6/12/2018 Morning Comments

Good Morning,


Rain around the Midwest this morning with a system in SE-KS/NE-OK/W-MO, a separate system in IL and rain across parts of ND.  Much of Missouri remains the last spot waiting for needed rainfall while most of the corn belt has received beneficial moisture in the last 7-days.  Temperatures cool today and tomorrow across a majority of the Midwest with most places in the Northern Plains seeing highs in the low-70’s, while IA/IL/IN see highs in the low-80’s.  Heat returns for the weekend with widespread 90’s for highs in the central belt.  The 7-day forecasted precip map has a lot of rain in the Northern Plains, but less for much of IA and the ECB.  Follow up rains once the heat returns will be key as corn inches closer to pollination in July.  Temps will be above normal during the 6-15, while precip is above normal in the first half of the period for the entire Midwest while the Northern Plains slips below in the 8-14.


Rebounding today ahead of the June WASDE following weaker prices yesterday as traders tabulated rainfall totals from around the corn belt.  Expanding wheat harvest in Kansas added pressure as well, although debate is lively on whether USDA should raise or cut their winter wheat production forecast later today.  Oklahoma is being described as pretty close to USDA’s current guess, although protein and test weight are much better than the last two years.  Nearly all of Kansas’ wheat crop is left to harvest, so no strong opinion should exist either way.  Based on rainfall over the last 14-days, we feel Kansas wheat production got larger than the May estimate, not smaller.  Weather remains mostly favorable across the corn belt, although private forecasters continue to warn of heat returning next week and hit-or-miss showers.  The liquidation we’ve seen the last week has been impressive, and the funds pared their exposure accordingly.  However, it is difficult to believe we’ve seen the last of market volatility with the entire pollination phase left and more than two weeks until the pivotal July 4th forecasts.  End users have been covering their summer and fall needs on the break, indicating real value at current prices, but also signaling there won’t be panic buying from the user if prices begin to move higher on weather.  It will require renewed buying from the managed fund community in our opinion.

Crop progress yesterday afternoon with everything pretty well in-line with where most thought we would be.  The one surprise across the board was South Dakota, mainly because it is our backyard and because some of the best rainfall of the spring/summer fell Sunday/Monday.  G/E ratings in SD fell 7pts w/w to 63% G/E which compares with 45% G/E a year ago.  We think this responds bigly by next week given rain in the driest parts of the state yesterday.  National ratings fell 1pt to 77% G/E, mainly due to declines in SD and a big drop in MO (-11).  Missouri is battling dryness in the northern part of the state after struggling to plant a month ago.  The national condition score this week was 390 which is tied with 2010 for the highest rating since 2007.  This year would also be the second highest since 1991 and compares to the 10-yr average of 374.  Emergence is 94% complete vs. 92% average.  Soybean conditions also fell a point to 74% G/E vs. 66% a year ago.  SD and MO led declines here also.  Winter wheat conditions improved 1pt to 38% G/E vs. 50% G/E a year ago.  Improvements sere seen in NE/SD/MT as well as most SRW states.  Harvest was pegged at 14% complete vs. 10% average with KS at 2% harvested vs. 2% average.

Spring wheat conditions were unchanged on the week at 70% G/E and vs. 45% G/E a year ago, although SD saw a huge drop in conditions of 15pts to 43% G/E vs. 13% G/E a year ago.  Here again, we think this was a bit of an over-reaction, and should improve on next week’s report.  Spring wheat prospects for much of SD remain solid, and 7-day forecast maps have rain chances around for the bulk of the belt.  The national spring wheat condition score this week was 375 vs. 325 last year and 373 on the 10-yr average.  Spring wheat emergence was pegged at 94% complete vs. 89% average, a far cry from what the delays on May 1st would have implied.

Export inspections also released yesterday showing all-wheat inspections at 13.6mbu vs. the 17.3mbu needed each week during the 18/19 marketing year to hit the USDA forecast.  Starting off the new marketing year in similar fashion to the way we ended the last one: disappointing.  Serious doubts exist about the 2018/19 all-wheat export forecast as the current export book is the smallest since the 2008/09 marketing year.  Having said that, much will depend on the finish to the Black Sea growing season as further production cuts there will almost surely force importers to come to the US during Q3-Q4 of the marketing year to cover some needs.  Stay tuned.  Corn inspections totaled 55.5mbu vs. the 42.0mbu needed weekly to hit USDA’s forecast.  Total inspections measure 1.612bbu vs. 1.787bbu a year ago.  USDA will most likely raise their export forecast by 25-50mbu later this morning.  Soybean inspections total 23.7mbu vs. the 22.2mbu needed weekly.  Total inspections of 1.743bbu are down 8.1% from a year ago vs. USDA calling for a 5.0% decline.  We feel USDA’s current soybean export forecast is appropriate at the moment.

The attention getters today will first be the CONAB estimate of Brazilian corn production early this morning.  Would say the trade is looking for something around 80-82MMT vs. 89.2MMT last month.  Anything south of that range would be considered bullish and anything north of that is probably a little pressuring.  Along those same lines, traders are also expecting reductions to the Russian corn crop and possibly the Ukrainian crop as well.  USDA has Russia pegged for record production of 19MMT and record exports of 7.500MMT, both of which could see a reduction this month.  Ukraine is seen producing the second largest corn crop on record with exports a new record of 24MMT.  Russian wheat production will also receive plenty of scrutiny as private analysts have begun pulling estimates below 70MMT.  We think anything 70-72MMT is already priced in, but a number sub-70MMT will be received bullishly by the trade.  We think it is important to recognize Russia can see production of 70MMT and still export close to current USDA ideas but would have to be willing to further draw down stocks from last year’s sizable draw down.  Complicating the matter is where these carryover stocks are located with the bulk sitting in the interior with difficult access to port.  Black Sea futures and cash should tell the tale, and so far, are not indicating huge cuts are forthcoming.

A couple tidbits worth sharing.  Chicago wheat hasn’t witnessed a positive price reaction following the June WASDE since 2010, averaging a 12c loss over that time frame.  Basis levels in Oklahoma and S-Kansas are on fire as of late with elevators continuing to pay protein premiums for the first time in history to secure bushels into storage and attain higher protein to blend with the last two years’ worth of low protein stocks.  Basis at several country elevators in Kansas has rallied 50c since the beginning of May, and +10/20KWN is not uncommon for wheat off the combine.  Higher protein grades on the KCBT spot floor have collapsed over the last 2-3 weeks with the higher protein being harvested, and elevators now appear to be paying for something they can’t sell.  Spring wheat calendar spreads remain incredibly weak, keeping it difficult to call for a bottom in the Minneapolis board.  The entire curve is sitting at contract lows as old crop gets hocked and new crop sales pickup.  If the current forecast holds, the higher protein stocks from last year’s drought-reduced crop could become more valuable.  Keep an eye on protein spreads.


Bottom Line: Charts look tough, and unlikely USDA is going to throw any giant curveballs at the market later this morning.  This market is all about weather, and weather the last 10-14 days has been beneficial.  The next 10-14 days are arguably more important, and there remain some concerns about heat.  The NW-Flow pattern in place will continue to provide moisture, but in sporadic fashion with some dry spots surfacing.  At $3.92 December corn, we feel the market is discounting a higher yield than USDA’s 174bpa.  It might be too early to anoint a record yield, but that’s what it feels like the market is trying to price in.  Funds have much more room to buy than they did two weeks ago should they be given a reason.


Good Luck Today.

Tregg Cronin

Market Analyst






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