6/11/2018 Morning Comments

Good Morning,


A wet weekend and additional rain fall this morning for many across the corn belt and Northern Plains.  Last week, there were major divergences between the GFS and the European weather model with the former calling for widespread rains and cooling temps while the latter was suggesting the rains would bust over the ECB with a continuation of heat.  It would appear the GFS “won,” and will keep weather Twitter especially chippy this week.  As noted, additional rains falling across South and North Dakota as well as W-MN, IA, IL and IN.  The 7-day accumulated precip map is shown below with many areas of the corn belt receiving rain.  The 2-week percent of normal precip map shows dry spots in north east South Dakota, although they are getting a nice rain this morning, with Missouri also dry and E-KS.  Dry spots in IA and W-IL should decline after the weekend.  A couple day dry out and cool down through Wednesday before the next shot at rain for Iowa in Wed/Thur with the Dakotas and most of MN seeing rain over the weekend to the tune of 0.50-0.75”.  Best shot to stay dry would appear to be Missouri.  Normal/above temps in the 6-15 day outlook while precip would also be normal/above.  Carry on.


A little firmer at the overnight open, especially for wheat markets, but all of the major Ag commodities are trading lower as we head toward the 7:00am hour.  As we discussed Friday, it is very difficult to fight an active radar in the middle of June when speculative funds were going into the growing season with heft amounts of length.  Everyone, and I mean everyone, knows about the constructive components to the 18/19 corn balance sheet but it only becomes bullish if yield dips below trend.  If the national corn yield outperforms trend which we’ve done several times the last 3-5 years, then carryout moves back toward 2.0bbu and higher prices will be difficult to sustain.  Can anyone claim the national average corn yield is above or below trend on June 11th?  Absolutely not, but we are off to one of the best starts in history and weather continues to look benign outside of Missouri.  Declining Russian wheat estimates, and now concern over Black Sea corn estimates, will remain supportive as should the CONAB estimate of Brazil’s corn production tomorrow morning.  Farmers have been standing pat on marketing as they await confirmation of a good start to the growing season.  That will change at some point rather soon and the natural seller will be back in the market.  Whether or not the large spec comes back in as the buyer remains to be seen.

Over the weekend, both SovEcon and IKAR updated their estimates for the Russian grain crop, slashing total production further below a year ago.  SovEcon cut their total grain crop estimate to 119.6MMT vs. 126.2MMT previously, cutting their wheat crop by 3.9MMT to 73.1MMT.  IKAR reduced their total grain estimate to 114.7MMT vs. 117MMT previously with wheat going from 73.5MMT to 71.5MMT.  USDA was 72MMT on the May WASDE but will be updating that number tomorrow.  Using the midpoint of these two on-the-ground estimates gives us 72.3MMT, essentially unchanged from USDA.  This wouldn’t change their carryout levels for 18/19, allowing the world’s largest wheat exporter to retain that title and ship 36.5MMT worth of wheat vs. 39.5MMT last year.  As the chart below shows, Russia would retain its top spot with 19.37% of all global wheat trade, down slightly from last year’s record 21.70%.  Nearly a third of all global wheat trade will be conducted with the Black Sea while the US and EU battle for second with close to 15% of global trade.  Unless the Russian wheat estimate moves meaningfully below 70MMT, I’m not sure there is enough of a story here for wheat to surge through the May highs.  Add in a vast improvement in the Northern Plains and Canadian Prairies from a year ago, and the bulls will be searching for additional feed.

Commitment of Trader data released Friday covered positions through June 5th, which would not have captured the additional down days on Wednesday and Thursday.  Managed funds sold 88,828 contracts of corn, cutting their net long nearly in half to +113,599 contracts.  Heading into the growing season, funds were carrying the fourth largest net long in corn for this time of year on record, which helps put the price decline since May 24th in perspective.  As we’ve written about before, Apr-July is the highest percentage of the calendar year for December corn to put in its highs, although May specifically is not.  Since 1990, December corn has notched its high for the year in May only one time and that was back in 2000.  We’ve put highs in April twice, highs in June four times and highs in July five times.  The four months have witnessed 43% of the highs since 1990, and about 50% of the highs since 2000.  Funds sold 34,799 contracts of soybeans to leave them net long 72,299 contracts.  Little change to wheat markets with funds buying 968 contracts of Chicago wheat to leave them net long 16,286 contracts while they added 3,894 contracts of KC wheat to put them net long 57,756 contracts.  Funds sold 3,989 contracts of Minneapolis wheat, leaving them almost flat at +840 contracts with the improving Northern Plains conditions.

This afternoon’s crop progress report is expected to show US corn ratings at 78-79% G/E vs. 78% last week and 73% average.  Soy expected around 75% G/E vs. 75% last week and 69% average.  HRS rating should be unchanged to up 1pt at 70% G/E vs. 45% last year and 69% average.  Analysts will continue to draw correlations between final yields and crop conditions, but as last year showed us, these need to be viewed with caution.



Bottom Line: Could be a quiet session as we await updated US and global balance sheets tomorrow.  Crop conditions should continue to reflect an above average start across the corn belt, and most forecasters are in agreement for mostly beneficial weather the next 10-15 days.  Based on historical performance, the corn market has about 3-4 weeks to make new highs before the music stops.  Producers need to have updated sales targets with realistic expectations for what is in the bin, in the field and attainable on the board.  Plenty of geopolitical/financial market risk on the table this week as well with the US/North Korea Summit and Federal Reserve meetings.


Good Luck Today.

Tregg Cronin

Market Analyst






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