5/13/2019 Morning Comments

Good Morning,

Some scattered showers in the Dakotas this morning, otherwise the Midwest is mainly quiet.  Rainfall during the last week saw heavy totals across Kansas, South Dakota, Minnesota, Nebraska, Missouri and Iowa with totals ranging from 1.00-5.00” across Kansas while other locations were mainly 0.50-1.50”.  The next 3-4 days will provide the best opportunity to get caught up on planting progress as temperatures will be normal to above with rains mostly quiet until later this week.  By Friday/Saturday, another round of moderate to heavy rainfall moves into the Northern Plains and Western Corn Belt.  The GFS model this morning is putting 0.75-2.00” across almost all of the Dakotas, Montana, Minnesota, Iowa, Wisconsin and eastern Nebraska.  This will likely shut progress down for an extended period, taking us close to the final plant date on corn.  Extended maps shift back to cooler and wetter through May 26.

Lower markets this morning, following through on Friday’s weakness which was sparked by the breakdown in trade talks and the bearish round of USDA reports.  Patience has worn so thin with these trade talks and the constant brinkmanship with deadline after deadline I’m not sure anyone cares anymore.  After talks fell apart last Friday, we were told President Trump was readying tariffs of 25% on the remaining $325 billion worth of Chinese good imports.  This would place a 25% tariff on everything we buy and has been dubbed the nuclear option.  In the next breath, financial media outlets reported Whitehouse Economic Advisor Larry Kudlow saying there was a “strong possibility” Trump and Xi would meet at the G20 Summit in Japan at the end of June.  Many think the only way a deal gets done is with Trump and Xi getting together directly which raises the specter of a bad deal as long as Xi says the right things to Trump in-person.  Following the negative trade news were rumors about a second round of trade-war payments which seemed to bolster enthusiasm for staying the course.  We will discuss below. Open interest changes Friday saw corn up 11,453 contracts, soybeans down 1,326 contracts, meal up 3,938, oil up 6,947 contracts, SRW up 12,766 contracts and HRW up 1,102 contracts.

Friday evening, emails started circulating about a potential second trade-war assistance payment from the USDA being announced this week.  Details were vague, but the comments suggested producers could expect $1.85 per bushel of soybeans produced vs. $1.65 last year.  Many, many issues exist with this idea with the first being the crop isn’t planted yet and any potential payment could wildly influence planting decisions.  If producers are guaranteed $10.00+ futures on their soybeans vs. $3.69 futures on corn, most would likely maximize soybean acres.  In addition, some producers received the short-end of the stick last year with the payment being based on actual bushels produced as farmers hit with drought had no recourse.  Similarly, if producers can’t get their acres planted and are forced to take prevent plant coverage, do they receive no payment at all or is it based on APH?  Lots of questions and very few answers, not to mention the timing for announcing such a program seems odd.  Still, if nothing is done, and the trade war persists through 2019 and into 2020, President Trump’s approval ratings across the Midwest will plummet heading into the 2020 election.

Friday’s USDA reports had nothing for bulls with larger than expected 2018/19 ending stocks, larger 2019/20 ending stocks and larger than expected South American crops.  The projected ending balances for the current marketing year will be the largest or second largest since the 1980’s if not the largest ever.  These carryover supplies will provide a substantial buffer against any yield adversity this summer.  Winter wheat production came in slightly below average trade ideas, although we feel this will get bigger as the season progresses.  HRW production was projected at 780mbu vs. the average trade guess of 767mbu and 662mbu last year.  Prior to the report, we heard a lot of ideas of 800mbu all the way up to 840mbu.  Condition scores are the best in nine years, and big crops typically get bigger.  SRW production was estimated at 265mbu vs. the 277mbu average trade guess and 286mbu a year ago.  The 265mbu estimate seemed in-line with pre-report chatter, although the higher level of abandonment could trim these ideas a bit further, especially if some sort of soybean assistance payment is announced.

South American crops got bigger with 2018/19 corn production for Brazil at a new record of 100.0MMT while soybeans were unchanged from last month at 117.0MMT.  The Brazilian soybean production number was below last year’s record 122MMT, but the USDA sees Brazil producing 123MMT next year which is completely feasible if the trade war does not come to a conclusion by the time Brazilian farmers plant this fall.  Argentine production ideas were also larger than last month with USDA pegging corn at 49MMT vs. 47.0MMT last month and 32MMT a year ago.  Soybeans were seen at 56MMT vs. 55.0MMT last month and 37.8MMT a year ago.  Combined soybean and corn production are new records, and as always, those crops will be priced to export as opposed to store.  South America just doesn’t have the infrastructure to store crops the way the U.S. does, so the supplies should trade to levels which clear excess supply.  The other big number in the world balance sheet was Chinese soybean import which were projected at 86.0MMT for 2018/19 vs. 88.0MMT last month and 94.1MMT last year.  2019/20 was seen at 87.0MMT but it is worth pointing out the USDA Ag attache to China has both import forecasts another 3MMT smaller than the World Board.  The fact is no one has a handle on the African Swine Fever situation, so projecting changes to Chinese soybean imports is mostly futile.  If anything, we should assume worse demand because the outbreak is almost surely worse than being reported.

Traders will focus on the weekly crop progress report this afternoon which is expected to show corn planting at 35-36% complete vs. 23% last week, 62% last year and 69% average.  Soybean planting is expected around 14-15% complete vs. 6% last week, 35% last year and 26% average.  HRS progress is seen at 34-36% vs. 22% last week, 58% last year and 70% average.  The southern half of South Dakota hit final plant dates for insurance purposes on May 5, while the northern half of the state hits final plant dates on May 15.  There should be a large cut to HRS acres in South Dakota from the March Prospective Plantings report.  Based on most rotations in South Dakota, would think corn will try to be the benefactor although more and more producers talking about soybeans on soybeans.  North Dakota has a bit more time to get crops seeded, although they hit final plant dates on May 31 in the southern half of the state while the northern half has until June 5.  There isn’t a great deal of correlation between plant date and final yields in HRS, but a shortened growing season does put more emphasis on good growing conditions the rest of the way.  South Dakota moves into final plant dates for corn on May 25 which will be here before we know it, especially if a heavy round of rain is experienced at the end of the week.

Bottom Line: Lower markets in search of demand which has not stepped up to the plate for any of our commodities on the latest break.  USDA’s increased demand forecasts for 2019/20 looked suspect on Friday given the slow offtake rates in 2018/19, but low prices should spur additional consumptive demand.  The difficult line items will be exports given the large supplies around the globe and the heavy competition expected.  Trade wars are not easy to win, and assistance payments will likely make our oversupply situation worse as producers are incentivized to grow crops the market doesn’t want.  Markets are smart, and any additional assistance payments will likely be extracted by futures prices.

Good Luck Today.

Tregg Cronin

Market Analyst

Tregg.Cronin@halocommodities.com

www.halocommodities.com

@5thWave_tcronin

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