7/3/2018 Morning Comments

Good Morning,

 

Chinese economic fears continue to be center stage as the Chinese currency suffered one if its largest intraday falls on record.  The onshore Yuan fell 0.8% in early trade, the fourth largest intraday drop on record, and comes after a 3.3% drop during the month of June.  The Yuan is falling against most currencies, however, which is different than previous drops which saw the Yuan fall mainly against the US Dollar.  Regardless of why, the globe’s largest consumer of raw materials seeing inflationary pressure and troubling economic data is not good for the global economy.  The Bloomberg Commodity Index closed yesterday at the lowest level since early February.

Large storms moving across North Dakota and Minnesota this morning, providing finishing rains to the hard red spring wheat crop, but undoubtedly adding to flooding concerns in S-Minnesota.  Now that the calendar has flipped to July, full-month June precip can be assessed and it was certainly one of the wettest across the corn belt on record.  Every state, with the exception of a hole here and there, in the corn belt saw above normal precip during June.  Only eastern Kansas, Missouri and Michigan saw less than 100% of normal precip during the month.  All of Iowa, Nebraska, The Dakotas except for Northeast SD, Minnesota, Wisconsin, Illinois, Indiana and Ohio saw 125-200% of normal precip.  The Northern Plains/WCB will remain active the next 48-72 hours as will Nebraska, but Iowa should be a bit drier the next week.  The ECB will also see light chances with 7-day totals around 0.50-0.75”.  The heat stays in place the next 14-days with above normal temps throughout.  According to the GFS, below normal precip will also be the feature through July 16th.  With the heavy accumulation of GDU’s so far this growing season, pollination should be occurring for the bulk of the corn belt by the 20th of July.

 

Mostly firmer prices overnight led by wheat markets as they begin Tuesday much like they began Monday with bulls hoping for a different result.  Wheat prices sported early season gains yesterday, only to relinquish them by the close with 15-20c losses as a broader commodity selloff saw grains close sharply lower.  The wheat market continues to give off signs a bottom might be closer at-hand than previously thought, especially after data provided Friday outside of the USDA.  The actual US wheat market fundamentals are not all that supportive at the moment with growing winter wheat production, much larger planted acreage in spring wheat than previously thought, and a slow start to the export program.  Yet, there are reasons to be optimistic in 2018 if crop production ideas in Russia, Ukraine, France/Germany and Australia don’t rebound from some of the whisper numbers being floated.  It would appear, major exporter ending stocks could be in such a position global importers will have little choice but to turn to the US for additional bushels.  US wheat has closed the gap with both Paris futures and EU cash offers, but Russian offers remain at a meaningful discount and it has to be Russian offers to lead us higher.

Yesterday’s crop progress report showed corn condition scores sliding 1pt to 76% G/E vs. 68% last year.  Largest declines were witnessed in SD (-5), IA (-3), WI (-3) and OH (-3) while TX saw a surprisingly large 11pt drop to 30% G/E.  In the state report, it said conditions in Texas were being affected by a lack of water with corn ear development being affected, while harvest was beginning in areas of south Texas.  The overall condition score is now tied with 2014 as the highest since 1999.  17% of the corn crop is silked nationally vs. 5% last week and 8% average.  This remains our concern with the US corn crop as Growing Degree Units continue to be accumulated at a break-neck pace, pushing this crop toward pollination across nearly the entire belt at a pace rarely seen.  As one will notice from the map below, the majority of the corn belt is above the 1135 GDU’s threshold needed to produce tassels.  Silking occurs at 1660 GDU’s, while it takes 1925 GDU’s to enter the R4 stage, or the dough stage.  Physiological maturity occurs at 2700 GDU’s and what is known as “black layer,” or when the crop is safe from a premature end to the growing season.  Many parts of IA, NE, IL, IN and OH are already halfway through the needed GDU’s to hit maturity, which of course leaves less time to deal the crushing blow to yield potential.  That said, areas laboring under excessive water seeing yield determining phases clip by without the ability to recover.

Soybean conditions declined 2pts to 71% G/E vs. 64% G/E a year ago.  The soybean crop as a whole is still rated as the second highest since 1999 behind 2014.  27% of the soybean crop is blooming vs. 12% last week and 13% average.  Spring wheat conditions were unchanged at 77% G/E with a sharp decline seen in SD of 5pts.  South Dakota endured two terrible hail storms over the last week, completely wiping out corn and wheat crops in the Onida and Pierre area.  Ten’s of thousands of acres were destroyed, which could have been part of the decline.  Conditions in areas which were not affected continue to look excellent.  The HRS crop is the highest rated for this week since 2010.  Winter wheat conditions were unchanged at 37% G/E vs. 48% G/E last year. Harvest was estimated at 51% nationally vs. 41% last week and 49% average.  Kansas is 71% harvested vs. 63% average.

Other data yesterday included Brazilian corn harvest data which showed progress behind last year and average.  10% of the safrinha corn crop has been harvested vs. 5% last week, 16% last year and 15% average.  Once harvest is further along, report should paint a better picture of whether this crop is actually sub-80MMT like some in the trade are suggesting.

Also released yesterday were export inspections which continue to impress on the row crop side.  Wheat inspections totaled 11.9mbu vs. the 18.0mbu needed weekly to hit the USDA forecast.  Total inspections for the 18/19 marketing year measure 54.5mbu vs. 103.2mbu at this time last year.  The 47% y/y decline is obviously off pace and not the start analysts would like to see.  Corn inspections totaled 60.5mbu vs. the 43.3mbu needed weekly to hit the USDA forecast.  Total inspections of 1.801bbu are down 6.1% from a year ago, although show no sign of coming up short if the current pace is maintained.  Soybean inspections were probably the most surprising at 31.2mbu vs. the 20.5mbu needed weekly to hit the USDA forecast.  Total inspections of 1.825bbu are down 5.5% from a year ago but making up ground swiftly.  It is ironic to see the drop-in soybean futures prices, but yet export sales and shipments over the last month have been stronger than a year ago, and both NOPA and Census crush are setting new records on a monthly basis.  Do you think we’ve maybe overdone it on the downside?

Futures markets today will feature an early close with CBOT markets closing at noon.  Trade will re-open Thursday morning.

 

Bottom Line: Beginning to see some encouraging signs in global wheat markets, and there are too many analysts already marking a 179-180 national corn yield in pen for our liking.  Where weather has been good, it has been great but where it has not yields will struggle to reach trend in our opinion.  Lots of areas in high yielding counties of Iowa and Minnesota will see flooding losses be significant.  In addition, this crop is being pushed very quickly which is manageable if the rains continue to fall.  Without enough water, the extreme pace of development could become an issue.

 

Good Luck Today.

Tregg Cronin

Market Analyst

Tregg.Cronin@halocommodities.com

www.halocommodities.com

@5thWave_tcronin

 

 

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