3/12/2019 Morning Comments

Good Morning,

Showers in the southern plains this morning, but mainly quiet across the corn belt ahead of the next blast of winter weather.  Winter looks like it will give one more valiant effort before warmer weather moves in.  Wednesday into Thursday is expected to see heavy snow, rain and wind grip the central and northern plains with 12-18” of snow along with 40-60mph sustained winds.  The worst of the weather looks to be in northern Nebraska and most of South Dakota.  This will add to snow pack totals, although those have been shrinking the last day or two.  Temperatures warm to the 30’s most of this week, and there is talk of 50’s next week which should bring on a rapid melt.  Temperatures are still below normal through the 8-14 day for much of the Northern Plains, but moisture outlooks are below normal for the 6-10 and 8-14 day which will be welcome for all.

Grain markets are higher this morning while the soy complex is a tick weaker as we try to bounce from yesterday’s selloff.  The losses continue worst in the wheat pits where winter wheat shed another 10c on Monday, while spring wheat saw smaller losses of 3c.  The momentum trade by funds and algo’s is powerful at the moment with open interest on the rise as new positions are being added.  The Johnny-come-lately’s will be at most risk if/when prices do stage a recovery, but every position the funds have added the last several weeks is a winner with equity growing on a daily basis.  The funds have been right since early February, so the bulls screaming about cheap US wheat and extraordinary export business can continue turning blue in the face as long as they want.  The wheat weakness is dragging corn lower as are softer ethanol prices which hit a one-month low yesterday.  Poor logistics across the Midwest are keeping ethanol stocks at record levels, depressing margins and holding grind rates down.  Despite the 25mbu cut to ethanol demand for corn on Friday’s WASDE, there will be another 50-75mbu worth of cuts in coming months unless grind rates rebound.  Open interest changes yesterday on the selloff saw corn up 9,955 contracts, soybeans up 1,588 contracts, meal up 4,088 contracts, oil down 676, SRW up 3,985 contracts and HRW up 2,864.

Export inspections released Monday were mostly weak as slow rail and barges limit export loadings.  Wheat inspections totaled 21.8mbu vs. the 23.8mbu needed weekly to hit the USDA forecast.  Inspections did see one vessel of spring wheat declared for China which had been in the lineups for several weeks.  Total inspections of 646.8mbu are down 5.9% from a year ago while the USDA is calling for a 7% increase.  Export shipment data confirms the same as we’ve shipped 61.96% of the USDA’s revised export forecast which is the lowest on record for this week of the year.  Granted, we are expected to see a decent export pull the last couple months of the marketing year, but there remains downside risk to the USDA’s forecast in our opinion.  Corn inspections were also soft at 30.1mbu vs. the 42.7mbu needed weekly.  Total inspections of 1.045bbu are still up 30.5% from a year ago, but this is down from 38.5% two weeks ago and inspections haven’t hit the needed level in seven weeks.  Soybean inspections were 32.1mbu vs. the 32.0mbu needed weekly to hit the USDA forecast.  Total inspections are down 32.5% from a year ago while the USDA is calling for a 13% decline.

Spot floor premiums were higher again Monday in Kansas City by 4-7c with 12.0% pro bid +155/170K vs. +140/155K a week ago.  Minneapolis spot floor premiums were weak, down 10-40c yesterday as a few more cars were for sale including 77 cars and two trains.  However, the lack of bids seem tied to the fact logistics remain awful across the Northern Plains with railroads still 3-4 weeks behind.  Does it make sense to pay more for cars you still aren’t going to get?  Elevators in the country have remarked they are still waiting for freight from mid-Feb want dates.  Wheat weakness helped drive wheat/corn spreads to fresh lows Monday with the KWK/CK at +56.75c overnight.  The futures weakness helped push the cash relationship in the southern plains to 99% wheat to corn.  This is the first time we’ve seen HRW trade less than 100% of the weight-adjusted price of corn this marketing year, although actual tonnage trading into feedlots is still probably limited at this point.  SRW remains at 91% of the weight-adjusted price of corn in North Carolina.

CONAB released their latest estimate of Brazilian crop prospects, pegging the soybean crop at 113.5MMT vs. their February forecast of 115.3MMT and last year’s 119.3MMT.  This would still be the third largest soybean crop ever produced in Brazil, although it is down sharply from the 120-125MMT ideas back in December.  CONAB’s corn crop estimate increased to 92.8MMT vs. 91.7MM% in February and would be sharply higher than the 80.7MMT raised last year.  This is just under 2MMT smaller than the USDA’s last estimate of 94.5MMT, although many in the trade though CONAB could come up to USDA’s ideas after favorable growing conditions in Feb.  While smaller supplies are encouraging, whether Brazil is 113MMT or 117MMT probably doesn’t matter considering slowing growth in China due to ASF.  There are plenty of soybeans in the U.S. and World to satisfy any and all demand at current price levels.

Bottom Line: Traders will be bracing for what everyone hopes will be the last big storm of the season.  Farmers and bulls alike keep wondering what will change the narrative to end the downtrends and produce a rebound.  With the Summit between Presidents Xi and Trump now on shaky ground, along with a brimming soil moisture profile across the Midwest and carryout growing in wheat and corn, that reason looks fleeting.  It will take more than a delayed start to planting to change trends given how quickly we can plant crops in the United States in 2019.  Funds holding large or even record shorts is not a reason to get bullish until they are forced to cover.  They are not being forced to cover today, and in fact, are being given every reason to add to their winning positions.

Good Luck Today. 

Tregg Cronin

Market Analyst




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