China Optimism Leads to a Solid Higher Start in Grain, Soy Markets

CME GLOBEX RECAP:

July corn is up 5 1/2, July soybeans are up 3 1/2 cents. July KC wheat is up 5 1/4, July Chicago wheat is up 4 1/4, and MIAX July Minneapolis wheat is up 6 1/2. 

OUTSIDE MARKETS:

The Dow Jones Industrials Index rose 105 points Tuesday and Dow futures are up 90 points early Wednesday. July crude oil is up $1.22 per barrel. The U.S. Dollar Index is down .383 and June gold is up $30.60 an ounce.

CORN:

Word from Commerce Secretary Lutnick that a deal has been reached with China to resume the flow of rare earth minerals and chips after a two-day meeting in London has propped up grain and soy markets early Wednesday. Such an agreement is lacking in detail and must first be approved by both President Trump and China’s Xi Jinping, so it is hard to get too excited until we see more specifics. However, that little bit of optimism has given the markets a modest boost. We also keep hearing that trade deals with India, Japan, South Korea, and Vietnam are close at hand, but we have received no confirmation yet. Weather in the central U.S. shows a clear radar early Wednesday. And, although some rain has been removed from the forecast, the outlook is for an active pattern in the Corn Belt extending to June 23. Beyond that, long-term weather looks to turn hotter and drier for July, but the prospect for a drought has been slowly whittled down. While U.S. corn export demand has exceeded expectations with sales and inspections up from 27% to 29% compared to a year ago, corn trade in late summer-fall months is slowly moving in favor of South America. South Korean feed firms reportedly bought 377,000 metric tons (mt) (14.8 mb) of corn for September through October and that is widely expected to be sourced from South America. A prominent South American crop scout raised his estimate for Brazil corn production to 130 million metric tons (mmt) (5.12 bb), matching the USDA, as late-season rain has boosted prospects. Thursday’s June WASDE report is not typically a big market-mover, but traders expect USDA to raise old-crop export sales and reduce ending stocks. Funds come into Wednesday with a net corn short of 154,000 contracts. December corn was able to hold support at $4.34, but a drop under that is likely to lead to a challenge of the lows. DTN’s National Corn Index closed at $4.16 and 22 cents below the July contract.

SOYBEANS:

While it seems traders are not very excited about the apparent U.S. and China agreement, soybeans and products are higher to start Wednesday. The market will need to see more details of any trade deal first. Soybean oil has slowly been moving higher as stocks are tighter but no clarity on biofuel policy has been forthcoming. July soybean meal, since the last week in April has meandered in a sideways pattern in a narrow $7 per ton range. That same crop scout who raised Brazil’s corn crop has left both Argentina and Brazil unchanged at 48.5 mmt and a record 169 mmt. Abiove — the Brazilian oilseeds group — has left their forecast unchanged, at a record large 169.7 mmt (6.2 bb). In the U.S., the rapid planting pace and improving conditions suggest a solid soybean crop, and even though moisture has been more than adequate for the newly planted crop, it is July and early August weather that will hold the key to soy yield. Thursday’s WASDE report is expected to make few changes to the U.S. soy balance sheet with the ending stocks still expected to be 340 million bushels (mb) to 350 mb. Changes in South American soy production will be the focus of traders. Obviously, the direction of soybean futures is highly dependent on any U.S.-China trade agreement, which, to this point, is lacking in detail. Funds have only a minor soybean position, are net-long 36,000 bean oil while still net-short just shy of 100,000 soymeal contracts. Old-crop July futures are again above all key moving averages, while November is just over the 100-day, but below the 20-day in more of a sideways range. DTN’s National Soybean Index closed at $10.10 with a soybean basis of 48 under the July futures board.

WHEAT:

After a two-day beatdown, all three wheat markets are trending higher early Wednesday. Paris milling wheat made a new low and is slightly higher in the September contract. Pressuring wheat was Monday’s gain in condition ratings for both spring and winter wheats in addition to much-needed rain falling in both the dry Black Sea wheat areas and in the north China Plains. The forecast for the latter is mostly dry until Friday when rain once again sets in. There is also a slightly wetter forecast for Black Sea wheat areas ahead. In the U.S., the winter wheat harvest is in the early stages, but a clear radar on Wednesday and the forecast for the next 10 to 14 days suggest dryness in the western Plains and an acceleration of harvest activity. Russia’s grain crop was pegged at 135 mmt and up 5 mmt from a year ago, with Sov Econ raising wheat production by nearly 2 mmt this week. In India, wheat stocks are the highest in 4 years, at 36.9 mmt. The wheat market is facing a world production that is likely to be from 12 mmt to 14 mmt higher than a year ago on the combined U.S., EU and Black Sea crops. There are few tenders Wednesday, but Bangladesh is in for a nominal 50,000 mt of milling wheat. While there is currently little bullish news to get excited about, the fact that managed money funds are still holding a large net-short in wheat is a potential bullish catalyst if funds should liquidate that short. DTN’s National HRW Index closed at $4.67 and 60 under the July futures board.

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