7/23/2019 Morning Comments

Good Morning,

It feels like it has been a while since we’ve been able to say this but the Midwest radar is blank this morning.  Dryness will remain the feature, a welcome one at that, until the weekend when the next round of moisture is slated to move over South Dakota and southern Minnesota.  The soil profile and humidity in South Dakota are such that each and every chance of rain seems to bring meaningful moisture to an already saturated landscape.  By the end of the weekend and into early next week, showers will move into Iowa, Wisconsin and Missouri.  These showers will be welcome as moisture deficits still exist in Iowa, Missouri and Illinois.  Models are bringing heat back into the equation in the week 2 outlook running from July 29-August 4 according to Crop Prophet.  The Euro model sees temperatures across the corn and soybean belt running 3.5-4.0 degrees above normal while the GFS isn’t as extreme at 2.4-2.6 degrees above normal.  Corn will be pollinating during this stretch but this could be more of a concern for pod-setting soybeans.  Moisture returns are fairly skimpy with both the Euro and GFS returning 0.5-0.7” over the Corn Belt the next two weeks.  The week two returns are closer to normal or even above but still not a lot of moisture around in our opinion.  All in all, the weather forecast isn’t threatening but it is difficult to know what kind of weather these crops need considering the incredibly late planting and the excessive moisture up to this point.

Higher market across the board, led by Kansas City and Minneapolis wheat as all of our markets attempt to bounce from a tough session Monday.  The sell off yesterday seemed to be predicated on a non-threatening forecast into the first week of August, during which a majority of the corn crop should be pollinating.  As we get out into August, the heat is getting dialed up, which does seem like a concern for the soybean crop but a bit early to say at this juncture.  Combine a mostly benign forecast with the continued stream of weak demand indicators, and it isn’t difficult to see why bulls are having a difficult time moving prices higher.  Conditions were expected to rise on Monday’s crop progress report but they remained steady or fell, a possible sign the recent string of weather has not been beneficial.  It feels as though our markets will have a difficult time rallying until we get confirmation from the USDA on yield and/or acres on the August WASDE.  The troubling thing is the fact the delayed maturity of this year’s crop will lower confidence in yield estimation for the August WASDE.  In addition, the USDA is not using objective yield plots on the August WASDE for the first time, relying instead on satellite maps and farmer surveys, which will undoubtedly be used as a scapegoat for anyone who gets the yield wrong.  Open interest changes yesterday saw corn down 4,703 contracts, soybeans down 11,609, meal down 1,059 contracts, oil up 586, SRW down 286 and HRW up 1,464 contracts.

The weekly crop progress report showed corn conditions at 57% G/E vs. 58% expected, 58% last week and 72% last year.  Conditions fell most notably in South Dakota (-4), Indiana (-4), Michigan (-4) and Ohio (-3).  Small improvements were seen in Kansas, Nebraska, Iowa and Illinois.  Conditions remain the lowest rated since 2012 and the second lowest since 2004. 35% of the crop is silking vs. 17% last week and 66% average.  This should put the bulk of the corn crop in the heat of the corn belt pollinating next week and the week after.  5% of the crop is in the dough stage vs. 10% average.  Soybean conditions were seen at 54% G/E vs. 54% expected and 70% last year.  Broadly mixed from one of the corn belt to the other with the Dakotas seeing 4-5 point drops while Illinois, Nebraska and Kansas were all 2-4 points better.  The soybean crop in the Dakotas is laboring under excessive moisture which has plants yellow and stunted.  The heat this week and next will be welcome for that crop.  Soybeans blooming were seen at 40% vs. 22% last week and 66% average.  Soybeans setting pods were pegged at 7% nationally vs. 28% average.

Spring wheat conditions were unchanged at 76% G/E vs. 76% G/E expected and 79% G/E a year ago.  Somewhat surprising to see the national index unchanged considering South Dakota fell 4 points, Montana was down 3 points and Washington fell 9 points with the only improvement being Idaho +3.  North Dakota and Minnesota were unchanged at lofty levels.  The concern across the Northern Plains is disease and lodging as moisture levels remain excessive on a nearly mature crop.  Wheat is beginning to lodge in South Dakota, a condition that is likely to make its way into North Dakota.  The U.S. has been blessed with two years of back-to-back high quality and above average protein.  The concern at the moment would be a reversion to the mean or even a sub-par year on quality and protein.  Winter wheat harvest was pegged at 69% complete vs. 57% last week and 79% average.  Kansas is 96% harvested while Nebraska is 33% harvested vs. 76% average and South Dakota has yet to begin harvest.  Winter wheat harvest should break loose in South Dakota this week and next, rain depending.

Other data out yesterday included weekly export inspections were poor across the board, a theme the market is getting all too used to.  As some were pointing out on social media last night, inspections are not as important as sales, but they are still worth noting to give confidence the sales you have on the books are actually being executed on and your export sales estimate is accurate.  It is true that the majority of the sales which do not get executed in the current marketing year will be rolled into the next year, but it is still a fact those bushels will be in the country as of the next Quarterly Stocks report, inflating supply levels above and beyond what the market may have been using.  Wheat inspections totaled 15.9mbu vs. the 17.6mbu needed weekly to hit the USDA forecast.  Total inspections of 124.7mbu are still up 27.5% from a year ago but this down from 49.2% ahead two weeks ago.  Corn inspections totaled 17.2mbu vs. the 23.5mbu needed weekly.  Total inspections of 1.716bbu are down 12.5% from a year ago with just six weeks left in the marketing year.  Soybean inspections totaled 20.6mbu vs. the 30.4mbu needed weekly to hit the USDA mark.  Total inspections of 1.443bbu are down 24% from a year ago with six weeks left.  We think it next to impossible China will take all of the soybeans still on the books with the key being weather they roll these sales into next year or cancel them altogether.  We feel it is unlikely they cancel them given the financial repercussions which are now attached to such an action.

We continue to monitor the Minneapolis wheat market structure with funds now sitting on a new record net short position of 13,027 contracts.  Last week, their position was a record as a percentage of open interest but not their nominal position.  This week they have both.  In addition, the gross commercial short position at 24,802 contracts is up 2100 contracts from the week before, but still just off the lowest level in over a year.  Considering the crop is delayed this year, and considering the Wheat Quality Council tour embarks on its yield tour today, we would be mindful of this position the next several weeks.  A year ago we watched price rally $1.10 from mid-July to the first week of August once harvest got rolling.  We aren’t suggesting the same is going to happen this year but the structure of this market seems a bit peculiar in our estimation.

Bottom Line: A little friendlier on the lack of condition improvement but still acknowledging the weather forecast is pretty decent.  The thing we are struggling with is the weather-to-date and what kind of top end yield potential we can still expect?  In addition, we have been running GDU calculators on our own corn crop and realize we would need to get to the 1st of October without a frost to reach Black Layer.  This is possible but average first frost dates are around the middle of September.  Unfortunately, we aren’t likely to have any handle on yield until combines roll in October. 

Good Luck Today.

Tregg Cronin

Market Analyst




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