7/3/2019 Morning Comments

Good Morning,

An active Midwest radar this morning with some rain in almost every state.  The rest of this week and through the weekend will continue an active pattern with moderate to heavy rainfall seen by Sunday in most states, especially in the Western Corn Belt.  The heaviest totals according to the GFS will be in Nebraska, eastern South Dakota, North Dakota, Minnesota and almost all of Iowa to the tune of 1.00-3.00”.  The Eastern Corn Belt will see lighter amounts.  Extended maps still support vegetative growth with above normal precip and below normal temps in the 6-10 days with cooler temps continuing into the 8-14.  Precip will be above normal in the 6-10 while the 8-14 sees the Northern Plains begin to dry out with below normal precip centered over the Dakotas.  This could be well-time with HRW harvest starting in South Dakota and spring wheat moving from flowering into the dough stage.  Crop observers remain torn between wanting heat to push the crop along but recognizing that a lack of stress during July is still a good thing if given the choice.

Higher markets this morning with the exception of spring wheat which is struggling around unchanged.  A fairly disappointing week of trade up to this point, especially for soybeans which saw the most supportive report on Friday of any commodity.  The huge reversal posted Monday along with follow through selling Tuesday seemed to suggest the trade is not yet ready to trade lower yield ideas for the soybean market.  The nearly 1.1 billion bushel carryout expected at the end of this marketing year will offer a massive buffer against yield disruption but it only takes 3-4 bushels per acre off the national average yield to make things interesting. A national average yield of 45bpa with current USDA demand gets carryout down to 544 million bushels which is not tight from historical standards but is a massive mindset shift from the current carryout projection.  We still have issues with the export forecasts for both 2018/19 and 2019/20, especially as long as the trade war rolls on.  We feel the USDA is being optimistic on global demand growth, including how much of that growth the U.S. will grab.  Open interest changes include corn up 4,780 contracts, soybeans up 9,856, SRW down 5,424 and HRW up 2,972 contracts.

Pretty light on data yesterday with the exception of deliverable stocks which are finally reflecting the ongoing harvest efforts.  In Chicago, deliverable stocks rose 693,000 bushels to 38.849mbu which compares with 67.395mbu a year ago.  Non-deliverable grades are currently 1.380mbu below a year ago, but the composition of the deliverable/non-deliverable grades will be worth watching as harvest moves north in the SRW belt.  Still lots of concern about test weight, damage and vomotoxin, although North Carolina is about as far north as any serious harvest has taken place.  HRW stocks rose 2.944mbu to 88.583mbu which is down 32.386mbu from a year ago.  Based on anecdotal reports from the country, space could become a problem based on the yields we are hearing and the amount of grain on-hand as of June 1.  Kansas City wheat could/should see a situation where carries get wider as the market needs to pay someone to store what is turning into nice sized crop, but there should be competition for these bushels to ensure space is filled.  Because of the VSR mechanism, we could see weak carries but firm basis which will give futures prices confliction signals.  We also remain out of contention based on recent tender business which will not be a supportive influence.  HRS stocks continue their draw ahead of harvest with deliverable stocks dropping 251,000 bushels to 12.895mbu which compares with 15.454mbu a year ago.

With the swings in price of the last week, now is a good time to check in on end users of corn according to RJ ‘O Brien.  Composite broiler crush slipped last week to 72.97c per pound vs. 73.99c the week before and vs. 98.27c per pound a year ago.  Broiler prices have been softening more than the drop in corn and soybean meal.  Hog board crush improved last week to $75.82 per head vs. $65.60 the week before and is better than the $59.80 per head a year ago.  These margins are still well short of the record margins seen earlier this year around $130.00/hd amid the ASF scare.  Cattle board crush fell last week to $124.15/hd vs. $155.29/hd the week before but still much better than a year ago at $85.50.  Ethanol margins slipped to $0.56/gallon from $0.58/gallon last week and is down from $0.70/gallon a year ago.  Ethanol margins remain in a long-term downtrend dating back to July of 2017 and until the narrative out of Washington changes, or the trade war is over and China comes back to our market, it remains difficult to see how or why this situation will change markedly?  C-IL cash soybean crush margins remain solid at $1.21 per bushel even though this is down from $1.47 last week and $2.21 last year.

Bottom Line: All of our markets are in short-term downtrends with most posting intermediate term downtrends as well.  We remain impressed with corn’s performance this week considering the data received Friday.  We wondered how long it would take for the corn market to move to the yield discussion and away from the acre discussion, and it would appear that may have started.  Despite the more supportive data, soybeans are difficult to rally until blooming and pod set starts.  The market knows full yield potential is probably already off the table because of the compressed growing season, but the question now is to what degree?  What will struggle until corn mounts another assault higher.  Big yields with over half the crop left to harvest and all of the spring wheat crop to harvest is a lot of bushels to chew through.  Dryness and heat in Europe and the Black Sea remains a talker but you wouldn’t know it based on price changes in their markets.

Good Luck Today.

Tregg Cronin

Market Analyst




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