1/25/2019 Morning Comments

Good Morning,

The focus in the United States for weather is definitely the current cold snap as well as the one scheduled for midweek next week.  The thrust of the cold will come Tuesday night into Wednesday morning with overnight lows dipping down as low as -22 to -25 below zero in Minnesota and North Dakota while large sections of Iowa will be as low as -12.  The below zero temps extend east into Illinois, Indiana and Ohio.  SRW areas will be the chief concern with snow cover this morning looking light to non-existent in MO, S-IL, IN and parts of OH.  Kansas and Oklahoma are also light on snow cover but temps in those states look to remain above zero and in some cases in the teens.  There will be some moisture in the SRW belt ahead of the cold which could mitigate some or the risks.  Winterkill and freeze damage is always difficult to assess until spring but it is worth keeping an eye on given lower acreage ideas.

Mixed to weaker markets this morning with only corn able to muster any strength.  The reversal in wheat yesterday left blemishes on many charts as several contracts made new highs for the move and hit the highest level since mid-December.  There wasn’t any specific news that we could find as it felt as though the trade is simply tired of rumors and wants facts.  We are unlikely to see any facts or confirmations until the USDA reopens, which doesn’t appear to be anytime soon.  As we’ve made note of, volatility is declining amid the lack of data and capital flight with March corn volatility yesterday settled at 13.56% vs. 15.36% a week earlier.  ATM straddles for March are suggesting futures remain in recent ranges for the next 30-days, so buckle up for a wild and crazy February.  Spring crop insurance pricing will begin next week and December corn at $4.00, November soybeans at $9.55 and September Minneapolis at $5.92 don’t seem to be fighting for acreage in any particular fashion.  There will be less soybean acres simply from attitudes this past season but the swing shouldn’t be as large as originally feared.  Unless spring wheat acres are down from last year, we think we it will be too many and Minneapolis should tighten its spread with Kansas City.  Open interest changes yesterday saw corn up 16,335 contracts, soybeans up 557 contracts, meal down 241 contracts, oil up 252, SRW up 1,629 contracts and HRW down 440.

Overnight saw a host of official Chinese data on December and full-year 2018 imports and exports.  Several are worth noting.  January-December corn imports were 3.521MMT, up 4,036% from 2017 as imports from Ukraine increased.  Despite gigantic perceived stocks, China still has a need for feed grain imports both from a quality standpoint and a logistical standpoint.  Soybean imports in December were 5.720MMT, down 40% from a year earlier while Jan-Dec imports of 88.029MMT were down 7.8%.  That is a tough pill to swallow as the great bull run in Chinese soybean demand is finally over thanks to a combination of trade war and African Swine Fever.  Only a few years ago, economists and analysts were projecting a parabolic trendline for Chinese soybean imports which could never be satisfied.  The global soybean balance sheet needs China to get back on track in 2019.  Wheat imports in December were 217,513MT, up 20% from a year earlier while Jan-Dec imports were 2.876MMT, down 33%.  Crude oil imports were up 10% in 2018, natural gas imports were up 76% in 2018 and Jan-Dec coal imports were down 95% on the year.

We saw weekly ethanol production yesterday which is one of the only data sets we still get.  Production fell 20,000bbls/day to 1.031 million bbls/day, missing the level needed to achieve the USDA forecast for the seventh straight week.  Weekly ethanol production has missed the level needed in nine out of the last ten weeks.  Looking at year-to-date production, it is likely full year ethanol demand for corn is down 50mbu from the latest USDA estimate in December.  Run-rates have been slow because of poor profitability, and import/export data of ethanol is not available due to the government shutdown.  Ethanol stocks were up 150,000bbls despite production being down.  Total stocks of 23.501 million did slip below year ago levels, but remain especially large from a seasonal perspective.  Seasonally, stocks tend to build into March, and if that holds true this year could see stocks at record large levels for the foreseeable future.  The ethanol/corn spread (ethanol multiplied by 2.85 minus the price of corn) remains in negative territory, indicating ethanol is not covering the purchase price of corn.  Until this spread turns around, it is difficult to envision ethanol production returning to record run-rates.

Parana’s state ag agency released an updated estimate of soybean production, cutting the number to 16.8MMT from 19.1MMT in December while CONAB’s last estimate of Brazilian production had Parana at 19.2MMT.  This is helping full Brazil estimates close in on 115MMT.  In our opinion, a 115MMT production number is not an immediate call to action for bulls as Argentina production is still expected to be up 18MMT from a year earlier.  Paraguay production is seen unchanged from a year ago, so the three-country region should still be up at least 10MMT if Argentina doesn’t get any larger and Brazil is indeed a 115MMT type-affair.  Combine this with the fact Chinese imports of soybeans fell in 2018, and should remain weak to begin 2019, and there would appear to be more than enough soybeans in South American and the world.  So it begs the question, do soybeans need to do much more to the upside unless production is trimmed a good deal more?

Bottom Line:  Another session which feels like prices will go nowhere.  Because of the government shutdown, it feels as though we are stuck between Thanksgiving and Christmas when volumes and volatility dry up.  Trade war headlines remain the largest driver, even more so than South American production.  Unless a searing drought takes hold in February, would appear South America will have adequate production of corn and soybeans this year.  Lots of grain left on farm and unpriced at the elevator which will blunt rally attempts.

Good Luck Today.

Tregg Cronin

Market Analyst



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