7/9/2019 Morning Comments

Good Morning,

More rainfall across the Plains this morning with showers present in every state from Montana to Oklahoma.  This will add to an already impressive week of rainfall which has seen 1.0-5.0” in almost all of the Plains.  While the rain has likely caused some harvest delays, it will be welcome as much of the Midwest heads into a warm/dry period for the next 10-days.  High temps the next 7-days will be mainly in the upper-80’s to low 90’s across the Plains and Corn Belt which should see vegetative growth explode after the recent moisture.  6-10 and 8-14 days maps are  putting above normal temps for almost the entire CONUS, while below normal precip will be the feature for the Plains.  Normal/above precipitation will be the feature in much of the Corn Belt which is a more favorable outlook than the weekend and Monday’s runs which were stoking heat/drought fears.

Weaker markets across the board this morning, led by Chicago wheat and corn as forecasts turned a bit more favorable than was present Sunday/Monday.  It now looks as though the heat will be in place the next 15-days, but not nearly as dry as what was being feared Sunday.  The week two forecast for both the GFS and Euro model are calling for close to 100% of normal precipitation after seeing 60-70% of normal during the coming week according to Crop Prophet.  The CFS model is showing 100-118% of normal for weeks 3 and 4, while temps are seen 1-2 degrees above normal in week 3 and 2 degrees below normal in week 4.  To us, this looks like a pretty favorable forecast considering the crop will get a bout of heat the next 2-weeks, along with dryness in the coming week followed by a return to normal precip and normal to slightly cooler temps about the time pollination hits.  I’m sure there is someone who will say this forecast is not ideal, but with as varied as the conditions are this year, no one forecast will be perfect for all corners of the Midwest.  Open interest changes yesterday saw corn up 23,343 contracts, soybeans up 15,805, meal up 546, oil up 3,744, SRW up 911 and HRW up 1,527.

The weekly crop progress report didn’t have any outright surprises but did offer a few concern areas while wheat conditions continue to confirm solid crop prospects.  Corn conditions improved 1pt to 57% G/E vs. 57% G/E expected but is below 75% G/E a year ago.  Illinois saw a 5pt decline to 37% G/E vs. 81% G/E a year ago.  The Eastern Corn Belt conditions are eye-opening, although shouldn’t be surprising.  Indiana is rated 38% G/E vs. 76% a year ago, Ohio is 34% G/E vs. 82% G/E a year ago and Michigan is 46% G/E vs. 66% a year ago.  The corn crop is 8% silked vs. 22% average and confirms pollination of this crop will not occur until the last 10-days of July and first 10-days of August.  Soybean conditions posted a notable decline of 2pts to 53% G/E vs. 55% expected and compares to 71% G/E a year ago.  Planting progress was seen at 96% complete vs. 96% expected, 92% last week and 100% average.  Illinois posted a 6% drop and is rated 38% G/E vs. 72% G/E a year ago.  Only 28% of Ohio’s soybeans are rated G/E vs. 75% a year ago.    10% of the soybean crop is blooming vs. 32% average.

Winter wheat conditions improved 1pt to 64% G/E vs. ideas conditions would fall 1pt.  Condition ratings had already ended a year ago, a sign of how delayed this crop is.  The fact conditions are still improving this late in the game does speak to yields vs. expectations.  Conditions for this date are the highest since 1999.  Winter wheat harvest progress was seen at 47% complete vs. 30% last week and 61% average.  Kansas is 61% harvested vs. 84% average while cutting is just getting going in Nebraska and still 2-3 weeks away in South Dakota.  Spring wheat conditions saw a notable jump to 78% G/E, up 3pts on the week and just below last year’s 80% G/E.  Last year saw record HRS yields, so inching closer to that condition mark is noteworthy.  The spring wheat crop is the second highest rated crop since 2010 with 56% of the crop headed vs. 52% average.  After a dismal spring sowing campaign, it is noteworthy to see heading catching up and passing average pace.  We’ve also seen precious little in the complaint department on social media as of late with regards to the Canadian crop which usually means one thing.  A quick glance at the percent of normal precip map from the last 30-days tells quite the tale.  Granted, excess moisture in June and early July will not totally offset the damage caused by a historically dry spring, but it will help.  Doesn’t look like there will be a shortage of North American spring wheat this year.  Protein could be another story.

Weekly export inspections were also released yesterday with wheat continuing their strong early start with 22.4mbu inspected vs. 16.4mbu needed weekly to achieve the USDA estimate.  Cumulative exports now total 95.3mbu which is up 48.1% from a year ago while the USDA is looking for exports to decline 50mbu from last season.  Most knew the export program would be partially front-loaded as export supplies in Russia and Europe are reloaded after harvest.  How long the pace continues could have a lot to say about the full year estimate.  Corn inspections totaled 27.7mbu vs. the 35.3mbu needed weekly to hit the USDA estimate.  Inspections have now missed the needed level for four straight weeks with cumulative exports down 10.1% from a year ago.  We need a massive shipping program the last month and half to hit the USDA mark, so we feel the USDA has ample evidence to make a cut on this month’s WASDE.  Soybean inspections totaled 27.8mbu, narrowly missing the 29.4mbu needed weekly to hit the USDA estimate.  Cumulative exports of 1.391bbu are down 24.8% from a year ago, and are also at risk of missing the USDA estimate.  All of the commitments held by China (212mbu) are still sitting out there and unlikely to be totally fulfilled by the end of August.

The CFTC released their COT data Monday afternoon due to the 4th of July holiday with few surprises contained.  Funds sold 17,439 contracts last week to leave them net long 130,798 contracts.  Still a decent net long, but nothing like what we were expecting they’d be at this juncture.  Commercial positions still being rebuilt after July went into delivery, so difficult to see a lot there.  Very little action in soybeans last week with funds selling 1,523 contracts to leave them net short 57,984 contracts.  Nothing of note by commercials.  In KC wheat, funds bought 755 contracts to lighten their net short to -17,462 contracts.  Commercials continue to lightly pare their gross short position which is consistent with the falling prices as of late.  If that position starts to rise, we may have seen an intermediate term bottom.  Funds bought 7,185 contracts of Chicago wheat to cut their net short to -13,693 contracts.  This is the smallest net short position held by funds since September 4, 2018.  Interestingly, the gross commercial long position in SRW of 63,442 contracts is the smallest for this group since June 27, 2017.  Not a great sign if commercials aren’t increasing ownership at these price levels.

Bottom Line: Difficult to argue with an improvement in the forecast after bulls got a little excited over the weekend, especially in front of what will appear to be a less than supportive WASDE if USDA implements the supply side changes as expected.  In our view, December corn could be in a 4.25-4.50 trading range until the August WASDE when a bit more certainty comes into the market.  If trading ranges are going to be put in place, and volatility is going to calm a bit, it would be a good opportunity for producers to review percent sold on old and new crop as well as develop a strategy for when prices move outside the range, both higher or lower.  Stress test lower prices and put sales targets in place with higher prices based on what the crop looks like today.  If too much uncertainty exists to do that, then options had better be part of your risk management plan.  Doing nothing is a strategy and can be a costly one.

Good Luck Today.

Tregg Cronin

Market Analyst




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