6/19/2019 Morning Comments

Good Morning,

It would appear the era of low interest rates and cheap money will last forever, so if you are a Baby Boomer tough luck but if you are a Millennial, keep borrowing to your heart’s content.  Odds are very high the FOMC board of the Federal Reserve will leave interest rates unchanged at the conclusion of their 2-day policy meeting today, but odds are at 80% they cut rates at their July meeting.  This was followed/preceded by Mario Draghi of the European Central Bank yesterday saying the ECB will launch another round of stimulus should the climate of weak growth and political uncertainty fail to lift.  It would seem the developed economies of the world have for too long watched countries like China add stimulus and keep their currency weak to spur growth, while developed countries were expected to shoulder the weight of keeping monetary policy steady and responsive to market forces.  For now, it would appear everyone wants cheap money until something bad happens and it will be addressed when/if it does.

Showers all across the Midwest and Mid-South this morning as well as a few bands in the Northern Plains.  These showers will kick off what looks to be a rather wet week across U.S. growing areas.  Morning GFS models have moderate to heavy rains from the Canadian Prairies to Tennessee with the heaviest amounts scheduled for Saskatchewan as well as IA/IL/IN/OH/KY.  The rains will be especially welcome in the Canadian Prairies which have been running dry most of the spring, but the rain will not be welcome in the ECB where producers are still trying to slam beans in the ground ahead of June 20 final plant dates.  Extended maps continue to keep things fairly wet in the 6-10 and 8-14 day, but the feature would definitely be the heat surfacing in the 8-14 day for much of the Midwest.  Whether this develops into larger ridging remains to be seen but the risk for crops which have been mudded in would be heat and dry.

Weaker markets for the second session with winter wheat markets leading losses as early quality which has hit elevators in Oklahoma and Texas is not as bad as feared and yields are said to be very large.  We are still 7-14 days away from serious combining in Kansas, if weather allows, but traders must be realizing the HRW crop is not going to be killed by too much water.  Corn and soybeans are following through with losses from yesterday.  We had two trusted contacts working their way through the eastern corn belt the last two days with very interesting observations.  In spots, it is as bad as feared with unplanted acres in Ohio stacked up large.  In Indiana and Illinois, however, they were surprised at the number of acres which were planted considering the anecdotal reports most of June.  That said, most of the crops are incredibly immature with much of the corn only in the 1-2 leaf stage.  The yield potential on these crops is completely unknown at this point from both a good and bad point of view.  Some producers who have crops in the ground are still optimistic they could reach APH or trend line yields.  Others aren’t sure crops will make the frost.  The universal theme, however, is a lack of optimism toward the soybeans which got planted.  It is just difficult to think anything near trend or APH yields can be achieved when the growing season has been cut this far short, considering soybeans are a daylight sensitive crop and even with copious rain in August and September can’t make up for a long pod-fill period.  As one of our contacts said, he will be excited to see that area in a month because it will tell him what we should have known on June 19th.  This market will have a tough time getting ahead of itself in our opinion given the likelihood of resurveys, FSA Prevent Plant data, yield checks on immature crops and a weather map debate on Twitter the likes of which we have never seen.  Open interest changes during yesterday’s session included corn down 11,722 contracts, soybeans down 13,784 contracts, meal up 4,009, oil down 12,168, SRW up 2,684 and HRW down 3,055 contracts.

Deliverable stocks were one of the only data points released yesterday.  SRW stocks are actually working their way higher seasonally as harvest slowly begins down south while export challenges keep wheat mostly domestic.  Total wheat stocks in Chicago were up 3.03 million bushels to 41.732 million which compares with 67.084 million a year ago.  SRW stocks for this date are the lowest since 2014/15 and the second lowest of at least the last 10 years.  HRW stocks were down 2.105mbu to 86.347mbu which compares with 113.501mbu a year ago.  HRW stocks for this date are the lowest since 2015/16 with the delayed harvest causing stocks to be drawn down further.  Still plenty of high quality blending stock available.  HRS stocks were down 231,000 bushels to 13.446mbu which compares with 16.563mbu a year ago.  The spring wheat harvest will be late this year, so a handle on quality and the need to preserve old crop won’t be known for another month at least.

Something we continue to keep an eye on are the amount of outstanding soybean sales still on the books, especially to China.  As of May 30, the last export data available, shipments as a percentage of the USDA forecast totaled 72.2%.  This is the lowest level on record with second place all the way up at 80.2% back in 1991.  A large reason for this is the outstanding commitments to China which totaled 6.3MMT as of last week, or 233 million bushels.  China did take several million bushels in the last reporting week according to the inspections report, but a large amount remain on the books.  These are a major risk in our opinion because of the sensitivity of the trade talks.  President Trump said he and President Xi will meet at the G20 Summit in Japan at the end of the month, but we’ve heard this song and dance a hundred times.  The commitments to China remain at risk of being rolled into the 2019/20 marketing year which would bump ending stocks levels directly.  With carryout already over 1.0bbu, this would just add additional supply buffer for the 2019/20 marketing year.  Granted, these sales could end up executing next marketing year, but as long as ASF remains uncontained and no trade deal exists between the U.S. and China, there is no reason to think export demand will rebound next year.  We are not confident in the USDA’s current 1.950bbu export forecast for next year which again adds available supply back into the balance sheet should yield fail to achieve trend.

Bottom Line: Feels as though the market doesn’t want to trade sharply in either direction until more data is at hand next week.  We are gaining confidence the 10-12 million prevent plant acreage ideas are not going to happen, although this says nothing about eventual yield potential.  The market needs to trade what it is front of it and not try to trade things like frost date, final yield and final carryout without having any of that information at hand.  There will be plenty of time to trade yield yet this summer, but right now the market seems to be suggesting unplanted acreage might not be as bad as some of the bottom-barrel ideas thrown out a couple weeks back.

Good Luck Today.

Tregg Cronin

Market Analyst




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