4/12/2018 Morning Comments

Good Morning,


Showers and snow around the Great Lakes, otherwise mostly quiet in the Midwest ahead of the next major winter storm.  This weekend’s system is expected to begin in the early morning hours tomorrow across the Dakotas and work east into MN and IA by Saturday.  Precip totals for the next 72-hours show 1.00-3.00” of water-equivalent moisture across N-NE/SD/S-MN/IA/WI/MI.  Totals have been reduced for ND as the system shifted southward, which is welcome news to farmers there.  The storm is expected to produce both rain and snow, with temperatures around freezing and gusts as high as 50-60mph in C-SD.  No meaningful change to extended maps with below normal temps and above normal precip seen through April 25th.  Most areas in the Northern Plains would need 10-14 days of sunshine from today to be in the fields, let alone once another storm moves through.  With that in mind, South Dakota could be out to May 1st before substantial spring wheat progress is completed, pushing closer to the May 15th Prevent Plant date.  PP dates in North Dakota begin on May 31 up to June 5, but doubtful producers wait until the PP dates to switch acres if they are considering it.


Mixed markets this morning with KC wheat leading downside losses and soybeans managing small gains.  KC wheat losses accelerated around 2:00am, and is trading on the lows at this writing, off more than 2.0%.  During yesterday’s session the gap on daily charts had only been partially filled, but that has been taken care of and some with the overnight price action.  No change to the forecast in the southern plains with dry weather generally seen the next 7-days, although 6-10 and 8-14 day maps are putting better chances across KS/OK/CO.  Our contacts which have been through the area continue to suggest the crop is between 2-3 weeks behind normal, and a pick up in moisture would revive production prospects at least partially.  Last year’s upturn in rain and snow during the last week of April helped save the HRW crop, pushing yields toward trend after disaster was forecast.  With the crop having a bit more time to recover, some of the more dire scenarios could be avoided.  Otherwise, markets continue to react to Tuesday’s WASDE report which we viewed as a yawn in general.  The WASDE board made the necessary changes to South American crops, but didn’t grab headlines in the process.  USDA is taking a stair-step approach to crop estimates in the southern hemisphere, which shouldn’t move markets.  US balance sheet updates were negative for wheat, but mainly supportive for corn and soybeans as the cuts to residual demand were not as large as March 1 stocks would have implied.

The last two days have featured daily sales announcements of soybeans booked to Argentina, which has caught the market and traders off-guard.  When the third largest soybean exporter is booking soybean cargoes from the second largest soybean exporter, it is definitely noteworthy.  The last two days have seen purchases of 120,000MT each, totaling 240,000MT.  These would be the largest purchases/shipments since 1997/98, if they are in fact shipped.  They were bought for the 18/19 marketing year, so technically wouldn’t ship until after September 1st.  Some are looking at the purchases as a cheap insurance policy should their crop continue to get smaller, and if China continues to try and source all of her needs from Brazil and taps their excess capacity.  It is likely Argentina will have to import 1MMT+ of soybeans from Paraguay as well, but when one considers 1.24MMT of imports from Paraguay and the US against crop production cuts of 16-20MMT from last year, these imports really don’t move the needle.  More than anything, the production cuts should ensure solid crush margins and meal export inquiries well into 2019.  Export sales of soybeans for old/new combined should be large on today’s report.

Traders continue to pay attention to planting delays to various wheat producers with the Northern Plains delays well documented.  However, Ukraine and Russia are also seeing delays with the Ukrainian spring campaign of wheat and barley estimated at only 6% complete vs. 87% at this time a year ago.  In addition, only 62% of the winter grains have had fertilizer applied vs. 99% a year ago.  Conditions continue to be reported as good, but the delays to the spring sowing and fertilizer applications bear watching with the cold forecast still in place.  Having said that, Russian new crop offers remain glued to the $200/MT FOB level, inverted by $11/MT from spot offers.  Despite crop prospects being 5-15MMT smaller than 17/18, cash sources suggest Black Sea producers and exporters will be willing sellers at that $200/MT FOB level, capping global wheat offers.  The drastic selloff in the Russian Ruble is complicating matters slightly as producers hold wheat for the time being, but unless something dramatic happens to the Russian wheat crop, they will continue to be the global benchmark and keep a lid on physical wheat prices running too far.  Compare Russian offers being inverted by $11/MT from May to July while US-HRW offers feature a $4-7/MT carry from May-Jul/Aug.  One can see what the priority is for exporters of both countries.

Data yesterday included weekly ethanol production which was down 4,000bbls/day to 1.034 million bbls per day.  Despite production easing the last couple of weeks, the seasonal decline last year was much more severe, meaning this year’s production is clearing last year’s by 3-5%.  The 1.034 million bbls level is right where we need to be to hit the USDA’s ethanol production forecast.  Ethanol stocks posted a solid decline of 579,000bbls to 21.846 million bbls, and are now the lowest since December.  Stocks are still decent from a historical perspective, but the decline over the last four weeks has measured 102 million gallons, a 10% decline from mid-March.  This is the largest decline over a four week stretch on record, and comes despite generally poor weather which would not imply heavy gasoline use.  This could mean ethanol exports are maintaining a solid foot hold following the record ethanol exports set during the month of February.  Brazil’s sugar cane harvest has begun, which has been pressuring domestic ethanol prices.  One would think this would put an end to their heavy ethanol imports of the last several months, but only the official Census Bureau exports will tell us that next month.

With the April WASDE behind us, and USDA adopting a 115MMT production number for Brazil and a 40MMT number for Argentina, the focus is definitely shifting back to US new crop prospects.  With the delays in the Northern Plains, it looks all but certain we will see a meaningful jump in planted acreage on the June report for soybeans.  Even if one uses the March 29th soy acreage of 88.982 million, with a trend line yield of 49.1bpa, we come up with a carryout of 523mbu vs. 553mbu in 17/18.  Our carryout forecast is assuming new record demand by 4.0% over 2016/17’s record, with crush eclipsing 2.0bbu for the first time ever.  If acreage moves to 90.0 million, carryout rises to 572mbu, while 91.0 million acres would give us 621mbu of carryout.  The chart below shows these various ending stocks/stocks-use scenarios based on different planted acreage ideas.  One has to take an objective look at current conditions in the US, price ratios and farmer attitudes to decide what a more likely planted acreage mix is.  If we increase soybean planted acres, supplies would appear to be plentiful.  The focus has shifted from South America to the US, and one has to ask how bullish that is?



Bottom Line: All of our markets are feeling a bit tired at the moment, although until producers can hit the fields, believe selling pressure will remain muted.  Forecasts do not look good for getting the crop in at a normal pace, but the US farmer has shown time and again how quickly he can plant if given the opportunity.  Depending on what one is using for planted acres, there isn’t a lot of margin for error in the corn balance sheet, while soybeans have some built in buffer.  Export sales will be of interest this morning, although shipment pace continues to be the real focus.



Good Luck Today.


Tregg Cronin

Market Analyst






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