5/24/2019 Morning Comments

Good Morning,

More rain falling across the Plains and Midwest this morning with severe weather rolling through OK/KS/IA.  Multiple rounds of rain will fall the next five days through Wednesday with additional totals of 1.00-4.00” expected across OK/KS/NE/SD/MN/IA/MO/WI/IL/MI/N-IN.  Every spot fighting planting delays will see rains through Memorial Day weekend which should keep progress minimal for next week’s crop progress report.  Thursday-Friday next week at least looks somewhat drier although temps don’t return to normal until the 6-10 day.  Precip potential looks mostly above normal through the 8-14 day which probably keeps the wet pattern in place through June 6.

Higher markets overnight with corn on the highs during the 6:00 hour.  Thursday’s session was all about trying to interpret the second round of Market Facilitation Payments (MFP) including eligibility and possible payment ideas.  As far as we could tell, the second round of MFP payments are only made if a program crop is planted and up to 2018 acreage levels.  In other words, prevent plant acres will not receive a payment and a producer cannot plant their entire farm to soybeans and receive a payment.  In addition, no individual payment rates will occur, but rather a single payment rate per county based on the amount of funds appropriated from the government.  One example of a county in Kansas showed a payment rate of around $54 per acre.  If that wasn’t confusing enough, rumors started circulating last night about a bill the Senate signed yesterday which appropriated funds for increased prevent plant coverage attached to a hurricane disaster bill which also included funding for destroyed crops in this spring’s floods.  Details are incredibly lacking, but ideas being floated were prevent plant coverage going from 55% to 90% for those producers who have no shot at planting and receiving a second MFP payment.  We are also hearing this would only be available for areas declared a flood area and a disaster zone, not all areas of the Midwest.  That would make much more sense, but at this juncture, we can’t be sure of anything.  This took an already murky situation and threw it out the window, especially considering final plant dates begin tomorrow in a large section of the Midwest with quick decisions needing to be made without much in the way of details.  All of the programs as well as incoming rain and indecision on planting is producing unpredictable markets and heightened volatility.  Corn open interest fell 6,278 contracts yesterday, soybeans were up 683, meal down 2,441, oil down 3,327 contracts, SRW down 3,707 and HRW down 439.

Moving away from the potential programs for a moment, the bullishness developing from the U.S. farmer is palpable.  It is understandable in many areas which have little to no planting progress, but even areas with substantial acres planted are seeing marketing targets raised or pulled altogether.  Despite the uncertainty from actual planted acres, seasonal marketing patterns still exist regardless of the intricacies of a particular marketing year.  Looking at the last 28 years, we see the highest percentage month to set calendar year highs for December corn is July at 17.24%.  Second place is June and March at 13.7% each followed by December and August at 10.34%.  Looking at a period collectively, the April-July period sees highs set 44% of the time since 1990 and 52% of the time since 2000.  Highs are set January-July 69% of the time and 79% of the time January-August.  With that in mind, odds are very high we are in the period of time in which December corn will set is calendar year highs for 2019, regardless of what yield or acres end up being true.  This is because the futures market typically overshoots fundamental value in an effort to price in all possible scenarios.  Once that high is set, the focus shifts to demand and whether the market needs to encourage or discourage end users.  That function takes place predominantly with basis and spreads as futures prices ease back down to the proper level according to flat price.  December corn sets highs about 1/3 of the time in the June-July period, so producers need to have their marketing hats on where possible.  On soybeans, November calendar year highs are set in June 21% of the time with highs set between May and July 48% of the item.  Consider that almost half the time, soybean highs are set in a 3-month window.  Pretty good odds and reason to be paying attention.

Export sales yesterday were a mixed bag as the wheat marketing year comes to a close and row crops continue to disappoint.  Old crop wheat export sales totaled 1.8 million bushels with total commitments now at 944.9 million bushels.  Whether we get all of the 925 million bushels the USDA is forecasting before the end of the marketing year or not remains to be seen.  New crop wheat sales totaled 12.7 million bushels with total new crop commitments now at 122.1mbu vs. 88.1mbu a year ago.  Corn export sales totaled 17.4mbu vs. the 23.0mbu needed weekly to hit the USDA forecast.  Total commitments of 1.863bbu are now down 11% from a year ago while the USDA is calling for a 5.6% decline.  Corn export commitments as a percentage of the USDA forecast at 80.8% is the lowest for this time of year since 2001, highlighting the amount of work left to do this summer.  Soybean export sales totaled 19.7mbu vs. the 6.9mbu needed weekly.  Total commitments of 1.681bbu are down 17% from a year ago which is almost spot on the 16.6% decline the USDA is calling for.  Shipments are the big concern with soybeans as total shipments as a percentage of the USDA forecast at 70.2% is the lowest on record going back to 2000.  We need to ship 35.2mbu each week through August to hit the USDA forecast which would be almost 5mbu higher than the previous record last year which benefitted from a counter-seasonal export pull due to tighter South American supplies.  In addition, last year didn’t feature the trade war to the extent it does this year nor was the African Swine Fever issue raging to the level it is this summer.

Bottom Line: Our heads are spinning trying to keep track of all the potential program changes and what makes the most economic sense for producers with unplanted acres.  The market is obviously still approaching the market from a supportive tilt, but the momentum has undoubtedly slowed as more confirmation from the USDA is wanted from the next crop progress report.  Weather leans bullish with extensive coverage the next week and the calendar simply getting away from producers.  At the same time, seasonality still exists for a reason and producers should not bury their head in the sand.

Good Luck Today.

Tregg Cronin

Market Analyst




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