4/17/2019 Morning Comments

Good Morning,

The much-anticipated release of Q1 GDP from China was released overnight with the country growing at 6.4% from the same quarter a year ago, better than the 6.3% expected by economists. I’m not sure there was any way China wasn’t going to meet or exceed estimates on growth as negotiations are headed down the final stretch in the trade war.  There was a big surge in industrial production, rising 8.5% from a year ago vs. 5.3% growth in the Jan-Feb period.  Year-to-date fixed asset investment was also strong in Q1 at +6.3% vs. 5.3% last year.  Still, everyone thinks to keep China growing at even a 6.0% growth rate moving forward will take a monumental stimulus effort.  There is no doubt the trade war has slowed both Chinese and U.S. growth, with the question being how quickly it can bounce back if tariffs are removed and unrestrained trade can take place.

Rains across the Northern Plains this morning, with parts of the system expected to drop upwards of an inch of rain throughout the day.  This will help melt the snow cover faster, but the moisture is scarcely needed and will keep ponding/flooding issues present.  Mostly quiet after the current system moves at least until early next week when the southern plains and central Midwest have their next chance at moisture.  The 7-day QPF maps show 1.50-3.00” totals across a huge swath of the Midwest east of the MS-River.  Extended maps keep the above normal precip in place through the 8-14 day, but fortunately temps are also above normal the next two weeks.

Firmer markets across the board with the exception of Minneapolis wheat which has been the whipping boy as of late with the late season snowfall failing to spark any interest in owning the Northern Plains staple.  While delays will persist in South Dakota, Minnesota and SE-North Dakota, drills have been running in Montana and western North Dakota.  Acres will be lost in SD/MN, but there should be ample opportunity to make them up elsewhere and unless the acreage drop is more than 1 million from the USDA Planting Intentions report, difficult to see a major draw on 2019/20 ending stocks.  Also no concerns about late planting in corn yet either, and a look at recent history would support this view.  Going back to 2013/14, every year posted a national average yield above trend regardless of how fast or slow planting progress occurred.  We look at this a little closer below.  Soybeans remain inside their impressive downtrend dating back to February.  Movement on the trade war or further delays which would support even more acres moving back to soybeans would seem to be the only thing which will drive price sharply higher or lower.  Open interest changes yesterday saw corn up 23,317 contracts, soybeans up 20,125 contracts, SRW up 1,608 and HRW up 2,704 contracts.

Looking back at corn planting progress as of week #17, which is more or less the First of May, we’ve seen progress range from as little as 5% in 2013 to as fast as 45% in 2016.  The range of yields during that time frame was 158.1-176.6bpa.  2013/14 had the low yield at 158.1bpa, but at the time, this was third highest national average yield on record behind only 2004’s 160.3 and 2009/10’s 164.7bpa.  The point here is as long as corn planting progress doesn’t drag out to an extreme level, actual planting date hasn’t had too strong of a correlation with final yield.  Weather the balance of the marketing year is much more important than planting date, not to mention, corn planted in May is usually going into warmer soils which promotes better emergence and stand counts.  The same could be said about soybeans with progress since 2013/14 ranging from 6% in 2013 to 36% in 2016 as of week #19, which is around the 10th-15th of May.  During that stretch, the national average soybean yield ranged from 44bpa in 2013 to 52bpa in 2016/17.  At the time, the 44bpa yield in 2013/14 was tied for the highest national average yield on record.  If corn and soybean planting is still lagging averages badly by mid-May, it will be time to add risk premium.

Data out yesterday included weekly deliverable stocks with recent trends mostly persisting.  Chicago deliverable stocks fell 871,000 bushels to 44.377mbu which compares with 67.912mbu a year ago.  This is a 34% decline from a year ago, and puts a lot of pressure on rebuilding deliverable supplies with high quality wheat this year.  Non-deliverable grades at 6.393mbu are up 1.666mbu from a year ago.  Kansas City wheat stocks fell 309,000 bushels w/w to 98.907mbu and are down 5.986mbu from a year ago.  From a historical perspective, still a lot of wheat in warehouses in Kansas.  Unless things change drastically, the KWK/KWN should see variable storage rates reduced by another 3c/mo to the exchange-minimum 5c/mo.  That said, new crop spreads are pricing in storage levels to rise back to 8c/mo as they price in a large crop with what would appear to be limited new crop demand.  HRS deliverable supplies rose 477,000 bushels on the week to 16.345mbu as rail movement improves following the March and April blizzards.  Still the lowest wheat stocks since 2014, but well above the levels witnessed in 2008, 2012 and 2009.

Brazilian crop progress data was also released yesterday with soybean harvest wrapping up at 89% complete vs. 83% last week and 85% average.  1st crop corn harvest was seen at 69% complete vs. 63% last week and 72% average.  Other tidbits include Germany’s association of farm coops seeing a 21% rise in the country’s wheat production from a year ago.  They see 24.4MMT being harvested vs. 20.3MMT a year ago which was ravaged by drought.  There is a U.S. delegation of wheat officials, including US Wheat Associates and Kansas Wheat Commission, headed to Brazil to encourage the country to act on the 750,000MT of duty-free imports agreed upon at last month’s summit between the Brazilian president and President Trump.

Bottom Line: A little relief bounce, but it is difficult to see gains going anywhere until we have a trade resolution or planting progress fails to make any headway by the end of April.  As we discussed, not much use in getting excited about planting progress on April 17th.  Bulls are quick to remind funds are carrying hefty net short positions, but those aren’t relevant until they are given a reason to cover.  At the moment, they are being encouraged to add to their winning positions.

Good Luck Today.

Tregg Cronin

Market Analyst




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