7/26/2019 Morning Comments

Good Morning,

Market Facilitation Payments were the talk of the market yesterday with some growers pleasantly surprised while others were downright disappointed.  The methodology seems somewhat straightforward, although the payment structure does not with talk of three tranches of payments, two of which will be dependent on market conditions and trade negotiations with China.  The payments will do little to shake the subsidy cloud hanging over American Agriculture, yet few can deny the fact agriculture has been at the tip of the spear in President Trump’s campaign against China.  The payments going out would seem to suggest to us that we aren’t close to solving the differences between the U.S. and China, and the conflict is likely to rage into 2020.

Scattered showers across the Midwest but no organized systems to speak of.  Mostly dry weather until things fire up again this weekend across South Dakota and head into Minnesota by Sunday.  There are chances of rain in western Iowa and western Missouri, otherwise the central and eastern Corn Belt looks dry the next seven days.  Totals for SD/MN as of the morning GFS models show 0.50-1.50” totals for much of the two states.  Extended maps from the Climate Prediction Center show temperatures easing from above normal to normal by the 8-14 day with precip returns flipping from below normal to above normal.  We continue to see 50% or less of average precip in Iowa and Illinois over the last two weeks.  According to Crop Prophet, the Euro model keeps the heat in place throughout the 2-week outlook, showing temps 2-3 degrees above normal.  The Euro model is also drier, and not willing to embrace the above normal precip shown on the GFS.  According to Crop Prophet, the corn and soybean belts will see 83-85% of normal precip August 1-August 7 while the GFS sees 100-109% of normal.

Weaker grains and slightly higher soybean prices as most contracts limp toward the finish after a disappointing week of trading.  For the week, December corn is down 9.75c, November soybeans are down 19.0c and December Chicago wheat is down 10.0c.  Forecasts have improved as the week has progressed, or at least not gotten any more threatening.  In addition, each and every demand update we seem to get for the corn and soybean markets has been disappointing.  Export sales, ethanol production and crush performance have all been worse than expected during the months of June and July.  If a person had a real-time ending stocks tally which updated with supply and demand changes as they occurred, it feels like ending stocks would have been rising this week.  Bulls remain focused on potential yield and acre cuts on the August WASDE, but that remains two weeks out and does little for day-to-day price action.  The Wheat Quality Council Tour wrapped in Fargo yesterday afternoon with tour results discussed below.  Open interest changes yesterday included corn up 4,285 contracts, soybeans down 6,871, SRW down 6,669 and HRW down 3,559.

Export sales data released yesterday was strong for wheat and disappointing for everything else.  All-wheat sales totaled 24.2mbu vs. the 13.5mbu needed weekly to hit the USDA forecast.  This was a marketing year high for wheat sales, which bumped total commitments to 312.9mbu, up 25% from a year ago.  The solid export sales along with wheat/corn spreads trading back toward new contract lows should add price support to wheat moving forward, at least on a relative basis.  Corn sales were poor at 4.8mbu vs. the 15.1mbu needed weekly to hit the USDA forecast.  Total commitments of 1.958bbu are down 16% from a year ago while the USDA is only calling for a 13% reduction.  As has been the concern for a while, cumulative exports stand at 1.782bbu, leaving 320mbu left to ship in the remaining six weeks of the marketing year.  New crop corn sales are nothing spectacular either at 147.5mbu vs. 242.9mbu at this time a year ago.  Old crop soybean sales saw net cancellations of 2.9mbu, reducing total commitments to 1.785bbu vs. the USDA marketing year forecast of 1.700bbu.  Still, it is the shipments which remain the problem at 1.470bbu, leaving 230mbu left to ship in the next six weeks.  As concerning are new crop sales at 111.2mbu vs. the 361.2mbu on this date a year ago.  Sales are down 69% from a year ago while the USDA expects exports to INCREASE by 10% in 2019/20.

The Wheat Quality Council tour produced a tour average spring wheat yield of 43.1bpa vs. 41.1bpa a year ago but was below the 44.6bpa 5-yr average.  Lots of variability on days two and three with some pockets containing huge yields and others rather disappointing.  Nearly the entire state of North Dakota has been running a surplus on moisture the last thirty days with the exception of the area around Devils Lake and Grand Forks which is where some of the lowest yields were noted.  Still, it is worth noting that the tour pegged the average yield at 41.1bpa last year while the USDA went on to call the national hard spring wheat yield a new record at 47.2bpa.  Last year could be partially blamed on the late maturity of the crop, making assessing yield potential difficult.  This year is no different with harvest being called 3-4 weeks out in many spots.  It would take a massive surprise once combines roll to materially alter the supply situation in spring wheat, but quality is still very much up in the air.  Signs point toward an average to below average protein crop this year, although the market carried out almost half of last year’s above average protein crop, which should make blending opportunities abundant.

Bottom Line: Disappointing price action this week with most of our markets finishing the week near the lows.  The corn market desperately needs bullish updates from the USDA in a couple weeks, or the U.S. farmer will look back at a wasted summer of marketing opportunities.  To be fair, growers have been told since April by everyone from brokers, to academics, to hedge funds to the USDA that this year is a disaster and higher prices are a certainty.  As the price action this month is showing, there is no guarantee to anything, especially in grain markets.  Plenty of analogs exist for years in which new highs were made August forward, but hanging your hat on an analog year hasn’t been safe in 2019. 

Good Luck Today.

Tregg Cronin

Market Analyst




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