6/14/2019 Morning Comments

Good Morning,

Rain in the Southern Plains as well as scattered showers in the Northern Plains and Wisconsin this morning.  The focus has been all about excessive rainfall the last two weeks, especially in Kansas, Illinois, Indiana and Ohio.  It is interesting to take a look at the 14-day percent of normal precip map, however, and see the moisture deficits which exist in parts of the Northern Plains, Iowa, central Illinois and southeast Kansas as the map below shows.  Fortunately, this dry spell allowed extra acres to be seeded, but many of those acres will need consistent rainfall to overcome less than ideal planting conditions.  There is rain around the next seven days for the Northern and Southern Plains as well the bulk of the corn belt.  GFS totals in the southern Corn Belt actually look excessive if models verify.  Extended maps still show above normal precip and below normal temps through the end of June.

Higher prices across the board overnight as the rally continues and the trade begins to worry about the soybean balance sheet.  Trade estimates are pegging soybean planting progress to be around 85% complete as of Monday vs. 93% average.  This would leave roughly 12.7 million acres of soybeans left to plant as of June 17 which would be unprecedented.  One can make the argument overall acres were above the March PP estimate, but it does feel as though we could lose a few million.  As we tried to write about yesterday, one has to lose 4 million or more to make the soybean balance sheet look even somewhat constructive.  The real question comes down to yield, and while folks are quick to plug in sharply below trend yields on June 14, we are not ready to do that yet.  In addition, if the demand story wants to be discussed in soybeans, one has an even easier time axing demand there than in the corn market.  We are not trading demand destruction yet on any commodity as we are still in the discovery phase for supply.  Sometime between now and the end of July, the market will be more comfortable with supply and highs are likely to be made.  The balance of the marketing year will be about spreads and basis with an incredibly long tail to futures prices.  Open interest changes yesterday saw corn up 36,089 contracts following its 43,000-contract surge yesterday. Soybean open interest was up 21,484 contracts, meal down 2,433, oil down 3,265, SRW down 4,158 and HRW up 1,755 contracts.

The Canadian Prairie weather situation is one which we continue to keep close tabs on.  Much of the last month and change has witnessed sharply below normal precipitation, but those fortunes appear to be turning as the 7-day forecasted precip maps are putting 0.50-4.00” totals across some of the driest areas of Saskatchewan, Alberta and Manitoba.  Temperatures are also expected to be below normal much of the next 10-15 days with the same weather stretching into North Dakota.  With Canada being dry for much of the spring, planted acreage likely exceeded pre-season estimates, and with temps and precip now cooperating, Canada could be setting itself up for a whale of a crop if conditions persist.  The USDA already had Canada at 10.0 million hectares for harvested area which would be the largest area since 2013/14.  As mentioned, it would not surprise us to see an even higher planted and harvested area with the near ideal seeding conditions.  Production at 34.5MMT would be the largest since 2013/14’s record and the second largest production total ever.  These rains for the Canadian Prairies need to verify, but things look good at the moment.

Export sales yesterday weren’t anything to write home about, and it is clear global importers remain a little shell-shocked over what is happening with the grain rally.  Wheat export sales were light at 12.0 million bushels vs. the 12.6mb needed weekly to hit the USDA forecast.  It is surprising the U.S. is doing any export business right now considering the premium we are carrying to competing origins.  Total commitments of 225.9mb are up 36% from a year ago thanks to a front-loaded program as importers wait for France and Russia to get exportable supplies into place following harvest.  Corn sales were weak at 6.6mb vs. the 16.9mb needed weekly to hit the USDA forecast.  Total commitments of 1.905bbu are down 14% from a year ago with the USDA looking for a just a 9.8% decline.  Corn exports will remain one to watch the balance of the summer as the full-year total could still prove smaller yet.  Soybean sales totaled 9.4mbu which is above the net cancellations needed to achieve the USDA forecast.  Total commitments of 1.724bbu are above the full-year marketing total of 1.700bbu which the USDA just updated Tuesday.  However, it has never been about soybean sales but rather the shipments.  Cumulative exports of 1.310bbu are down from 1.734bbu a year ago.  China still has commitments on the books, and Reuters was carrying headlines about Chinese crushers wanting to roll these contracts further out the curve.  The marketing year forecast for soybeans could still be getting smaller.

Bottom Line: The path of least resistance is higher, especially for soybeans and wheat which are still sporting net short positions in the managed fund category.  It is hard to fight higher prices with cash corn and spreads rallying to the degree they are, even if the supply tightness is a lack of selling as opposed to a lack of physical bushels being available.  The demand debate is not happening now, but it will at some point, especially if export sales continue poor and ethanol margins revert back to the levels witnessed most of the spring.  What does your marketing plan and balance sheet look like if the market breaks 50c as opposed to rallying another 50c?  The right questions need to be asked and answered in between the daydreaming about $6.00 corn.

Good Luck Today.

Tregg Cronin

Market Analyst




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