7/10/2019 Morning Comments

Good Morning,

Scattered showers in various places across the Midwest this morning, although no major systems present like the last few days.  The Midwest will be entering a much drier pattern the next 7-10 days than what has been seen the previous couple weeks with the only real moisture seen in South Dakota and southern Minnesota.  There will be a plume of moisture coming up from the Gulf which is expected to bring heavy moisture to Louisiana, Arkansas, Alabama, Mississippi and southern Missouri early next week.  The patch of heat and dry will be welcomed by most, provided it doesn’t last too long.  According to maps from the Climate Prediction Center, above normal temps will persist through July 23, while moisture will be mixed with the Plains below normal and most of the central/eastern corn belt above normal.  The main change with weather models yesterday was an increase in expected temperatures with the Euro model showing 2-5 degrees above normal for the Corn Belt during the Week 1 and Week 2 outlook.  The 30-day CFS Outlook still sees an overall cooling trend to take place by Week 3 and Week 4.  There will be some dry spots to keep track of by the end of Week 2 in the Eastern Corn Belt.

Weaker markets with follow through selling seen corn and wheat while soybeans fail to hold all of the Tuesday reversal gains.  We can’t help but notice how well December corn is following the head-and-shoulder pattern we outlined over the weekend, especially if weakness persists and December corn finds itself down around the neckline at 4.20-4.25.  These classic chart patterns have lost a bit of their luster in recent years because it seems like algorithmic trading programs and High Frequency Traders do not respect or analyze them the way traditional traders and programs did.  Regardless, if the pattern were to hold together, the downside target after a break of the neckline would be all the way down at 3.70ish.  We are not advocating a move like that with pollination still 2-3 weeks away, but the pattern is ominous.  Otherwise the big talkers have been the Attaché reports on China this week, gearing up for another USDA report which the trade has already said they will cast aside as garbage unless it says what they want it to say and monitoring trade war developments which look no further advanced than they did in June.  Open interest changes yesterday saw corn up 6,046 contracts, soybeans up 4,953, meal up 679, oil up 3,027, SRW up 4,928 contracts and HRW up 3,133.

Earlier in the week, the USDA Ag Attaché to China released updated balance sheets on the Chinese soybean market with notable cuts to imports.  He cut his 2018/19 import forecast by 1MMT to 84MMT and cut marketing-year crush to 85.5MMT from USDA’s 86MMT.  Our friend at clipperdata.com, Ken Smithmeier, said their vessel-tracking is pointing toward 2018/19 imports at 80MMT.  In 2019/20, Chinese soy imports are seen at 83MMT vs. USDA at 87MMT last month.  Crush was cut 3.5MMT to 82.5MMT which left ending stocks more or less unchanged.  These are not positive changes as the Attaché clearly sees the impact from African Swine Fever persisting well into 2019/20.  This stands in direct contrast to the USDA’s current 2019/20 U.S. soybean export forecast which sees a rebound of 250 million bushels.  How exactly do we see soybean exports rebounding almost 15% when the largest soybean importer in the world is still seeing demand impacts, not to mention the trade conflict we started with them doesn’t appear to be ending anytime soon?

On the corn balance sheet, the Ag Attaché made some serious alterations here as well, axing 2018/19 feed/residual demand by 15MMT to 177MMT which ballooned ending stocks to 221.835MMT vs. USDA at 209.8MMT.  Ending stocks at the Attaché’s level would be essentially unchanged from last year compared with the much more constructive look from the USDA.  Even more changes were made for 2019/20 with production cut by 24MMT thanks to a serious outbreak of fall armyworm.  Total supplies are seen at 457.8MMT vs. 470.8MMT from the USDA.  On demand, feed/residual demand was cut 20MMT to 170MMT as ASF continues to impact feed grain demand.  All told, ending stocks were seen at 198.8MMT vs. USDA at 191.8MMT.  So despite a massive cut to production, the supply situation in China has actually gotten worse because demand is that far off from what economists had been penciling in.  Analysts had been saying as far back as last winter/spring the impacts from ASF would be greater than we could possibly imagine, and it would appear those chickens are coming home to roost.

Deliverable stocks reports from the various exchanges confirm wheat harvest is occurring full bore.  In Chicago, deliverable stocks rose by 606,000 bushels to 39.455mbu but are still 31.5mbu below year ago levels.  Non-deliverable grades amount to 5.599mbu vs. 7.454mbu a year ago, a category we will want to monitor closely in coming weeks.  In Kansas City, total wheat stocks were 96.399mbu, up 7.816mbu on the week but still more than 25mbu below year ago levels.  Storage could still get tight based on the June 1 stocks levels in Kansas for corn, soybeans, wheat and milo, something HRW basis is starting to reflect as harvest advances across the state.  No spring wheat harvest is occurring, but deliverable stocks still rose 502,000 bushels on the week to 13.397mbu which compares with 15.353mbu a year ago.  Typically, HRS stocks do not bottom out until the first couple weeks in August.

We missed it earlier in the week but the Census Bureau issued May import and export statistics which helped fill in the blanks for corn, soybean and wheat exports but also gave us an update on DDGs and Ethanol exports.  Ethanol exports during May totaled 377.0 million liters, the lowest monthly total since September 2018 but up marginally from last year’s May total of 345.0 million liters.  The biggest culprit looks like Brazil importing just 40.1 million liters vs. 154.7 million last month.  DDGs exports totaled 1.020MMT, the largest  monthly total since September and up from May 2018’s level of 987,151MT.

Bottom Line: The price action this week has been less than inspiring, especially after the way bulls started to show their teeth on some heat in the maps Sunday evening.  The focus is squarely on supply, but more and more data points continue to remind us that demand does matter, even if we don’t want to talk about it right now.  Yield will still be the ultimate price driver, but we find it hard to believe USDA will update that on tomorrow’s WASDE given the flack they took for updating acres on the June WASDE only to have NASS go in the opposite direction at the end of the month.  It appears the 4.25-4.50 range for December will hold until weather warrants a move outside of that range or we get closer to the August WASDE.

Good Luck Today.

Tregg Cronin

Market Analyst




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