7/16/2019 Morning Comments

Good Morning,

Showers moving across the Dakotas and western Iowa this morning with rain also falling in the Delta.  The next 3-days will continue to see rain impact the Upper-Midwest with totals between 0.50-1.50” expected in most of South Dakota, southern North Dakota, Minnesota, northern Iowa and Wisconsin.  Separately, there also looks to be better rainfall potential in the Eastern Corn Belt than was forecast over the weekend.  The 6-10 still sees above normal temps and below normal precip, but the 8-14 day turned markedly cooler with normal/below temps in much of the Midwest.  In addition, above normal precip is now working its way back into the Plains while mostly dry weather is still seen in the Central/East Corn Belt.  At a minimum, the forecast looks much less threatening today than it did going into the weekend for what should be a major pollination period across the Corn Belt.

Softer markets this morning led by corn as traders try to price in a less threatening forecast than what was presented going home Friday.  In addition, crop conditions improved last week when trade expectations saw a further decline.  We are putting very little stock in crop conditions, mainly because of the lack of comparison to other years in recent history.  When the only applicable crop condition scores are from over 20-years ago, the metric loses credibility.  More important in our mind is the trend in conditions seen by enumerators because at its very fundamental level, the same observers are seeing the same fields and making an assessment of weather it looks better or worse than it did a week prior.  While one can’t glean much from an objective, data-driven perspective, it still helps put a finger in the air as to the change in conditions.  With the about face in prices yesterday and today, it looks even more likely the June highs will hold until we get to the August WASDE or we see a sharp turn in weather for the better or worse.  The $4.40-4.50 level in December corn looks as though it could be one of those bands which the trade looks back on and says “that should have been bought” or “that should have been sold” based on the amount of time we are spending in it.  Corn open interest during yesterday’s session fell 2,532 contracts, soybean open interest was down 10,398, meal was up 124, oil was up 3,231, SRW up 4,445 and HRW down 1,595 contracts.

Plenty of data to unpack from yesterday beginning with export inspections which were favorable for row crops but soft for wheat.  All-wheat inspections totaled 11.6mbu vs. the 17.6mbu needed weekly to hit the USDA forecast. Inspections are now going the way of sales the last several weeks with interest in U.S. wheat dropping after a solid start to Q1.  The FOB spread between U.S. and competitor origins suggest little to no interest should be had in U.S. wheat, pushing the increase in demand to H2.  Cumulative exports of 107.1mbu are up 30.6% from a year ago but this is down from a 48.5% increase last week.  Corn inspections were solid at 26.6mbu vs. the 22.7mbu needed weekly.  Cumulative inspections of 1.699bbu are down 11.0% from a year ago with exports needing to see 400mbu of activity in the last seven weeks of the marketing year.  Soybean inspections totaled 31.4mbu vs. the 29.1mbu needed weekly.  Cumulative exports of 1.422bbu are down 24.1% from a year ago with roughly 280mbu of exports needed in the final seven weeks to hit the USDA forecast.  Of that 280mbu, roughly 210mbu are open to China, creating large risk those sales get rolled into new crop and old crop carryout rises.

The weekly crop progress report showed corn conditions improved to 58% G/E vs. 56% expected, 57% last week and 72% last year.  A 1-2 point oscillation week-to-week is not that big of deal, but if conditions continue to improve heretofore, it should be a sign of stabilizing and even rising yield potential.  Widespread increases were noted in the Eastern Corn Belt while Minnesota and North Dakota saw 2pt declines.  17% of the crop is silking vs. 8% last week and 42% average for this week.  The big pollination window should therefore be the last 5-10 days of July into the first 5-10 days of August.  Soybean conditions were seen at 54% G/E vs. 53% expected, 53% last week and 69% average.  Again, improvements were noted in the Eastern Corn Belt.  Blooming progress was estimated nationally at 22% vs. 10% last week and 49% average, putting pod-set and pod-fill well into August.  Spring wheat conditions saw a “surprise” 2pt drop to 76% G/E vs. 80% last year.  A sharp decline was noted in Idaho while South Dakota and Minnesota saw 2-3 pt improvements.  The spring wheat crop is still the second highest rated of the last nine years with solid yield potential expected.  78% of the spring wheat crop is headed with harvest still 3-weeks out in South Dakota.  Winter wheat harvest, conversely, was reported at 57% complete vs. 47% last week and 71% average.  Kansas is now 81% harvested while Nebraska was reported at 14% vs. 52% average with progress not yet registering in South Dakota.

The other big data item yesterday was June NOPA crush which came in sharply below expectations at 148.8mbu vs. 154.4mbu on the average trade guess.  This also compares to 154.8mbu in May and 159.2mbu in June of 2018.  The June NOPA crush figure was actually the lowest crush total for any month going back 21 months to September 2017.  Board crush margins have been declining, and now have most contracts below $1.00 per bushel out through August 2020.  This is not poor profitability, just much lower than what has been seen most of the last 18-months.  Oddly enough, even after the USDA reduced their marketing year crush forecast on last month’s WASDE, it now looks as though their 2.085bbu forecast may prove lofty.  In order to achieve that figure, crush during July and August would have to essentially tie last year’s record crush months, a scenario which seems highly unrealistic based on recent performance.  A poor showing on crush and an export balance sitting in the Chinese category are not the signs the soybean market needs as we get set to tie a bow in the 2018/19 marketing year.

Bottom Line: It looks increasingly likely almost a week removed from the July WASDE that the Ag-wide rally had more to do with wheat than it did anything with row crops.  Much of the nation’s corn crop is still in the vegetative phase, not yet entering the key pollination window for another 10-14 days.  With that in mind, an excess of heat units is not necessarily a bad thing provided the pattern changes by the end of the month as it seems to be suggesting it will.  The corn crop north of I-80 is behind schedule and needs help to avoid an early finish to fall.  Most would agree yield potential has diminished from trend, but if a 165-170bpa is still on the table, then the market needs to ask and answer the question if $4.73+ futures are required? Still a lot of Northern Hemisphere wheat to harvest which will delay any post-harvest recovery.  The U.S. looks to be in a position to capture some second half demand, but it would do well to not wait on picking up this business until Q4 like it did last marketing year.

Good Luck Today.

Tregg Cronin

Market Analyst



@5thWave_tcronin COMMODITY TRADING INVOLVES RISK AND MAY NOT BE SUITABLE FOR ALL RECEIPIENTS OF THIS EMAIL. Neither the information presented, nor any opinions expressed, constitutes a solicitation for the purchase or sale of any commodities. The thoughts expressed in this email and basic data from which they are derived are believed to be reliable, but cannot be guaranteed due to uncertainty about future events and complexities surrounding commodity markets. Those acting on the information are responsible for their own actions.

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