2/8/2019 Morning Comments

Good Morning,

Global stocks fell hard on Thursday after comments from President Trump stating a meeting between he President Xi of China was unlikely before the March 1 “cease fire” deadline on the trade war.  This was accompanied by comments from Treasury Secretary Mnuchin who said “this soybean issue has been exaggerated and there’s a little too much focus on just the purchase of soybeans… We’re really focused on, as we’ve talked about, on the structural issues,” in the China trade talks.  In other words, soybeans are not the focus, but rather intellectual property theft, technology transfer, trade deficit and currency manipulation are driving the bus.  To us, this says don’t expect any more goodwill purchases of soybeans by China, or any other U.S. commodities for that matter.  We also think the most likely course of action is a partial agreement before March 1 to extend the cease fire so talks can continue without tariffs being lifted.  Get comfortable, because as many feared, this trade war doesn’t look like it’s going away anytime soon.

Updated GFS maps this morning keep above normal precip across the Mid-South with regular snow showers moving through the Northern Plains and Midwest.  Temps will remain sharply below normal for much of the Midwest and especially the Northern Plains through the 14-day outlook.  Above normal precip also looks like it will be a feature until the end of February.  South American maps this morning suggest above normal precip across Northern brazil while below normal precip will be the feature in Argentina.  This is about what is needed for dry areas of Brazil and water-logged areas of Argentina.  Temperatures look to be mainly around normal for most of the South American growing areas.

Better markets ahead of the largest USDA data dump in recent memory.  In typical USDA fashion, we will get about two and half hours to sift through the mountain of data and trade it before markets close for the weekend.  Of most interest to us will be the final crop production report for corn and soybeans, winter wheat seedings, Dec 1 quarterly stocks, South American crop estimates and finally WASDE demand estimates.  Regarding the latter, the changes to the corn balance sheet will be of interest to us given ethanol’s continued struggles, the impact of quarter 1 stocks on feed/residual and the change to US corn crop.  The incredibly poor profitability of the ethanol sector could prompt USDA to make a larger cut to estimates than analysts are expecting.  The collapse in wheat futures and spreads on Thursday stood in stark contrast to the rallies in both earlier in the week.  As we write out commentary this morning, however, wheat futures are rallying back as it would appear US wheat was very competitive into Egypt in the latest GASC tender.  Open interest changes yesterday included corn up 18,037 contracts, soybeans up 3,341 contracts, oil up 11,358 contracts, SRW down 1,347 and HRW down 1,739 contracts.

Yesterday we did have export sales data for the week ended 12/27 which were a mixed bag as the USDA slowly gets caught up to current.  Wheat export sales were solid at 21.8mbu vs. the 15.3mbu needed weekly to hit the USDA forecast.  Total commitments of 653.2mbu are down just 9% from a year ago, but the last USDA forecast called for a 10% increase from a year ago.  Of concern is the fact total commitments as a percentage of the USDA forecast stand at 65.3%, the lowest since 2000.  Also, wheat shipped as a percentage of the USDA forecast at 44.6% is the lowest on record going back to 1990.  It looks like we should see at least a 25mbu cut to the wheat export forecast on today’s WASDE.  Corn export sales were 19.8mbu vs. the 32.7mbu needed weekly to hit the USDA forecast.  Total commitments are still up 19% from a year ago, which is ahead of the needed pace, but the fact sales were an eight week low is a bit concerning as we get closer to South American new crop. Soybean sales were 38.6mbu vs. the 22.8mbu needed weekly to hit the USDA forecast.  Total commitments are down 24% from a year ago but have closed to gap from a 30% deficit two weeks ago.  Essentially, our soybean export program is the slowest since 2011 and needs the largest Feb-Aug program on record by 4mbu per week.

We don’t have the final GASC bookings in front of us, but we do have FOB offers and some freight quotes available.  Looking at the FOB offer rundown, US-SRW was easily the cheapest into Egypt at $235/MT FOB, almost $10/MT cheaper than the next offer from France.  There were four cargoes of Russian wheat offered, but it doesn’t look like any of those will be in contention.  In looking at the freight offers, US wheat would be around $25/MT, French at $18/MT, Ukrainian at $12-15/MT and Russian around $12.50-13.00/MT.  If they come in exactly as shown on Twitter, US-SRW should see some business but we aren’t going to stake anything on it until we see final results.  Regardless of what gets booked, it is encouraging to see US wheat offered so competitively, and with calendar spreads remaining tight, could be the norm through the spring.

Bottom Line: Really not much point in discussing anything else until USDA updates us at 11:00.  After the data, the trade should refocus on the trade war, South American weather and US cash markets.  The stage is certainly set for us to break out of our ranges which have been in place for months.  However, options straddles are not suggesting we break out of those ranges before the end of March.  More focus on 2019 acreage as crop insurance pricing rolls on.  The futures ratio between corn and soybeans is not suggesting widespread changes, but when one considers the cash ratio things point toward less soybeans in the Northern Plains.  Most producers north of I-80 are still looking at basis levels of -100H to as much as -140H.  New crop levels are the same.  Difficult to get excited about planting $8.00 cash soybean vs. $3.30-3.50 corn.  Let’s get smarter at 11:00.

Good Luck Today.

Tregg Cronin

Market Analyst




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