1/9/2019 Morning Comments

Good Morning,


Trade negotiations between the US and China re progressing smoothly with media outlets reporting the discussions have been extended into an unplanned third day.  The news was accompanied by a tweet from the President which read trade talks were “going very well.”  China seems more eager to reach a trade deal as economic data as of late has confirmed the world’s second largest economy is slowing.  US job growth remains strong, but key gauges of manufacturing and service activity both missed expectations last month.  What remains to be seen is how China addresses the issues of intellectual property theft and forced transfer of technology in Chinese companies.  Until those two issues are addressed, everything else is just window dressing which will go back to how things were before.

More rain in Argentina the last couple days and additional rainfall this week in Argentina as localized flooding in the northeast becomes a concern.  Temperatures are seen average to below for the next 7-10 days, so other than some localized flooding, Argentina continues to be in very good shape.  Brazil is much more subjective.  Dryness remains a concern in southern and eastern growing regions while elsewhere conditions seem favorable.  The 6-10 day outlook this morning is currently putting 0.50-1.50” in most of the growing regions, which is an improvement for MGDS, Sao Paulo and Goias.  Only Minas Gerais and the eastern 1/3 of Goais look to see totals of less than 0.50” with worsening dryness in those states.  Minas Gerais accounts for around 5% of total soybean production while Goias consists of around 12% of total production.


Higher prices across the Ag room this morning as trade optimism reigns supreme.  The market has been feasting on a steady diet of rumors for the last week to ten days, but with media outlets reporting the trade talks are progressing well, it seems like there may be some teeth to some of these rumors.  If China does come in a purchase some of the rumored totals (5-8MMT of corn, 6MMT of wheat, 5-8MMT of soybeans), flat price would have no choice but to rally, especially wheat as there is no Chinese demand penciled into trade grids at this time.  Until that happens, however, we need to treat these rumors with a grain of salt until cash markets begin to appreciate.  Spread activity is certainly not suggesting any extraordinary demand.  Corn prices are getting into territory which have found selling pressure in the past, and it feels like there is a fair amount for sale above $3.85.  Each day closer to February gets us one day closer to spring crop insurance pricing.  As we discussed yesterday, we do not believe there will be near the shift in acreage away from soybeans if prices remain near current levels and near current differentials with other crops.  Open interest changes yesterday included corn up 8,922 contracts, soybeans up 10,264 contracts, meal up 4,809, oil up 4,152 contracts, SRW down 4,261 and HRW up 1,769 contracts.

Lots of wheat business around this week, so no wonder that market has had good support underneath it.  Algeria bought wheat below replacement costs yesterday at around $260-262/MT C&F but origins and exact tonnages were not available.  US-HRW should have been competitive, or at least competitive enough to keep a foot in the door until shipment time when origin actually gets assigned.  Egypt’ GASC is tendering overnight with offers coming mainly from France, U.S. and Argentina.  No Russian offers were listed as most remain out for Orthodox Christmas.  If US-HRW was able to sneak out a few cargoes here, that would be a victory.  Traders didn’t think SRW would be offered as quality and hitting specs becomes an issue.  This is part of the reason why US-SRW to China in the tonnages spoken doesn’t fit as finding that amount of SRW to meet stringent Chinese specs would be difficult.  China could have all the HRS and HRW they want, but finding 3MMT of SRW and SWW would be a challenge.  Also on China, there is some concern about hitting China’s ergot spec on HRS with the ergot conditions across North Dakota this year.  China’s ergot tolerance is 0.01% while milling specs in the U.S. are 0.05%.  Still think it is doable if the price is right.  Minneapolis spot floor values shot higher for 15.0% protein yesterday with the bid side up 70c to +150H.  The cars were said to be good west coast spreaders, so will wait for more volume to get excited.

Elsewhere in wheat, we got deliverable stocks reports yesterday, one of the only data sets we are still receiving.  Chicago area wheat deliverable stocks fell 838,000 bushels on the week to 68.788mbu which compares with 85.929mbu a year ago.  Our attention was brought to the Chicago-specific wheat stocks which fell to 7.898mbu last week compared with 10.059mbu a year ago and would be the lowest stocks in Chicago proper since at least 2009/10.  By the end of the marketing year, assuming calendar spreads remain relatively tight and encouraging movement, stocks could be at some historically low levels.  KCBT stocks fell 967,000 bushels to 112.766mbu, but are still 693,000 bushels larger than a year ago.  Minneapolis/Duluth stocks rose 578,000 bushels last week to 16.411mbu, the third straight week of increases but remain well below the 22.026mbu from a year ago.  To begin the year, deliverable supplies are the lowest since 2012.

We remain impressed by the delivery activity in soybeans this cycle.  Overnight, there were another 1,142 contracts delivered which brings the month-to-date total to 7,454 contracts.  This is now over 37 million bushels which have been delivered against the January, marking one of the largest delivery cycles in recent memory.  If the demand were surging at the Gulf, which would in-turn support cash basis, we wouldn’t be seeing this heavy of delivery activity.  The fact no strong commercial stopper has surfaced whatsoever isn’t a good sign for cash moving forward.  Calendar spreads remain near 75% of full financial carry through July, so again, no call to action for bulls from a physical standpoint.


Bottom Line: We will get weekly ethanol production out later this morning, but that is likely to continue the recent slowdown due to poor margins.  Corn needs to be careful at current prices and higher as there is plenty of farmer corn for sale and domestic demand remains less than stellar.  Exports have been the bright spot, and are still well ahead of the pace needed, but South American competition will be much stronger April-August this year.  We need some confirmation of the Chinese buying rumors, but until the government reopens, not sure how that is going to happen.  Basis remains volatile across the Midwest, and producers need to be paying attention to both basis and futures, not just flat price.  Most contracts are in the middle of well-established ranges making the next move somewhat of a coin flip.


Good Luck Today.

Tregg Cronin

Market Analyst






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