8/16/2019 Morning Comments

Good Morning,

More showers across the Central and Southern Plains as well as Missouri and Wisconsin.  The Plains have been particularly wet the last week with many places from Kansas to North Dakota seeing 1.00-5.00”.  This is helping erase the moisture deficits present in Kansas the last month.  30-day percent of normal deficits are still present over Iowa, Illinois and Indiana, even though some good rains have fallen in those states the last seven days.  The central Midwest will continue to see moisture, Illinois, Missouri, Kansas and Indiana in particular.  The Northern Plains should see light showers, allowing harvest to progress in spurts.  Extended maps from the GFS continue to look favorable with above normal temperatures and mostly above normal precipitation through August 29th.  This is about the ideal forecast for accumulating late season GDU’s and pushing this crop toward maturity.

The National Weather Service and NOAA published their latest 1-month and 3-month outlooks yesterday which cover the month of September as well as the September-October-November time frame.  The 30-day outlook sees below normal temperatures in the Northern Plains, the Dakotas specifically, while the rest of the Midwest is mainly normal.  For precipitation, the Northern Plains and extending down to Nebraska and Iowa are expected to see above normal precipitation.  The SON outlook is similar on moisture with above normal precip seen throughout the Northern Plains and down in the US-southwest.  Temperatures are expected to be above normal across the entire contiguous United States.  This would certainly be welcome for delayed maturity crops, especially in the North.

Firmer markets this morning across the board, although a few cent bounce at the end of this week won’t do much to change chart action.  For the week, December corn is down 44c, November soybeans are down 17c and December Chicago wheat is down 25c.  December corn has not made new contract lows, but the lows this week were only 6c away which is truly remarkable considering just a month ago we were still north of $4.30 and many were reloading for another run toward 4.75-5.00.  The acre story is more or less over, at least if one believes in the historical relationship between FSA acres and NASS acres.  Harvested acres could still fall, especially if winter comes early.  That leaves the yield discussion as the only thing which can materially change the supply narrative.  Private forecasters we follow still believe we will see meaningful movement from the August WASDE figure, and have the stats to back it up.  You can find a piece discussing that idea here: https://www.cropprophet.com/usda-august-wasde-corn-yield-forecast-performance/.  Open interest changes yesterday saw corn down 2,640 contracts, soybeans up 4,383, meal up 1,974, oil down 872, meal down 872, SRW up 3,351 and HRW down 661.

Several pieces of demand news Thursday, beginning with export sales.  All-wheat sales were solid at 17.0mbu vs. the 13.9mbu needed weekly to hit the USDA forecast.  Total wheat export commitments stand at 361.9mbu, up 18% on the year.  On a by-class basis, HRW continues to lead commitments, up 72% from a year ago while SRW is up 14% and HRS up just 2%.  Corn sales remain atrocious with old crop sales of 2.2mbu vs. the 15.3mbu needed weekly to hit the USDA forecast.  Total commitments of 1.967bbu are down 17% from a year ago and have just three weeks to hit the 2.100bbu export forecast the USDA just solidified.  It looks like a certainty USDA will cut corn exports next month.  New crop corn sales are equally as bad at 12.2mbu on the week, pushing total commitments to 172.5mbu vs. 348.8mbu a year ago.  Old crop soybean commitments totaled net cancellations of 4.0mbu, taking total commitments down to 1.788bbu.  Commitments are above the USDA forecast of 1.700bbu, but shipments stand at 1.580bbu with three weeks remaining.  New crop soybean commitments of 30.0mbu were solid, but total 2019/20 commitments of 164.2mbu are way behind the 421.7mbu at this time last year.

Also out yesterday was July NOPA crush which blew away the average trade guess at 168.093mbu vs. 155.8mbu expected.  This came somewhat out of left field considering crush margins weren’t all that changed from June.  The strong crush blew away June’s 148.8mbu and was above last year’s 167.7mbu to set a new monthly record.  Assuming the NOPA/U.S.-wide crush relationship remains the same, August crush would only need to be around 152mbu in order to meet the USDA’s marketing year forecast.  The USDA may need to bump their crush estimate back up 10mbu after cutting it 20mbu on the August WASDE. Soybean oil stocks totaled 1.467 billion pounds vs. 1.530 billion expected and 1.764 billion last year.  This is encouraging considering crush was a new record but didn’t result in an explosion of stocks.

Egypt’s GASC bought 295,000MT of wheat for Sept 15-30 delivery yesterday at prices ranging from $217.19-218.90/MT C&F.  The origins were 175,000MT of Russian and 120,000MT of Ukrainian.  US-SRW was $12-15/MT out of the running, and shouldn’t be in the mix for any of this business during the 2019/20 marketing year given current supply projections.  US-HRW on the other hand is close, which should speak to the current flat price levels and how much downside is warranted.  US-HRW should not be priced into Egypt in late summer, and with HRW already 90c discount to SRW, this spread has likely run its course.  In addition, KWU/CU at 30c, and KWZ/CZ at 30c is likely too cheap considering the balance sheet projections we got at the beginning of the week.  If corn doesn’t need to ration all of the demand we thought two weeks ago, HRW probably shouldn’t be working into feed rations anymore.

Bottom Line: Still picking up the pieces after the early week fallout.  Waiting on harvest to really get rolling in the Northern Plains as HRW harvest is slowly finished up but HRS in South Dakota remains several points away.  The forecast looks better, but the HRS harvest may never truly be felt this year.  Bulls continue to argue that corn should grab around current levels, and we can’t argue.  Expecting a big relief rally before yield ideas can be confirmed to be dropping seems foolish, however.  The demand narrative needs to change.

Good Luck Today. 

Tregg Cronin

Market Analyst




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