3/27/2019 Morning Comments

Good Morning,

Wide open radar this morning.  Midwest still looking at moisture the next three days, predominantly in areas which don’t need it.  Nebraska, Iowa, eastern Kansas, Missouri and Illinois all slated for 0.50-2.00” amounts.  Should make flooding issues worse and not allow rivers to crest and recede.  Latest river flood stages from NOAA show St. Paul hitting major flood stage currently and not peaking until next Tuesday at 20’.  This would rank around the seventh or eighth highest river crest in St. Paul on record with the all-time record of 26.01’ in 1965.  Snowpack is receding quickly across the Northern Plains but there is still plenty to go.  As of this morning, 40.9% of the upper-Midwest was covered by snow with an average depth of 3.8”.  However, areas in northern South Dakota, eastern North Dakota and northern Minnesota still sitting on up 5-10” in spots.  Lots of moisture to still move into waterways.  Extended maps are below normal on temps and above normal on precip in the 6-10 day.  The 8-14 days sees temps shift to above normal but precip remains above normal as well. 

Mixed markets this morning with row crops trading off a bit while wheat markets cling to small gains.  Despite the purchase by GASC of two cargoes of US-SRW, wheat markets mainly took it in the throat yesterday with hard wheat contracts posting six cent declines.  Chicago wheat held up better because of the purchase, but the very weak spot floor trades this week were too much to overcome in Minneapolis and Kansas City.  In addition, bulls have been encouraged by the build to record short positions by funds in Kansas City, but it remains to be seen whether they will cover these when pushed or whether they will defend them.  So far anyway, it appears as though they will defend this short position, possibly needing higher prices to put more contracts underwater and force capitulation.  Nothing all that encouraging in row crops with soybeans failing to hold the $9.00 futures level basis the May contract.  We need something out of the trade talks which begin Thursday before soybeans can make another move.  Big report day Friday, although aside from the stocks data, we aren’t expecting much of substance out of the acreage report.  Yesterday, corn open interest rose 3,775 contracts, soybeans were up 2,438 contracts, meal was up 55, oil was up 22, SRW was up 4,276 contracts and HRW up 3,005.

Some fun with stats before we dig into anything else ahead of the March 29th reports.  On the acreage side of things, corn acres on this report have come in below the average trade guess in four of the last six years while soybean acreage has come in below the average trade guess in seven of the last nine.  HRS acreage has come in above the average trade guess in five of the last seven years.  Using what we knew at the beginning of March when the survey was issued, would have to think soybean acres come in light again this year with most producers leaning higher on beans today vs. a month ago.  Corn acres likely to come in at or above trade expectations as should HRS given the data will be pre-flood.  On the stocks report, corn stocks have come in above the average trade guess in six of the last nine years including last year at 175 million bushels over the average guess.  Soybean stocks have been above the average guess in three of the last six years with last year clocking in 80mbu above the average guess.  Have to believe the potential to come in above the average guess exists again this year given the poor state of logistics in February and early March.

Egypt’s GASC bought two cargoes of US-SRW at a landed price of $248.24-248.29/MT, besting Romanian landed offers by $0.40-0.80/MT.  The US-SRW FOB offers into Egypt cleared the Romanian offers by $17/MT which illustrates very clearly what the cheapest FOB milling wheat in the world is.  In fact, US-SRW with milling specs is probably close to the cheapest feed wheat in the world as well.  The sale to GASC was encouraging, but probably doesn’t change the narrative of the US wheat export program running behind needed levels with additional cuts to the forecast likely forthcoming.  Most still assume a large April-May program to close out 2018/19, but wheat is also fighting awful rail and barge logistics which are just not allowing the needed shipments to leave the country.  Some of these sales should execute in June which obviously still matters, but 2018/19 carryout is likely headed toward 1.1 billion bushels for the third year in a row.  This provides a substantial buffer against any 2019/20 yield shortfall, limiting upside volatility in our three contracts.  Minneapolis spot floor values fell 15-50c on Tuesday, with 15’s now bid only +105K.  KCBT spot floor values fell another 15-20c after dropping 15-37c on Monday.  Freight shaking loose at least in spots.

Deliverable stocks also out yesterday with Chicago area stocks dropping another 1.401mbu to 57.080mbu.  That level is down from 74.740mbu and should continue falling through the end of the marketing year.  Have to believe commercials will be bidding hard to fill available storage once new crop bushels start coming off.  KCBT stocks fell 1.238mbu from last week to 101.081mbu which is 4.690mbu below a year ago.  Still plenty of HRW in the country and should allow KCBT calendar spreads to be the carrying charge leader.  HRS deliverable stocks fell 30,000 bushels in Duluth and Minneapolis last week.  Combined stocks of 15.885mbu compare with 22.145mbu a year ago.

Bottom Line: Weekly ethanol production on tap later this morning will be a focus as we see if the flooding materially impacts production and stocks levels.  The expectation is run rates should fall precipitously as plants remain closed and rail sits stationary.  Big events Thursday and Friday with trade talks and USDA reports.  Export sales tomorrow morning could also show the sluggish pace of movement since the flooding.  Carryout ideas are rising at the moment, not falling, which will make continued rallies difficult to sustain.

Good Luck Today.

Tregg Cronin

Market Analyst




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