2/12/2019 Morning Comments

Good Morning,

The U.S. Dollar Index is trading slightly weaker this morning, working on the first lower close in the last nine sessions.  At the overnight highs, the USD hit the highest values since December 17th.  Clearly, the more dovish stance from the Fed and ideas about easier monetary policy have worn off a bit from earlier this month.  The Dollar Index strength has not gone unnoticed by commodities with the Bloomberg Commodity Index settling yesterday at the lowest level since January 11th.  Sanctions hitting Venezuela are slowing global oil production, but the crude market also has to deal with slowing economic growth in China which is a much larger issue than a bit of dislocation in the South American producer’s supplies.

36 days until the official start of spring, but looking at the Northern Plains and the forecast, one wouldn’t know it.  As noted yesterday, the Northern Plains have snow cover on 99% of its surface area with an average depth of 9.3”.  In addition, the snowpack is cold with NOAA saying the majority of the snowpack temperature in MN/ND/SD is between -4* and 14* above.  Across W-ND and much of N-MT, the snow pack is between -4* and -22*.  Difficult to compare this year and last as snow cover last year held on until May in many parts of the north, but it is something worth monitoring as the calendar flips to March.  Small grain seeding commonly starts in South Dakota the last week in March to the first week of April with North Dakota usually planting by the middle of April if allowed.  The latest 8-14 and Week 3&4 maps from NOAA show below normal temps, taking us out to March 8th.  Fortunately, the Week 3&4 outlook does shift precip potential to below normal for that period, but that could change by the time the outlook rolls forward.

Firmer row crop markets and weaker wheat in what is shaping up to be a Turnaround Tuesday.  The selling pressure in row crops yesterday was concentrated, and a bit disheartening, considering Friday reset balance sheets and allowed markets to shift focus back to South America and forward to U.S. new crop.  There is no overt concern about supplies in the United States, and the constant reminder of Chinese demand slowing is a major concern.  Wheat’s late session recovery was a bit encouraging as the USDA reminded us about the swing business conducted last week to Egypt and Nigeria.  This business absolutely needs to keep happening through May in order to give us any shot at achieving the USDA’s 1.00bbu export forecast.  Also a feature yesterday was the MWH/MWK calendar spread inverting thanks to winter weather, poor movement and surging rail freight.  Difficult to argue flat price needs to be lower when the front month futures price is higher than the second month.  Corn open interest continues to rise, climbing 23,086 contracts yesterday.  Corn open interest is up 68,650 contracts since February 4th as money comes back in following the USDA getting back to work.

Data yesterday did include weekly export inspections which continue poor for corn and wheat bit encouraging for soybeans.  Wheat inspections totaled 20.7mbu which was below the 24.7mbu needed weekly to hit the USDA forecast.  Total inspections of 565.5mbu are down 10.2% from a year ago despite the USDA calling for a 13% y/y increase.  Wheat inspections have hit the needed level just once this entire marketing year.  With only 3.5 months left in this marketing year, shipments have to pick up soon or we have no shot of achieving the forecast, which will push carryout higher.  Corn inspections totaled 29.3mbu, below the 45.6mbu needed weekly to hit the USDA forecast.  Total inspections of 913.7mbu are up 47.5% from a year ago which continues to drift relative to last year.  Corn inspections have missed the needed level for the last three weeks and 10 of the last 11.  Soybean inspections were solid at 39.1mbu vs. the 33.4mbu needed weekly.  Soybean inspections have hit the needed level the last five weeks in a row, although total inspections are down 37.2% from a year ago while the USDA is only calling for a 13.7% decline.  Sorghum inspections are down 71.3% from a year ago.

There were only 15 cars on the Minneapolis spot floor yesterday which followed zero on Friday, five cars last Thursday, 52 on Wednesday, zero last Tuesday and 16 cars a week ago Monday.  88 cars in a week isn’t a great deal of supply, even for the spring wheat market.  The lack of movement helped the MWH/MWK rally to +4.75c overnight, new contract highs and sharply higher than the 6-7c carry available at the beginning of 2019.  This is likely transitory, however, as there is plenty of spring wheat available across the Northern Plains.  This was made blatantly obvious on Friday’s SIAP report which showed wheat stocks both on-farm and off as of December 1.  Given the weather we’ve had since December, probably not a lot changed in this data set.  North Dakota farmers moved just 25 million bushels off the farm between September 1 and December 1 for a draw of just 11.7%.  The 188mbu on farm are the second largest of the last 10 years.  Minnesota on-farm wheat stocks of 57.0mbu are the largest Dec 1 wheat stocks since 2010 and saw stocks from September 1 drop just 2.0mbu!  Montana wheat stocks fell 28% over the period to 112.0mbu which is in-line with recent years.  South Dakota wheat stocks fell the most in the region, down 30.8% from September 1.  On-farm stocks in South Dakota at 28.0mbu are the second lowest on Dec 1 since 2013 and among the lowest levels of the last decade.  Lots of wheat left out there which farmers need to consider if basis does see continued improvement due to the winter weather.

Trade war developments continue to dominate headlines related to soybeans, but the USDA’s data from Friday has us examining the Chinese balance sheet a little closer.  According to the USDA, China will import just 88.0MMT of soybeans in 2018/19, down 2MMT from last month and down over 6MMT from last year.  In addition, crush demand is expected to decline from 90MMT last year to 89MMT this year, down 3.5MMT from their last estimate in December.  These cuts to imports and crush would be the first y/y decline in both categories in 15 years.  Considering the trend line for these imports and crush demand was on an almost parabolic path just a few years ago, it is mind-boggling to think we are now curbing the world’s largest soy consumer into declining growth.  The trade war is not all to blame as we’ve made mention with the African Swine Fever outbreak worse than feared and curtailing the world’s largest hog herd.  Add in China de-stocking and consuming as many alternative proteins as possible and the entire situation gets more believable.

Bottom Line: We continue to watch the spring insurance guarantee prices, and hope you are as well.  The spring insurance prices are shaping up to create quite an acreage decision for Northern Plains producers especially with neither spring wheat nor soybeans screaming for acres.  Corn looks like the clear winner, but infrastructure usually has a say in how many corn acres can be planted in an area with a shortened growing season.  Otherwise, we wait for more trade headlines even though more folks are waking up to the fact the US export window is closing and any trade implications will impact the 2019/20 balance sheet more so than the 2018/19.  The same could be said about any further declines to Brazilian soybean production. 

Good Luck Today.

Tregg Cronin

Market Analyst




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