6/20/2019 Morning Comments

Good Morning,

A healthy band of rain moving from NW-ND to SE-NE this morning bringing moderate to heavy rainfall, all of which is welcome at this point in the summer.  Areas which have crops planted in the Northern Plains and Western Corn Belt need the rain, and areas without crops in the ground have passed the threshold to get anything else in the ground anyway.   Weather models are in pretty good agreement right now for the next 10-14 days.  Rains will continue to plague the Midwest, especially the central and eastern corn belt, through the weekend before a ridging pattern takes place bringing above normal temps and mostly below normal precip.  Forecasters are not calling for the ridge to set up for the long-term, or for any Dome of Doom to bring blast furnace-type heat, but seeing the ridge break down beyond the 4th of July holiday will be important.  According to Crop Prophet’s interpretation of the CFS model, week 3 temperature anomalies cool to 1.4 degrees above normal while week four is -0.6 degrees below normal.  The precipitation anomaly for that time period is seen at 115-117% of normal precip over the corn and soybean production areas, so a rather favorable forecast should it verify.

Weaker markets this morning, although corn has seen both sides during overnight trade as some traders express interest in owning July corn sub-4.40 ahead of option expiration tomorrow afternoon.  We continue to believe highs have been set pre-USDA report next week as the market needs more verification of what has been planted and what weather models look like into mid-July.  Based on our reading of the tealeaves, we aren’t seeing anything too stressful for crops which actually got planted and made it out of the ground.  Granted, weather will need to be better for longer this season as the maturity of the crop lags and significant ground needs to be made up before any sort of fall frost.  We also continue to maintain more acres got planted than most of the Twitter experts would like to believe both in our back yard and in the eastern corn belt.  There will still be significant prevent plant acreage, but we just feel the high watermark numbers of 10 million plus acres are likely off the table.  This is to say nothing of their yield potential which we still have plenty of time to trade.  Export sales on tap today which should be nothing to write home about considering the premium to competitor origins corn, soybeans and wheat are currently carrying.  Open interest changes yesterday saw corn up 5,605 contracts, soybeans down 33,001 contracts, meal down 5,488 contracts, oil down 7,079, SRW wheat up 259 contracts and HRW down 700.

Weekly ethanol production declined 15,000 bbls/day last week to 1.081 million barrels per day but this was still better than the level needed to hit the USDA’s marketing year forecast.  This was the 5th week in a row of production above year ago levels, and run rates are averaging +2.3% above year ago levels during that period.  It seems likely the USDA will need to raise their ethanol production forecast modestly before the end of the marketing year should these sort of run-rates continue.  That said, we are concerned with the basis levels being paid in the Eastern Corn Belt and the ability of some plants to continue grinding.  Between this week and last, we have heard of +40N up to +58N being paid in Indiana and Ohio.  That is near $5.00 cash corn with $5.00 being paid at the highs this week.  Square that with crude oil at $55.66 per barrel, RBOB Gasoline futures at $1.74 and ethanol futures at $1.57.  Earlier this week, the spread between RBOB and Ethanol dropped to 10c per gallon, the smallest premium since February.  Keep in mind, the last time corn futures were at these levels, crude oil was $100 per barrel, gasoline was over $3.00 per gallon and ethanol prices were over $2.00 per barrel.  We don’t run an ethanol plant.  However, it doesn’t take a PhD in engineering to reason those sort of spread relationships are not positive for ethanol margins and probably not sustainable in the long-term.  Everyone has been quick to cut yields and acres, projecting carryout and negative 3.0 billion bushels, but what does carryout look like if we start closing ethanol plants at the same time South America is taking all of our swing export business?  These are the sort of questions we need to be asking and answering at the same time we are projecting the tightest corn carryout in recorded history.

Egypt’s GASC was in tendering for wheat yesterday and ended up buying 290,000MT of Russian and Romanian wheat at $210.00-211.21/MT C&F.  These prices were $1-2 per tonne above their last tender, but there was close to 900,000MT offered in a sign of how much wheat is available.  There were no U.S. offers which is not all that surprising considering the unknown nature of U.S. quality, and especially bushel size with respect to the SRW crop.  Still, the fact U.S. wheat isn’t even being offered for new crop slots is a little disheartening.  If we are to see any GASC business, it will likely be on the back end of the marketing year once Russian and European supplies have been exhausted, if they ever get to that point.  Keep in mind, this spring was the first Egypt business the U.S. has participated in for several years.  It is not a guarantee we will be active in the major international tenders, especially if quality issues arise like it looks like they will.

Export sales estimates for later this morning see wheat at 150-500TMT, corn at 400-800TMT, soybeans at 300-700TMT, soymeal at 100-300TMT and oil at 5-25TMT.  We will be surprised if corn, wheat or soybean export sales are anywhere near the top end of those ranges.

Bottom Line: Weather and waiting for USDA reports.  Corn and soybeans have both pushed positive while we have been writing which will keep some major strikes in play for option expiration.  That said, feels like more consolidative trade until Friday of next week.  We are leaving behind the weather needed for planting and transitioning to the weather needed for successful growth and pollination.  Let the Twitter weather debates begin!

Good Luck Today.

Tregg Cronin

Market Analyst




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