7/31/2019 Morning Comments

Good Morning,

Rain showers moving across South Dakota, Iowa and northern Missouri this morning, helping to fill in dry spots in Iowa but making wetness concerns worse in South Dakota.  Rainfall the last 7-days has been heaviest in Eastern South Dakota, Central Minnesota, Northern Missouri and the Iowa borders.  Over the last two weeks, the largest moisture deficits exist in Eastern Iowa and Northern Illinois which are running less than 50% of normal and in some cases less than 10% of normal.  The saving grace has been the cooler temperatures which are limiting the amount of evaporation, even if the plant is technically using a good deal of water at this stage of development.  Rains the next 7-days will be heaviest along the Missouri River Valley on down to the KS/MO border where 1.00-3.00” is expected.  Otherwise more rain is seen for the SD/NE border which will slow wheat harvest efforts.  Extended maps from NOAA show below normal temps and above normal precip which continues to be a double edged sword.  The weather is ideal for reproduction of corn and soybean crops, but will not do any favors for this crop getting pushed toward maturity.  As we’ve been suggesting, this crop should cross one bridge at a time, and the one directly in front of the market is getting through pollination/pod-set successfully.

No big arguments from Crop Prophet on the overnight model runs, although their take sees a bit more heat in the week 2 GFS than do the Climate Prediction Center maps.  They see the August 7-August 13 period with 1.4-1.5 degrees above normal across the corn and soybean belt.  Both the Euro and GFS overnight runs see the corn and soybean belts at 104-120% of normal precipitation during that time frame which should be about ideal for filling pods.  As cool as the month of July has felt, according to the Crop Prophet models, the month of July has actually been 37-42 growing degree units ahead of normal.  An agronomist friend of ours suggested this is because the crop never saw a period of searing heat which shut the crop off for a stretch as is usually the case.  Despite July being cool, the crop never stopped growing, allowing it to make progress toward getting back to normal.  This is undoubtedly why the silking and doughing progress relative to normal don’t look as bad as one would think given how delayed planting was.  The July Growing Degree Unit anomaly map from Crop Prophet is below.

Weaker markets across the board this morning with no buying interest surfacing after December corn finally filled the gap from back on May 24/28.  While not all gaps get filled, this one will be cited for months and years to come as we’ve now round tripped much of the late-planting/June weather rally.  If a person would have polled the trade back before the June acreage report and again after, I doubt few if any would have said December corn would be trading 4.20 on the last day of July.  Many in the trade are ready to leave the month of July behind and move on to August which will see the August WASDE update acres and yield.  August also brings with it a bit better seasonality.  According to www.sentimentrader.com, the month of August has witnessed an average return of 0.98% over the last 30-years while corn has averaged a 0.358% return.  Chicago wheat has averaged 1.21% over the last 30-years, although July is typically the strongest month on the calendar, averaging 2.54%.  July 2019 saw a 6.4% drawdown, so that is why seasonality is only as good as the particular year you happen to be in.  Open interest changes during Tuesday’s session saw corn up 6,353 contracts, soybeans up 412, meal down 250, oil down 10,082 contracts, SRW up 22 and HRW up 2,521 contracts.

Trade talks ended in Shanghai early this morning with both sides agreeing to continue discussions in September.  Reports said the topic of Chinese purchases of U.S. farm goods was discussed, a demand made by President Trump via Twitter.  It feels as though these discussions are at a point where nothing can be done until one side is willing to blink or give up major concessions, something neither side is willing to do.  China will not buy large quantities of U.S. farm products until the threat of U.S. tariffs is removed.  The U.S. isn’t willing to remove tariffs until purchases have been made, let alone concessions on the more sensitive issues like forced technology transfer, currency manipulation and intellectual property.  Why would China negotiate a major deal with Trump when he could be out of office in 14-months, or conversely why strike a deal now when they may have four more years of Trump to negotiate with?  Media in general, and Ag media specifically, would do well to not get so excited each and every time a an off-hand comment gets made by an official on either side.  Taking a step back and looking at the trade war from a wide angle shows the unlikeliness that either side is willing to bend unless economic data from that particular country turns especially negative.

South American corn harvest continues to advance at a breakneck pace with Brazil’s second crop corn harvest now 74% complete vs. 61% last year and 48% average.  Argentina’s corn harvest is estimated at 82% complete vs. 76% last week, 90% last year and 78% average.  This is part of the reason South American export offers have been so aggressive, so early as both countries have the stem in place with no real long-term storage options.  The May 2020 soybean/corn ratio at 2.14 is encouraging South American farmers to once again sow a large corn crop which should lay the groundwork for extreme competition again in 2020.

Wheat harvest is advancing in spirts in South Dakota with HRW cutting thought to be around 25-40%.  High humidity levels and a lack of heat is preventing rapid dry down, which is in-turn not allowing HRS to push towards maturity.  Based on the eye-test, HRS harvest isn’t expected to begin in north central South Dakota for another two weeks, which would put the earliest harvest efforts in North Dakota out to the third week of August.  The bulk of North Dakota’s spring wheat harvest could happen the last week of August and into the first two weeks of September.  This of course unless the pattern changes markedly in August.  With days getting shorter during the month of August, harvest conditions exist for a much shorter amount of time each day.  With this in mind, there might not be a lot of hedge pressure against the September contract in Minneapolis wheat, which could in turn support the MWU/MWZ.  We’ve seen decent strength in that spread the last handful of sessions, and it may be worth looking at getting hedges moved out to the December before that isn’t an option.

Bottom Line: Hurry up and wait for a turn in the weather, or the August WASDE or the last of the old crop push to happen.  Bulls are nowhere to be found, or at least none which have the capacity to do anymore buying.  Farmers are undersold on both ends of the curve because they’ve been told since May that corn was going higher and all they had to do was wait.  That could still end up being true, but there are very few who are proud of their marketing based on expected crop size.  In our opinion, there will be an opportunity to sell better levels, but from what level the rally comes is the question.  With December corn now below 4.20, there isn’t much in the way of support until the 4.00 mark.

Good Luck Today.

Tregg Cronin

Market Analyst




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