1/28/2019 Morning Comments

Good Morning,

It’s China week and it’s also USDA re-open week.  The former will take place on January 30 and 31.  The latter we aren’t quite sure when it will happen.  The re-open wasn’t spelled out very clearly in a letter from USDA Chief Economist Robert Johansson on Friday, but he did say the February WASDE will be released as scheduled on February 8th.  Back-logged export data will begin to trickle out this week which could provide a good deal of volatility if a bunch of export sales are announced via the daily reporting system.  The reversal in volatility will be a welcome reprieve from the doldrums our markets have been trading in the last 3-4 weeks.  The February WASDE will also be released in conjunction with the delayed winter wheat seedings report and the Dec 1 Quarterly Stocks reports.  Will be quite the report day, especially as we will be closer to the March 1st stocks deadline than the December 1st one.

South American growing weather is more important to the global balance sheets at the moment, but the weather everyone will be talking about this week is certainly in the U.S. Midwest.  The coldest wind chill values since the mid-1990’s will grip the corn belt Wednesday and Thursday as the “feels like” numbers hit -50 and -60 below zero.  The obvious concerns will be livestock and to a lesser extent dormant winter wheat in the SRW and eastern HRW belts.  Logistics will also be a concern as farm-gate and rail movement grinds to a halt.  The cold snap breaks by the weekend, although below normal temps will still be the feature into the first week of February.  Precip will be above normal in the 6-10 and 8-14 day outlook, especially over the eastern corn belt.  The U.S. Drought Monitor continues to look exceptional as we have an eye toward spring.

Mixed markets this morning with grains firmer and soybeans weaker as traders gird their loins for battle this week.  As noted above, this week should be an interesting week of trade with more headline risk than we’ve had since before Christmas.  The Foreign Ag Service will be issuing export sales data, and if a bunch of back-logged data all comes at once, algorithmic traders could be thrown for a loop.  On the other end of the spectrum, if all the data is released, and the totals are disappointing in terms of what China actually bought, futures could react negatively.  One has to remember, we’ve been getting lip service about the millions of tons of corn, soybeans and wheat the Chinese have bought since Christmas.  If none of that actually took place outside of a few million tons of soybeans, will be difficult to justify these and higher prices.  South American crop production estimates seem to have stabilized with improving weather.  Unless February and March turn off problematic, it appears very likely South America will produce more than enough corn and soybeans to meet world demand.  The other big headline from the weekend was African Swine Fever being discovered in Mongolia.  Contrary to popular belief, they do eat more than beef there.  The virus either came in from smuggled Chinese hogs or wild board.  Regardless, ASF continues to spread as China can’t seem to contain the deadly virus.  This does not bode well for soybean and meal demand.  Open interest changes Friday saw corn down 8,025 contracts, soybeans down 3,706 contracts, meal up 3,452 contracts, oil down 616, SRW up 4,601 contracts and HRW down 203.

On Friday, we received Canadian export data for the month of December.  This data set is important to us given the lack of export data from the U.S. and also the ability to track at least in part Chinese demand for wheat.  August-December all-wheat exports totaled 9.470MMT vs. 8.168MMT a year ago, a 15% bump vs. the USDA calling for a bit more than a 9% jump.  Non-durum exports of 8.013MMT are up from 6.602MMT a year ago.  Wheat exports to China in December totaled 439,600MT, up from 153,400MT a year earlier.  Marketing-year-to-date exports to China of 991,700MT are up 138% from the same period a year ago.  This bodes well for China buying US-HRS if/when a trade deal is agreed upon on.  Despite massive inventories, China still needs at least some quality wheat for blending purposes.  Other large y/y increases for Canadian wheat exports included Indonesia up 38% from a year ago, Mexico up 14% and Peru up 20.  August-December canola exports totaled 4.357MMT, down slightly from last year’s 4.623MMT.  Barley exports of 994,100MT are up from last year’s 770,300MT.

Charts on Twitter this weekend showing domestic prices of Russian Milling Wheat hitting the highest levels since the summer of 2016.  These prices come despite the fact the Russian Ruble has actually been strengthening as of late relative to the U.S. Dollar.  This supports the notion the Russian Ag Minister plans to regulate interior prices of wheat via rail subsidies, keeping wheat away from export channels if need be.  One analyst implied that production could have possibly been overstating production the last few years as Russia produced record crop after record crop.  As domestic prices rally, it should continue to support export values taking Russian offers out of contention in MENA destinations.  Black Sea wheat futures are trading at the highest levels since 12/27 but we should see prices rally toward fall highs at $255-257/MT if Russia is truly scraping the bottom of the bins. 

A couple data points from Brazil over the weekend including IMEA reporting Mato Grosso soybean harvest progress at 25.6% complete vs. 9.7% average.  This supports the soybean loadings for January which were reported at 2.65MMT month-to-date, up 22% from 2018.  It is thought February loadings could set a new record north of 6MMT.  Last week, FOB offers showed Brazil and Argentine soybeans below US-Gulf offers.  This makes additional purchases from China without a guarantee attached to them via a trade deal problematic.  Why would China continue to buy U.S. soybeans at a premium to South American soybeans if they don’t have to?  The entire goal from the Chinese side of the table was to de-stock and take as few U.S. soybeans as possible until South American production came on-line.  Well, they accomplished that task, and reaching for U.S. soybeans now will just result in a larger food bill.  Despite this, soybeans have maintained their uptrend dating back to September with a distinct set of higher lows.  March soybeans specifically traded and closed above its 200-day moving average on Friday for the first time since June 7th.  A market which can’t go down probably has a reason for it.  Raises the bar for trade negotiations this week between the U.S. and China.

Bottom Line: Let’s get some data out and recalibrate prices.  Export sales and commitments of traders data are the two pieces we are looking forward to most as it will give us a chance to see how commercials have been positioning during the month of January.  The February WASDE will be important, but it probably takes a back seat to the winter wheat seedings and Quarterly Stocks in our opinion.  Grain markets would do well to have a bunch of demand hit newswires as part of export sales announcements.  If we come up short, bears aren’t likely to take it easy on the bulls.

Good Luck Today.

Tregg Cronin

Market Analyst




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