4/10/2019 Morning Comments

Good Morning,

Another winter storm is slamming South Dakota and southwest Minnesota this morning, bringing with it heavy snowfall totals and 2-4” of rain depending on how it falls in some spots.  Unlike the blizzard which hit a year ago across the same area, the soil moisture profile in 2019 is brimming, offering little room for the moisture falling to go into the ground.  This will keep flooding and ponding concerns up, and dry down for fieldwork especially slow.  Accurate totals are not really available yet since the storm began, but 2-4” of water-equivalent moisture is what is expected across most of South Dakota and southern Minnesota.  The storm finishes up Friday with a couple days respite before additional moisture moves into Nebraska and eastern South Dakota midweek next week.  Not much change to extended maps with below normal temps and above normal precip seen through April 23rd.

Mixed markets this morning with corn bouncing slightly while wheat and soybeans trade modestly lower.  The April WASDE came and went, delivering the needed changes which were almost uniformly bearish.  The fact markets held together as well as they did would suggest most of the bearish data from the March 1 stocks and March 29 acreage report is factored in.  That said, many respected analysts still have issues with some of the corn demand line items which could prompt additional cuts on subsequent reports.  Despite the massive storm slamming the Plains this morning, markets still don’t care about late planting, and probably for good reason.  As we discussed Monday, we have acres to give on corn, soybeans and spring wheat and still maintain comfortable carryout levels.  If we get to the end of April without any meaningful progress made, markets should start to pay a little more attention.  South American crop updates were bearish and a good reminder competition on the export front will remain fierce this summer and fall.  Open interest changes yesterday included corn up 9,266 contracts, soybeans up 11,144 contracts, SRW down 6,697 and HRW down 6,068 contracts.

The changes of most interest on the WASDE were definitely in the corn market with USDA axing feed/residual demand by 75mbu, cutting ethanol demand by 50mbu and cutting exports by 75mbu for a total demand reduction of 200mbu.  We felt the reductions to feed/residual would be larger based on March 1 stocks data, but also didn’t feel a cut to exports was coming this month.  The 50mbu reduction to ethanol demand was needed, but it could be argued another 50mbu needs to be cut unless run-rates improve dramatically through August.  The USDA clearly felt the competition with Argentina, Brazil and Ukraine was strong enough to rip the band aid off today as opposed to waiting another month.  The combined changes left ending stocks at 2.035bbu for the third year in a row.  Ending supplies at that level is such a mentality change from the much more constructive ideas of 1.5-1.6bbu thrown around last summer.  The changes should also keep the market from jumping the shark on 2019/20 demand instead of jacking up all demand line items by 100mbu just because we need to get rid of supply.  As this year is showing us, you actually have to use the bushels as opposed to just saying you will on paper.

Wheat changes were light with the USDA cutting seed use by 1mbu, feed use by 10mbu and exports by 20mbu for a total reduction of 31mbu.  Ending stocks were projected at 1.087bbu vs. 1.099bbu a year ago.  Like corn, we felt the cut to feed/residual use could have been larger based on March 1 stocks data, but not worth getting excited over.  The cut to exports was necessary, but here again, might not be enough when all of the bushels are counted on May 31.  Logistics remain poor, and despite an impressive sales pace over the last four weeks, all of the bushels will not leave the country before June 1.  Final ending stocks should prove close to 1.1bbu, although a few million bushels here or there is probably not germane to the overall wheat narrative.  Minor tweaks were made to the soybean balance sheet with ending stocks dropping 5mbu to 895mbu.

Global balance sheet changes yesterday included Brazilian soybeans being increased to 117MMT from 116.5MMT last month.  Last year’s production total was increased to 122MMT, further increasing that record.  Argentine soybeans were left unchanged at 55MMT, but the combined total of 172.5MMT was a new record for the two-country total.  Both countries had their corn production estimates raised as well with Argentina raising to 47MMT from 46MMT last month and Brazil up to 96MMT from 94.5MMT last month.  Corn exports between the two countries are projected at 61.5MMT vs. 46.1MMT a year ago which is probably the most important South American figure to focus on from yesterday.  Add in Ukrainian corn exports to the South American total and one doesn’t have to ponder long about why the USDA cut U.S. corn exports yesterday.

Back inside the U.S., we thought it worth pointing out the by-class changes in the wheat balance sheet, specifically in the HRS S&D.  USDA cut HRS export demand by another 15mbu, which helped push ending stocks up to 305mbu.  The 305mbu of ending supplies are the largest since 1987/88 with a stocks/use ratio of 51.57%.  We’ve seen 50%+ stocks/use ratios in HRW and SRW in the recent past, and when we had those, it is helpful to think about the fact we could get through November without running out of wheat if we raised zero bushels of spring wheat this year.  Unfortunately, without a sizable reduction in production for the 2019/20 growing season, we could see ending stocks rise even further.  Based on our current analysis, we would need to see HRS acres drop 1 million from a year ago to keep ending stocks unchanged at 305mbu.  While the current winter storm hitting South Dakota could be arguing for such a decrease, we will need to see similar attitudes prevail in North Dakota and Minnesota to see it become reality.  2019/20 should see MW/KW and MW/W inter-market spreads tighten significantly.

Bottom Line: The last WASDE report without a 2019/20 balance sheet on it has come and gone, allowing the market to more fully focus on new crop.  Acreage debates will rage over the next 6-weeks, especially if progress remains slow in the Plains and Upper-Midwest.  None of our markets are carrying risk-premium for late planting, and so far, they don’t need to.  If meaningful progress hasn’t been made by April 25th, the record managed fund short could start to get a bit more uncomfortable.

Good Luck Today. 

Tregg Cronin

Market Analyst




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