8/27/2019 Morning Comments

Good Morning,

The amount of subterfuge from the Whitehouse in the last 48-hours has been impressive.  Late Sunday night, President Trump announced an agreement in principle with Japan on a new trade agreement.  In the presser, President Trump said Japan would be buying “excess” U.S. corn to offset what China has failed to live up to in their previous agreements.  So many things to pick apart with that.  A) China never really agreed to buy U.S. corn given it was the loss of soybean business which impacted us most.  B) While Japan is a very large corn importer, they can hardly afford to take “excess” U.S. bushels, even if we could define what “excess” actually means.  Roll forward into Monday and we received news from President Trump that Chinese officials called and said they wanted to return to the negotiating table and make a deal.  He was very happy with this development.  As the day worn on, however, it became clear no phone call actually took place but instead Chinese Vice Premier Liu told a business conference that they were “willing to resolve the issue through consultation and cooperation with a calm attitude.”  Significantly different course of events in our opinion.  We continue to find it hard to believe a major trade deal will take place before the end of 2019 and most likely not before the 2020 elections.  President Trump has a deadline.  President Xi does not.  Which party has more of an interest to make a deal?

Pesky, lingering showers across the Northern Plains again this morning, although nothing like what moved through Sunday night.  Spring wheat harvest is turning into a nightmare all across the Northern Plains as producers battle high humidity, grain which won’t ripen and vanishing day length.  Fortunately, a drier week lies ahead for the Dakotas, Minnesota and Montana as well as the Canadian Prairies.  Humidity is supposed to fall, but so too are temperatures which will keep dry down slow.  Kansas remains on tap for big rains in the coming week with 0.50-3.00” totals expected across the entire state.  Should be zero moisture concerns heading into winter wheat planting next month.  GFS models keep below normal temperatures and above normal precipitation in place during the 6-10 and 8-14 day outlooks.  The two-week percent of normal precip map is quite impressive over the Midwest with very few if any deficits present.  If an early frost is avoided, soybean potential could be strong given the delayed maturity but generous rains during development.

Weaker grain prices across the board as the Monday trade-deal optimism fades.  We found is rather surprising the soybean market was up double digits yesterday on the few comments President Trump made regarding China.  If we have learned anything over the last 12-18 months of trade talks, it is don’t assume anything and don’t take anything for granted.  As we suggested above, in our opinion, President Trump is under more pressure to make a deal in the next 6-10 months than President Xi is considering President Xi made his presidency a lifetime appointment.  In my view, another round of MFP payments or trade war support will not be enough to “pacify” the Midwest and retain support heading into 2020.  While the focus yesterday was largely about corn and soybeans, the trade developments with Japan were probably most positive for wheat, as U.S. wheat should now enjoy the same preferential treatment as Australia and Canada after the signed on to the modified TPP.  Hopefully this allows U.S. wheat to be more competitive into Japan moving forward.  Open interest changes yesterday saw corn drop 14,925 contracts, soybeans down 994, meal down 2,226, oil down 122, SRW down 6,610 and HRW down 2,334.

Several pieces of data yesterday including crop progress with both corn and soybean conditions improving.  Corn conditions jumped one point to 57% G/E vs. 68% G/E a year ago.  Much of the improvement was due to a seven point jump in Illinois where 49% of the crop is rated G/E.  As we’ve said in previous correspondence, the outright number doesn’t mean as much to us as the trend.  If Illinois corn conditions continue to improve counter-seasonally, it would be a sign the rains in August have had a positive impact.  71% of the crop is in the dough stage which is up from 55% last week but down from 87% average.  This is the slowest dough rating since 2013 but is nowhere near the slowest on record, which is encouraging considering our planting pace.  27% of the crop is denting vs. 15% last week and 46% average.  Soybean conditions improved two points to 55% G/E vs. 66% last year.  Here again, the national increase was due in large part to a ten-point jump in Illinois to 50% G/E vs. 75% last year.  The recent rains in the Eastern Corn belt have helped.  It is just a matter of whether this crop has enough time to finish.  79% of the soybean crop is setting pods vs. 68% last week and 91% average.  This statistic remains concerning as soybeans which haven’t set pods with the calendar getting set to flip to September look unlikely to finish.

Spring wheat conditions declined one-point to 69% G/E vs. 74% G/E last year.  More important to us is the harvested percentage at 38% complete vs. 16% last week and 65% average.  Most states in the Northern Plains are around 30% behind average with weather not conducive to dry down.  Many producers are taking wheat out of the field wetter than desired just to get the crop in the bin.  Anecdotal reports suggest many bushels are being put in the bin or in a bag at 15-17% moisture.  Most elevators will not take wheat over 14% and with the lack of heat, it is unlikely this wheat is going to dry down meaningfully even in air bins.  This raises the question of storability and when this wheat might be ready to move?  Most producers are not interested in selling current cash prices anyway, with soybeans and sunflowers more likely to move off the combine.  The longer spring wheat harvest drags out, the more at-risk quality becomes.

We also saw weekly export inspections which were solid across the board.  Wheat inspections totaled 18.1mbu vs. the 18.4mbu needed weekly to hit the USDA forecast.  Total inspections of 221.0mbu are up 23.9% from a year ago.  Corn inspections totaled 25.2mbu vs. the 17.5mbu needed weekly.  Total inspections of 1.842bbu are down 17.0% from a year ago, but with the Census adjustment should be close to hitting the USDA’s 2.100bbu target.  We think when all of the bushels are counted, corn exports could fall slightly below the USDA’s target.  Soybean inspections totaled 35.3mbu vs. the 5.3mbu needed weekly.  Total inspections of 1.633bbu are down 19.9% from a year ago, but with Census adjustments will be close to the 1.700bbu target.  According to our friends at ClipperData, demand from China during the month of August has been strong.  China has taken nine vessels from the U.S. in the last week, an encouraging trend.  ClipperData continues to suggest Brazil will be unable to satisfy all of China’s needs until new crop, pushing business back to the U.S. regardless of what Chinese officials say publicly.

Bottom Line: Trade war rhetoric and frost maps.  Seems to be what the trade has been reduced to lately.  Hard to believe on August 27th we still have this much uncertainty about corn and soybean supplies.  If we make it through September without a frost, high-end potential still exists.  If we don’t, yield cuts could be dramatic.  I guess we should turn the machines off until October 1.

On another note, I wanted to take a minute and let everyone know this will be the last week I will be writing commodity commentary for Halo Commodities.  I’m going to be scaling back my market commentary and focusing more on our farming operation and family.  The last four to five years have been an excellent opportunity to interact with customers and market participants from all over the globe but time commitments are changing with a little one in the house.  Kevin and the guys at Halo will still be business as usual, but this piece will be on ice for the foreseeable future.  Have genuinely appreciated the opportunity to put a market rag in front of folks and the feedback I’ve received.  2019 has been the most challenging year I’ve ever seen in my decade of following markets, and one which we won’t forget anytime soon.  Thank you and Good Luck.

Tregg Cronin

Market Analyst

Tregg.Cronin@halocommodities.com

www.halocommodities.com

@5thWave_tcronin

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