3/8/2019 Morning Comments

Good Morning,

Chinese import/export data for the month of February is the talker overnight as the trade war and tariffs sink their teeth in further.  Exports from China during the month of February fell 20.7% from February 2018, the largest monthly decline from the previous year since February 2016 and sharply worse than the 4.8% expected by economists.  Imports also fell by 5.2%, worse than the 1.2% expected by economists.  This marked the smallest trade surplus for China in 11-months, causing major Chinese stock indices to fall more than 4.0%.  Chinese imports from the U.S. fell by 35% during the first two months of 2019 ahead of what was the March 1st deadline when tariffs were set to increase by the United States.  Uncertain at the moment whether this will cause the Chinese to be a bit more flexible in the negotiations later this month.

The Upper-Midwest is bracing for another winter storm this weekend with the morning GFS models putting substantial snow and rain from Texas to North Dakota and east to Ohio.  Precip totals on this morning’s maps show as much as 4.00-5.00” in AR/LA/MS/AL/TN/KY.  Most of the Midwest is expected to see 1-2” of water-equivalent moisture in the next week.  Temperatures will remain mostly below normal the next 10-15 days, although some parts of the Northern Plains will see their first above freezing day in months.  Precip chances shift from above normal in the 6-10 to below normal in the 8-14 which will be a welcome sight for absolutely everyone.  Fingers crossed for above normal temps in the week 3 and 4 outlook released later this afternoon.

Higher grain markets this morning as the dead cat bounces, because there is certainly nothing fundamentally bullish in our space at the moment.  Export sales yesterday were mixed to weak, funds are continuing to add to their winning short positions and no one seems to have any confidence in the rumored trade deal by the end of the month.  Producers still hold a large portion of the 2018/19 crop unpriced, which will cap any rally attempt while the 2019/20 winter wheat crop will be breaking dormancy in a few weeks as prices scrape contract and multi-year lows.  At the moment, the May Kansas City wheat contract is at the lowest price for this date going back to 2005.  One has to go back to the early 2000’s to find lower wheat prices than we are currently, and in those years, we saw futures drop into the 2-handle.  We do not think anything of that nature is in order, but simply want to illustrate how weak this market is ahead of what should be a seasonally strong time of year with supply uncertainty still high.  March WASDE on tap today, although it is unlikely to contain anything for bulls to put in their pocket.  Open interest changes yesterday saw corn up 23,520 contracts, soybeans up 6,260, meal down 1,237 contracts, oil down 8,180, SRW up 14,567 contracts and HRW up 3,861.

While export sales data technically hit the level needed in several commodities, it still felt like an underwhelming week.  Wheat export sales totaled 22.8mbu vs. the 10.4mbu needed weekly to hit the USDA forecast.  Total commitments of 829.7mbu are up 3% from a year ago, but the USDA is still calling for a 10.9% increase ahead of today’s WASDE.  While commitments have caught last year, shipments remain well behind with poor logistics and an hour glass which is running empty for this marketing year.  It is highly unlikely we will get all of the wheat we have on the books shipped in 2018/19, which should result in a downgrade of the export forecast from 1.00bbu and help push carryout close to 1.100bbu.  At that level, we would essentially be unchanged from the previous two marketing years which saw prices hit the low-$4 area and in one case into the 3’s.  It is likely some of these sales will still be executed in June and July, but then the other Northern Hemisphere exporters should take over, pushing the U.S. back to the supplier of last resort in 2019/20.  By-class sales were strongest in HRW with 10.2mbu followed by HRS at 5.7mbu and WW at 4.0mbu.

Corn export sales were solid at 38.2mbu vs. the 29.4mbu needed weekly to hit the USDA mark, but down from last week’s 48.8mbu.  Total commitments have now slipped below year ago levels by 1%, but the USDA is calling for exports to be essentially unchanged from last year.  Last year, we enjoyed a near record AMJJ export period as South America sported drought-reduced crops and the world came back to the U.S. during the summer months.  The same is unlikely to happen this year as weather remains conducive to above trend crops.  Soybean export sales were very poor at 11.4mbu vs. the 18.0mbu needed weekly to hit the USDA forecast.  Total commitments slipped back to an 18% deficit from a year ago at 1.442bbu.  The rumor mill churned yesterday as cash traders tried to suggest 2.0MMT of soybean business was conducted to China for July-September.  While this could be true, we wonder whether this is part of the 10MMT signed in the Oval Office, or whether this is a new deal, or whether this is tied to earlier promises, or some other deal?  Keeping track of the promises and MOU’s and handshakes are getting exhausting, and no matter how one wants to slice it, it doesn’t feel like enough.

Wheat/corn spreads continue lower with the WK/CK trading at +74.75c this morning while KWK/CK is sitting at +64.00c.  New contract lows are being set on a daily basis as our weight-adjusted cash prices in the major feed regions of the U.S.  In SW-KS, HRW closed at 100% of the weigh-adjusted price of corn while in North Carolina, SRW sits at 91% of the weight-adjusted price of corn.  Wheat has everything on its side for making a major bottom in the near future as funds are historically short, wheat is trading at very cheap valuations relative to corn and seasonally, wheat tends to add premium through the spring as the crop is being made.  That said, it remains difficult to try and catch the falling knife in this environment as funds appear ready and willing to add to their winning positions.  Black Sea and Paris futures have been falling just as fast or faster than U.S. futures, unfortunately, and until they bottom, it is tough saying the U.S. can put a foot in the ground.

Bottom Line: Heading into another weekend of people guessing how the trade talks will turn out.  Fortunately, the March WASDE should grab our attention for at least a day before we go back to worrying about a late spring.  In our opinion, the financial incentive to plant corn is too great to worry about not planting 91-92 million acres at this stage.  Spring wheat on the other hand is not offering a great incentive for producers to plant it over row crops. 

Good Luck Today.

Tregg Cronin

Market Analyst




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