4/15/2019 Morning Comments

Good Morning,

A mix of light rain and snow in the Dakotas and N-Minnesota this morning, otherwise a fairly empty Midwest.  Morning GFS models are showing an active week for the corn belt and parts of the southern plains with 0.50-2.00” expected in the I-states and Delta.  In addition, Kansas is slated for 0.50-1.50” this week which is the first meaningful moisture for the state in several weeks.  Percent of normal precip maps were showing sizable deficits for Kansas over the last month, so this rain if it falls as forecasted, should promote strong conditions to hold.  Extended maps keep above normal precip for the 6-10 and 8-14 in most of the Midwest but temps are finally warming to above normal which is badly needed across the entire Midwest.  The Northern Plains are still sitting under a heavy blanket of snow which is going to take 7-10 days to get rid of, let alone dry up assuming no other precip falls.

Mixed markets this morning as row crops and Minneapolis wheat are higher while winter wheat contracts are lower.  The weakness is winter wheat is probably two-fold as the best chance for moisture across Kansas in a month showed up for later this week, and US-SRW missed out on Friday’s GASC tender despite cheaper FOB offers from the week before.  The competitiveness of Romanian and Ukrainian offers was a bit surprising considering US-SRW cleaned up the last tender, and Black Sea offers should be mostly nil until harvest.  The USDA’s 945mbu export forecast is still counting on a fair amount of late-season HRW and SRW business to occur, so missing out on a high-profile tender like GASC is not bullish.  Strength in row crops and Minneapolis wheat can be attributed to the larger than expected managed funds short positions revealed on Friday, especially as fieldwork looks to be delayed at least another week across a huge cross-section of the Midwest.  Acreage changes absolutely happening across the Northern Plains, but final tallies won’t be known for several weeks.  Open interest changes Friday included corn up 15,655 contracts, soybean futures were down 3,849, SRW down 3,096 and HRW up 772.

Friday’s COT data showed large spec traders selling another 24,525 contracts to put them net short -294,352 contracts which is the largest on record.  The record short is 9% larger than the previous record from a week ago, and a truly massive position ahead of the entire Northern Hemisphere growing season.  We were also encouraged by the gross commercial long position which rose to 700,202 contracts last week, the largest position for that group since September.  The chart below shows the gross commercial long position relative to history with the current position being record large for this week on the calendar.  Funds bought 6,767 contracts of soybeans to trim their net short to -84,961 contracts, and they were small net buyers in Chicago and KC wheat.  The other market of interest was spring wheat in which managed funds sold 7,279 contracts last week to notch their single largest week of selling on record.  This pushed their net short to -9,457 contracts, which is the largest net short since January but only 73% of the record net short from July.  This position is worth watching after spring wheat futures plumbed decade lows a week ago.

NOPA crush out later this morning with the trade expecting 168mbu crushed in March vs. 171.86mbu a year ago.  Soy oil stocks of 1.783 billion pounds are seen vs. 1.752 billion at the end of Feb and 1.946 billion at the end of March 2018.  Crush will need to be scrutinized closely moving forward as that demand category has been moving higher to largely offset the lighter export program.  Crush needs to continue to run near record levels through the end of the marketing year to achieve the USDA’s forecast.  With export still likely overstated, a slowing crush sector would probably guarantee carryout ends up close to 950mbu as opposed to slightly under 900mbu as currently expected.  At the end of the day, 50mbu probably doesn’t matter much to a market with that much excess but could prove pivotal to the market’s ability to hold $9.00.

Bottom Line: Tonight’s crop progress report should show national corn planting progress near the 5% average which probably keeps bulls at bay another week, even though the forecast looks less than ideal.  The fact is, until the calendar reads May and progress is behind schedule, going to be difficult to spook managed funds into covering.  In addition, the U.S. farmer feels undersold on both ends of the curve, so he is likely to throw a fair amount of length at any rally attempt.  Likely losing spring wheat acres in the Dakotas, but the actual amount remains a moving target.

Good Luck Today.

Tregg Cronin

Market Analyst




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