3/6/2019 Morning Comments

Good Morning,

Blank Midwest radar ahead of the next two winter storms which are expected Thursday and Saturday across the upper-Midwest.  7-day forecasted precip maps are showing significant moisture from E-TX to MN with the heaviest spots in TX/AR showing between 2-3” of water while much of KS/MO/IA/NE/SE-SD/S-MN/IL will see up to 2” of water-equivalent moisture.  Depending on how this moisture falls, it could be anywhere between 12-24” of snow.  Temperatures are expected to warm into the weekend with the system, so the snow is likely to be fairly wet, but will still add to the significant snow pack already in place.  Still no real relief in temps through the 8-14 day with NOAA saying below normal temps for all of the Plains and most of the WCB into March 19th.    Precip is mostly seen above normal for the 6-15 day outlook. 

Weaker markets this morning as any overnight gains have been relinquished as upside momentum is still hard to come by.  One of the more interesting headlines overnight was China moving to block Canadian canola imports due to the growing tension between the two countries.  So far, only Richardson International has lost its permit to deliver canola to China, but quite likely other exporters will be wary of doing any business which may leave tonnes stranded at a Chinese port.  The move is in relation to Canada continuing to detain a senior Huawei official in Vancouver.  While the news just broke, it would appear canola has been pricing this in for a while as front-month futures hit the lowest level since August 2016 on Monday and have been trending lower much of February.  Difficult to know how this may affect trade negotiations with the U.S., if at all, but less oilseeds competing into China should be a good thing, all things equal?  Open interest changes yesterday included corn down 4,656 contracts, soybeans up 2,171, meal up 3,921 contracts, oil down 2,766, SRW up 1,449 and HRW down 1,842.

Another headline we found interesting overnight was from Reuters stating China’s top grain producing region plants to increase subsidies for corn growers as a stock glut eases and will keep soybean subsidies high for a second straight year.    The increase in corn subsidies marks a change in direction from last year when the PRC moved to cut subsidies to manage the supply glut.  The combination of higher subsidies in both commodities shouldn’t come as a surprise given the ongoing trade war.  The bad part is before the trade war, China was just starting to make some necessary reforms in the subsidy area.  It appeared as though officials were recognizing they could source needed grains much cheaper on the global market than what they were paying their own farmers to raise it.  It would appear that line of thinking has been thrown out the window over the last 8-12 months with the trade war intensifying.  Any thoughts that China had about reliably sourcing food stuffs abroad has likely been recalculated, and could make getting U.S. grains which aren’t tied to a larger trade deal harder to get into the country.

Data yesterday included the most recent COT data which was dated 2/26.  In that week, managed funds sold a bit more corn to take their net short position to -120,962 contracts, the largest net short since 9/25.  Funds bought a token amount of soybeans to leave them net short -74,489 contracts vs. -81,030 contracts the week before.  The most important fund position in our opinion was in wheat where trend followers sold another 6,196 contracts of HRW to put them net short -41,226 contracts.  This is the largest net short since April 2016, and is now 75% of the all-time record short.  We use the Commodity Index Trader report from the CFTC while others used the Disaggregated report, which shows managed funds already holding a record net short in HRW.  More important to us is consistency with one report as opposed to outright positions from one report to another.  In SRW, funds sold another 20,702 contracts to put them net short -95,359 contracts.  We are nowhere near the record fund short in SRW which is all the way down at -189,432 contracts, but anytime the funds amass around -100,000 contracts worth of a net short, it is meaningful.  The combined net short across MPLS/CGO/KC of -188,951 contracts is the largest net short since 1/23/18 and should grow with next week’s CFTC data.  One other note, the managed funds net short in soymeal of -48,612 contracts is 88% of the all-time record.

Deliverable stocks also reported yesterday with a draw taking place in MPLS/Duluth for the third straight week.  Combined stocks were down 703,000 bushels to 15.699mbu, the smallest for this week since 2012.  Stocks are down a combined 1.506mbu over the last three weeks despite poor logistics across much of the Northern Plains which helped support spot floor values yesterday.  14.0-15.0% were all up 5-35c yesterday with 15’s now big +175K +140K a week ago.  Chicago stocks were down 1.235mbu from a week ago at 59.539mbu which compares with 77.903mbu a year ago.  Non-deliverable grades of 8.443mbu are nearly double a year ago at 4.895mbu.  Kansas City stocks were mostly unchanged on the week, although spot floor values were up 3-16c from yesterday for 11.0-12.80% as railroads continue to underperform.

Bottom Line: Producers are busy meeting with crop insurance agents this week as spring prices have been set and revenue guarantees can begin.  Corn should be the big winner given the highest spring prices in four years following three years of essentially record corn crops.  Soybean revenue guarantees will be off from last year, but probably still look better than spring wheat in many instances.  The weather needs to turn quickly to give Northern Plains’ producers a better attitude about planting wheat.  With the late start to last year’s sowing campaign, even though soil moisture was not really a problem, it is difficult to replace a month out of the growing season from a yield perspective.  Late planted wheat is more likely to face yield drag, plain and simple.

Good Luck Today.

Tregg Cronin

Market Analyst




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