11/2/2018 Morning Commitments

Good Morning,


A tweet yesterday and overnight chatter have global equities rallying and currencies trying to price in varying outcomes.  After President Trump announced on Twitter he and China’s President Xi had a very good phone conversation yesterday, reports from Bloomberg overnight suggest the president has ordered his cabinet to draft a possible trade proposal and cease fire in the trade war for potential signing at the G20 Summit in Argentina at the end of the month.  The Chinese Yuan rallied sharply, trading to 6.90 this morning the strongest trade in two weeks.  Equity markets from Beijing to London are also rallying sharply.  As is always the case, the devil will be in the details as to whether any potential trade deal rights the wrongs the current Administration has accused China of, or whether this is just a cease fire without anything changing from the pre-trade war environment.  In our opinion, the only way China agrees to major concessions about intellectual property theft and various other trade sticking points is if they are truly feeling the heat economically.  Otherwise, President Xi does not seem like the type who will take the risk of appearing to concede the upper hand.

Scattered showers across the central Midwest this morning ahead of an active weekend in the western corn belt and Northern Plains.  The next 24-72 hours will bring winter-weather to the Northern Plains which will slowly build into more widespread precip across the central/eastern corn belt.  Totals are impressive off this morning’s GFS model with 0.25-0.50” for the Northern Plains and 0.50-2.50” across the central/eastern corn belt.  The Mid-South will also be active.  More than the precip, the temps are turning colder without any real relief in sight.  Below normal temps are ushered in this weekend with expectations they hang around at least the next 15-days.  Above normal precip will be with us until the 6-10 while more below normal precip works in during the 8-14 day.


What a difference a day makes.  After early week moves, disappointing data and very little reason for optimism, President Trump turned the soybean market on its ear with a tweet and an order to his cabinet to draft a trade-deal proposal with China.  Details are incredibly lacking, and absolutely nothing is concrete at this point, other than a meeting between the two leaders at the end of the month.  Confirmation will need to come in the way of Chinese purchases, a bid for soybeans off the PNW or sharply weaker Brazilian FOB basis.  The sneaky thing to remember here is we’ve already lost the month of October, and we aren’t likely to see exports to China ramp up this month either until a trade deal is done.  October and November are the two most important months to the soybean export program.  By December/January, South America will be in charge and the US will only be used for stop-gap purchases.  That will leave us to supply the rest of the world Jan-Jun, which will result in demand, just not the sort of demand China can provide.  Therefore, bulls need to be very careful about getting out over their skis, as the rug can be quickly pulled out from underneath as we’ve seen all too often with this Administration.  Open interest changes on the rally yesterday saw corn up 11,720, soybeans down 1,806 contracts, meal down 5,103, oil up 5,265, SRW down 7,995 contracts and HRW down 3,073.

There really isn’t much else to say on the soybean front as there is more we don’t know than that which we do.  Therefore, we will stick to the data we did get.  Export sales were solid for wheat and terrible for corn and soybeans.  All wheat sales were 21.4mbu vs. the 17.2mbu needed weekly and the highest sales total in 6-weeks.  This is the sort of tonnage we need to be doing on a consistent basis to achieve the USDA’s lofty export goal.  Total commitments of 481.5mbu are down 16% from a year ago vs. the USDA calling for a 13% increase.  Total commitments remain at a 4-year low, and commitments as a percent of the USDA’s forecast at 46.97% is the lowest on record.  We need to sell 17.5mbu per week, every week, through the end of May which would be the largest program since 2010 and second largest since 2003.  Corn sales totaled 15.5mbu vs. the 36.5mbu needed weekly, marking the third straight week we failed to do the needed tonnage.  Total commitments of 859.5mbu are up 28% from a year ago, and are the second largest since 2007.  Soybean sales were bad at 14.5mbu vs. the 29.8mbu needed weekly.  This was the fourth week in a row to miss the needed level.  Total commitments are down 29% from a year ago, while the USDA is still only calling for a 3% decline y/y.  Total commitments of 788.1mbu are the lowest since 2011, while the commitments as a percent of forecast at 38.2% are the lowest since 2005.  Lots of work left to do.

Wanted to note sorghum exports separately as they’re bad enough to warrant their own paragraph.  The commodity which should react most favorably to a potential trade deal would be sorghum as it has been hit even harder than soybean exports.  Export sales last week for sorghum were just 12,080MT, or 532,486 bushels.  This was the weakest for this week of the calendar since the 2012 drought.    Total export commitments of 9.898mbu are the lowest on record by a huge margin with the second lowest total in 2011 at 23.2mbu, or over double.  We’ve sold just 6.6% of the USDA’s forecast with 10-months left to go.  The chart below puts this year’s sorghum campaign in perspective.

Other data released yesterday included the September Oilseed and Grain Crushing report which showed soy crush at 169.3mbu vs. expectations for 171.0mbu and August crush of 169.6mbu.  While below expectations, Sept crush was sharply above last year’s September total of 145.4mbu and blew away the previous record of 147.3mbu set in September 2007.  Every month from October 2017 through September 2018 has set a monthly record for oilseed crushing.  On the ethanol side, USDA reported 449.3mbu of corn was used for ethanol production during September, slightly above last year’s 445.5mbu and 483.4mbu in August.  USDA also reported 6.3mbu of sorghum used for ethanol production which was little changed from August and slightly above last year’s total.  Should be more sorghum getting crushed for ethanol based on how terrible sorghum exports are as mentioned above.

One other note on the potential trade deal, if we are looking for signs this story might be real, the Dalian markets might be giving it to us.  Dalian soybeans and meal futures were sharply lower overnight with the former off 2.3% and the latter off 3.55%.  On a continuous basis, Dalian soybeans fell to their lowest level since early 2016.  Meal sold off even worse, dropping to the lowest level since August.  It would appear Chinese traders are at least entertaining the idea of more available supply in the weeks and months ahead.  Otherwise, FC Stone was out with their latest yield guesses, increasing their corn yield to 181.4 vs. USDA at 180.7 while beans were 53.2 vs. USDA at 53.1.  Russia’s safety watchdog was reportedly going to halt operations at five inland grain loading facilities.  No details were given, but this could be a tactic to slow grain exports “naturally.”  LDC stopped 287 November soybean certs overnight with over 600 being redelivered.


Bottom Line:  All about China, Trump and soybeans today.  The market is going to want confirmation of something in coming days/weeks, or else this premium will be difficult to maintain.  A rising tide lifts all boats, so wheat and corn will trade higher in sympathy, but just like soybeans fell the hardest, they too should rally the hardest.  In other words, don’t buy your soybeans in the wheat and corn pits, and farmers should also not have rose-colored lenses on in regards to this trade deal.  We have a massive oversupply of soybeans in this country, with or without a trade deal.  A couple tweets does not mean $10 is the next stop for soybeans.  Have orders in for old crop.  Have orders in for new crop.  Have realistic basis targets in mind for pricing DP and HTA’s.  Don’t use the rally as an excuse to do even less marketing than what has been done to-date.


Good Luck Today.

Tregg Cronin

Market Analyst






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