4/30/2019 Morning Comments

Good Morning,

Lots of moisture around the Midwest and Southern Plains this morning and this should be the case for much of the week.  Rain will fall throughout the week in the Mississippi River corridor as well as the eastern portion of the Southern Plains.  GFS model totals are impressive this morning with a huge area seen receiving 1.50-4.00” with a much wider portion of the Midwest seeing 0.75-1.50”.  Little to no fieldwork should be occurring this week, which will make planting deficits with average grow.  Warmer temperatures slowly return toward the weekend, but extended maps keep below normal temps in place for the upper-Midwest and above normal precip for the entire Midwest.  The 8-14 day maps take us out to May 13th with the same pattern in place, so it would not appear a wide open week of weather is looming which would allow catch-up progress to be made.

Mixed to weaker grain markets this morning as corn and wheat are softer while the soy complex is slightly better.  The selling pressure, especially in wheat, is getting debilitating for almost all involved, especially producers.  Fresh contract and multi-year lows in winter and spring wheat contracts with harvest still 30-days away in the southern plains is shaping up for a painful beginning to the 2019/20 marketing year.  The selling in corn has also been overwhelming, especially as it is widely believed the farmer is still holding on to a larger than normal percentage of old crop, and his new crop marketing is woefully inadequate.  The hefty on-farm stocks is what is tempering bullish ideas of a massive fund short-covering event, even though funds have absolutely no reason to panic with their equity-filled positions.  Planting is occurring slower than what farmers would like to see, but there is still no reason for panic as the calendar gets set to flip to May.  The entire corn belt will be going into the growing season with one of the largest soil moisture profiles on record, so as long as the crop gets in, it will have a buffer against early season dryness.  Open interest drops were sharp in front of first notice day with corn down 58,657 contracts, soybeans down 20,816, meal down 4,059, oil down 7,305, SRW down 889 and HRW down 2,369 contracts.

We are into the growing season, so that means Monday afternoons the trade looks forward to crop progress reports.  Corn planting progress was seen at 15% complete vs. 6% last week, 14% expected and 27% average.  Planting progress was unchanged from a year ago despite what most would call more flooding and a wetter April.  As we were expecting, Iowa made good progress last week with 21% of the state planted vs. 4% last week and 26% average.  Larger delays exist in the eastern corn belt where Illinois is just 9% planted vs. 43% average while Indiana is 2% planted vs. 17% average.  Deficits vs. average will likely grow in the coming week as most of the belt sees rain.  3% of the crop is emerged vs. 5% average.  Soybean planting progress was seen at 3% planted vs. 1% last week and 6% average.  Delays are growing in the Delta with AR/LA/MS all 16-21% behind average.

Spring wheat planting progress was estimated at 13% nationally vs. 5% last week and 33% average.  South Dakota is posting the largest deficits with just 8% of her area seeded vs. 60% average.  This is the slowest progress since 1997 when just 2% of the crop was planted.  There will be little to no progress made in South Dakota this week either as weekend rain and snow will be followed by more rain this evening.  It is very likely producers will switch some HRS acres out in favor of corn, soybeans and sunflowers in coming weeks.  Other HRS producers are not posting as severe of deficits yet with ND at 5% planted vs. 21% average, MN at 3% planted vs. 33% average and MT at 24% planted vs. 34% average.  Still, acreage changes are worth keeping an eye on.  Winter wheat conditions were also released yesterday and remain strong at 64% G/E, up 2pts on the week and well better than the 33% G/E a year ago.  HRW conditions are the best since 2010 while SRW conditions are at their lowest level since 2007.  White wheat conditions are just above the 5 and 10-yr averages.

The Wheat Quality Council tour begins today in Kansas with results expected at the end of the week.  Lots of crop commentators are suggesting the HRW crop could be in excess of 800 million bushels which would be a 3-yr high.  Lots of folks thinking the Kansas wheat crop could post record yields, which would be needed with planted acres at 100-year lows.  If the HRW balance sheet is graced with an 800mbu crop, we see carryout around 518mbu compared with 490mbu in 2018/19.  Our export forecast is 10mbu smaller than the current marketing year while domestic demand is seen up 33mbu.  The stocks/use ratio of 66.18% we are currently forecasting would be the highest since 1986/87.  We’ve already been over the overburdened HRS balance sheet, but the fact the two largest classes of U.S. wheat are staring at their largest surpluses since the late 1980’s is a terrible way to begin a marketing year.

Export inspections also released yesterday with grains solid while beans continue bad.  Wheat inspections were 23.2mbu which were just a shade under the 23.4mbu needed weekly to hit the USDA forecast.  Total inspections of 785.8mbu are down 2.4% from a year ago, and one of the main reasons exports will likely be trimmed once again on the May WASDE.  Corn inspections were solid at 53.8mbu vs. the 36.9mbu needed weekly and were the largest since October.  Inspections are still 10.7% above a year, but the corn market needs to have a very strong sales and shipment program this summer to meet current forecasts.  Soybean inspections totaled 18.1mbu vs. the 34.2mbu needed weekly.  This was the third week in a row which failed to meet the USDA forecast.  Total inspections of 1.159bbu are down 27.5% from a year ago while the USDA’s current forecast is only calling for an 11.9% decline.  Based on our reading of the tea leaves, the soybean export forecast needs to come down 100-125mbu to make the current sales and shipping pace “work.”  This of course without some major Chinese purchases coming in, although we aren’t sure those would execute in 2018/19 anyway.

Today is first notice day and there was a fair amount of delivery activity.  The Anderson’s registered 1,000 fresh receipts in Toledo, and delivered same.  There were no strong stoppers from what we could tell, and The Anderson’s will probably end up stopping all of their own receipts back and retaining ownership in their elevator, although they no doubt benefited from selling the WK/WN ahead of FND.  Selling wheat futures or the front-month spread 10-15 sessions in front of delivery has been one of the surest bets for the last couple years.  There were 453 soybean deliveries with no real commercial participation.  There were zero HRW deliveries but CHS House did drop 924 deliveries on the market in Duluth out of the 938 outstanding.  There were 856 corn deliveries.

Bottom Line: Waiting on weather to make a difference or something to come out of the trade talks which gives bulls a reason to lift a shoulder off the mat.  There is simply too much old crop inventory left in the farmer’s hands and the market seems to know it.  This is the reason behind the stronger than normal basis for this time of the year, not some conspiracy theory about the bushels not being out there.  If planting gets completed, would expect to see this grain start to move in heavier volumes, and let’s all hope end users can handle it.

Good Luck Today.

Tregg Cronin

Market Analyst



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