4/12/2019 Morning Comments

Good Morning,

The last bits of Winter Storm Wesley are still swirling over the Northern Plains this morning, although the system is expected to be completely finished later this afternoon. The snow totals are nothing short of impressive, and the actual amounts that fell in the central and northeast part of South Dakota might not ever be known due to the high winds.  As of this morning, 68.4% of the Upper-Midwest was covered by snow at an average depth of 5.8”.  Compare that with 5.4% of the area covered by an average depth of 0.3” on April 9th.  Comparing the two images from April 12th and April 9th below does it some justice, although until one sees with their own eyes, it is difficult to believe.  According to another map from NOAA, there is between 2-6” of water-equivalent moisture in that snow, which will eventually melt and make its way into the river system, keeping flooding concerns a major issue.  Unfortunately, no big warm-up seen as temps slowly get toward the 40’s early next week and the 50’s by next weekend which will keep the snow in place longer than desired.  Additional moisture is being seen in the Plains by the end of next week which will not be welcome.  Temps finally work towards normal at the end of the 8-14 with precip ideas moving below normal for the entire Plains but this takes us out to April 19-25.  If this snow is still sitting around by the end of that period, we will be talking about major planting delays in the Plains and western corn belt.

Firmer markets this morning led by wheat markets as Egypt’s tender overnight should see HRW and SRW among the cheapest offers.  In addition, Algeria bought 540,000MT of optional-origin wheat this week with a good chunk expected to be HRW and the balance French.  Almost all of this new business will execute in the 2019/20 marketing year, so it will mean little for ending stocks in 2018/19.  Still, demand is demand and without knowing exactly how large our wheat crop will be this year, any additional exports we can garner before Black Sea and European wheat come back with a vengeance is a bonus.  Corn and soybeans remain inside recent ranges with their overall downtrends in place.  The latest round of export sales were less than impressive with some huge work to do this spring and summer to prevent USDA from making additional cuts to their forecasts.  Soybeans feel as though they will be within 10c of $9.00 until a trade deal is cemented.  Open interest changes yesterday saw corn up 15,283 contracts, soybeans up 10,729 contracts, meal down 755, oil down 2,674, SRW up 6,831 contracts and HRW down 3,085.

Export sales were mostly disappointing yesterday, although what did see commitments larger than the level needed.  Wheat export sales in the week ended 4/4 totaled 10.0mbu vs. the 1.4mbu needed weekly to hit the USDA forecast.  Sales haven’t been wheat’s problem as total commitments of 903.8mbu are up 7% from a year ago.  Shipments are wheat’s problem as only 690.7mbu of the 945mbu have shipped for a ratio of 73.09%.  That level of shipments to forecast as of the first week in April is the lowest on record.  This is why in the opening paragraph we suggest most of these additional sales will not in fact be executed in this marketing year with larger than normal sales being rolled over to 19/20.  Corn sales were light at 21.6mbu vs. the 27.6mbu needed weekly to hit the USDA’s recently downwardly revised forecast.  Total commitments of 1.722bbu are down 9% from a year ago while the USDA is only forecasting a 5% decline from a year ago.  Sales need to average 27.6mbu each week through August to hit the USDA forecast which would be the highest average sales program since 2006.  Not a lot of weeks we can write off as an “off-week” and still keep the USDA from making additional cuts.  Soybean sales were also low at 9.9mbu vs. the 12.9mbu needed weekly to hit the USDA forecast.  Total commitments of 1.613bbu are down 17% from a year ago with the USDA only looking for an 11.9% decline.  Like wheat, shipments are the big problem for soybeans with only 60.5% of the USDA’s forecast having been shipped as of the first week in April which would be the lowest total on record going back to 1991.  The average pace of shipments needed through August at 35.2mbu would be the largest on record by over 7mbu from the next largest program which occurred in 2017/18.  Unlikely to see that kind of summer export pull considering larger crops in Argentina and slower demand pull out of China.

The big talker Thursday was China’s purchase of 77,732MT of U.S. pork which was easily the largest purchase on record and almost tripled the previous record purchase back in 2017.  Earlier this year, analysts thought China could buy as much as 300,000MT of finished pork from the U.S. as it attempts to bridge the shortfall gap created by ASF.  We did a fourth of that total in one week and we are barely a fourth of the way through the calendar year.  Interestingly enough, U.S. pork is still subject to tariffs implemented at the beginning of the trade war, so it shows the true need for this product by China.  The ongoing purchases, should they continue, will continue to support lean hog futures and hog feeding margins which should keep expansion ramped up through year-end.  What will be critical is keeping the most stringent safety protocols in place across Canada and the U.S. to prevent the disease from spreading to North America.  ASF exposure in North America could see the entire bull narrative in hogs fall short.  Beef and poultry demand should also see continued demand.

A couple crop estimates thrown around yesterday with BAGE taking their estimate of 2019/20 Argentine wheat acres up 3.2% to 6.4 million hectares and production to 20.6MMT vs. 19.5MMT this year.  Strategie Grains cut their 2019/20 EU soft wheat estimate by 1.3MMT to 144.8MMT.  Both of these estimates mean little at this juncture, although the fact StratGrains is cutting their new crop estimates due to dryness already shows how critical spring and summer rains are to prevent further cuts.  Some concerns over dryness in parts of Ukraine as well, but difficult to get too excited about any crop issues on April 12th.  What is certain is crop adversity in other parts of the world will be needed for U.S. to see export demand of any consequence in 19/20.  August FOB offers of 11.0% protein hard wheat out of Russia are seen at $197/MT vs. German at $200/MT vs. Baltic at $198/MT with US-HRW up at $214/MT.  French new crop offers are seen at $198/MT vs. US-SRW at $203/MT.  One must keep in mind, those destinations already enjoy a freight advantage over the U.S., so for U.S. wheat to pick up business, FOB offers need to be cheaper than competitor origins.  By the time we get through harvest, our guess is variable storage rates will be on the rise and spreads will be pricing wheat to stay in storage in the U.S., not head for export hubs.

Bottom Line: Firmer markets to close the week as our space is caught between a disappointing old crop demand picture and a potentially friendly new crop supply situation if weather stays adverse.  It is still too early to get runaway bullish on planting delays of corn and soybeans, although spring wheat is already losing acres.  If the snow is reluctant to leave, however, some of the huge increase in corn acres for the Dakotas and Minnesota will have to be tempered. 

Good Luck Today.

Tregg Cronin

Market Analyst




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