4/8/2019 Morning Comments

Good Morning,

Another week, another bomb cyclone.  Actually, we’re not sure if the midweek storm headed for the Midwest is being classified as a “bomb cyclone” or not, but high winds, rain/snow and sub-freezing temperatures will once again grace the Plains with their presence.  0.75-3.00” of water-equivalent moisture looks set to drop on Nebraska, South Dakota, southern Minnesota, northern Iowa and most of Wisconsin.  This will exacerbate flooding conditions and prevent any meaningful drying from taking place for at least another week.  Parts of the Dakotas were already looking at an April 20th start date for spring wheat planting if conditions remained ideal, but that isn’t likely to be the case.  Extended maps from the weekend also look less than ideal with below normal temps in the 6-15 day while precip is mainly normal/above. 

Markets are mixed this morning with wheat lower and row crops mixed to better.  Corn and wheat are paying no mind to the incoming spring storm, and it could be argued they don’t need to depending on what the USDA issues in their WASDE report tomorrow morning.  There is no doubt the round of moisture will delay spring fieldwork and planting further, and the flooding conditions in many areas of Iowa and Nebraska should yield additional prevent plant acreage this year.  However, most of our markets have acres to give based on plentiful old crop supplies, hence the lack of panic so far.  HRW 11.0% protein FOB offers remain the cheapest hard wheat offers in the world by $8-18/MT vs. Black Sea and Europe.  Larger than usual May-July export demand should occur, although we aren’t sure this is enough to move the ending stocks needle for 2019/20 unless Q2-Q4 demand remains steady with a year ago.  Crop commentators suggest the HRW crop is getting larger while the SRW crop is getting smaller which is difficult to argue with at the moment.  Lots of old crop high protein HRW with some concern about low protein in the new crop, but we are 30-days from determining that.  Corn open interest fell 39,942 contracts on Friday as the first day of the GSCI roll kicked off.  Soybean open interest was up 2,729 contracts, meal down 5,514, oil up 4,969 contracts, SRW down 10,225 contracts and HRW up 652.

Friday’s COT data showed large spec traders adding 62,279 contracts to their net short position, which moved to a new record at -269,827 contracts.  This week of reporting included the report day plunge on March 29th with funds likely covering some of that position through Friday.  Commercial activity is less than inspiring with the gross commercial long adding to his position but not to a level which would suggest a call to action.  Index traders finally stopped selling corn, buying 10,662 contracts last week for their second week of buying in a row.  Funds sold 14,335 contracts of soybeans to leave them net short -91,728 contracts vs. the 6-week average of 86,549 contracts.  As we noted last week, all traders in the soybean pit feel a bit paralyzed at the moment as global supplies and Chinese demand growth give no reason for an extended rally, but the threat of a trade deal with China and large scale purchases remain enough of a deterrent to press beans to the downside.  Funds in KC sold 4,039 contracts to put them net short -48,741 contracts which is the largest since March 2016.  Crop conditions should embolden the funds to hang tight to their net short.

We’ve referenced a loss of acreage in corn and wheat as not being that big of deal since the March 29th USDA reports, and for good reason.  Based on the March 1 stocks data in corn, we should seed feed/residual demand reduced somewhere between 100-150mbu depending on how aggressive the USDA wants to get.  In addition, ethanol demand should also be reduced 50-100mbu, again depending on how aggressive the USDA wants to get at this juncture.  We feel export demand can be left alone considering an improvement in inspections as of late.  Nonetheless, the ethanol and feed changes alone could result in 150-250mbu of lost demand which will go straight to carryout.  This would put ending stocks at 1.985-2.085bbu which is just below last year’s 2.140bbu.  This changes the mentality for the 2019/20 balance sheet dramatically as 250 million bushels of corn added to beginning stocks is like planted acreage coming in at 94.352 million acres vs. the USDA’s survey-based estimate of 92.792 million.  Said another way, planted acreage could come in at 91.232 million with the extra beginning stocks and have the same supply side picture.  If the USDA would have printed 91.232 million acres on March 29 we think the trade would have viewed that in a supportive light which shows just how big of an impact that extra 150-250mbu of stocks has.

Similar situation in wheat, although not to the same degree as corn.  Demand should see reductions in feed/residual by 40-45mbu while exports are still likely overstated by 25-40mbu as well.  We aren’t sure if they will make a cut to export sales this report or wait until May, but without a pickup in actual shipments, a cut looks inevitable.  If they take steps to reduce both feed and exports this month, ending stocks would rise to 1.095-1.150bbu vs. 1.055bbu a month ago.  This would mark the third year in a row of ending stocks at or above 1.1bbu, which are the largest carryout levels since the 1980’s.  Even with the lower than expected wheat acreage, trend line yields should keep 2019/20 ending stocks over 1.00bbu next year without an unforeseen bump in export demand.  All signs point toward the Black Sea and Europe clawing back lost demand to the U.S. in 2019/20, even if the U.S. has a nice start to the year in Q1-2019/20 as those countries rebuild stocks.

Bottom Line: Grains trading in the direction of proposed changes to USDA balance sheets tomorrow.  More important to many will be the incoming winter weather which will raise stress levels for calving cattle and farmers unable to get into the fields.  Unlikely we will see farmers selling much of anything until planting conditions improve.  Unfavorable weather is likely to keep logistics snarled which should keep exports slow and difficulty in reaching current USDA export forecasts high.

Good Luck Today.

Tregg Cronin

Market Analyst




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