8/30/2019 Morning Comments

Good Morning,

More trade optimism overnight, or at least that’s what financial media are citing for the strength in equities.  President Trump told Fox News more talks were scheduled with the Chinese, without giving specifics.  U.K. Prime Minister Boris Johnson said he would increase talks with Brussels in coming weeks, giving some hope the country might avoid a hard “Brexit.”  More salient to the grain space was President Trump’s tweet yesterday referencing a “giant package” which Twitter had a field day with.  The package is said to include measures which would boost demand for biofuels, in addition to E15, which the President said was “already done.”  As important, the President also made mention of measures to “save the small refineries from certain closure…” The Renewable Fuels Association was quick to fire off a graphic which showed 17 ethanol plants having been closed in the last 12 months due to small refiner exemptions while zero oil refineries had been idled in the last year due to the RFS.  In fact, they showed 3 oil refineries having been closed due to fires and/or explosions, but not due to the RFS.  If the Administration gives aid to “small refiners,” the backlash could be harsh from the Midwest.  As many have likened measures taken by the Whitehouse with regard to agriculture in the last 18-months, it’s as if someone hit you with their car and then drove you to the hospital and were then proud for having gotten you medical attention.  Never a dull moment.

A sizable system across the Southern Plains this morning, dropping rain in Kansas, Oklahoma and Missouri while the rest of the Midwest is mainly quiet.  No gulley-slappers in the next seven days, but still plenty of moisture around as the Southern Plains sees additional rain in the 0.50-2.00” range while the Northern Plains will see areas o 0.25-0.75” on and off over the next week.  The moisture in the Northern Plains will be the last thing needed as harvest remains slow and quality is impacted.  No big changes in the extended maps with above normal precipitation seen in the 6-15 day outlook while temps slowly warm toward the end of the period for the Plains.  Below normal temps will be prevalent across the Great Lakes and the northern tier of the Eastern Corn Belt.  Still no serious frost threat seen through mid-month for anywhere in the Midwest.

Mixed markets overnight with row crops higher and following through on Thursday’s strength while wheat deals with sizable deliveries at all three exchanges by arguably the three largest commercials at all three exchanges.  Never a good sign when deliveries are heavy at all three exchanges on first notice day, especially when Cargill takes the step of delivering HRW against Chicago futures which we will discuss below.  Otherwise, we continue to watch weather maps for signs of the first frost of the season just like everyone else.  President Trump’s tweets discussed above were the talk in the market for much of the session Thursday but like so many things out of Washington, we will not be holding our breath for anything concrete.  Open interest changes yesterday saw corn down 23,968 contracts, soybeans down 9,273, meal down 1,005, soy oil down 6,686, SRW down 1,740 and HRW down 345 as positions are liquidated ahead of delivery.

Starting with deliveries, Cargill registered and delivered 440 fresh certs in East St. Louis overnight which were actually No. 2 HRW at 2.0ppm vom.  With Chicago commanding such a strong premium over KC for months, many had been speculating someone would take advantage and deliver HRW on Chicago futures.  Last night we finally saw it and futures are responding in kind with September Chicago wheat down 11.50c overnight while December is down 7.50c.  At its low, KW/W fell to -94.00c in early July, or at least the spread was implied there.  We don’t know if it actually traded there.  Still, we were close to 90.0c premium Chicago in mid-August as well, and if a commercial had the bullets and wheat in position, why not?  There were no strong commercial stoppers.  ADM issued and delivered 1,000 fresh HRW certs overnight as well with no one really stepping in there either.  In Minneapolis wheat, CHS delivered 653 of the 666 put out last night after having stood in against the May and March delivery cycles.  Minneapolis could be an interesting situation in 2019/20 given the reports of deteriorating quality.  One would think old crop supplies in Duluth, which should be good quality, would be worth retaining although the protein spec in Minneapolis deliverable down to 13.0% at a discount.  Protein reports across North Dakota have been mostly average, so a large-scale low-pro event wouldn’t seem to be upon us.  Time will tell, but the MWU/MWZ traded down to -23.00c overnight, a new contract low.

Other data yesterday included weekly export sales as we get set to tie a bow on the 2018/19 marketing year.   Old crop corn export sales featured net cancellations of 99,822 bushels with total commitments standing at 1.968bbu vs. the USDA’s 2.100bbu target.  This total might be enough to reach the USDA’s objective considering Census exports running ahead of weekly data.  Interestingly, commitments as a percentage of the USDA’s forecast at 93.7% would be the lowest on record going back to at least 2000.  In other words, the historically large spread between weekly data and Census needs to come through in a big way for August.  New crop sales were solid at 34.0mbu, pushing total commitments to 410.9mbu which is the lowest export total for this date since 2005.  Old crop soybean export sales totaled 3.4mbu, pushing total commitments to 1.789bbu vs. the USDA’s target of 1.700bbu.  Commitments are not the issue with soybeans, but accumulated exports total just 1.653bbu.  Here again, we should be close enough considering Census exports running ahead of weekly data.  Of more concern are new crop sales, just like corn.  As of August 22, new crop soybean commitments totaled 5.614MMT, the smallest total since 2006.  Like last year, we have a window from now until February to get most of our deck on and shipped before South America becomes the offer, assuming they don’t have inclement weather.

Wheat export sales were strong like bull, but that seems to hardly matter in the face of the heavier than expected deliveries.  Total sales were 24.3mbu vs. the 13.4mbu needed weekly, and were the largest sales for this week since 2010.  Total commitments of 407.2mbu are well above last year’s 329.6mbu and just ahead of the 5-yr average at 399.7mbu.  As of August 22, we’ve sold of shipped 41.7% of the USDA’s current marketing year forecast which compares with 32.1% a year ago and 41.8% average.  Wheat is obviously generating value for importers at current price levels, so futures would do well not to rally away from current levels until enough commitments are put on the books to put the export deck ahead of the curve.

A couple quickie’s to close: Ukraine’s first official estimate of this year’s wheat crop is 27.8MMT vs. 24.6MMT last year but below USDA’s last guess at 29.2MMT.  Ukraine sees wheat exports of 19.0MMT which would be in-line with USDA’s thinking at 19.5MMT but above last year’s 16.2MMT.  Germany is estimating their wheat crop at 23.0MMT, up 14% from a year ago.  Australia’s Bureau of Meteorology sees a drier than normal end to the year for most of Australia.  The three-month outlook issued yesterday sees less than 30% chance of exceeding median rainfall in Queensland, New South Wales and most of Victoria.  South Australia is also expected dry while W.A. is mainly normal.  Temps during September to November are seen as a lock of exceeding the median max temp.  This doesn’t bode well for an Australian wheat crop over 19-20MMT and should allow U.S. wheat to compete favorably into Southeast Asia.

Bottom Line: Frost maps.  Tweets.  Weekly demand.  Somewhat relegated to these three categories until more hard evidence is at hand.  As we noted on twitter yesterday, one would do well to remember 2009/10 and how that late crop year played out.  The USDA pegged us with record corn yields but because of the delayed nature of the crop, test weights were light and moisture was high, two things which negatively impacted weigh ups.  It took quarters before the lighter corn was accurately reflected in USDA supply numbers, a phenomenon which could be repeated if a frost event ends the season early and leaves us with a lot of light/wet corn.  If we get a frost event, the futures market will have a difficult time pricing in the impact, leaving that instead to the cash market which could take time.  Keep an eye on spring wheat with the Northern Plains expected to see more rain in the coming week.

Once again, would like to take an opportunity to say thank you to everyone who has read this letter the last five years.  Appreciate all the feedback I’ve received this week and will continue to stay active on Twitter as markets change.  Best of luck to everyone this fall with hopes of favorable weather and safe conditions.  See Garrett.  I didn’t cry.  Cheers.

Tregg Cronin

Market Analyst




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