3/1/2019 Morning Comments

Good Morning,

In the last 24 hours since President Trump and Kim Jong Un walked away without a deal in Vietnam, the focus has shifted back to the Chinese trade talks.  Chatter out of Washington D.C. suggest President Trump has instructed his team to make a deal quickly, obviously wanting to produce a win after no agreement with North Korea and a “failure” in trying to secure his border wall.  In our opinion, a deal which is hastily put together after many months of negotiations will benefit Ag the most.  Our reasoning is it will be relatively easy for China to placate the U.S. by agreeing to buy a bunch of soybeans along with other Ag products while fending off calls for more serious reforms to intellectual property theft, currency manipulation, investment in state-owned companies and technology transfer.  On one hand, the Midwest will benefit, but on the other, the last 12-months will have been essentially for nothing as China gets to continue operating outside the lines of the developed world.  It will be interesting to see the reaction from various Ag groups and political parties on how this is received if the talks do indeed take this path.

Snow across the Dakotas, W-MN and NW-IA because most were getting concerned it didn’t know how to snow anymore.  Snow will linger most of Friday before clearing out though there are more snow chances in the Upper-Midwest later in the weekend and early next week.  Nothing hopeful in the extended maps with below normal temps persisting through the 8-14 day which puts us out to March 14th.  Yesterday, NOAA issued their one-month outlook for the month of March, and much like the 6-10 and 8-14 day, showed below normal temps for the majority of the Midwest and Plains.  Most of the Northern Plains will see normal to slightly below normal precip, but the southern plains and Midwest will be mainly above normal.  Assuming this outlook proves accurate, no big warmup to melt the snowpack until April it would appear.

Mixed markets this morning with soybeans leading the charge higher while wheat languishes.  Strength in the soy complex is presumably tied to ideas of a trade deal being close at hand.  Additional soybean sales to China were announced in yesterday’s export sales report, although it is difficult for us to believe additional purchases will continue considering Brazilian soybeans are still cheaper with or without the tariffs.  Loading up on U.S. soybeans when they aren’t in the most favorable export position Mar-Aug would really throw global supply lines out the window and most likely keep more South American soybeans around to compete with U.S. new crop this fall.  Additional deliveries overnight with ADM dropping bombs in the corn market.  Not a lot of incentive to ship corn instead of deliver when the river logistics are awful and rail is arguably worse.  Open interest is still coming out of the March, but we did see overall open interest rising as the new month rolls in.  Corn open interest was up 21,129 contracts yesterday, soybeans were up 8,876 contracts, meal up 3,350 contracts, oil down 100, SRW up 5,105 and HRW up 3,491.

Focus on export sales yesterday which were solid, although several pointed out these likely had some catch-up sales related to the government shutdown as to the reason for the big beat.  Wheat sales totaled 17.5mbu vs. the 13.1mbu needed weekly to hit the USDA forecast.  Total export commitments of 806.9mbu are now up 2% from a year ago which is still behind the roughly 11% increase the USDA is calling for.  Shipments are still 7.7% behind a year ago, so both sales and shipments need to pick up in the final quarter of the year.  Corn sales totaled 48.8mbu vs. 31.2mbu needed weekly to hit the USDA forecast.  If the previous six weeks are averaged together, this week’s sales were the best since late December.  Total commitments of 1.557bbu are up 1% from a year ago which is in-line with the USDA’s forecast, although this gain has slipped from 4% two weeks ago.  Last year’s sales ran strong well into the summer as the drought-stricken South American crop pushed additional business back to the U.S.  This is not likely to happen this year.  Soybean sales totaled 80.7mbu vs. the 17.7mbu needed weekly.  Total commitments of 1.431bbu are down 14% from a year ago, but this deficit has decreased from 20% two weeks ago.  Chinese sales now stand at 9.2MMT vs. 7.4MMT last week.  Meal and oil sales were on the lighter side.

Canada released export sales data from the month of January yesterday with total shipments measuring 1.455MMT vs. 1.589MMT in December but above the 1.363MMT a year earlier.  Marketing-year-to-date shipments total 9.468MMT vs. 7.966MMT with durum shipments totaling 1.702MMT vs. 1.919MMT Aug-Jan a year ago.  Of particular interest were shipments to China which saw another 115,400MT sent during January vs. 28,000MT a year ago.  Total shipments this marketing year measure 1.107MMT vs. 443,900MT a year ago, a 149% increase.  We don’t have updated Australian export data in front of us, but have to imagine the trade war with China has pushed the Chinese demand to those two countries as opposed to the U.S.  Oat exports are slightly ahead of a year ago, barley exports are up 32% and canola is down 6.3%.

ADM registered a fresh 768 corn certs last night, delivering same as part of a total 1,975 dumped last night.  This brings the total delivery period to 2,885 contracts with no real strong commercial stoppers.  Can’t ship, deliver.  The Andersons registered another 200 SRW certs last night, putting total deliveries last night at 577.  That brings month-to-date to 977 with one stepping forward.  Soybean deliveries totaled 655 last night with LDC stopping 223.  Month-to-date deliveries measure 1,475 contracts.  There were no deliveries in Kansas City last night, although with the spread inverted by close to 2.0c, that could change this weekend.  There were 80 deliveries in Minneapolis, although CHS House stepped into stop 65 of them.  That spread remains inverted by close to 10.0c, so additional deliveries could be a feature but CHS has consistently stepped in to stop any and all deliveries going back to the December cycle.

Saudi Arabia issued a tender for 595,000MT of 12.5% hard wheat for Apr-Jun delivery yesterday.  Offers are due today, and the U.S. should be positioned to pick up a majority of the business.  However, with rallying freight on the front end, the HRW cash market now has an impressive carry in place, which could limit commercial participation.  It would be stereotypical of the HRW market to sit at contract lows and in desperate need of export business, only to see carries limit commercial participation.

Bottom Line:  More waiting on a trade deal.  Spring insurance pricing is over with December corn barely squeaking out $4.00 and November soybeans just barely above $9.50.  Still, these are not “bad” prices, and should allow some margin to be captured if soybean basis improves.  Spring wheat guarantees will look low compared with last year and soft cash prices but is mostly in-line with the 5-yr average.  Spring weather could have as much to say about planted acres as futures prices do.

Good Luck Today.

Tregg Cronin

Market Analyst

Tregg.Cronin@halocommodities.com

www.halocommodities.com

@5thWave_tcronin

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