DTN Early Word Grains 08/18 09:53
Grains Lower as Supply Fears Reign
December corn is down 6 cents per bushel, November soybeans are down 6
cents, and September K.C. wheat is down 3 1/2 cents.
By Tregg Cronin
DTN Contributing Analyst
6:00 a.m. CME Globex: December corn is down 6 cents per bushel, November
soybeans are down 6 cents, and September K.C. wheat is down 3 1/2 cents.
CME Globex Recap: Global equity markets are higher, attempting to add to last
week's mostly positive trade. Trade will continue to be a focus this week as
President Trump said he has a phone call scheduled with President Xi "very
soon," while White House economic advisor Kudlow said Sunday that deputy-level
talks are scheduled for this week and next. Fortunately, President Trump did
postpone the implementation of his latest 10% tariff until December scheduled
to go into place September 1. In the background, there is also nothing being
done with regard to trade relations with either the European Union or Japan.
Weaker Ag markets across the board as weather conditions remain mostly
favorable and demand news remains almost universally pessimistic. One week on
from the August WASDE and bulls are still trying to pick up the pieces. With
the crop getting more mature, a more accurate assessment of yield can be had
from private crop tours in coming weeks. With two-weeks left in August, it is
worth keeping in mind that seasonally lows are often set during the months of
September and October for both corn and soybeans.
OUTSIDE MARKETS: Previous closes Friday showed the Dow Jones Industrial
Average up 306.62 at 25,886.01 and the S&P 500 up 41.08 at 2,847.60 while the
10-Year Treasury yield ended at 1.539%. Early Monday, the September DJIA
futures are up 209 points. Asian markets are higher with Japan's Nikkei 225 up
144.35 (0.71%) and China's Shanghai Composite up 59.27 points (2.1%). European
markets are higher with London's FTSE 100 up 49.29 points (0.69%), Germany's
DAX up 82.09 points (0.71%) and France's CAC 40 up 33.06 points (0.62%). The
September Euro is steady at 1.110 and the September U.S. dollar index is up
0.078 at 98.085. The September 30-Year T-Bond is down 2, while December gold is
down $13.90 at $1,509.70 and September crude oil is up $0.27 at $55.14.
Soybeans on China's Dalian Exchange were -0.24% while soybean meal was -0.14%.
1) Gro Intelligence pegged the U.S. 1) Large spec traders sold 42,088
average corn yield at 163.2 bushels contracts of corn last week, bringing
per acre (bpa), 6.3 bpa under USDA their four-week sell total to 123,892
using satellite imagery and contracts.
2) Northern Hemisphere major exporter 2) After early season drought abated,
wheat ending stocks as a percentage Canada is expected to produce 32.6
of demand are projected at 14.93% million metric tons (mmt) of wheat
in 2019/20, the lowest level since vs. 31.8 mmt last year according to
2013/14. the USDA Attache'.
3) Managed funds sold 1,654 contracts 3) China's ministry of agriculture said
of Minneapolis wheat last week, the country's total pig crop in July
pushing their net short position to was 32.2% below year ago levels,
a new record of 18,903 contracts. accelerating from June's 25.8% drop.
MORE COMMODITY-SPECIFIC COMMENTS
CORN Lower corn prices to begin another week of trading as bullish
storylines remain few and far between following the bombshell USDA report
released last week. December corn seemed to find support at the $3.70 level,
bouncing both Thursday and Friday away from that area with sights set on the
gap between $3.76 and $3.92 3/4. There are plenty of published crop estimates
much smaller than the USDA but the larger supply narrative isn't likely to
change until combines roll in October/November, if at all. To make matters
worse, every piece of demand news as of late has been negative as well. Export
sales remain dreadfully slow as Brazil is on pace to export a record amount of
corn during the month of August. Ethanol margins have barely budged with the
selloff in corn as ethanol has fallen just as sharply. Fat cattle prices remain
at three-year lows while lean hog prices are in the lower third of the last
three-year price range. Many are looking to cash markets and calendar spreads
for signs the selloff is over, but producers would appear to be kicking bushels
out the door in an effort to clear space for new crop. The CZ19/CH20 calendar
spread sold off with flat price last week but has recovered slightly. There is
nothing bearish about the first new crop spread trading at 43% of full
financial carry under the new storage rates, but a modestly tighter forward
curve will not be enough to stem the managed fund selling. Managed funds were
still net long 17,213 contracts as of August 13, although this position has
quite likely slipped negative since report day.
SOYBEANS Lower soybean prices with similar nominal losses as that of corn.
Soybeans have not seen the level of bearish data lobbed at the corn market, but
even with tighter supplies from a year ago, the soybean balance sheet cannot be
called tight. Encouragingly, private exporters did report a sale of 296,500
metric tons (mt) of soybeans to unknown destinations for the 2019/20 marketing
year on Friday. These kind of sales are badly needed considering new crop
commitments are over 60% lower than the same time a year ago. At current, USDA
is expecting 2019/20 soybean exports to rise 75 million bushels (mb) from a
year ago, a forecast which looks almost incredibly optimistic at this point.
Adding to the negative export outlook, Reuters reported Friday Chinese traders
said they can do without supplies from the United States in the fourth quarter,
relying solely on South America. Not the response one would like to see as
negotiations resume next month. Funds sold 3,817 contracts last week to leave
them net short 79,988 contracts. No activity of note from commercial traders
with funds maintaining short exposure in soy products as well. Two-week percent
of normal precipitation maps still show some concern areas in the Eastern Corn
Belt but still a marked improvement from a couple weeks back.
WHEAT Lower wheat prices, following corn and soybeans but nowhere near the
aggression seen in row crops. Harvest is progressing in the Northern Plains
when rain can be avoided but traders should strap in for a North American
spring wheat harvest pushing well into September. Yield reports remain strong
and quality so far has been favorable. Despite the delays, managed funds are
showing no signs of slowing their record net short exposure in Minneapolis.
Managed funds are now short 18,903 contracts, 46% larger than the previous
record short in 2018. Commercials are not sitting idly by as the gross
commercial long position jumped to 47,101 contracts, which is a top five
position for this group. One would think commercials extending ownership speaks
loudly about their view on value at current prices. Inter-market relationships
remain in focus as KWZ/WZ has rallied off the lows by 15 cents per bushel. SRW
should continue to carry a large premium over HRW this year given projected SRW
ending stocks as a percentage of HRW stocks stands at 26.01%, the lowest since
2001/02. Similar relationships exist between Minneapolis and Chicago. No
shortage of wheat north of the border according to the USDA Ag Attach to
Canada. Not only will production outstrip last year according to their
projections, but export should remain right at record levels in the coming year.
DTN Cash Change From National Contract Change from
Commodity Index Prev Day Avg. Basis Month Prev Day
Corn: $3.62 $0.11 -$0.09 Sep $0.006
Soybeans: $7.96 $0.09 -$0.84 Nov $0.002
SRW Wheat: $4.55 $0.02 -$0.16 Sep $0.001
HRW Wheat: $3.72 $0.05 -$0.22 Sep $0.002
HRS Wheat: $4.56 $0.03 -$0.50 Sep -$0.004
Tregg Cronin can be reached at email@example.com
Tregg can be followed throughout the day on Twitter @5thWave_tcronin
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