6/14/2019 Morning Comments

Good Morning,

Rain in the Southern Plains as well as scattered showers in the Northern Plains and Wisconsin this morning.  The focus has been all about excessive rainfall the last two weeks, especially in Kansas, Illinois, Indiana and Ohio.  It is interesting to take a look at the 14-day percent of normal precip map, however, and see the moisture deficits which exist in parts of the Northern Plains, Iowa, central Illinois and southeast Kansas as the map below shows.  Fortunately, this dry spell allowed extra acres to be seeded, but many of those acres will need consistent rainfall to overcome less than ideal planting conditions.  There is rain around the next seven days for the Northern and Southern Plains as well the bulk of the corn belt.  GFS totals in the southern Corn Belt actually look excessive if models verify.  Extended maps still show above normal precip and below normal temps through the end of June.

Higher prices across the board overnight as the rally continues and the trade begins to worry about the soybean balance sheet.  Trade estimates are pegging soybean planting progress to be around 85% complete as of Monday vs. 93% average.  This would leave roughly 12.7 million acres of soybeans left to plant as of June 17 which would be unprecedented.  One can make the argument overall acres were above the March PP estimate, but it does feel as though we could lose a few million.  As we tried to write about yesterday, one has to lose 4 million or more to make the soybean balance sheet look even somewhat constructive.  The real question comes down to yield, and while folks are quick to plug in sharply below trend yields on June 14, we are not ready to do that yet.  In addition, if the demand story wants to be discussed in soybeans, one has an even easier time axing demand there than in the corn market.  We are not trading demand destruction yet on any commodity as we are still in the discovery phase for supply.  Sometime between now and the end of July, the market will be more comfortable with supply and highs are likely to be made.  The balance of the marketing year will be about spreads and basis with an incredibly long tail to futures prices.  Open interest changes yesterday saw corn up 36,089 contracts following its 43,000-contract surge yesterday. Soybean open interest was up 21,484 contracts, meal down 2,433, oil down 3,265, SRW down 4,158 and HRW up 1,755 contracts.

The Canadian Prairie weather situation is one which we continue to keep close tabs on.  Much of the last month and change has witnessed sharply below normal precipitation, but those fortunes appear to be turning as the 7-day forecasted precip maps are putting 0.50-4.00” totals across some of the driest areas of Saskatchewan, Alberta and Manitoba.  Temperatures are also expected to be below normal much of the next 10-15 days with the same weather stretching into North Dakota.  With Canada being dry for much of the spring, planted acreage likely exceeded pre-season estimates, and with temps and precip now cooperating, Canada could be setting itself up for a whale of a crop if conditions persist.  The USDA already had Canada at 10.0 million hectares for harvested area which would be the largest area since 2013/14.  As mentioned, it would not surprise us to see an even higher planted and harvested area with the near ideal seeding conditions.  Production at 34.5MMT would be the largest since 2013/14’s record and the second largest production total ever.  These rains for the Canadian Prairies need to verify, but things look good at the moment.

Export sales yesterday weren’t anything to write home about, and it is clear global importers remain a little shell-shocked over what is happening with the grain rally.  Wheat export sales were light at 12.0 million bushels vs. the 12.6mb needed weekly to hit the USDA forecast.  It is surprising the U.S. is doing any export business right now considering the premium we are carrying to competing origins.  Total commitments of 225.9mb are up 36% from a year ago thanks to a front-loaded program as importers wait for France and Russia to get exportable supplies into place following harvest.  Corn sales were weak at 6.6mb vs. the 16.9mb needed weekly to hit the USDA forecast.  Total commitments of 1.905bbu are down 14% from a year ago with the USDA looking for a just a 9.8% decline.  Corn exports will remain one to watch the balance of the summer as the full-year total could still prove smaller yet.  Soybean sales totaled 9.4mbu which is above the net cancellations needed to achieve the USDA forecast.  Total commitments of 1.724bbu are above the full-year marketing total of 1.700bbu which the USDA just updated Tuesday.  However, it has never been about soybean sales but rather the shipments.  Cumulative exports of 1.310bbu are down from 1.734bbu a year ago.  China still has commitments on the books, and Reuters was carrying headlines about Chinese crushers wanting to roll these contracts further out the curve.  The marketing year forecast for soybeans could still be getting smaller.

Bottom Line: The path of least resistance is higher, especially for soybeans and wheat which are still sporting net short positions in the managed fund category.  It is hard to fight higher prices with cash corn and spreads rallying to the degree they are, even if the supply tightness is a lack of selling as opposed to a lack of physical bushels being available.  The demand debate is not happening now, but it will at some point, especially if export sales continue poor and ethanol margins revert back to the levels witnessed most of the spring.  What does your marketing plan and balance sheet look like if the market breaks 50c as opposed to rallying another 50c?  The right questions need to be asked and answered in between the daydreaming about $6.00 corn.

Good Luck Today.

Tregg Cronin

Market Analyst

Tregg.Cronin@halocommodities.com

www.halocommodities.com

@5thWave_tcronin

COMMODITY TRADING INVOLVES RISK AND MAY NOT BE SUITABLE FOR ALL RECEIPIENTS OF THIS EMAIL. Neither the information presented, nor any opinions expressed, constitutes a solicitation for the purchase or sale of any commodities. The thoughts expressed in this email and basic data from which they are derived are believed to be reliable, but cannot be guaranteed due to uncertainty about future events and complexities surrounding commodity markets. Those acting on the information are responsible for their own actions.

6/13/2019 Morning Comments

Good Morning,

A few scattered showers across the Dakotas and a sizable system in Michigan this morning, otherwise the Midwest is mainly quiet.  Scattered showers across the Midwest until the weekend when the next big round of rain is set to arrive.  The main band will stretch from Oklahoma to Ohio with 0.50-2.00” totals quite common.  By mid-week next week, another round of rain rolls through the entire corn belt with moisture seen from Alberta to the Eastern Corn Belt.  Almost all of the Midwest will see measurable precip.  There will be mixed feelings about this as the crops in and out of the ground need rain while producers who are still struggling to seed soybeans will not appreciation the extra moisture.  Extended maps keep below normal temps and above normal precip in place through June 26 which will keep crop growth behind normal.

Firmer markets across the board this morning led by the corn market.  While the strength in futures is nothing new, the strength in corn spreads the last 24-48 hours has been an impressive feature.  The CN/CU spread rallied to -6.00c overnight, the highest trade since the end of March while the CN/CZ shot to -14.25c which is the highest trade since May 28.  The spread strength is certainly in-keeping with basis strength in the Central and Eastern Corn Belt as premier ethanol plants are paying as much as +45N in Indiana while the flagship plant in Decatur is said to be paying +14N.  The strength in spreads and basis is interesting considering the lack of new crop getting planted will obviously manifest itself on the back end of the curve, not the front end.  In addition, according to the March 1 stocks data, which is admittedly dated now, there should be no physical corn tightness in 2018/19, although we will be getting an update to that in a couple weeks’ time.  The physical corn tightness is most likely tied to producers who have little or no crop planted clinging tightly to remaining old crop supplies because basis levels in the Western Corn Belt can still be found around -30 to -40N.  Definitely still a distinction between supply and available supply.  Soybeans joining in on the party finally with a solid rally yesterday and overnight strength.  Concerns over final soybean acreage are growing, although still a long way from being dire.  Open interest changes yesterday included corn up 43,726 contracts, soybeans up 7,298 contracts, meal up 3,727, oil down 2,293 contracts, SRW down 3,476 and HRW down 1,422.  Corn open interest is now within 172,283 contracts of the all-time record set back in June 2018.

The soybean strength yesterday had many asking “what’s the deal with soybeans.”  The most logical answer is concern about the wet weather rolling into the Corn Belt the next week and change and an extended forecast which is cool and wet.  As of Monday, there were 30 million acres of soybeans left to plant, with around 3-7 million usually double crop after winter wheat.  Some analysts are beginning to slash their final soybean planted acre numbers, although we don’t have a great deal of confidence one way or the other.  Before this week, we were still of the opinion soybeans would gain acres from their March Prospective Planting estimate.  Now, we are probably closer to the actual March number to maybe a couple million below.  To get a good look at the soybean balance sheet, we axed 4 million acres from the March estimate, putting planted acreage at 80.617 million.  We left yields alone at 49.5bpa as there is no real reason to adjust soybean yields at this juncture in our opinion.  Total supplies with those ideas would be 5.044 billion vs. 5.000 billion a year ago.  For demand, we are using USDA’s estimates, although we have a hard time subscribing to their 1.950 billion bushel export forecast.  With African Swine Fever still running rampant, and a trade war which has no signs of being over, we aren’t sure we can count on the third largest export program in history with so much South American supply available.  Regardless, carryout would be seen at 849 million bushels which would be the second largest on record by a gigantic margin.  Stocks/use would be 20.26%, behind 2018/19’s 27.2%.  To bring the stocks/use ratio down to the second largest of the last 20-years at 18.7%, we would need to lose a total of 6 million acres from the March PP report.  We could also get to an 18.0% stocks/use ratio if yield fell 1bpa to 48.5.  Lots of balls in the air, but the soybean fundamentals are nowhere near corn’s, and this should be kept in mind when bulls attempt to paint a bullish S&D picture.

The focus in the corn market has been all about supply as of late but we received a welcome bump from demand on the ethanol front.  Weekly ethanol production surged to the third highest on record last week and was the highest week since August 2018.  Average weekly production totaled 1.096 million barrels per day, up 52,000 on the week.  Production is slowly, but surely, starting to run above year ago levels after running well below year ago levels for most of the winter and spring.  If current growth rates over last year can be maintained, it looks solid we can achieve the USDA’s 5.450 billion bushel target, and possibly even exceed it slightly depending on late summer run rates.  Ethanol stocks fell 751,000 barrels last week to 21.802 million, the lowest stocks figure since late last summer.  Ethanol stocks for this week are actually below each of the last two years after running at record levels from September through February.  All of this said, ethanol margins have improved, but are still not stellar.  In addition, crude oil prices maintaining weakness, along with gasoline prices trending lower will not incentivize discretionary blending or consumers to use high ethanol blends.

Bottom Line: The path of least resistance is still higher, especially in the commodities in which funds are still short.  Corn is driving the bus, but will pull soybeans and wheat along for the ride.  The story is not the same in beans and wheat, but their balance sheets can turn more constructive if the former loses acres and the latter sees demand pick up in the way of a major feed program.  Still feels like we are in the first few innings of this game, yet producers seem intent on waiting for the highs before entertaining the idea of marketing.

Good Luck Today.

Tregg Cronin

Market Analyst

Tregg.Cronin@halocommodities.com

www.halocommodities.com

@5thWave_tcronin

COMMODITY TRADING INVOLVES RISK AND MAY NOT BE SUITABLE FOR ALL RECEIPIENTS OF THIS EMAIL. Neither the information presented, nor any opinions expressed, constitutes a solicitation for the purchase or sale of any commodities. The thoughts expressed in this email and basic data from which they are derived are believed to be reliable, but cannot be guaranteed due to uncertainty about future events and complexities surrounding commodity markets. Those acting on the information are responsible for their own actions.

6/12/2019 Morning Comments

Good Morning,

A band of showers stretching from N-TX to Wisconsin is present on radar this morning, otherwise the Plains are mostly quiet.  Forecasts come down to those who have crops planted vs. those who don’t as well as those with crops ready to harvest vs. those who don’t.  If your crops are in the ground, or out of the ground as it were, the forecast looks nearly ideal with below normal temps and mostly above normal precip for the majority of Midwest growing areas.  For those who do not have crops in the ground, an open window for seeding does not look promising.  The central and eastern corn belt will see several rounds of rain in the next week, especially early next week with 1.00-3.00” totals expected in OK/E-KS/MO/AR/IL/IN/OH/MI with lesser totals in NE/IA/MN/E-SD/ND.  In the Plains, producers with wheat ready to harvest in OK/TX/KS will see repeated rainfall chances which will delay harvest further and possibly compromise quality.  Further north, NE/SD/ND where HRW is not ready for harvest or HRS is still developing, weather looks solid.  Extended maps keep above normal pecip and below normal temps in place through the 15-day outlook.  This is not ideal for helping catch up late crops, but stressful weather is certainly not present into the end of June.

Mixed markets this morning with row crops softer while wheat contracts have seen both sides and are pressing green as we head into the 7:00 hour.  Yesterday’s WASDE had something for everyone with larger than expected cuts to yield and acres for corn, but precious little for bulls in either soybeans or wheat.  The cuts to yield and acres on corn were not unprecedented, although the severity of the cuts they made certainly were.  The market reacted as expected, although we have still not taken out the 4.54 high from 5/29.  It feels as though the corn market will need more confirmation on acres being lower or some hard signs the national average yield is slipping below the USDA’s 166bpa estimate.  Soybeans are now faced with the prospect of back-to-back billion-bushel-carryouts for the first time in history.  While some are already arguing the soybean yield should have been dropped on the June WASDE, that is not an argument that needs to happen in mid-June.  Similarly, the wheat market is facing another 1.00-billion-bushel carryout with the only route for a sub-1.00-billion-bushel carryout being an extraordinarily large feed program.  With the wet weather forecast for the southern plains, that is something which could certainly happen.  Open interest changes on report day saw corn open interest up 4,991 contracts, soybeans down 1,605, meal down 2,482, oil down 15,080, SRW up 2,795 and HRW down 2,368 contracts.

The corn balance sheet saw old crop exports reduced 100 million bushels, which many thought possible this month, but certainly not a guarantee.  2018/19 ending stocks were therefore projected at 2.195 billion bushels.  The new crop balance sheet took most of the focus with acres reduced 3.0 million to 89.8 million while yield was cut 10bpa to 166bpa.  Most weather-based yield models had the national average yield between 166-170bpa, so the market knew this was a possibility although few thought it probable.  Production was therefore reduced 1.350 billion bushels while imports were raised 15 million to cut toal supplies by 1.235 billion when larger beginning stocks were added in.  The USDA had to make some demand cuts, although we posit they did not make enough.  Feed/residual was reduced 300 million bushels, while exports were reduced 125 million.  We think exports could have been cut even further considering the increases which were made to Brazilian and Argentine production and exports.  Combined use was therefore down 425 million bushels which netted ending stocks down 810 million at 1.675 billion.  By the time we get well into the 2019/20 balance sheet, the USDA has a strong track record of reducing demand 0.868 bushels for every one bushel of supply.  In other words, if the USDA cut total supplies by 1.235 billion, they will try to cut demand by 1.071 billion, which would have left carryout at 2.321 billion.  However, they will not make demand cuts like that this early in the marketing year even though supply cuts they have more confidence in.  The point here is to not get complacent thinking ending stocks will sit at multi-year lows the entire year.  Demand will be rationed, and usually much more quickly than the market thinks.

Sticking with corn today, the USDA also increased the 2018/19 Brazilian corn crop estimate to a new record 101MMT from 100MMT last month.  This is up sharply from last year’s drought-reduced crop of 82MMT.  The Argentine crop was held steady at 49MMT, but exports for both countries were increased to 34MMT and compare with Argy at 22.5MMT last year and Brazil and 25.1MMT.  Total supplies of Argentine/Brazilian/Ukrainian corn for the 2018/19 marketing year now stand at 197.993MMT vs. 159.915MMT last year and the previous record of 178.061MMT.  This is a combined 38.078MMT of additional supply which was not available last year, or 1.496 billion bushels.  Granted, much of that Ukrainian supply has already been consumed, but early season prospects for next year are already solid.  Even if one wants to compare to the previous record, the three country combined supply is up 783 million bushels.  Yet, the USDA cut exports between the 2018/19 and 2019/20 marketing year just 225 million bushels.  Our point here is there is much, much more room to cut exports from the U.S. balance sheet if the market deems it necessary.  We could go down the same line of thinking when it comes to feed demand as the U.S. wheat balance sheet is staring at its fourth consecutive 1.00-billion-bushel carryout.

We will spend some time on the wheat and soybean balance sheets the rest of the week, but it was clear the focus yesterday was about corn.  The big focus in wheat the next several weeks will be additional delays to harvest and potential quality issues from excessive rains on mature wheat.  It is quite likely we will be looking at some of the slowest harvest paces for various HRW states on record, and with a front-loaded Q1 demand book, this could cause issues for exporters who are short boats.  In addition, the market will remain leery about developing dryness across the U.S. Northern Plains and Canadian Prairies.  Most of Saskatchewan is running less than 40% of normal precip over the last 30-days.

Bottom Line: The market got its desired cuts to the corn balance sheet yesterday, and now the onus is on bulls as to what they should do with it.  If December corn fails to take out 4.54, it could be a sign acres have been more or less priced in while the focus has shifted to yield.  We have lots of ways to ration corn demand from bushels outside the U.S. to a potentially large wheat feeding program.  The market isn’t required to go to any futures level, and producers who get complacent with their marketing waiting for a number they feel is deserved could be left holding the bag. 

Good Luck Today.

Tregg Cronin

Market Analyst

Tregg.Cronin@halocommodities.com

www.halocommodities.com

@5thWave_tcronin

COMMODITY TRADING INVOLVES RISK AND MAY NOT BE SUITABLE FOR ALL RECEIPIENTS OF THIS EMAIL. Neither the information presented, nor any opinions expressed, constitutes a solicitation for the purchase or sale of any commodities. The thoughts expressed in this email and basic data from which they are derived are believed to be reliable, but cannot be guaranteed due to uncertainty about future events and complexities surrounding commodity markets. Those acting on the information are responsible for their own actions.

6/4/2019 Morning Comments

Good Morning,

Rain in many parts of the Midwest and Plains this morning, almost none of which is welcome except for the drier areas of North Dakota.  The eastern corn belt continues to labor under excess moisture and will continue to do so the rest of the week with stray showers.  The Plains will also have its fair share of moisture in the coming week with 0.50-1.50” totals expected through the weekend for Kansas and Oklahoma.  The Delta and Mid-South will see moderate to heavy rainfall as well, delaying soybean planting.  Extended maps see no real change with moisture as above normal precip is the feature through the 8-14 day.  Temps cool to below normal in the 6-10 and 8-14 day, however.  At this stage, planting progress is in its final stretch so the weather focus now needs to shift to promoting growth instead of promoting seeding progress.

Sharply higher row crop markets overnight while wheat saw double digit losses early this morning before bouncing from the lows.  The planting progress numbers from yesterday afternoon were supportive, and with the calendar reading June 4, seem to be suggesting the narrative is set.  The U.S. Midwest just saw its worst planting campaign in modern history with the implications nowhere close to being known.  We’ve never had a crop planted so late, but on the other hand, we’ve also never put today’s seed genetics to the test in this way.  The market rally still has producers continuing to plant corn from South Dakota to Ohio where able, and we have a feeling this will persist until the drop-dead date on insurance.  Make no mistake, this corn crop will need ideal growing conditions with longest Indian Summer imaginable to hit trend or above yields.  Market bulls are not likely to even allow people to entertain the idea of a trend line yield even though we have no real idea where yield potential is at this point.  While demand on corn looks crummy at best, it will be the furthest thing from the market’s mind until we get through the key developmental weather in July and August.  Strap in for heightened volatility, extreme weather markets, an overload of forecast maps and the occasional trade war-headline.  This summer has the makings of one for the record books.  Corn open interest fell 17,317 contracts yesterday, soybeans were down 11,264, meal down 2,562, oil down 8,227 contracts, SRW down 963 and HRW down 3,803.

Weekly crop progress showed corn planting at 67% complete nationally vs. 71% expected, 58% last week, 96% last year and 96% average.  SD, IL, IN, OH and MI all remain under 50% planted which is truly remarkable considering the date on the calendar.  Even more impressive in our opinion is the fact we are only 46% emerged in the first week of June with South Dakota sporting just 13% emergence, Illinois 32%, Indiana 18%, Ohio 18% and Michigan 17%.    There is absolutely nothing to compare to in terms of yield potential, Growing Degree Units, relative maturity ranks, etc. for a crop which isn’t out of the ground in the first week of June.  Soybean planting isn’t much better at 39% planted nationally vs. 42% expected, 29% last week and 79% average.  Similar totals for the trouble states of SD/IL/IN/OH/MI.  Only 19% of the soybean crop is emerged nationally vs. 56% average.  Spring wheat planting progress is wrapping up with 93% planted nationally vs. 93% expected, 84% last week and 96% average.  South Dakota is 86% planted at two weeks passed its final plant date for full insurance coverage.  For most states, what is planted is what we are going to get.

On the condition front, a little bit of optimism.  Spring wheat conditions started the year at 83% good/excellent, the highest initial ranking for this week since 2010 and among the five highest on record.  Despite the fact the crop is behind average maturity, it does look good where emergence has scooted along.  With the forecast calling for above normal precip and below normal temps, one could call that wheat growing weather.  Winter wheat conditions bounced back nationally at 64% G/E vs. 61% G/E a week ago and estimates for a slight decline.  Conditions declined sharply in Oklahoma again this week, down 9pts to 64% G/E due to excessive rainfall.  This will probably persist next week as well as more rain is forecast for the state.  Kansas conditions bounced back, however, and will be interesting to see if they maintain high ratings next week given the forecast and concerns over quality and protein.  The national winter wheat crop is also the highest for this week on the calendar since 2010.  National winter wheat heading progress is called 76% complete vs. 66% last week and 84% average.  The southern plains winter wheat crop is 2-3 weeks behind schedule but commercials are content with the amount of blending stock for any quality issues which do arise.  That said, protein premiums are likely to strengthen while discounts get more severe for sub-12% HRW.

The April oilseed and grain crushings report was released yesterday afternoon as well with supportive data shown.  April soybean crush was reported at 171.6mbu vs. the average trade guess of 170.0mbu and was unchanged from a year ago.  This tied last year’s record, and put marketing year crush back on the right track after two sub-par months in February and March.  Marketing-year-to-date crush now points toward May-August crush needing to run essentially unchanged the rest of the year to hit the USDA’s current estimate.  This is achievable in our opinion considering the copious amount of soybeans in the country as well as the fact board crush margins are above $1.25 through October.  April corn for ethanol usage was reported at 440.5mbu, almost unchanged from March’s 440.1mbu and slightly under last year’s 445.3mbu.  Marketing year-to-date corn grind for ethanol at 3.549bbu is down 4.3% from a year ago while the USDA’s estimate is calling for just a 2.2% reduction from a year ago.  Without a pickup in production, this should result in a further reduction on subsequent reports.

Bottom Line: Hard to see bulls giving ground now that they are armed with a crop progress report which suggest we will never get anywhere close to the March Prospective Plantings report.  Wheat has recovered nicely off the lows but is behaving in a rational manner considering the U.S. wheat crops are highly rated and have plenty of excess bushels to contribute to the corn feed demand picture.  Spec shorts remain largest in soybeans and Minneapolis wheat should the group decide to wholesale exit their short exposure.  Unlikely we will see peak volatility for another 6-8 weeks when pollination weather really ramps up.  We need ideal conditions the rest of the way which is not unprecedented, simply unlikely to be the case for the entire belt.  Strap in.  It’s going to be a bumpy ride.

Good Luck Today.

Tregg Cronin

Market Analyst

Tregg.Cronin@halocommodities.com

www.halocommodities.com

@5thWave_tcronin

COMMODITY TRADING INVOLVES RISK AND MAY NOT BE SUITABLE FOR ALL RECEIPIENTS OF THIS EMAIL. Neither the information presented, nor any opinions expressed, constitutes a solicitation for the purchase or sale of any commodities. The thoughts expressed in this email and basic data from which they are derived are believed to be reliable, but cannot be guaranteed due to uncertainty about future events and complexities surrounding commodity markets. Those acting on the information are responsible for their own actions.

5/30/2019 Morning Comments

Good Morning,

Rains working across Arkansas, Missouri, Illinois, Indiana and Ohio this morning with the rest of the Plains and corn belt largely quiet.  Rains will continue to impact the central and eastern corn belt over the next 5-7 days with an additional 0.50-1.25” falling through early next week.  The southern plains will also keep the spicket on with the entire state of Kansas slated for 0.75-2.00” while Oklahoma and North Texas receive similar amounts.  It is the changes in the 6-10 and 8-14 day outlooks which are encouraging.  The Northern Plains sees above to much above normal temps in the 6-10 and 8-14 day, while precip shifts to normal/below over the same period.  This pattern will be welcome for producers trying to catch up on seeding, so long as it does not hang around indefinitely.  Some much needed heat should also help lagging row crop emergence.

After posting losses at the overnight open, grains are higher almost across the board this morning as a mini-reversal takes place.  More importantly, however, was the huge reversal posted Wednesday after most contracts in the Ag room featured new highs for the move including another gap below the market.  The breather the market took definitely made a few bulls uneasy as the only narrative in this market for a week was how corn was headed back over $5.00.  To be clear, the planting issues have not been fixed and the eastern corn belt is going to feature additional rain the next week.  However, producer decisions are changing by the hour with better weather in the western corn belt, constant updates to MFP/PP programs, trade war rhetoric, etc.  What looks like a good decision one minute, could look like a poor idea the next.  What is certain is the rally in prices will keep producers attempting to plant long after “final” plant dates, especially if the second MFP payment is tied to planted acres.  We feel the market is still trying to get a handle on planted acreage, but many have already moved on to slashing yields and guessing 2019/20 demand.  The reversal yesterday is a perfect example of why this market doesn’t need to get ahead of itself in the rationing process until more is known about actual supply.  Open interest changes on Wednesday saw corn open interest down 4,478 contracts, soybeans up 9,300, SRW down 5,049 and HRW down 3,667 contracts.

Quantifying some of the state-level acreage issues can be helpful, especially when watching radar and projecting when producers might be able to get back in the field.  Using the March Prospective Plantings report, South Dakota had 4.5 million acres of corn left to plant as of May 27.  North Dakota has just shy of 1.5 million while Minnesota has 2.72 million acres.  The Northern Plains, therefore, had roughly 8.720 million acres of corn left to plant at the start of the week.  In our back yard of South Dakota, prevent plant acres will be high as some areas simply can’t dry out in time to get things seeded in a reasonable manner.  Other spots in the state will continue planting corn into June where able.  The total 8.720 million acre number is daunting for the date on the calendar, but $4.50+ December corn is also a solid incentive to keep forging ahead.  In the eastern corn belt, Illinois had 7.28 million acres left to plant at the start of the week, Indiana had 4.290 million acres, Ohio had 2.730 million and Michigan had 1.57 million.  The 15.7 million acres left to seed in the eastern corn belt is substantial and definitely the trouble spot with the forecast ahead.  In addition, these are some of the higher yielding areas of the corn belt, lessening national average yield prospects.  When one takes a look at these numbers in aggregate, and considers it is May 30, it is not difficult to see how projections of 5-10 million acres of prevent plant can form.  However, we think a more reasonable number will be in the 3-6 million acres of corn prevent plant with producers opting to switch acres to beans where able so as to take advantage of the second MFP payment on planted acres.  Whether 86-89 million acres of corn will be enough remains to be seen.

Deliverable stocks out on Wednesday this week with more focus being placed on deliverable supplies as the continue to decline while quality is threatened on this year’s winter wheat crop.  Deliverable supplies of SRW fell by 1.192 million bushels last week to 35.751 million.  This is down 38% from a year ago, consistent with the last few weeks but also at multi-year lows heading into a shortened crop year.  Using USDA’s projections, SRW total supplies to start the year will be the lowest since 2005/06.   Deliverable grades of HRW fell from 90.394 million bushels last week to 89.196 million this year and compares with 102.919 million a year ago.  Lots of high-quality blending stock in deliverable warehouses, which should help limit the impact of a low protein/low quality crop.  It looks very likely we will see a universally low protein HRW crop this year, but it hasn’t yet affected spreads and basis.  If a low protein crop is produced, one would think variable storage rates will be forced wider as this crop is destined for feed and storage.  HRS deliverable supplies fell from 15.136 million bushels to 14.372 million bushels this week and compares with 18.089 million bushels a year ago.  Spring wheat is still working on emergence, so far too early to be talking about crop size and especially quality.  Canadian dryness, however, is one potential issue to keep an eye on.

We remain cognizant of FOB spreads on the rally for both corn and wheat.  Going home last night, U.S. Gulf offers were in the $189.75-190.44/MT FOB range for July-September.  These compared to $167-176/MT FOB in Argentina and $178-179/MT in Brazil.  Ukrainian offers were seen around $176.50/MT.  At some point, if the corn situation is truly dire, we will hear about South American corn pricing into the US-Southeast.  In wheat, HRW FOB offers for July were seen at $211/MT with Russian at $194/MT.  German/Baltic offers were up at $215-217/MT FOB, but move to a discount by September and especially October.  Unless the HRW and SRW crops come in sharply below expectations, most carryout projections in 2019/20 have all-wheat carryout over 1.0 billion bushels.  For this reason, we aren’t sure why wheat contracts are pricing themselves out of global export business and question whether wheat needs to go substantially higher in the near-term?  To be clear, corn is driving the bus and wheat will continue to follow corn.  However, at some point, wheat fundamentals need to matter until or unless the FSU/EU wheat crop is threatened.  Money flow will dominate in the short-term.

Bottom Line:   Two-sided overnight action which could very well be the flavor of the day session.  More rain in the eastern corn belt will keep bulls fed, but bears are right to point out how often we spend any amount of time above $4.50 basis December corn.  Regardless of where corn is headed, the odds of December corn being above $4.50 this fall are incredibly poor unless carryout ideas fall to 1.5-1.6 billion bushels.  Soybeans and wheat do not have the story corn does, but that doesn’t mean they will not trade with corn in the near-term.  As always, divorcing oneself from marketing during times of heightened volatility is almost never a good idea.  Volatility brings opportunity, whether your crop is in the ground or not.

Good Luck Today.

Tregg Cronin

Market Analyst

Tregg.Cronin@halocommodities.com

www.halocommodities.com

@5thWave_tcronin COMMODITY TRADING INVOLVES RISK AND MAY NOT BE SUITABLE FOR ALL RECEIPIENTS OF THIS EMAIL. Neither the information presented, nor any opinions expressed, constitutes a solicitation for the purchase or sale of any commodities. The thoughts expressed in this email and basic data from which they are derived are believed to be reliable, but cannot be guaranteed due to uncertainty about future events and complexities surrounding commodity markets. Those acting on the information are responsible for their own actions

5/28/2019 Morning Comments

Good Morning,

Additional precip over the long Memorial Day holiday in South Dakota, SW-Minnesota, NW-Iowa, Nebraska and Kansas.  Morning GFS models are putting more rain in Iowa, Illinois, Indiana, Ohio, Missouri, Kansas, Arkansas and Oklahoma in the coming seven days.  Temperatures slowly warm during the next week with almost normal temps present by the weekend.  Extended maps are finally featuring normal/above temps in the 6-10 and 8-14 day outlook.  Precip expectations turn more normal and even below normal in the 8-14 for the Northern Plains.  Most of the central and southern Midwest will remain in above normal precip potential.  The risk now would be a pattern change to a widely below normal precip pattern when it is too late to get an appreciable amount of acres in the ground and those in the ground start to ramp up moisture needs.

Sharply higher markets across the board this morning with most contracts featuring gaps at the Sunday night open.  A wet weekend with more rain in the forecast this week will push planting progress further behind normal with the current year already featuring the slowest national corn planting on record.  The discussion at current is about how many acres of corn we will lose from the USDA’s 92.8 million figure from back in March.  We are not yet trading yield potential, but that discussion will come fast and furious with many analysts already axing yield potential.  The discussion should involve cutting supply via lower planted acreage, but also lower demand as the supply contraction will not happen in a vacuum.  Too many analysts are leaving demand static while removing as much as a billion bushels from the supply side of the ledger.  As we’ve discussed in the past, the combined corn supplies in Argentina, Brazil and Ukraine are over 1.4 billion bushels larger than this same time a year ago which will go a long way toward alleviating any U.S. supply tightness.  Open interest changes on Friday saw a huge jump in corn of 40,086 contracts, soybeans were up just 376, meal down 60, oil down 3,563, SRW down 1,274 and HRW up 886.

Friday’s Commitments of Traders data was an interesting read with the large spec buying the most amount of corn in a single week on record.  That group bought 170,220 contracts of corn, cutting their net short position from -291,742 contracts last week to -121,522 contracts as of 5/21.  With the rally the balance of the week and overnight, it is very likely this net short position has been covered.  The changes in open interest Friday would also seem to confirm this.  Now the question is whether funds would like to build a substantial net long position or simply sit on the sidelines until more is known about the corn balance sheet?  The gross commercial short position saw heavy selling with that group now the shortest since December.  There is still a substantial amount of old crop length in the country but the farmer appears to be doing a good job of getting caught back up on the rally.  December corn is now above December ’18 corn for the first time since early March after trading down to the lowest for a December contract since 2007 in late April.  Funds bought 19,711 contracts of soybeans last week to cut their net short to -157,324 contracts.  Obviously, there is still plenty of net short to cover by the funds should they decide to do so, but the soybean balance sheet is not the corn balance sheet and we would caution against buying your corn in the soybean pit.  Funds are slowly covering their net short in KC wheat, buying 6,883 contracts last week to leave them net short -42,427 contracts.  Funds bought 33,237 contracts of Chicago wheat to leave them net short -76,881 contracts which is the smallest net short since mid-February.  The one position they are not covering yet is their short in Minneapolis wheat.  The managed fund net short dropped by just 224 contracts last week and remains at -12,175 contracts.  This is a substantial net short position which should remain a supportive feature moving forward.

Speaking of Minneapolis wheat, there are a few other details worth considering.  The fund short of -12,175 contracts is just 700 contracts from the all-time record set in 2018.  For most of 2019, this fund short has been well-placed as the HRS balance sheet has watched carryout grow with bearish prospects for 2019/20.  While we are not bullish on spring wheat, one can make a case for declining supply.  Looking back at the last 13-14 years, planting progress this year could certainly argue for a meaningful cut in acreage.  As of May 15, North Dakota spring wheat planting progress was estimated at 37% complete while national progress was 45% complete.  Sizable gains were made the following week but for this discussion we will look at week #19 of the calendar year.  This was the slowest progress since 2014 for North Dakota and the slowest national progress since 2013.  In addition, from April 1 to May 1, the price of September ’19 Minneapolis wheat futures dropped 41c per bushel, right at the time producers would have been gearing up to hit the fields.  This was not the largest April 1-May 1 decline, but it was the largest decline over that period in a year with delayed planting progress.  Further, the spring wheat/soybean price ratio on May 1 stood at 60%, which again, is not the lowest but is the lowest for a year with delayed planting.  In 2013, we saw North Dakota acreage drop 1.1 million from the March report to final while national acreage was down the same amount.  2014 saw acreage up 350,000 in North Dakota and up 1.016 million nationally.  2011 saw acres drop 1.45 million in North Dakota and 2.083 million nationally.  We won’t know actual HRS planted acreage until at least the end of June but signs certainly point toward a meaningful reduction.  Whether this is enough to tighten the HRS balance sheet remains to be seen.

Crop progress on this afternoon’s report is expected at 63-65% for corn vs. 49% last week and 91% average.  Soybean planting is seen at 28-30% vs. 19% last week and 62% average.  Spring wheat planting is expected at 86-87% vs. 70% last week and 92% average.  More alarm bells are being sounded each day, so the euphoria buying is not likely over until producers can get back in the field, possibly later this week.  Whether folks elect to take prevent plant coverage or forge ahead into June remains to be seen.  The MFP debacle has only muddied the water further, creating incentive to keep planting whether that is the prudent decision or not.

Bottom Line: Sharply higher with new contract highs being set in corn.  Producers are being given a golden opportunity to catch up on old crop sales and sweep bins while getting first sales of 2019 crop on at profitable levels.  Many will be hesitant to market without intended acreage in the ground or corn plants emerged.  Another thing for producers to consider is not buying their corn in the soybean pit.  In other words, the soybean balance sheet is not the same as the corn balance sheet and will be difficult to justify $9.00+ futures.  What is the plan for additional soybean acreage and production in 2019 if that is the case?  Wheat also has few reasons for an extended bull run besides strength in corn.  At what point does wheat run out of gas if fundamentals don’t warrant additional strength?  Corn has broad shoulders but wheat and soybeans are overweight. 

Good Luck Today.

Tregg Cronin

Market Analyst

Tregg.Cronin@halocommodities.com

www.halocommodities.com

@5thWave_tcronin

COMMODITY TRADING INVOLVES RISK AND MAY NOT BE SUITABLE FOR ALL RECEIPIENTS OF THIS EMAIL. Neither the information presented, nor any opinions expressed, constitutes a solicitation for the purchase or sale of any commodities. The thoughts expressed in this email and basic data from which they are derived are believed to be reliable, but cannot be guaranteed due to uncertainty about future events and complexities surrounding commodity markets. Those acting on the information are responsible for their own actions.

5/24/2019 Morning Comments

Good Morning,

More rain falling across the Plains and Midwest this morning with severe weather rolling through OK/KS/IA.  Multiple rounds of rain will fall the next five days through Wednesday with additional totals of 1.00-4.00” expected across OK/KS/NE/SD/MN/IA/MO/WI/IL/MI/N-IN.  Every spot fighting planting delays will see rains through Memorial Day weekend which should keep progress minimal for next week’s crop progress report.  Thursday-Friday next week at least looks somewhat drier although temps don’t return to normal until the 6-10 day.  Precip potential looks mostly above normal through the 8-14 day which probably keeps the wet pattern in place through June 6.

Higher markets overnight with corn on the highs during the 6:00 hour.  Thursday’s session was all about trying to interpret the second round of Market Facilitation Payments (MFP) including eligibility and possible payment ideas.  As far as we could tell, the second round of MFP payments are only made if a program crop is planted and up to 2018 acreage levels.  In other words, prevent plant acres will not receive a payment and a producer cannot plant their entire farm to soybeans and receive a payment.  In addition, no individual payment rates will occur, but rather a single payment rate per county based on the amount of funds appropriated from the government.  One example of a county in Kansas showed a payment rate of around $54 per acre.  If that wasn’t confusing enough, rumors started circulating last night about a bill the Senate signed yesterday which appropriated funds for increased prevent plant coverage attached to a hurricane disaster bill which also included funding for destroyed crops in this spring’s floods.  Details are incredibly lacking, but ideas being floated were prevent plant coverage going from 55% to 90% for those producers who have no shot at planting and receiving a second MFP payment.  We are also hearing this would only be available for areas declared a flood area and a disaster zone, not all areas of the Midwest.  That would make much more sense, but at this juncture, we can’t be sure of anything.  This took an already murky situation and threw it out the window, especially considering final plant dates begin tomorrow in a large section of the Midwest with quick decisions needing to be made without much in the way of details.  All of the programs as well as incoming rain and indecision on planting is producing unpredictable markets and heightened volatility.  Corn open interest fell 6,278 contracts yesterday, soybeans were up 683, meal down 2,441, oil down 3,327 contracts, SRW down 3,707 and HRW down 439.

Moving away from the potential programs for a moment, the bullishness developing from the U.S. farmer is palpable.  It is understandable in many areas which have little to no planting progress, but even areas with substantial acres planted are seeing marketing targets raised or pulled altogether.  Despite the uncertainty from actual planted acres, seasonal marketing patterns still exist regardless of the intricacies of a particular marketing year.  Looking at the last 28 years, we see the highest percentage month to set calendar year highs for December corn is July at 17.24%.  Second place is June and March at 13.7% each followed by December and August at 10.34%.  Looking at a period collectively, the April-July period sees highs set 44% of the time since 1990 and 52% of the time since 2000.  Highs are set January-July 69% of the time and 79% of the time January-August.  With that in mind, odds are very high we are in the period of time in which December corn will set is calendar year highs for 2019, regardless of what yield or acres end up being true.  This is because the futures market typically overshoots fundamental value in an effort to price in all possible scenarios.  Once that high is set, the focus shifts to demand and whether the market needs to encourage or discourage end users.  That function takes place predominantly with basis and spreads as futures prices ease back down to the proper level according to flat price.  December corn sets highs about 1/3 of the time in the June-July period, so producers need to have their marketing hats on where possible.  On soybeans, November calendar year highs are set in June 21% of the time with highs set between May and July 48% of the item.  Consider that almost half the time, soybean highs are set in a 3-month window.  Pretty good odds and reason to be paying attention.

Export sales yesterday were a mixed bag as the wheat marketing year comes to a close and row crops continue to disappoint.  Old crop wheat export sales totaled 1.8 million bushels with total commitments now at 944.9 million bushels.  Whether we get all of the 925 million bushels the USDA is forecasting before the end of the marketing year or not remains to be seen.  New crop wheat sales totaled 12.7 million bushels with total new crop commitments now at 122.1mbu vs. 88.1mbu a year ago.  Corn export sales totaled 17.4mbu vs. the 23.0mbu needed weekly to hit the USDA forecast.  Total commitments of 1.863bbu are now down 11% from a year ago while the USDA is calling for a 5.6% decline.  Corn export commitments as a percentage of the USDA forecast at 80.8% is the lowest for this time of year since 2001, highlighting the amount of work left to do this summer.  Soybean export sales totaled 19.7mbu vs. the 6.9mbu needed weekly.  Total commitments of 1.681bbu are down 17% from a year ago which is almost spot on the 16.6% decline the USDA is calling for.  Shipments are the big concern with soybeans as total shipments as a percentage of the USDA forecast at 70.2% is the lowest on record going back to 2000.  We need to ship 35.2mbu each week through August to hit the USDA forecast which would be almost 5mbu higher than the previous record last year which benefitted from a counter-seasonal export pull due to tighter South American supplies.  In addition, last year didn’t feature the trade war to the extent it does this year nor was the African Swine Fever issue raging to the level it is this summer.

Bottom Line: Our heads are spinning trying to keep track of all the potential program changes and what makes the most economic sense for producers with unplanted acres.  The market is obviously still approaching the market from a supportive tilt, but the momentum has undoubtedly slowed as more confirmation from the USDA is wanted from the next crop progress report.  Weather leans bullish with extensive coverage the next week and the calendar simply getting away from producers.  At the same time, seasonality still exists for a reason and producers should not bury their head in the sand.

Good Luck Today.

Tregg Cronin

Market Analyst

Tregg.Cronin@halocommodities.com

www.halocommodities.com

@5thWave_tcronin

COMMODITY TRADING INVOLVES RISK AND MAY NOT BE SUITABLE FOR ALL RECEIPIENTS OF THIS EMAIL. Neither the information presented, nor any opinions expressed, constitutes a solicitation for the purchase or sale of any commodities. The thoughts expressed in this email and basic data from which they are derived are believed to be reliable, but cannot be guaranteed due to uncertainty about future events and complexities surrounding commodity markets. Those acting on the information are responsible for their own actions.

5/22/2019 Morning Comments

Good Morning,

Plenty of rain activity around the Midwest this morning with snow even falling in the Black Hills of South Dakota.  24-hour rain totals are finally coming in with 0.50-1.50” amounts common in central/west Nebraska and South Dakota while even heavier totals fell across Kansas, Oklahoma and Missouri.  Areas on the OK/KS border saw 3.00-6.00” in the last 24-hours.  Shower activity will continue on-and-off the next several days in the Plains and Western Corn Belt.  Even after yesterday’s totals, morning GFS models are suggesting another 1.00-4.00” for OK/KS/NE/SD/MN/WI/IA/MO/IL/WI.  There is some discussion about the pattern shifting a bit drier past the 7-day, but no real warmup seen through June 4.

A mixed bag in Ag markets this morning with grains weaker while soybeans try to cling to small gains.  Yesterday’s session was all about the rumors surrounding the next round of Market Facilitation Payments (MFP).  Late in the session yesterday, a Bloomberg reporter said he was hearing from sources that the Trump Administration was readying another aid package which would pay $2 per bushel on soybeans ($1.65 last year), 4c on corn (1c last year) and 63c on wheat (14c last year).  There was no mention of what those payments would be based on as planting is still occurring and 2018 production was not a record for every farmer by a long shot.  The news helped support corn and wheat slightly but soybeans sold off sharply with near 10c losses after trading mostly higher throughout the session.  The bottom line for a $2 MFP payment on soybeans would be disastrous in our opinion.  The market is clearly signaling it does not want soybeans planted, and if the Administration incentivizes production anyway, the oversupply situation could reach incredible levels.  When combined with the African Swine Fever situation in China, it would appear likely the global soybean balance sheet would reach a level of oversupply not seen since the 1980’s.  Coincidentally, the 1980’s were the last time the government paid farmers to produce and store grain the market was signaling it did not want.  Fun times ahead.  Open interest changes yesterday included corn up 18,371 contracts, soybeans up 9,986, SRW down 11,690 and HRW down 8,168.

As Twitter pointed out yesterday, analysts are busy running thousands of different acreage scenarios to illustrate absolutely every outcome possible.  Brokers are in-turn devising option strategies to combat any and all market moves, including triple long corn re-ownership with futures running to $5 per bushel. We will leave those to smarter folks than us.  What we spent time on yesterday was looking at the major exporter balance sheet, specifically Argentina/Brazil/Ukraine.  If the United States is going to lose 3-9 million acres of corn as is being thrown around in the trade, can this be made up anywhere else?  We made a combined balance sheet for ARG/BRAZ/UKR, and for the 2018/19 marketing year, total supplies are being projected at 196.9MMT vs. 159.9MMT a year ago.  The combined supplies would also be sharply higher than the previous three-country record of 178.0MMT in 2016/17.  The 37MMT of additional corn supply vs. a year ago would be the equivalent of 1.454 billion bushels.  To help put this “extra” supply in perspective, if we divide a national trend line yield of 176bpa into that 1.4 billion bushels, we get 8.2 million acres of corn.  Several prominent analysts have been touting 6-9 million acres of prevent plant which coincidentally is nearly the exact amount of extra corn sitting in South America and the Ukraine.  This is not to say higher prices are not justified, simply that it would appear bushels exist to help compensate for any actual losses in the United States.  If the U.S. ends up sharply below trend, then the equation obviously changes but yield is not something we can have confidence in forecasting on this date.

The heavy rains impacting the HRW and SRW belts continue to get attention with FHB and vomotoxin concerns ramping up.  We always track deliverable stocks each week, but it would seem those supplies are becoming even more important because of the disease concerns.  Last week, SRW deliverable stocks fell another 944,000 bushels to 36.943 million bushels which are down 23.2 million bushels from a year ago.  SRW stocks are at multi-year lows heading into what looks to be the smallest crop in several years and it could also have quality issues.  This will be a situation to monitor closely.  HRW deliverable stocks dropped 90.394mbu vs. 92.250mbu last week and 102.721mbu a year ago.  These are still historically large deliverable supplies, so if the HRW crop is also hit with quality issues, the bright side is we should have plenty of blending stock as the 2018 crop was of superior quality.  The other discussion being had about wheat is whether the 63c MFP payment, if it happens, would encourage farmers to sell their production quicker or hold on to it longer?  With carries likely to widen in the 2019/20 marketing year, and if armed with a payment amounting to almost 15% of the current spot price, producers could be content to sit tight until the marketing year is a little bit older.

We will get weekly ethanol production later this morning, although grind rates are not yet factoring in the corn rally.  Estimated gross ethanol margins have been declining rapidly with the rally corn price, even as ethanol attempts to keep pace.  According to RJ ‘O Brien, estimated gross ethanol margins are seen at $0.43 per gallon vs. $0.49 last week and $0.69 last year.  According to their graphs, these would be the lowest ethanol margins since at least January 2014, and are likely the lowest margins since the mid-2000’s.  This sort of profitability cannot sustain the grind rates necessary to achieve current USDA forecasts.  This is another factor to consider when analysts want to talk about nothing but prevent plant and lower yield ideas.  Exports are likely coming down due to competition from ARG/BRAZ/UKR while ethanol margins are some of the worst in 10-15 years.  That leaves livestock and feed demand which has consistently underperformed estimates the last several years despite rising livestock populations.  Do not get quick to dismiss the demand portion of the equation.

Bottom Line: Would appear traders want more information about any potential MFP payments as well as updated forecasts through the end of the month before pressing any higher.  Would imagine funds are still short some level of corn, beans and wheat but they are obviously much smaller than a week ago.  The jury is out on whether funds have the appetite to push their positions to net long.  As we’ve seen dozens of times the last several years, producers would do well not to turn on the blinders when it comes to marketing for this year and next.

Good Luck Today.

Tregg Cronin

Market Analyst

Tregg.Cronin@halocommodities.com

www.halocommodities.com

@5thWave_tcronin

COMMODITY TRADING INVOLVES RISK AND MAY NOT BE SUITABLE FOR ALL RECEIPIENTS OF THIS EMAIL. Neither the information presented, nor any opinions expressed, constitutes a solicitation for the purchase or sale of any commodities. The thoughts expressed in this email and basic data from which they are derived are believed to be reliable, but cannot be guaranteed due to uncertainty about future events and complexities surrounding commodity markets. Those acting on the information are responsible for their own actions.

5/20/2019 Morning Comments

Good Morning,

Tensions between the U.S. and Iran are probably the leading headlines this morning, but obviously a rift there has less impact on the grain and oilseed markets than does the trade row with China.  Commentary we fielded this weekend was not positive in our opinion and would seem to suggest a deal is nowhere close.  A spokesman for the Chinese Foreign Ministry said “because of certain things the U.S. side has done during the previous China-U.S. trade consultations, we believe if there is meaning for these talks, there must be a show of sincerity.”  In addition, other comments suggested China would not give in to the major trade concessions the U.S. is asking for, including reforming its judicial system.  The bottom line is that until China is willing to allow outside investment, and juris prudence toward Chinese companies stealing American intellectual property, these talks are unlikely to produce anything of meaning.

Weather is the word with rain in the southern and central plains this morning with forecasts suggesting several rounds of heavy rains this week.  7-day rainfall totals showed much of the corn belt and Plains receiving 1.00-2.00” amount.  Morning GFS models runs are putting 1.50-5.00” amounts over N-TX/OK/KS/MO/NE/IA/N-IL/WI/S-MN/SD/ND/MT.  Probably would have been easier to write “everyone is going to get a lot of rain” but I digress.  There will be little to no fieldwork done this week unless some is squeaked out today before tomorrow’s rain.  Temperatures will be below normal this entire week, slowing dry-down and keeping excess moisture above ground.  Extended maps do not show much change with temps mainly below normal and precip above normal through June 2nd.  Week 3 and 4 updates on Friday showed the same trends persisting.

Sharply higher markets overnight with Sunday night gaps present on many contracts.  Strength this morning is being led by wheat with KC wheat up 2-3% as concerns over lodging and disease running rampant are a front-burner issue.  Much of the HRW and SRW crop is heading and/or flowering at the moment, putting a lot of crop at risk for fusarium head blight(FHB)  which is the disease that causes scab/vomotoxin.  The map below shows the risk of FHB across the United States with nearly every state showing at least some high risk.  There is obviously more concern about losing bushels due to flooding/ponding/lodging at the moment than issues with quality related to FHB as a major quality outbreak would be more bearish as exports could suffer.  Corn is also showing strength as ideas of prevent plant and acres switching to soybeans are growing.  Ideas being thrown around the trade range from 2-6 million acres of corn being lost to PP or soybeans, but time will tell.  Soybeans are being supported by grains and record fund short as soybeans in their own right are not bullish given current S&D factors as well as the potential to pick up acres from wheat and corn.  Open interest changes on Friday’s rally included corn up 26,421 contracts, soybeans up 882 contracts, meal up 821, oil up 916, SRW down 9,762 contracts and HRW down 787.

Balance sheet crunching is how many spent their weekends, especially with regard to corn.  In looking at our current balance sheet, we are using 89.8 million acres of corn vs. USDA at 92.80 million with a downside bias.  We are still using a trend line yield of 176.0bpa, but this is also a moving target given Illinois is likely to see half their corn crop planted more than a month late.  When the second largest corn producing state in the nation has corn planted in June, it won’t bode well for setting new records.  Total supply therefore would be seen at 16.671bbu vs. 17.156 billion from the USDA.  If USDA demand ideas were left unchanged, we would see a 2019/20 carryout of 1.996 billion bushels which is psychologically important being under 2.00 billion bushels but still more than comfortable.  However, as many of our friends have pointed out, USDA has a very strong track record of reducing demand by a factor of 0.871:1 to supply.  In other words, if total supplies drop by one million bushels, USDA would likely lower demand by 871,000 bushels.  With that in mind, If supply drops 485 million bushels, demand would be expected to be cut by 422 million bushels, reducing carryout by 62 million bushels.  In that scenario, carryout would then be estimated at 2.423 billion bushels.  That figure is outright bearish.  Now, will USDA make that reduction all in one month?  Difficult to say but the point is cuts to supply cannot be made in a vacuum, and with ARG/BRAZ/UKR supplies at record levels, cutting exports will not be a problem.

Friday’s Commitments of Traders data gave us plenty to chew on, especially in soybeans as funds pushed their net short to a new record.  In the week ended May 14, funds sold 9,054 contracts to leave them net short -177,035 contracts.  This has obviously been trimmed since the report end date, but is still a supportive influence nonetheless.  Unfortunately, commercials did almost nothing last week with both the gross short and gross long changing by only a couple thousand and a couple hundred contracts, respectively.  It would have been much more encouraging to see the gross commercial long position surge with prices plumbing new lows but it would appear commercials are keeping powder dry.  In corn, funds covered a few more contracts, buying 9,424 contracts to leave them net short -291,742 contracts.  That is still a huge net short position although it has likely been pared greatly.  For bulls, they should take solace in the fact many of the short positions put on by managed funds since February are now underwater.  This could produce additional short covering this week.  A little bit of short-covering in Chicago wheat as well with funds buying 4,813 contracts but their net short is still -110,098 contracts.

IKAR raised their estimate of the Russian wheat crop to 81MMT which compares with USDA’s 77MMT and 71.7MMT a year ago.  This would be the second largest wheat crop on record and ensure Russian exports will be dominant in 2019/20.  FOB offers tell the tale in the global wheat market with US-HRW still holding the cheapest offer for 11.0% protein wheat in June, but in July, Russia is cheapest at $185/MT FOB vs. US-HRW at $202/MT.  By August, German and Baltic wheat are also trading a $8-12/MT discount to US-HRW.  The Q1 wheat export book for the U.S. should still be solid as it takes some time transition away from the U.S. and back to the FSU/EU.  However, with the U.S. winter wheat crop lagging average maturity by 2-3 weeks, this could limit the potential Q1 demand.  In addition, while Q1 demand might be stronger than a year ago, Q2-Q4 has the potential to be much lower than a year ago, especially if we end up having a low pro/high vom crop.  Storage looks as though it will be the best returns in terms of wheat demand in 2019/20.

Bottom Line:  Higher markets and short funds means additional weekly gains should be made this week.  Farmers will be able to get caught up on old crop sales in the coming days, but it seems like few have intentions of really laying into the new crop portion of the curve until more is known about planting and emergence.  As usually happens, price targets farmers set a couple weeks ago, and could now be hit, are being raised or pulled altogether as the horns come out.  Supplies have the potential to tighten this year in the U.S. if acreage really drops, but we’ve got record major exporter corn stocks to soften the blow.  Carryout needs to be well below 2.00 billion bushels in 2019/20 to justify a run above $4.15-4.20.  Not sure we can say we are there yet.

Good Luck Today.

Tregg Cronin

Market Analyst

Tregg.Cronin@halocommodities.com

www.halocommodities.com

@5thWave_tcronin

COMMODITY TRADING INVOLVES RISK AND MAY NOT BE SUITABLE FOR ALL RECEIPIENTS OF THIS EMAIL. Neither the information presented, nor any opinions expressed, constitutes a solicitation for the purchase or sale of any commodities. The thoughts expressed in this email and basic data from which they are derived are believed to be reliable, but cannot be guaranteed due to uncertainty about future events and complexities surrounding commodity markets. Those acting on the information are responsible for their own actions.

5/13/2019 Morning Comments

Good Morning,

Some scattered showers in the Dakotas this morning, otherwise the Midwest is mainly quiet.  Rainfall during the last week saw heavy totals across Kansas, South Dakota, Minnesota, Nebraska, Missouri and Iowa with totals ranging from 1.00-5.00” across Kansas while other locations were mainly 0.50-1.50”.  The next 3-4 days will provide the best opportunity to get caught up on planting progress as temperatures will be normal to above with rains mostly quiet until later this week.  By Friday/Saturday, another round of moderate to heavy rainfall moves into the Northern Plains and Western Corn Belt.  The GFS model this morning is putting 0.75-2.00” across almost all of the Dakotas, Montana, Minnesota, Iowa, Wisconsin and eastern Nebraska.  This will likely shut progress down for an extended period, taking us close to the final plant date on corn.  Extended maps shift back to cooler and wetter through May 26.

Lower markets this morning, following through on Friday’s weakness which was sparked by the breakdown in trade talks and the bearish round of USDA reports.  Patience has worn so thin with these trade talks and the constant brinkmanship with deadline after deadline I’m not sure anyone cares anymore.  After talks fell apart last Friday, we were told President Trump was readying tariffs of 25% on the remaining $325 billion worth of Chinese good imports.  This would place a 25% tariff on everything we buy and has been dubbed the nuclear option.  In the next breath, financial media outlets reported Whitehouse Economic Advisor Larry Kudlow saying there was a “strong possibility” Trump and Xi would meet at the G20 Summit in Japan at the end of June.  Many think the only way a deal gets done is with Trump and Xi getting together directly which raises the specter of a bad deal as long as Xi says the right things to Trump in-person.  Following the negative trade news were rumors about a second round of trade-war payments which seemed to bolster enthusiasm for staying the course.  We will discuss below. Open interest changes Friday saw corn up 11,453 contracts, soybeans down 1,326 contracts, meal up 3,938, oil up 6,947 contracts, SRW up 12,766 contracts and HRW up 1,102 contracts.

Friday evening, emails started circulating about a potential second trade-war assistance payment from the USDA being announced this week.  Details were vague, but the comments suggested producers could expect $1.85 per bushel of soybeans produced vs. $1.65 last year.  Many, many issues exist with this idea with the first being the crop isn’t planted yet and any potential payment could wildly influence planting decisions.  If producers are guaranteed $10.00+ futures on their soybeans vs. $3.69 futures on corn, most would likely maximize soybean acres.  In addition, some producers received the short-end of the stick last year with the payment being based on actual bushels produced as farmers hit with drought had no recourse.  Similarly, if producers can’t get their acres planted and are forced to take prevent plant coverage, do they receive no payment at all or is it based on APH?  Lots of questions and very few answers, not to mention the timing for announcing such a program seems odd.  Still, if nothing is done, and the trade war persists through 2019 and into 2020, President Trump’s approval ratings across the Midwest will plummet heading into the 2020 election.

Friday’s USDA reports had nothing for bulls with larger than expected 2018/19 ending stocks, larger 2019/20 ending stocks and larger than expected South American crops.  The projected ending balances for the current marketing year will be the largest or second largest since the 1980’s if not the largest ever.  These carryover supplies will provide a substantial buffer against any yield adversity this summer.  Winter wheat production came in slightly below average trade ideas, although we feel this will get bigger as the season progresses.  HRW production was projected at 780mbu vs. the average trade guess of 767mbu and 662mbu last year.  Prior to the report, we heard a lot of ideas of 800mbu all the way up to 840mbu.  Condition scores are the best in nine years, and big crops typically get bigger.  SRW production was estimated at 265mbu vs. the 277mbu average trade guess and 286mbu a year ago.  The 265mbu estimate seemed in-line with pre-report chatter, although the higher level of abandonment could trim these ideas a bit further, especially if some sort of soybean assistance payment is announced.

South American crops got bigger with 2018/19 corn production for Brazil at a new record of 100.0MMT while soybeans were unchanged from last month at 117.0MMT.  The Brazilian soybean production number was below last year’s record 122MMT, but the USDA sees Brazil producing 123MMT next year which is completely feasible if the trade war does not come to a conclusion by the time Brazilian farmers plant this fall.  Argentine production ideas were also larger than last month with USDA pegging corn at 49MMT vs. 47.0MMT last month and 32MMT a year ago.  Soybeans were seen at 56MMT vs. 55.0MMT last month and 37.8MMT a year ago.  Combined soybean and corn production are new records, and as always, those crops will be priced to export as opposed to store.  South America just doesn’t have the infrastructure to store crops the way the U.S. does, so the supplies should trade to levels which clear excess supply.  The other big number in the world balance sheet was Chinese soybean import which were projected at 86.0MMT for 2018/19 vs. 88.0MMT last month and 94.1MMT last year.  2019/20 was seen at 87.0MMT but it is worth pointing out the USDA Ag attache to China has both import forecasts another 3MMT smaller than the World Board.  The fact is no one has a handle on the African Swine Fever situation, so projecting changes to Chinese soybean imports is mostly futile.  If anything, we should assume worse demand because the outbreak is almost surely worse than being reported.

Traders will focus on the weekly crop progress report this afternoon which is expected to show corn planting at 35-36% complete vs. 23% last week, 62% last year and 69% average.  Soybean planting is expected around 14-15% complete vs. 6% last week, 35% last year and 26% average.  HRS progress is seen at 34-36% vs. 22% last week, 58% last year and 70% average.  The southern half of South Dakota hit final plant dates for insurance purposes on May 5, while the northern half of the state hits final plant dates on May 15.  There should be a large cut to HRS acres in South Dakota from the March Prospective Plantings report.  Based on most rotations in South Dakota, would think corn will try to be the benefactor although more and more producers talking about soybeans on soybeans.  North Dakota has a bit more time to get crops seeded, although they hit final plant dates on May 31 in the southern half of the state while the northern half has until June 5.  There isn’t a great deal of correlation between plant date and final yields in HRS, but a shortened growing season does put more emphasis on good growing conditions the rest of the way.  South Dakota moves into final plant dates for corn on May 25 which will be here before we know it, especially if a heavy round of rain is experienced at the end of the week.

Bottom Line: Lower markets in search of demand which has not stepped up to the plate for any of our commodities on the latest break.  USDA’s increased demand forecasts for 2019/20 looked suspect on Friday given the slow offtake rates in 2018/19, but low prices should spur additional consumptive demand.  The difficult line items will be exports given the large supplies around the globe and the heavy competition expected.  Trade wars are not easy to win, and assistance payments will likely make our oversupply situation worse as producers are incentivized to grow crops the market doesn’t want.  Markets are smart, and any additional assistance payments will likely be extracted by futures prices.

Good Luck Today.

Tregg Cronin

Market Analyst

Tregg.Cronin@halocommodities.com

www.halocommodities.com

@5thWave_tcronin

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