8/13/2019 Morning Comments

Good Morning,

The Argentine peso fell to new record lows on Monday of 53.00:1 against the U.S. Dollar after pro-market President Mauricio Macri’s party suffered big losses in the recent primary.  Markets now wonder if this spells trouble for the Argentine economy as former President Cristina Fernandez de Kirchner sits on the ticket of the opposition party running for President.  Former President Kirchner was at the helm when Argentina suffered some of its darkest days economically, all but bankrupting the country and causing massive capital flight.  With the Argentine peso spiraling, it becomes a question of whether that encourages producer selling of grain stocks or hoarding as has been seen in the past.  Argentine producers opt to hold grain as a hedge against inflation when currency fluctuations become violent.

Some heavy rainfall totals posted in the past 24 hours, especially in the Dakotas, Nebraska, NW-Kansas, SW-Iowa and N-Missouri.  Southcentral Illinois also saw good rains, but the system which moved across Iowa did not hold together as well as it appeared to.  A quiet couple days before the next disturbance fires up in the central plains and WCB and eventually moves into the heart of the belt by the weekend.  The 7-day GFS is showing 0.75-2.00” totals across a big area in Nebraska, Iowa, Kansas, Missouri, Illinois and Wisconsin.  All of that moisture should be welcome while the Northern Plains sees a drier stretch which will also be welcome as fields attempt to dry and allow HRS harvest to commence.  Extended maps look favorable with above normal temps across much of the Midwest while precip is mainly above normal outside of the Southern Plains.  Heat at this point in the season will be very good for finishing crop development.

Picking up where we left off in corn and wheat overnight as bears press losses and bulls run for cover.  There isn’t much to say about Monday’s WASDE except “wow.”  The data released from the USDA was more bearish than even the most bearish pre-report estimates, hitting bulls with both barrels in the way of higher than expected corn acres and higher than expected corn yield.  Soybeans actually saw a somewhat constructive report, helping to post gains overnight, but it is difficult to dismiss the demand cuts seen in the U.S. and globally which should ensure ample supplies of the oilseed during the 2019/20 marketing year.  The wheat report didn’t offer much except larger U.S. production estimates as the focus was squarely on corn and soybeans.  Wheat didn’t have a story before the WASDE without corn and it certainly doesn’t have one after.  The report will send bulls to their corner to reassess as the narrative posted yesterday is not changing until at least combines roll and either confirm or deny what the USDA presented yesterday.  Cash markets will reveal in coming days how much old and new crop the farmer has sold, and we fear it larger than anyone wants to admit.  Open interest changes yesterday included corn down 1,715 contracts, soybeans down 4,581 contracts, SRW up 1,903 and HRW up 3,158 contracts.

There is no doubt the biggest issue the market had yesterday was with corn planted acres coming in at 90.0 million vs. the average trade guess of 87.707 million and 91.7 million at the end of June.  We are actually surprised the average trade guess was 87.7 million as it felt like many in the market were expecting something in the neighborhood of 85-86 million.  Adding confusion to the matter were FSA certified acreage data being released at the same time as the WASDE showing 85.871 million acres planted and 11.2 million acres of prevent plant on corn.  Some jumped on this and said the lower FSA acreage was proof WASDE acres were too high, even though every year this data is reported and always shows lower than WASDE acres as not all acres end up being certified with the FSA office.  In addition, the 11.2 million acres did not mean producers intended to plant 101 million acres of corn, and only planted 90.0 million, or that actual planted acreage should be 80 million.  With the way reporting to crop insurance offices and the FSA office works, it is possible to have large planted acreage and large prevent plant acres designated as corn.  The two are not mutually exclusive.  Farmers had every incentive to call prevent plant acres “corn,” even if they were actually supposed to be soybeans or what because of the revenue projections for corn vs. other crops.  Producers could declare prevent plant on corn up to their maximum planted acreage total over the last four years.  Looking at past FSA data, the relationship between August acres and final acres would imply the 90.0 million planted is within 1% of what final acres will be.  So, bulls expecting there to be a massive drop in planted acres down the road should start shifting their attention elsewhere.

The other issue bulls had was with USDA taking yield up to 169.5bpa from 166.0bpa last month and 176.4bpa last year.  This we can get on board with a little bit as condition-based models and weather-based models certainly didn’t imply such a large jump in yield was forthcoming.  In addition, much of the crop is dependent on avoiding an early frost, something we won’t have a good feeling on for another 30-days.  We aren’t in the camp that says a 169.5bpa national average yield isn’t possible, but don’t have extreme confidence on this date.  Nonetheless, this yield isn’t likely to change meaningfully until the October WASDE when at least some harvest data is available.  Making matters worse for the corn balance sheet were a 20mbu bump in old crop ending stocks to 2.360bbu via lower ethanol demand.  The new crop balance sheet saw total supplies rise by 46mbu while demand was cut by 125mbu.  The result was ending stocks of 2.181bbu, up 171mbu on the month and an average farm price of $3.60 per bushel vs. $3.60 last year.  Pretty remarkable we are right back where we started after the slowest planting campaign on record with excessive moisture in the WCB and dryness much of July in the ECB.  Unlikely yield doesn’t move from here, but the narrative is in place for the next two months.

Global changes worth noting included Chinese soybean imports being cut by 2MMT for both 2018/19 and 2019/20, moving in-line with private estimates although many of those private analysts still have imports lower than USDA.  Russia and the EU both saw wheat production estimates cur further with Russia now sitting at 73.0MMT vs. 74.2MMT last month and 71.7MMT last year.  The EU is seen at 150.0MMT vs. 151.3MMT last month and 136.9MMT last year.  The global wheat export market will be incredibly competitive in the 2019/20 marketing year, especially if Australian production rebounds above 20MMT this fall.  Global soybean ending stocks are projected at 101.7MMT vs. 114.5MMT, corn at 307.7MMT vs. 328.6MMT last year and wheat at 285.4MMT vs. 275.5MMT last year.

Bottom Line: The WASDE is behind us and now the market’s job is to recalibrate trading ranges into fall harvest.  Bulls will continue to dispute the data in the coming days but this seems like a waste of time in our opinion.  The goal posts have been moved, and there doesn’t seem to be much point in trying to roll the clock backwards.  We feel December corn should grab between 3.70-3.80 as end users dip toes into the water and extend coverage.  Keeping an eye on ethanol margins and where those turn back positive should be a good indicator.

Good Luck Today.

Tregg Cronin

Market Analyst




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