5/28/2019 Morning Comments

Good Morning,

Additional precip over the long Memorial Day holiday in South Dakota, SW-Minnesota, NW-Iowa, Nebraska and Kansas.  Morning GFS models are putting more rain in Iowa, Illinois, Indiana, Ohio, Missouri, Kansas, Arkansas and Oklahoma in the coming seven days.  Temperatures slowly warm during the next week with almost normal temps present by the weekend.  Extended maps are finally featuring normal/above temps in the 6-10 and 8-14 day outlook.  Precip expectations turn more normal and even below normal in the 8-14 for the Northern Plains.  Most of the central and southern Midwest will remain in above normal precip potential.  The risk now would be a pattern change to a widely below normal precip pattern when it is too late to get an appreciable amount of acres in the ground and those in the ground start to ramp up moisture needs.

Sharply higher markets across the board this morning with most contracts featuring gaps at the Sunday night open.  A wet weekend with more rain in the forecast this week will push planting progress further behind normal with the current year already featuring the slowest national corn planting on record.  The discussion at current is about how many acres of corn we will lose from the USDA’s 92.8 million figure from back in March.  We are not yet trading yield potential, but that discussion will come fast and furious with many analysts already axing yield potential.  The discussion should involve cutting supply via lower planted acreage, but also lower demand as the supply contraction will not happen in a vacuum.  Too many analysts are leaving demand static while removing as much as a billion bushels from the supply side of the ledger.  As we’ve discussed in the past, the combined corn supplies in Argentina, Brazil and Ukraine are over 1.4 billion bushels larger than this same time a year ago which will go a long way toward alleviating any U.S. supply tightness.  Open interest changes on Friday saw a huge jump in corn of 40,086 contracts, soybeans were up just 376, meal down 60, oil down 3,563, SRW down 1,274 and HRW up 886.

Friday’s Commitments of Traders data was an interesting read with the large spec buying the most amount of corn in a single week on record.  That group bought 170,220 contracts of corn, cutting their net short position from -291,742 contracts last week to -121,522 contracts as of 5/21.  With the rally the balance of the week and overnight, it is very likely this net short position has been covered.  The changes in open interest Friday would also seem to confirm this.  Now the question is whether funds would like to build a substantial net long position or simply sit on the sidelines until more is known about the corn balance sheet?  The gross commercial short position saw heavy selling with that group now the shortest since December.  There is still a substantial amount of old crop length in the country but the farmer appears to be doing a good job of getting caught back up on the rally.  December corn is now above December ’18 corn for the first time since early March after trading down to the lowest for a December contract since 2007 in late April.  Funds bought 19,711 contracts of soybeans last week to cut their net short to -157,324 contracts.  Obviously, there is still plenty of net short to cover by the funds should they decide to do so, but the soybean balance sheet is not the corn balance sheet and we would caution against buying your corn in the soybean pit.  Funds are slowly covering their net short in KC wheat, buying 6,883 contracts last week to leave them net short -42,427 contracts.  Funds bought 33,237 contracts of Chicago wheat to leave them net short -76,881 contracts which is the smallest net short since mid-February.  The one position they are not covering yet is their short in Minneapolis wheat.  The managed fund net short dropped by just 224 contracts last week and remains at -12,175 contracts.  This is a substantial net short position which should remain a supportive feature moving forward.

Speaking of Minneapolis wheat, there are a few other details worth considering.  The fund short of -12,175 contracts is just 700 contracts from the all-time record set in 2018.  For most of 2019, this fund short has been well-placed as the HRS balance sheet has watched carryout grow with bearish prospects for 2019/20.  While we are not bullish on spring wheat, one can make a case for declining supply.  Looking back at the last 13-14 years, planting progress this year could certainly argue for a meaningful cut in acreage.  As of May 15, North Dakota spring wheat planting progress was estimated at 37% complete while national progress was 45% complete.  Sizable gains were made the following week but for this discussion we will look at week #19 of the calendar year.  This was the slowest progress since 2014 for North Dakota and the slowest national progress since 2013.  In addition, from April 1 to May 1, the price of September ’19 Minneapolis wheat futures dropped 41c per bushel, right at the time producers would have been gearing up to hit the fields.  This was not the largest April 1-May 1 decline, but it was the largest decline over that period in a year with delayed planting progress.  Further, the spring wheat/soybean price ratio on May 1 stood at 60%, which again, is not the lowest but is the lowest for a year with delayed planting.  In 2013, we saw North Dakota acreage drop 1.1 million from the March report to final while national acreage was down the same amount.  2014 saw acreage up 350,000 in North Dakota and up 1.016 million nationally.  2011 saw acres drop 1.45 million in North Dakota and 2.083 million nationally.  We won’t know actual HRS planted acreage until at least the end of June but signs certainly point toward a meaningful reduction.  Whether this is enough to tighten the HRS balance sheet remains to be seen.

Crop progress on this afternoon’s report is expected at 63-65% for corn vs. 49% last week and 91% average.  Soybean planting is seen at 28-30% vs. 19% last week and 62% average.  Spring wheat planting is expected at 86-87% vs. 70% last week and 92% average.  More alarm bells are being sounded each day, so the euphoria buying is not likely over until producers can get back in the field, possibly later this week.  Whether folks elect to take prevent plant coverage or forge ahead into June remains to be seen.  The MFP debacle has only muddied the water further, creating incentive to keep planting whether that is the prudent decision or not.

Bottom Line: Sharply higher with new contract highs being set in corn.  Producers are being given a golden opportunity to catch up on old crop sales and sweep bins while getting first sales of 2019 crop on at profitable levels.  Many will be hesitant to market without intended acreage in the ground or corn plants emerged.  Another thing for producers to consider is not buying their corn in the soybean pit.  In other words, the soybean balance sheet is not the same as the corn balance sheet and will be difficult to justify $9.00+ futures.  What is the plan for additional soybean acreage and production in 2019 if that is the case?  Wheat also has few reasons for an extended bull run besides strength in corn.  At what point does wheat run out of gas if fundamentals don’t warrant additional strength?  Corn has broad shoulders but wheat and soybeans are overweight. 

Good Luck Today.

Tregg Cronin

Market Analyst




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