5/30/2019 Morning Comments

Good Morning,

Rains working across Arkansas, Missouri, Illinois, Indiana and Ohio this morning with the rest of the Plains and corn belt largely quiet.  Rains will continue to impact the central and eastern corn belt over the next 5-7 days with an additional 0.50-1.25” falling through early next week.  The southern plains will also keep the spicket on with the entire state of Kansas slated for 0.75-2.00” while Oklahoma and North Texas receive similar amounts.  It is the changes in the 6-10 and 8-14 day outlooks which are encouraging.  The Northern Plains sees above to much above normal temps in the 6-10 and 8-14 day, while precip shifts to normal/below over the same period.  This pattern will be welcome for producers trying to catch up on seeding, so long as it does not hang around indefinitely.  Some much needed heat should also help lagging row crop emergence.

After posting losses at the overnight open, grains are higher almost across the board this morning as a mini-reversal takes place.  More importantly, however, was the huge reversal posted Wednesday after most contracts in the Ag room featured new highs for the move including another gap below the market.  The breather the market took definitely made a few bulls uneasy as the only narrative in this market for a week was how corn was headed back over $5.00.  To be clear, the planting issues have not been fixed and the eastern corn belt is going to feature additional rain the next week.  However, producer decisions are changing by the hour with better weather in the western corn belt, constant updates to MFP/PP programs, trade war rhetoric, etc.  What looks like a good decision one minute, could look like a poor idea the next.  What is certain is the rally in prices will keep producers attempting to plant long after “final” plant dates, especially if the second MFP payment is tied to planted acres.  We feel the market is still trying to get a handle on planted acreage, but many have already moved on to slashing yields and guessing 2019/20 demand.  The reversal yesterday is a perfect example of why this market doesn’t need to get ahead of itself in the rationing process until more is known about actual supply.  Open interest changes on Wednesday saw corn open interest down 4,478 contracts, soybeans up 9,300, SRW down 5,049 and HRW down 3,667 contracts.

Quantifying some of the state-level acreage issues can be helpful, especially when watching radar and projecting when producers might be able to get back in the field.  Using the March Prospective Plantings report, South Dakota had 4.5 million acres of corn left to plant as of May 27.  North Dakota has just shy of 1.5 million while Minnesota has 2.72 million acres.  The Northern Plains, therefore, had roughly 8.720 million acres of corn left to plant at the start of the week.  In our back yard of South Dakota, prevent plant acres will be high as some areas simply can’t dry out in time to get things seeded in a reasonable manner.  Other spots in the state will continue planting corn into June where able.  The total 8.720 million acre number is daunting for the date on the calendar, but $4.50+ December corn is also a solid incentive to keep forging ahead.  In the eastern corn belt, Illinois had 7.28 million acres left to plant at the start of the week, Indiana had 4.290 million acres, Ohio had 2.730 million and Michigan had 1.57 million.  The 15.7 million acres left to seed in the eastern corn belt is substantial and definitely the trouble spot with the forecast ahead.  In addition, these are some of the higher yielding areas of the corn belt, lessening national average yield prospects.  When one takes a look at these numbers in aggregate, and considers it is May 30, it is not difficult to see how projections of 5-10 million acres of prevent plant can form.  However, we think a more reasonable number will be in the 3-6 million acres of corn prevent plant with producers opting to switch acres to beans where able so as to take advantage of the second MFP payment on planted acres.  Whether 86-89 million acres of corn will be enough remains to be seen.

Deliverable stocks out on Wednesday this week with more focus being placed on deliverable supplies as the continue to decline while quality is threatened on this year’s winter wheat crop.  Deliverable supplies of SRW fell by 1.192 million bushels last week to 35.751 million.  This is down 38% from a year ago, consistent with the last few weeks but also at multi-year lows heading into a shortened crop year.  Using USDA’s projections, SRW total supplies to start the year will be the lowest since 2005/06.   Deliverable grades of HRW fell from 90.394 million bushels last week to 89.196 million this year and compares with 102.919 million a year ago.  Lots of high-quality blending stock in deliverable warehouses, which should help limit the impact of a low protein/low quality crop.  It looks very likely we will see a universally low protein HRW crop this year, but it hasn’t yet affected spreads and basis.  If a low protein crop is produced, one would think variable storage rates will be forced wider as this crop is destined for feed and storage.  HRS deliverable supplies fell from 15.136 million bushels to 14.372 million bushels this week and compares with 18.089 million bushels a year ago.  Spring wheat is still working on emergence, so far too early to be talking about crop size and especially quality.  Canadian dryness, however, is one potential issue to keep an eye on.

We remain cognizant of FOB spreads on the rally for both corn and wheat.  Going home last night, U.S. Gulf offers were in the $189.75-190.44/MT FOB range for July-September.  These compared to $167-176/MT FOB in Argentina and $178-179/MT in Brazil.  Ukrainian offers were seen around $176.50/MT.  At some point, if the corn situation is truly dire, we will hear about South American corn pricing into the US-Southeast.  In wheat, HRW FOB offers for July were seen at $211/MT with Russian at $194/MT.  German/Baltic offers were up at $215-217/MT FOB, but move to a discount by September and especially October.  Unless the HRW and SRW crops come in sharply below expectations, most carryout projections in 2019/20 have all-wheat carryout over 1.0 billion bushels.  For this reason, we aren’t sure why wheat contracts are pricing themselves out of global export business and question whether wheat needs to go substantially higher in the near-term?  To be clear, corn is driving the bus and wheat will continue to follow corn.  However, at some point, wheat fundamentals need to matter until or unless the FSU/EU wheat crop is threatened.  Money flow will dominate in the short-term.

Bottom Line:   Two-sided overnight action which could very well be the flavor of the day session.  More rain in the eastern corn belt will keep bulls fed, but bears are right to point out how often we spend any amount of time above $4.50 basis December corn.  Regardless of where corn is headed, the odds of December corn being above $4.50 this fall are incredibly poor unless carryout ideas fall to 1.5-1.6 billion bushels.  Soybeans and wheat do not have the story corn does, but that doesn’t mean they will not trade with corn in the near-term.  As always, divorcing oneself from marketing during times of heightened volatility is almost never a good idea.  Volatility brings opportunity, whether your crop is in the ground or not.

Good Luck Today.

Tregg Cronin

Market Analyst



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