DTN Before The Bell Grains

Grains and Soybeans Recover From Friday's Lower Close

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

Morning CME Globex Update:

After falling 34 points on Friday, the Dow Jones futures are up 64 points to begin early Monday. August crude oil is up 54 cents on rising tensions with Iran, the U.S. dollar index is down .0070 and August gold is up $9.20 an ounce.

Other Markets:

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

Corn:

Despite what appeared to be a bearish close on Friday, corn futures, following two-sided overnight trade, are trending higher to begin the week. Rains were better than expected over the weekend, and temperatures remain lower as storms move out of the Eastern Corn Belt, but the forecast still shows a warmer and drier pattern ahead. Corn planting pace is expected to be at 94% to 96% complete as of Sunday, with corn planting likely done, but the big concerns continue to be final acreage and a lack of growing degree days. However, the true acreage number will have to wait until the Farm Service Agency (FSA) report on prevented planting, which won't be out until August. Friday's June stocks and seeding report may give us a more reliable number to trade on. Managed money funds, who had once been net-short a record 344,000 contracts a few months ago, are now long 155,000 contracts, having bought another 33,000 contracts last week through Tuesday. However, just as U.S. corn supplies are expected to fall hard on yield drag from late planting and reduced acres, so too has demand fallen off a cliff. Huge and cheaper South American and Black Sea corn supplies, along with feed wheat have put a dent in U.S. demand. Along with that, U.S. hard red winter wheat (HRW), with plentiful supplies, and a crop that is assumed to be low protein, will attempt to work its way into feed rations at the expense of corn. The Cattle on Feed report showed the largest June inventory since 1996, at 11.740 million head. China's pork imports for May were said to be up 63% versus a year ago as African swine fever has led to major hog losses, and Rabobank projects that China's pork output will be 38 million metric tons (mmt) vs. 54 mmt a year ago, likely leading to more port imports. December corn is once again above that old resistance area, which is now support at $4.53 to $4.54. A solid close under that area might be bearish. DTN's National Corn Index closed at $4.24 on Friday, with an average basis of 19 cents under July.

Soybeans:

Soybeans are stronger to begin this Monday as weekend rains continue to hamper planting efforts in beans. Soybean planting as of Sunday is expected to be anywhere from 85% to 91% complete. The outlook for the coming week does show a pattern change to warmer and drier, which should help. The trade is awaiting the Group of 20 summit, where both presidents Trump and Xi Jinping are slated to continue trade discussions. Ahead of that, both countries trade negotiators are in contact, attempting to iron out some details. Although a final solution to the year-long trade battle is not expected, there is hope that a resumption of trade talks will be agreed upon. Multiple media sources, including those from China, are saying that China requires the total removal of all U.S. tariffs before a solution can be had. There is much doubt regarding that stipulation. While rain is moving through soggy Arkansas and the Delta and mid-South Monday morning, skies are expected to be mostly clear the balance of the week. One thing supporting soybeans is that even though managed funds had covered another 39,000 contracts of their once large, net-short through Tuesday, they remain net-short 55,000 contracts to begin the week. If funds decide to cover all of that, we can go higher this week. The first soybean condition report will be out on Monday afternoon and is expected to show a crop that is 55% good to excellent. As in corn, U.S. soybean demand continues to suffer from the trade war, African swine fever and South America satisfying Chinese demand. Friday's USDA Stocks report is expected to show a record large soy supply in the U.S. Soybeans may be getting some support from the higher gold and crude oil markets, and the lower U.S. dollar, as tensions with Iran are increasing. New-crop November soybeans should continue to have trouble with the $9.40 to $9.50 area on a further rally. DTN's National Soybean Index closed at $8.27, and reflects an average basis of 76 cents under July.

Wheat:

All three wheat markets are recovering nicely to begin on Monday morning following Friday's bearish close. Despite some nice rains over both the Canadian Prairies and U.S. Northern Plains with more expected, and the fact that U.S. wheat has priced itself out of many destinations, wheat is stronger. Russia's IKAR consultancy said that Russian wheat values fell again and are now roughly $20 to $25 per metric ton (mt) cheaper than U.S. wheat on a FOB basis. Also a bearish indicator should be the improving weather in both the central U.S. and Southern Plains wheat areas, with warmer and drier weather on tap. Harvest should advance rapidly. The U.S. did get a bit of business late week, with Taiwan Flour Millers Association buying 83,000 mt of U.S. milling wheat for August-September. Although early returns from harvest suggest a much lower incidence of disease in HRW wheat than expected so far, the protein does look to be about 1% lower than the previous year. Increasing supplies of that low protein are expected to make its way into Plains' feedlots. Some private analysts are penciling in 300 million to 400 million bushels (mb) of feed for wheat versus the USDA projection of 140 mb. DTN's National HRW index closed at $4.32, and the average basis is at 20 cents under July.

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

Follow him on Twitter @Mantini_r

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Dana Mantini