimate since 2013/14. 1) The U.S. soybean balance sheet will be facing back-to-back billion bushel ending stock levels in 2018/19 and 2019/20 for the first time on record.
2) Based on USDA's production estimate, projected soft red wheat ending stocks in 2019/20 should be the smallest since 2013/14. 2) USDA said Ukraine will see record wheat yields in 2019/20 along with the third largest production total on record thanks to favorable weather.
3) Morning GFS model runs are putting 0.75-3.00" of rain across most of North Texas, Oklahoma and parts of Kansas in the coming week, delaying harvest. 3) Record corn exports of 34 million metric tons (mmt) each are expected from Brazil and Argentina according to USDA's latest projections.

MORE COMMODITY-SPECIFIC COMMENTS

CORN Lower corn prices Wednesday morning following the double-digit surge post-WASDE. Much to the market's surprise, the USDA axed both acres and yield on the June WASDE, supplying the largest cuts to both on this report on record. Clearly, the USDA felt the anecdotal evidence was compelling enough to warrant such an aggressive move just weeks in front of the June acreage report. In addition, the decision to drop yield 10 bushels per acre below trend on the June report is a statement, and produces a narrative which is unlikely to change until the August WASDE. On the other side of the ledger, USDA cut demand by 810 million bushels (mb), although we feel there is much more room to cut should it be deemed necessary in future reports. The production and export increases to Brazil and Argentina will ensure solid competition well into their new crop season next spring. The focus will quickly shift to yield-determining weather and the market's need to see favorable temperatures and adequate rainfall through July. Fortunately, below normal temperatures and above normal precipitation are forecast for a majority of the Midwest in the 6-15 day timeframe. December corn has yet to take out the May 29 high of $4.54, although few doubt we will have much difficulty doing so. With wheat and soybean fundamentals decidedly less bullish, corn traders will need to figure out how high price can run in the near-term without any help in the grain room.

SOYBEANS Soybeans are weaker Wednesday morning, giving back part of Tuesday's gains while remaining in the short-term downtrend. There was nothing bullish in the June WASDE for soybeans with supply changes not taking place and demand line items being cut. USDA cut old crop exports by 75 mb bushels which we felt was completely justified based on the amount of unshipped commitments still on the books. This change helped carryout climb over 1.00 billion bushels (bb) for the 2018/19 and 2019/20 marketing years. Even with a reduction in acreage and yield, the soybean balance sheet will be hard pressed to get anywhere near a carryout level which could be deemed supportive. Part of this issue lies with Chinese import demand which USDA cut for 2018/19 to 85 mmt while leaving 2019/20 imports unchanged at 87 mmt. Both estimates remain well below China's import totals the previous two years around 94 mmt. There are still over 30 million acres of soybeans left to seed with final plant dates for full insurance coverage arriving soon or have already passed for a majority of the belt. Soybeans have a long wait until the market is ready to pay attention to daily weather models. The market must also grapple with the fact stocks of soybeans in the U.S. as of June 1 will likely be a record when revealed at the end of the month.

WHEAT Wheat markets are lower, easing back from Tuesday's rally which was helped along by corn. Winter wheat production rose to 1.903 bb from 1.897 bb last month, while the trade was expecting 1.890 bb. The HRW production estimate of 794 mb rose from last month's 780 mb despite some expecting the total would fall due to excessive rains in Oklahoma and Kansas. It is inherently difficult to kill a wheat crop with too much water, although quality can become a nightmare. Quality could play a role in wheat demand this year as the USDA increased 2019/20 feed/residual demand to 140 mb from 90 mb a year ago. This would be the largest feed program since 2016/17, but there is the potential for even more in our eyes, especially if the corn market decides rationing is necessary. The USDA also pegged 2019/20 exports at 900 mb. If confirmed, this would be the smallest export book since 2015/16. Corn will continue to drive the bus, but with funds still net-short all three wheat markets, the path of least resistance could be higher. Harvest in Kansas is still 2-3 weeks away which will limit any hedge pressure or farmer selling until July.

DTN Cash Change From National Contract Change from
Commodity Index Prev Day Avg. Basis Month Prev Day
Corn: $4.04 $0.13 -$0.24 Jul $0.008
Soybeans: $7.80 $0.01 -$0.79 Jul $0.007
SRW Wheat: $5.02 $0.11 -$0.16 Jul $0.007
HRW Wheat: $4.39 $0.05 -$0.19 Jul $0.002
HRS Wheat: $5.25 $0.03 -$0.44 Jul $0.015

Tregg Cronin can be reached at tmcronin31@gmail.com

Tregg can be followed throughout the day on Twitter @5thWave_tcronin

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