4/24/2019 Morning Comments

Good Morning,

Fertilizer prices at the Gulf continue to move higher, presumably on logistical issues on the U.S. river systems which are not allowing the free-movement of product.  Spot UREA swaps were up another $2.25/ton yesterday and are up $27/ton since the beginning of March.  May swaps have witnessed the most movement with that slot up $4.00/ton yesterday to $268.50/ton, the highest since mid-January. With corn planting breaking loose in Iowa and Nebraska this week, the rush to get fertilizer applies ahead of planters is hot and heavy.  The Dakotas and Minnesota are probably another 5-10 days away from putting any corn in the ground, assuming the looming weekend weather does not delay progress too long.

Rains across Texas and parts of the Delta while showers also impact Illinois, SE-Iowa and Indian this morning.  Forecasters are focused on the system moving into the Northern Plains and Upper-Midwest this weekend which will bring with it moderate to heavy rain with the potential for snow in some northern locales.  Morning GFS models are putting 1.25-2.00” across almost all of Iowa, S-MN, WI and NE-KS while slightly less totals will be seen in NE and SD.  North Dakota should largely avoid the moisture as well as N-MN, although temps will cool next week which will slow additional dry down for areas waiting on sunshine.  Extended maps could look better with below normal temps and above normal precip for the Northern Plains while most areas of the Midwest will see normal to above normal temps but also slated for above normal precip.  Looks like a start-and-stop affair into May.

Mixed grain markets this morning as winter wheat contracts once again post losses following their brief 1-day hiatus on Tuesday while row crops are attempting to recover a bit from yesterday’s washout.  The 15c losses in soybeans were impressive, and felt like the market coming to grips with the fact that the only thing bullish in the Ag space right now is a potential trade deal with China which carries with it large purchases of U.S. grains.  Short of a trade deal, weather is about the only thing which could stabilize our space as supplies remain bearish, and demand is less than impressive from any sector.  A ton of comparisons with a year ago and the last five years in terms of setting price highs and lows which we will touch on below. Every market pundit in the Midwest is writing about the record short positions being held in grains, but what they fail to mention is these traders are being given zero reason to cover.  They have a ton of equity in their positions and are much more willing to fight than flight at this juncture.  Open interest changes yesterday saw corn up 25,479 contracts, soybeans up 8,770 contracts, meal down 1,022, oil up 9,252 contracts, SRW up 6,041 and HRW up 903.

We’ve discussed in the past the propensity of December corn to make highs in certain months vs. others.  In 2018, December corn made its calendar year highs in May for just the second time since 1990.  The other came back in 2000, and was definitely one of the reasons farmers were undersold the balance of 2018 as most expected another round of highs in June and July like we typically see.  So far in 2019, 4.06 was the December corn high back on January 18th.  In similar fashion, December corn has made its calendar year highs in January just one time since 1990.  Appropriately enough, 2001 was the last time December corn put highs in during January, which would follow the only other year we set highs in May. We are certainly not suggesting the calendar year highs are in for December corn, as seasonality and odds still suggest a run at 4.06 sometime May-July, but it also doesn’t seem like anyone has a plan in case that doesn’t happen?  In soybeans, the calendar year high so far is February, which has contained our calendar year highs only one other time back in 1998.

Lots of comparisons with last year taking place in winter wheat as well with those contracts setting contract lows on a daily basis.  A year ago, July KC wheat settled at $5.12 before rallying to a high of $5.74 at the end of May.  Tuesday, July KC wheat settled at $4.21, a full 90c below a year ago.  Based on our current estimates of production, total HRW supplies for 2019/20 are seen at 1.265bbu vs. 1.249bbu a year ago.  Our carryout estimate is 483mbu vs. 490mbu a year ago, although we could be 10-15mbu light if exports underwhelm.  Still, it is quite striking to see price down over 17% from a year ago when total supplies are seen up just barley over 1.0%.  Obviously, the implications of rising supplies globally are what are beating the wheat market down, but it also makes one question whether the price strength back in 2018 was way overblown?  Minneapolis spring wheat for September is trading at $5.26 this morning vs. $6.06 a year ago as late planting plagued farmers through May.  Doing the same exercise in spring wheat, we see total supplies for 2019/20 at 890mbu vs. 850mbu a year ago, which turned out to be the largest total supplies since 1987/88.  We just didn’t know it at the time.  Our carryout estimate for 2019/20 is currently 319mbu vs. the 305mbu estimate for 2018/19.  Much of our demand estimate hinges on how aggressive Canadian export offerings are next year which we have no reason to doubt sitting here today.

Other data out yesterday included weekly deliverable stocks which saw Chicago stocks fall another 1.474mbu from a week ago to 42.903mbu and compare with 67.537mbu a year ago.  Whether Chicago is able to maintain tighter than average carrying charges in 2019/20 will depend largely on the ability to rebuild deliverable supplies.  Production prospects are expected to be down in SRW in 2019/20.  HRW stocks rose 166,000 bushels to 99.073mbu which compare with 105.257mbu a year ago.  Minneapolis wheat stocks fell 759,000 bushels to 15.586mbu which are down from 21.719mbu a year ago.  A huge run of cars on the Minneapolis spot floor yesterday which saw 187 cars including 6 trains.  This compared with 11 cars a year ago.  Values fell 5-30c with 14’s now seen at +85/100K while 15’s were indicated t +105/115K.  Our two-week rally on logistics came and went with values right back to where they started before the winter weather hit hard in March and April.

Bottom Line: Sentiment is negative and the two things which could support price, trade resolution and adverse weather, seem fleeting at the moment.  Folks involved with trade negotiations have a long-play view and agriculture is not their chief concern.  Weather is a mixed bag, but not severe enough to put weather premium back in at this time in our opinion.  Yes, the funds are short.  No, they are not being given a reason to cover at this time.  One can go broke buying in front of a large-scale fund short-covering event.

Good Luck Today.

Tregg Cronin

Market Analyst




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