DTN Before The Bell Grains

Morning CME Globex Update:

Dow Jones futures are up 86 points early Thursday after reaching a new all-time high. August crude oil is up 9 cents per barrel, the U.S. dollar index is up .0180 and August gold is up $.70 an ounce.

Other Markets:

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

Corn:

Following Thursday's surprising corn reaction to what should have been a bearish USDA report, corn is again moving higher to begin Friday, with new-crop December sitting right above the 20-day moving average at $4.48. Thursday's World Agricultural Supply and Demand Estimate (WASDE) report, revealed a 195 million bushel (mb) larger corn crop than in June, and a 2019-20 U.S. corn ending stocks number at 2.010 billion bushels that was around 350 mb higher than the average trade estimate, according to a Dow Jones survey. The report used the surveyed acreage from June 28 (91.7 million acres), which amounted to 1.7 million more harvested acres, while yield was left unchanged at 166 bushels per acre. For 2018-19 a downward revision in feed and residual (25 mb), industrial use (20 mb), and exports (100 mb) sent 2018-19 carryout to a huge 2.340 billion bushels (bb), the largest since 1987, and some 150 mb above the pre-report estimates. In the world numbers, ending stocks were raised for both 2018-19 and 2019-20, the latter to 299 million metric tons (mmt) versus 290.5 mmt in June. The U.S. was primarily responsible for that, although Argentine production was also raised to 51 mmt. U.S. corn remains overpriced compared to other major competitors, and the chance for yet another reduction in exports is a real possibility, with ending stocks for 2018-19 likely to swell to a huge 2.4 bb, helping to cushion the blow from the lower new-crop supplies. The corn reaction was to rally sharply on the heels of bearish news, no doubt helped along by a 20-cent rally in Kansas City wheat. December corn is just below a key area of $4.52-$4.54 and a rally and close above would extend the strength. For now, December remains stuck in a $4.20-$4.50 range, as the trade now looks at weather, which is showing above normal temperatures into July 25, and the August WASDE, which most expect to paint a starkly different picture of acreage and yield. DTN's National Corn Index closed at $4.35 on Thursday, with a stronger average basis of 9 cents under September.

Soybeans:

Despite a slightly bullish WASDE soybean report, soybeans finished with a tepid 4-cent gain, but finished well above the daily lows. The 2018-19 U.S. soybean carryout was dropped by a modest 20 mb as a result of a 41 mb gain in residual use, but remained at a record 1.050 bb. For 2019-20, WASDE used the June 28 acreage of 80 million acres, and dropped yield just 1 bushel per acre, leaving 2019-20 U.S. ending stocks at 795 mb -- a drop of 250 mb. On the world front, ending stocks fell by roughly 8 mmt (294 mb) to 104.5 mmt (3.839 bb), but still a historically large number. Oddly enough, there were no changes to China demand, with WASDE leaving 2019-20 China imports at 87 mmt despite the U.S. ag attache a few days ago slicing that to 83 mmt. The numbers, as supplied by the General Administration of Customs, would tend to agree with the attache, as China soy imports for the first six months are down 14.7% at 38.27 mmt. June's imports fell 11 1/2% from May at 6.5 mmt -- down sharply from the 8.7 mmt imported in June of 2018. November soybeans are at a key juncture now, and just below strong resistance at $9.20-$9.25, with more major resistance at $9.30-$9.40. As in corn, but to a lesser extent, trade participants are reluctant to believe the WASDE numbers, instead looking to August for redemption. In the meantime, now the focus will be on weather and the U.S.-China trade talks. Linn Group reports that a China news source (not named) says China will start U.S. ag purchases soon, including soybeans, corn, pork, cotton and ethanol. We have heard this talk too much in the past, and China first needs to ship the unshipped bean sales on the books. WASDE cut new-crop soybean exports by 75 mb in Thursday's report. DTN's National Soybean Index closed at $8.28, reflecting an average basis of 71 cents under August.

Wheat:

Perhaps the biggest surprise of the WASDE report was not for corn or soybeans, but rather from wheat. WASDE, while printing domestic wheat numbers that were fairly close to the average trade estimates, slashed foreign wheat production by a much-larger-than-expected 10 million metric tons. Wheat acres fell 600,000, but yields increased by 1.3 bushels per acre. Minor changes in imports, exports and feed and residual (up 41 mb), sent 2018-19 U.S. ending stocks down 30 mb to a still hefty 1.072 bb. New-crop feed and residual was raised 10 mb, and exports were up 50 mb, leading to a new-crop carryout of 1.00 bb -- down 72 mb. The big surprise came in foreign production, as Russian wheat production fell a larger-than-expected 3.8 mmt due to late season heat wave, which also impacted the EU (down 2.5 mb), and Ukraine (down 1 mb), while Australia and Canada also were lowered. The net effect was that world ending stocks fell by 8 mmt to 286.5 mmt, and wheat rallied sharply on thoughts the U.S. could pick up more exports. Despite this shocker, world wheat stocks are pegged to still be over 11 mmt higher than the previous year. Kansas City jumped 20 cents per bushel and Chicago, 17 cents per bushel. The problem is the U.S. is still at a big disadvantage price-wise to both the Black Sea and EU, and we have 50% of the hard red winter harvest yet to come. Kansas City September wheat should have plenty of major resistance just above the Thursday close. DTN's National HRW Index closed at $4.40, and the average basis is at 21 cents under September.

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

Follow him on Twitter @Mantini_r

(CZ)

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