7/19/2019 Morning Comments

Good Morning,

More showers across the Dakotas this morning, some of which were not forecast as recently as yesterday, which speaks to the abundance of moisture in the ground and air which has kept the storm track active.  The soil moisture map below accurately reflects the surplus nature of groundwater supplies across much of the Midwest, especially South Dakota which is sitting in the top 95th percentile of all years on record.  The next 3-days will see an active storm track in the Western Corn Belt and Plains before a drier stretch takes hold.  The precipitation anomalies from Crop Prophet remain a bit concerning from both the GFS and Euro models as the two-week moisture anomaly weighted across corn and soybean production areas based on yesterday’s forecast stands at 81% for the GFS and 76-78% for the Euro. The dry spots in southern Iowa, northern Missouri and western Illinois remain the areas of most concern.  The week 3 and 4 outlooks from the CFS model point toward 118% of normal precip, and cooler temperatures, which would encompass the period August 1-14.  Should Crop Prophet’s take on the models prove correct, it could be very well-timed for reproducing soybeans.

Higher markets across the board this morning as most contracts try to limp out a positive session into the weekend.  All three of the major commodities are carrying 25-28c losses for the week, but surprisingly, only Chicago wheat has made new lows for the move.  September wheat is trading at the lowest levels since the end of May while corn and soybeans are still well above June lows.  We’ve been hammering home the idea of rangebound trade into the August WASDE, and there is little in front of this market to change that view today.  Weather forecasts are mixed enough for both bulls and bears, and we can’t go a day without someone reminding us this crop isn’t going to finish.  The comfortability with the current ranges is evident in the collapse of volatility, especially with the July WASDE behind us.  November soybean volatility has dropped from 20.46% a week ago to 17.23% yesterday.  December corn vol has dropped from 30.43% to 27.78% yesterday. While the drop-in volatility may not mean new lows for certain, it definitely pares back chances of a run at new highs in the near-term.  In fact, yesterday was the first time since spring bulls began entertaining the idea that maybe seasonal highs have been set?  We posed the question of what the American farmers percent sold/marketing plan would look like if he knew the highs were in? Open interest changes yesterday saw corn down 5,067 contracts, soybeans up 2,770, meal up 1,359, oil up 7,659, SRW 3,552 and HRW down 126 contracts.

The focus is squarely on weather at the moment, as it should be, but lurking in the background are poor demand indicators we can’t seem to shake.  Export sales yesterday were disappointing across the board, and were it not for uncertainty around acreage, should have brought more pressure in our opinion.  All wheat sales totaled 12.8mbu vs. the 13.7mbu needed weekly to hit the USDA forecast. Export sales have missed the needed level in five of the last six weeks, although total commitments are still up 22% from a year ago at 288.7mbu.  After a strong start due to a lack of export offerings out of the FSU/EU, the U.S. has watched interest in its wheat wane considerably.  We would prefer not to push all of the perceived demand off to the second half of the marketing year like we did in 2018/19 and then struggle right to the final week.  Corn export sales were poor at 7.9mbu vs. the 13.6mbu needed weekly.  Export sales have missed the level needed in six of the last seven weeks.  Total commitments of 1.953bbu are down 16% from a year ago which is a bit more than the 11% drop the USDA is forecasting.  Shipments are the real concern at 1.760bbu, leaving 340mbu left to ship by the end of August.  Soybean export sales were 4.7mbu, which is above the level needed, but here again it will come down to shipments.  Cumulative exports now total 1.447bbu, leaving 253mbu left to ship in the remaining seven weeks of the marketing year.  We would expect small cuts to both corn and soybean exports on the August WASDE.

Major exporter balance sheets for both corn and soybeans continue to be a focus of ours.  Updating our major corn exporter balance sheet earlier this week, we see production is expected to decline in 2019/20 to 551.4MMT from 565.5MMT last year and down from the record production of 569.7MMT in 2016/17.  This is not a surprise given the cuts to production in the United States, but it is important to note total supplies are expected to be 629.2MMT, just below last year’s record of 636.7MMT.  Total usage is still expected to rise to a record next year of 562.2MMT but it will see ending stocks fall to four year low of 66.9MMT.  While the U.S. will be the focus for the coming weeks, we can’t help but notice the record total supplies expected in the coming year for Argentina/Brazil/Ukraine combined.  Those three countries are expected to see 200.03MMT of total corn supplies, up from last year’s record 200.00MMT by a hair.  Granted, the corn crops in South America still need to be planted, but the price incentive will be there to maximize acreage.  Total usage out of those three countries will rise to a new record, and the increase in supplies from 2-3 years ago is just staggering.  The previous record high of 178.0MMT was set in 2016/17 which was more than 20MMT below this year and next.  The buffer added will go a long way toward easing any supply shortfall in the United States, even if that can’t be overcome completely.  In our view, these “extra” supplies are part of the reason calls for $6.00-7.00 corn are proving unrealistic.  Global trade dynamics are not the same as they were in 2012/13 when the U.S. last faced a supply driven bull market.  This market has not finished determining supply, but the bullish enthusiasm has been pared in part because of our global competitors stepping up to the plate.

Bottom Line: Rallying into the weekend to help offset a poor week of trading. Still all about weather, and traders will be anxious to see the Sunday model runs ahead of the evening open.  As we saw this week, the market’s interpretation of the weather can change drastically from the start of the week to the end, so don’t write these markets off just yet.  The tone of social media seemed to change yesterday, and while we don’t profess to know where prices will go next, producers would do well to at least entertain the idea of the highs possibly being in.  How proud of your marketing plan would you be if you knew with certainty the highs were already in?  Would you change anything?  Conversely, if you knew with certainty the lows were in, and new highs were still in the offing, would you need to get longer or do you still have 50% of your crop unpriced?  As our old boss used to remind folks, there really isn’t a reason to be re-owning anything until half of your crop is priced.  Tighten it up.  Tighten it up.

Good Luck Today.

Tregg Cronin

Market Analyst




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