5/8/2019 Morning Comments

Good Morning,

Lots of rain on radar returns this morning with systems stretching from Texas to North Dakota and east to Illinois.  Looking for the USDA to state there were 0.2 days suitable for fieldwork in many states on next week’s crop progress report.  In the last 24-hours, nearly the entire state of Kansas received 0.50” with many locations in the eastern part of the state seeing 1.5-3.00”.  Should be minimal concerns about that crop needing moisture the rest of the way.  Excess moisture remains an issue elsewhere as large swaths of KS/OK/MO/IL running 200-600% of normal moisture over the last 14-days.  South Dakota also seeing 125-200% of normal as well. Rains will finish up tomorrow with a long-awaited dry stretch coming in next week.  Next week could be go-time for most as the calendar pushes toward mid-May.  Extended maps retain their below normal temp bias in the 8-14 while precip moves back to above normal as well.

Mixed markets this morning with row crops higher and wheat markets lower, although mostly still in recent ranges.  Difficult to say what traders are positioning for more: the trade war or the May WASDE?  The writing on the wall would seem to suggest there will not be a grand deal announced Friday between Chinese and U.S. trade negotiators, otherwise tensions wouldn’t have been ramped up so hard last weekend.  Anyone who thought Beijing would be willing to scrap decades of policy which helped propel them to the No. 2 spot in the world was a bit delusional.  They might end up buying additional farm products from the U.S., but these purchases would have occurred anyway and the costs pushed onto the U.S. consumer via higher tariffs could hardly be called worth it.  We are not disagreeing China needed to be confronted, but tariffs can only force a hand so far if protecting state-owned interests are a higher priority than a certain growth figure.  In our opinion, without soybean purchases being revived, and with acreage ideas trending the way they are, soybean prices could potentially have much more downside later this year without a heavy dose of yield adversity.  In the near-term, soybean futures have probably found a temporary bottom, but the supply situation held against stagnant global demand is just too much.  Hard to have rallying wheat markets in May when Kansas is covered up by rain.  Not much more needs to be said.  Open interest changes yesterday saw corn down 8,832 contracts, soybeans down 7,205, meal down 85, oil up 8,746 contracts, SRW down 1,541 and HRW down 1,784 contracts.

Deliverable stocks out yesterday with total wheat stocks in Chicago down 1.437mbu to 44.646mbu which compares with 68.596mbu a year ago.  The SRW balance sheet has been the most interesting for months now, and with crop production prospects declining seemingly by the day, the multi-year low in deliverable stocks becomes all the more interesting.  Analysts are busy downgrading their SRW production with many closing in on 250-260mbu.  With that kind of production figure, and total demand down around 15mbu, we see ending stocks of 121mbu.  That would be the smallest carryout since 2013/14 and compare to the 10-yr average of 173mbu.  Going into the year with multi-year lows in deliverable stocks should also keep upward pressure on carrying charges.  Conversely, total wheat stocks in Kansas were 96.996mbu vs. 97.437mbu the week before and 106.176mbu a year ago.  With big crops getting bigger in the southern plains, delivery warehouses should easily recharge supplies and put pressure on spreads.  With KW/W trading at historical lows, it would seem wise to hedge HRW in Chicago, although there is no guarantee that spread eventually corrects to normal relationships if the disparity persists between SRW and HRW supplies.  If one is planning to carry wheat, Kansas City will definitely be the market to do it in as spreads should head back to 8c or 11c per month.

We spent some time looking at other late planting years on corn and the final yield prospects.  We will start by saying summer weather is absolutely the largest driver of yield potential, but it never hurts to look at other factors.  Since 1980, there have been six other years which failed to reach 25% planted by week 18 with those years being 1981, 1983, 1984, 1993, 1995 and 2013.  Admittedly, most of those years are over 20-years old, and probably don’t have the same applicability given genetic potential and planting speed in 2019.  Out of those six years, three were better than the prior 5-yr average and three were worse, adding one more strand of ambiguity to this year’s yield analysis.  We’ve heard both arguments on what USDA will do with Friday’s corn yield given planting progress has not advanced past 25% complete.  It would be our opinion they should leave yield alone at trend line because other than planting date, there is nothing to discredit this yield yet.  As the aforementioned analysis shows, planting date just does not have that high of an impact on final yield potential.  If planting progress has not advanced past 50% complete by May 15th, people will get restless, but we need more time to have a confident opinion.

Australia is finally starting to see some rain on the drought-stricken east coast with lots of locations in NSW, Queensland and Victoria seeing 0.50-1.00” totals over the previous week.  Returns look light for the coming week, although areas of Queensland could shag a bit more rain by the middle of next week.  Contacts there suggest the recent rainfall is enough to get the winter wheat crop seeded at the very least, and will hopefully prime the pump for additional spring rainfall.  W.A. has seen decent rainfall over the previous month and should be in decent shape having not experienced near the drought conditions the East Coast did last year.  Australia is due for a bounce-back year in production after back-to-back droughts which decimated production and exports.  Not that the world needed more wheat production out of the major exporters, and not that this crop is in the bin or even fully planted, but prospects would appear to be turning up.

Bottom Line: Corn drifting negative as we get ready to hit send.  Should be lots of back-and-forth between now and Friday with lots of balls in the air.  Headline risk will remain elevated, and the World Board is unlikely to reflect the true state of crop prospects in the U.S. on Friday.  Our markets have suffered mightily as of late, although there is nothing to say the beatings are over.  Seasonally, we should see additional risk-premium added in during May and June, but a seasonal is only as good as the year you’re in. 

Good Luck Today.

Tregg Cronin

Market Analyst




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