8/5/2019 Morning Comments

Good Morning,

Trade war and forex moves are dominating financial market headlines this morning after President Trump said he would implement another 10% tariff on the remining $300 billion worth of Chinese imports.  He walked this back slightly late Friday and over the weekend saying something to the effect of he might not implement the tariffs if China agrees to buy more U.S. farm products before September.  China said they would retaliate to any U.S. aggression, keeping the escalation in place.  At the Sunday night open, the Chinese renminbi fell through 7.00:1, the weakest trade since May of 2008 during the depths of the financial crisis.  Regardless of “winning” the trade war, the currency weakness is not a good sign for global growth and Chinese protein demand.  All of these steps will continue to stifle growth in the world’s second largest economy which is a long-term negative for U.S. agriculture. 

Active radar track across the Western Corn Belt and Northern Plains this morning with moisture falling where it isn’t necessarily needed and not falling where it is.  The 30-day percent of normal precipitation maps from NOAA continue to show a large pocket in Iowa, Illinois, Indiana and Michigan which is running below 50% of normal.  A sizable pocket in Iowa and Illinois is running below 25% of normal.  Separately, dryness is becoming more of an issue across Kansas, Oklahoma and Texas with a large swath running 25-50% of normal over the last month.  The dryness certainly has implications for fall crops, but more importantly, the dryness will need to be monitored heading into September and HRW sowing.  Overnight GFS and European models continue to see better precip returns across the entire belt in the week 2 forecast with the GFS suggesting 144-145% of normal from August 12-August 18 according to Crop Prophet.  The Euro isn’t quite as wet but still seeing 115-116% of normal precip during that time frame.  Temps are seen mostly near normal to slightly above the next two weeks.  Difficult to argue with current forecasts which gets us through mid-month.

Sharply lower prices overnight led by Chicago wheat and corn with the former down over 2.00% in the September contract while the latter is down 1.50%.  The combo platter of negative trade war headlines, poor demand data and a mostly favorable weather forecast is just too much to overcome at the moment.  Funds are still carrying a net long position in corn despite having sold corn aggressively the last two weeks.  We are now a week out from the August WASDE and the bulls are still convinced the report will save the day with cuts to yield and acres.  The market is certainly offering a golden buying opportunity if one believes the report is sitting on a massive bullish surprise.  While supply could very well come down, we aren’t sure it’s the silver bullet many have been waiting for considering the recent U.S. Dollar strength, the Chinese halting purchases of U.S. farm products and a domestic demand picture which is hardly supportive.  As odd as this sounds, it’s almost like the supply shortfall (if there is one) picked the wrong place and time to have the full effect it may have had in another marketing year.  Open interest changes Friday included corn up 286 contracts, soybeans up 4,150, meal up 9,215, oil down 662, SRW up 7,785 contracts and HRW up 3,117.

Friday’s Commitments of Traders data had a little something for everyone.  In corn, funds sold 34,752 contracts last week which was the largest single week of selling since April 1.  Their net long in corn is now just 74,107 contracts which is the smallest since mid-June.  Commercials cut their long and short exposure last week.  In soybeans, funds sold 7,137 contracts to put their net short at 63,523 contracts which is back to the largest net short since mid-June.  Like corn, commercials reduced both their gross short and long positions.  Funds bought both Kansas City and Chicago wheat to cut their net short positions moderately but nothing much to see in the commercial positioning.  The real focus in wheat continues to be in Minneapolis in our opinion as funds sold another 2,176 contracts to take their net short to 16,586 contracts, a new record.  Their net short now accounts for 26.3% of total open interest, which compares to 8% in soybeans and 4% in KC wheat.  The gross commercial long position in Minneapolis rose to 38,473 contracts, the largest position for this group since November 20, 2018.  Difficult to get bearish Minneapolis wheat when end users are buying and funds are carrying record short positions.  At the very least, there should be value in owning Minneapolis vs. Kansas City, although we are less enthused about owning Minneapolis against Chicago.  The SRW balance sheet still has some fireworks in store in our opinion.

Census export data was released Friday covering everything from corn bi-products to whole grain exports.  DDGs exports totaled 962,592MT for the month of June, down from 1.020MMT last month and 1.023MMT a year ago.  YTD exports of 5.349MMT compare with 5.624MMT a year ago.  Ethanol exports totaled 486.1 million liters which was up from last month’s 377.0 million liters but down from last year’s 569.6 million liters.  YTD ethanol exports are down notably from the same period in 2018.  June corn exports were soft at 3.068MMT which was the smallest June total since 2013.  The figure compares with 4.689MMT in May and 7.182MMT in June of 2018.  Marketing-year-to-date corn exports of 46.630MMT are down from 49.174MMT a year ago, which is actually less bad than weekly inspection data would imply.  June wheat exports totaled 2.155MMT which was down from May at 2.758MMT but above last year’s historically poor 1.559MMT.  Not much to say about wheat, but we should see a slow down in July.  Soybean exports were surprisingly strong at 3.193MMT vs. 2.560MMT in May and was the largest June total on record.  The total was around 68 million bushels larger than what weekly inspections data would imply, putting the marketing year total not as far behind the needed pace as once thought.  There are still a large number of exports needed in July and August, but the total might be doable now.  China was the largest destination by far at 1.727MMT vs. second place Mexico at 242,528MT.  Unfortunately, it would seem difficult to have China take such a large amount of soybeans in July and August considering the political ramifications.

FWIW, FC Stone released their estimates of corn and soybean production Friday based on a survey of their elevator clientele.  They see corn production at 13.992bbu with an average yield of 167.4bpa which compares with the USDA in July of 13.875bbu and 166.0bpa.  On soybeans, the brokerage sees 3.743bbu and a national average yield of 47.2bpa which compares with the USDA at 3.845bbu and 48.5bpa.  We found it interesting their yield ideas were trending higher when so many seem hell bent on yield and production slipping further from the July figures.  We have not seen average trade estimates for the August WASDE but it will be interesting to see what the masses think on the change from July.

Bottom Line: Bulls continue to fight the tape, attempting to keep their nostrils above water for another week when the USDA Whitehorse is expected to ride in and save the day.  The weakening cash basis as futures have plunged is a signal of just how much old crop was actually in the country even after pundits all kept asking “where is the corn?”  Nothing positive from outside markets to stem the tide either. No reason to look to wheat for support in our opinion as the Northern Hemisphere spring wheat harvest has yet to begin and it would appear we have enough supplies with the major exporters to meet the projected demand increase.

Good Luck Today.

Tregg Cronin

Market Analyst




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