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

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.

5/10/2019 Morning Comments

Good Morning,

President Trump held true on his claim he would raise tariffs from 10% to 25% on $200 billion worth of Chinese goods at might night last night, and according to financial media outlets, he did just that.  The move comes as Chinese negotiators are in Washington D.C., so that should make for a particularly awkward morning-after breakfast.  It would seem unlikely a deal will be hastily thrown together before the Chinese delegation leaves town, but nothing would surprise us at this point.  Around 6:00 am CDT, President Trump released another series of tweets suggesting they were readying tariffs of 25% on the remining $325 billion of Chinese imports which would be deemed the “nuclear option.”  One of these tweets intimated the U.S. would take the tariffs and buy $15 billion worth of grain from U.S. farmers and ship it to countries who need humanitarian aid.  Lots of questions being raised in that scenario, but probably not worth trying to sort it out now.  The long and short of it is Trump seems to be downplaying odds for a deal, so don’t take anything off the table.

A light shower across North Dakota this morning, otherwise, the Midwest is clear.  There is a shower chance for the Dakotas and Minnesota Saturday which could bring totals of 0.10-0.25” with follow up chances in Iowa, Minnesota, Wisconsin, Illinois and Indiana on Monday/Tuesday.  In between the light shower chances, there should be mainly dry weather which should see farmers trying to plant as much and as fast as they can.  Extended maps from NOAA put above normal precip in place over the Plains and WCB in the 6-10 and 8-14.  Below normal precip will be the norm in the eastern corn belt, Mid-South and Delta which is badly needed.  Temps are expected to be mainly below normal in the Plains and WCB.  Make hay while the sun is shining.

Grains are mixed this morning after enjoying a higher overnight session across the board with soybeans giving up gains as we head toward the 7:00 hour.  Tariffs went into place at 12:01am last night, so that should drive trade chatter until the USDA releases their WASDE report at 11:00am.  It is difficult to know what to make of President Trump’s tweets about buying grain from the U.S. with tariff money but it will keep folks’ attention at least.  The washout we suffered yesterday was impressive as front-month soybeans traded down to the lowest spot price since December of 2008.  November 2019 soybeans hit the lowest level for a new crop contract in early May since 2007.  November would have to shave another 50-60c to take out the 2007 levels, so let’s hope it doesn’t feel like taking out all the records this year.  Obviously the tariffs and the trade talks are driving price action, but it also feels like the soybean market is coming to grips with the fact planting delays will mean more soybeans across the Midwest.  We will not see USDA adjust planted acres on today’s report, and they likely won’t adjust trendline yields either, but that doesn’t mean the trade isn’t making adjustments to those numbers as we speak.  In addition, demand updates from the USDA should be negative as we discuss below.  Open interest changes yesterday saw corn up 1,319 contracts, soybeans were up 427 contracts, meal u 6,960 contracts, oil up 14,462 contracts, SRW up 7,045 and HRW up 786 contracts.

The USDA Attaché to China released his updated estimates of Chinese soybean balance sheets yesterday, and they were certainly negative.  He sees 2018/19 soybean imports at 84MMT and 2019/20 soybean imports at 83MMT which compare with 94.1MMT in 2017/18.  The USDA hasn’t issued a 2019/20 Chinese import estimate yet, but they will later today.  However, their last estimate of 2018/19 imports was 88MMT, so we could see as much as 4MMT axed off on today’s report.  The Attaché sees 2019/20 crush demand dropping to 82.5MMT from 88MMT last year and 90.0MMT in 2017/18.  African Swine Fever is obviously taking the brunt of the blame, but the switch in trade flows has also contributed mightily.  Incredible to think about the upward trajectory of Chinese soybean demand just a few years ago, and what a tailspin it is now.  Their demand should recover, but not until ASF has been stifled and herds can be rebuilt which will be a process over several years.

As if we needed another negative input, export sales yesterday were atrocious across the board.  Old crop wheat export sales were light, as expected, with the marketing year winding down.  3.3mbu of wheat was sold, bringing year-to-date commitments to 938.9mbu which are up 9% from a year ago.  New crop wheat export sales totaled 15.2mbu which brings total 2019/20 commitments to 94.0mbu vs. 70.8mbu a year ago. Corn sales were light at 11.3mbu vs. the 22.6mbu needed weekly to hit the USDA forecast.  Total commitments of 1.824bbu are down 10% from a year ago with the USDA last estimating exports down 5.6%.  We think USDA holds their estimate on today’s WASDE, but it is certainly on notice given rising crop ideas in South America.  Soybean sales were dismal with net cancellations of 5.5mbu vs. the 9.2mbu needed weekly.  Total commitments are down 18% from a year ago at 1.653bbu and we fully expect the USDA to reduce their marketing year forecast of 1.875bbu.  To be honest, a cut of 100-125mbu would not be out of line, especially with odds now lower China actually executes their previous commitments on the books.

The focus on today’s WASDE report will be corn and soybean yields as today’s estimates will provide the first forecast from the USDA using something other than just a trendline yield placeholder.  It is our understanding the USDA will employ the Wescott-Jewison weather-based yield model on today’s report, which should imply a slight yield reduction based on planting pace.  Some of said a reduction is all but guaranteed, but we are not willing to go that far on corn.  We will have very little conviction in a yield number on corn or soybeans in either direction considering a majority of the seed needed to raise these crops are still in the bag.  In theory, their potential is still at a maximum even though we all know a shorter growing season usually does not beget record crops unless the balance of the summer turns out perfect.  USDA will not issue and update to acreage which we feel is the only thing one can have some conviction about at this juncture.  Soybean acres are on the rise, spring wheat acres are on the decline and all things equal, corn has probably lost some acres as well.  We will also be looking forward to the HRW and SRW estimates.  The average trade guess for the HRW estimate is 767mbu which we feel looks low based on conditions and anecdotal reports from the country.  Something closer to 800mbu is probably more appropriate.  SRW production on the other hand at 277mbu looks high and could be closer to 250-260mbu vs. 286mbu a year ago due to higher abandonment.  South American crops should also get larger and deserve their fair share of attention.

Bottom Line: Wheat and corn have joined soybeans in slipping into negative territory as I get ready to hit send.  It is difficult for us to see how USDA can give bulls anything to sink their teeth into on the WASDE report later this morning.  They will not make the kind of supply cuts necessary to turn balance sheets bullish at this juncture.  Conversely, every demand input should be negative today, further inflating old crop and new crop carryover estimates.  South American supply estimates will be large and Chinese demand should drop.  Happy Days are here at last.

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.

5/8/2019 Morning Comments

Good Morning,

Lots of rain on radar returns this morning with systems stretching from Texas to North Dakota and east to Illinois.  Looking for the USDA to state there were 0.2 days suitable for fieldwork in many states on next week’s crop progress report.  In the last 24-hours, nearly the entire state of Kansas received 0.50” with many locations in the eastern part of the state seeing 1.5-3.00”.  Should be minimal concerns about that crop needing moisture the rest of the way.  Excess moisture remains an issue elsewhere as large swaths of KS/OK/MO/IL running 200-600% of normal moisture over the last 14-days.  South Dakota also seeing 125-200% of normal as well. Rains will finish up tomorrow with a long-awaited dry stretch coming in next week.  Next week could be go-time for most as the calendar pushes toward mid-May.  Extended maps retain their below normal temp bias in the 8-14 while precip moves back to above normal as well.

Mixed markets this morning with row crops higher and wheat markets lower, although mostly still in recent ranges.  Difficult to say what traders are positioning for more: the trade war or the May WASDE?  The writing on the wall would seem to suggest there will not be a grand deal announced Friday between Chinese and U.S. trade negotiators, otherwise tensions wouldn’t have been ramped up so hard last weekend.  Anyone who thought Beijing would be willing to scrap decades of policy which helped propel them to the No. 2 spot in the world was a bit delusional.  They might end up buying additional farm products from the U.S., but these purchases would have occurred anyway and the costs pushed onto the U.S. consumer via higher tariffs could hardly be called worth it.  We are not disagreeing China needed to be confronted, but tariffs can only force a hand so far if protecting state-owned interests are a higher priority than a certain growth figure.  In our opinion, without soybean purchases being revived, and with acreage ideas trending the way they are, soybean prices could potentially have much more downside later this year without a heavy dose of yield adversity.  In the near-term, soybean futures have probably found a temporary bottom, but the supply situation held against stagnant global demand is just too much.  Hard to have rallying wheat markets in May when Kansas is covered up by rain.  Not much more needs to be said.  Open interest changes yesterday saw corn down 8,832 contracts, soybeans down 7,205, meal down 85, oil up 8,746 contracts, SRW down 1,541 and HRW down 1,784 contracts.

Deliverable stocks out yesterday with total wheat stocks in Chicago down 1.437mbu to 44.646mbu which compares with 68.596mbu a year ago.  The SRW balance sheet has been the most interesting for months now, and with crop production prospects declining seemingly by the day, the multi-year low in deliverable stocks becomes all the more interesting.  Analysts are busy downgrading their SRW production with many closing in on 250-260mbu.  With that kind of production figure, and total demand down around 15mbu, we see ending stocks of 121mbu.  That would be the smallest carryout since 2013/14 and compare to the 10-yr average of 173mbu.  Going into the year with multi-year lows in deliverable stocks should also keep upward pressure on carrying charges.  Conversely, total wheat stocks in Kansas were 96.996mbu vs. 97.437mbu the week before and 106.176mbu a year ago.  With big crops getting bigger in the southern plains, delivery warehouses should easily recharge supplies and put pressure on spreads.  With KW/W trading at historical lows, it would seem wise to hedge HRW in Chicago, although there is no guarantee that spread eventually corrects to normal relationships if the disparity persists between SRW and HRW supplies.  If one is planning to carry wheat, Kansas City will definitely be the market to do it in as spreads should head back to 8c or 11c per month.

We spent some time looking at other late planting years on corn and the final yield prospects.  We will start by saying summer weather is absolutely the largest driver of yield potential, but it never hurts to look at other factors.  Since 1980, there have been six other years which failed to reach 25% planted by week 18 with those years being 1981, 1983, 1984, 1993, 1995 and 2013.  Admittedly, most of those years are over 20-years old, and probably don’t have the same applicability given genetic potential and planting speed in 2019.  Out of those six years, three were better than the prior 5-yr average and three were worse, adding one more strand of ambiguity to this year’s yield analysis.  We’ve heard both arguments on what USDA will do with Friday’s corn yield given planting progress has not advanced past 25% complete.  It would be our opinion they should leave yield alone at trend line because other than planting date, there is nothing to discredit this yield yet.  As the aforementioned analysis shows, planting date just does not have that high of an impact on final yield potential.  If planting progress has not advanced past 50% complete by May 15th, people will get restless, but we need more time to have a confident opinion.

Australia is finally starting to see some rain on the drought-stricken east coast with lots of locations in NSW, Queensland and Victoria seeing 0.50-1.00” totals over the previous week.  Returns look light for the coming week, although areas of Queensland could shag a bit more rain by the middle of next week.  Contacts there suggest the recent rainfall is enough to get the winter wheat crop seeded at the very least, and will hopefully prime the pump for additional spring rainfall.  W.A. has seen decent rainfall over the previous month and should be in decent shape having not experienced near the drought conditions the East Coast did last year.  Australia is due for a bounce-back year in production after back-to-back droughts which decimated production and exports.  Not that the world needed more wheat production out of the major exporters, and not that this crop is in the bin or even fully planted, but prospects would appear to be turning up.

Bottom Line: Corn drifting negative as we get ready to hit send.  Should be lots of back-and-forth between now and Friday with lots of balls in the air.  Headline risk will remain elevated, and the World Board is unlikely to reflect the true state of crop prospects in the U.S. on Friday.  Our markets have suffered mightily as of late, although there is nothing to say the beatings are over.  Seasonally, we should see additional risk-premium added in during May and June, but a seasonal is only as good as the year you’re in. 


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.

5/6/2019 Morning Comments

Good Morning,

Just when we thought it looked as though the trade war was entering the ninth inning and a deal was close at hand, President Trump fired another salvo Sunday night with tweets suggesting he was ready to raise tariffs on ALL Chinese goods to 25%.  Markets reacted as expected with global equities getting pounded and the Shanghai Composite suffering its worst single day loss in over three years.  To be clear, the Chinese stock market is still up 17% YTD, but it feels as though the goal posts have moved once again.  From what financial media have been able to piece together, the U.S. trade negotiators returned from Beijing with reports China had reneged on some of their commitments to address technology transfer.  The representatives then told President Trump to ready additional tariffs as Chinese negotiators are set to still come to the U.S. this week, although it sounds like their trip has been reduced from a few days to one.  Why they would still plan on coming if a deal isn’t close at hand remains to be seen but the fact they are still coming is a positive.  This will not be over quickly.  We will not enjoy this.

Were it not for the trade war focus, the weather would have to be called supportive in the United States.  Morning GFS models show moderate to heavy rains across the entire Midwest as well as the Delta.  Totals this morning are putting 1.00-4.00” totals across eastern Kansas, Missouri, Iowa, eastern Nebraska, Illinois, Wisconsin and parts of South Dakota and Minnesota.  In addition, even heavier totals will fall in eastern Texas, Louisiana, Mississippi, Arkansas, Alabama and Tennessee.  It would not appear much of any fieldwork will occur in the next 5-days, especially as temperatures remain below normal the next 7-10 days.  Weekend maps from the CPC show below normal temps persisting the next 14-days while precip is mainly normal/above.  Would not appear the month of May will turn conducive to planting.

Sharply lower prices overnight with most contracts barely off the lows set in the overnight session with the exception of corn which has bounced 6-7c from the open.  For weeks, all we have heard about from the broker community is how short the funds were and how hard markets would rally once they realized they were wrong and needed to cover.  As has been the case for all of 2019, funds’ positioning was spot on and now the threat of a “no deal” with China gives even more reason for them to add to winning positions.  It is true, weather for planting is awful, and we will no doubt end up seeing a larger percentage of prevent plant than we have for several years.  However, most of our major Ag commodities can afford to lose acres and still maintain adequate to burdensome levels of ending stocks.  As we feared when rumors of additional farm gate support were floated a week or so ago, the soybean market seems ready and willing to deduct any financial support the U.S. government plans to give to the farmer to make it through these trying times.  On Friday, open interest continued to decline as we clear out May contracts.  Corn fell 6,955 contracts, soybeans up 9,614 contracts, meal up 972, SRW down 2,718 contracts, HRW up 693.

Had the weekend to chew on the COT report with funds posting a new record short position in soybeans.  Funds sold 15,247 contracts of soybeans to leave them net short -161,453 contracts which is 10% larger than the previous record short.  Commercials were busy liquidating contracts ahead of FND, so it is difficult to look at either the gross long or short and glean much from that category.  As we’ve been doing the last several weeks, we tabulated the average short position held by managed funds to see where their “pain” threshold is.  Going back to February 5 when that position really started to ramp up, and using COT day settlements for the front-month contract, we figure the average fund short is $8.99 basis July futures.  Using spot prices this morning, their average position is 76c in the money, a huge margin against any random updrafts.  Difficult to see how we “squeeze” them enough to really induce short covering, especially as poor weather forecasts likely mean more soybeans.  Funds bought a little corn, purchasing a net 16,769 contracts to put them net short -317,493 contracts.  Funds also added to shorts in both KC wheat and Chicago, and are now record net short in Minneapolis wheat.  Collectively, funds are net short -729,935 contracts of corn, soybeans, wheat, KC wheat, Minneapolis wheat, meal and oil.  This is a new record by a gigantic margin and accurately reflects sentiment in our space.

Wheat Quality Council hard red winter wheat came and went last week with solid crop prospects expected.  Lots of rumblings about low protein this year with the continued moisture moving through the southern plains.  The last time we saw low protein was in 2016 and 2017, which combined with high yields, resulted in basis to the farmer across Kansas well under $1.00 per bushel.  Cash prices saw 2-handles in many areas with some worried the same could happen this year if protein is at a premium.  Still high basis levels being seen on the KC spot floor with 12’s called +127/137N, so no imminent threat but it wouldn’t be the worst idea to be taking a look at basis levels further out the curve for producers with ample storage.  Carries would be expected to widen, and incentivize storage which need to be sold as the board tries to extract the carry through lower flat price.  If we learned anything during the 2016 and 2017 doldrums, it is carries which are not sold, are not earned.  The market only “pays you to store” is the carry is locked in.  We are calling HRW carryout for 2019/20 518mbu vs. 490mbu last year and a 5-yr average of 480mbu with demand up around 20mbu from a year ago.

Bottom Line: Probably not worth discussing anything else until we know more about the possible ramifications from the trade war.  There are 6-handles on cash prices for old crop soybeans in the Northern Plains once again this morning.  If this week continues the way it started, new crop values will also have a 6-handle by Friday.  Farm aid will become inevitable unless the narrative changes and another year of trying to replace Chinese demand will be upon us.  Crop progress will be a focus after the close but not enough to tun the negative tide.

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.

5/2/2019 Morning Comments

Good Morning,

Lots of chatter about the U.S.-China trade deal hitting the wires yesterday.  From what we could glean, negotiators agreed for the U.S. to remove a 10% tariff on a portion of the $200 billion worth of Chinese imports when the deal is signed.  The 10% tariff on the rest of the Chinese goods would also be removed “quickly,” but a 25% tariff on roughly $50 billion worth of other Chinese goods would likely stay in place until after the 2020 election.  Sources also suggested the deal could be signed as quickly as late next week.  This does not sound like the “grand deal” many have been hoping for which would lead to a reset in U.S.-Chinese relations, and it is difficult to say whether markets will like or dislike such an arrangement?  From an agriculture standpoint, the administration readying another $12 billion worth of assistance payments is about the worst outcome possible which we will try to discuss below.

Rains across the eastern portion of the southern plains and stringing up through the MS-River Valley.  Illinois is picking up heavy rains this morning which should produce even further planting delays.  Late this weekend and early next week sees another big round of rain to move through Iowa, Missouri, Illinois and Indiana with totals this morning in the 1.00-3.00” range.  The Delta will also see heavy rains which is delaying soybean planting there.  Fortunately, the Northern Plains will be mostly dry the next 7-days with the exception of a stray shower.  The issue in the north is temperatures which are slated to be below normal through mid-month.  Forecasters continue to point toward 5-10* below normal which keeps highs in the Dakotas mainly in the 50’s and 60’s.  This will keep soil temps subdued and drying weather limited.  The Midwest sees above normal precip through mid-month.

Mixed markets this morning with soybeans lower while corn and wheat are higher.  It wasn’t until this week the corn market has finally begun to take planting delays seriously, which would be expected considering the calendar finally flipped to May.  The forecast mentioned above will not lend itself to planters returning to the field quickly in the heart of the corn belt, so the delays posted on Monday’s crop progress report should be even further behind average on next Monday’s report.  Polling some analyst friends, most think progress on corn planting come Monday will be around 23-25% which would be the slowest since 2013 and the second slowest since 1993.  In 2013, we saw a 1.8 million acre reduction from the March PP report to the final report in January and the national average yield was 4bpa below trend.  We are a ways from making any sort of yield reductions ourselves, but losing 1.0-1.5 million acres would not be  a stretch.  There has been some suggestion the USDA will be forced to reduce their May WASDE yield estimate based solely on the planting pace being behind average.  As we’ve pointed out in this space in past weeks, the last five years have shown consecutive years of trend or above yields with everything from late planting to early planting.  We are not ready to reduce yield at this time.  Open interest changes yesterday included corn down 5,568 contracts, beans up 5,964, SRW up 7,051 and HRW up 5,825 contracts.

Data yesterday included weekly ethanol production which fell 24,000 bbls/day to 1.024 million bbls/day which is roughly 60,000bbls/day below the level needed to hit the USDA forecast.  This was the 15th week in a row which failed to hit the level needed to achieve the USDA forecast, and 17 out of the last 18 weeks.  Unfortunately, the USDA is probably going to have to reduce their ethanol demand for corn estimate by 25mbu on the May 10 WASDE.  Ethanol stocks fell 52,000 bbls to 22.695 million and remain near the lowest levels since November.  Stocks typically decline seasonally throughout the driving season and through August, so this should be a supportive feature moving forward.  We will receive March ethanol exports next week which should provide clues about that demand pull, but based on the stocks and production levels of the last several weeks, unlikely to be a bullish input.

Day 2 of the Wheat Quality Council tour wrapped up yesterday with another strong day of yield results.  The tour made 200 stops and found an average yield of 47.6bpa which is the highest since 2016 and the second highest on record.  The two-day yield is 47.2bpa which is also the highest since 2016 but slightly below both 2016 and 2012.  Tour participants continue to remark this crop is 4-6 weeks behind average development, so much can still happen, but solid prospects are present.  The western portions of Kansas could use at least one more finishing rain to put a bow on this crop.  HRW production ideas have continued to rise and are now in the 800-840mbu range.  Without a steady to higher export program, this is likely to many bushels, and will lead to a rising carryout in 2019/20.  FOB HRW offers remain the cheapest in the world by $19-26/MT through June while Russian offers are about $10/MT cheaper for July.  US-HRW is still offered at a discount to Argentine, Baltic and German offers through July.  Calendar spreads are certainly pricing in a large crop with September forward calendar spreads trading in excess of 100% of full financial carry.  Variable storage rates will likely increase July forward, and producers and elevators alike will once again be incentivized to store wheat rather than market it.  For this reason, we think HRW exports should decline in 2019/20 and stocks should remain burdensome for the balance of the marketing year.

Earlier this week, reports were circulating that the Trump Administration was readying another $12 billion in farm assistance payments should the trade war drag on longer than expected.  This would be very bad news in our opinion, as the futures market would likely try to extract the size of the assistance program via lower flat price.  In 2018, the November 2018 futures contract began declining on May 29, dropping from $10.60 per bushel to $8.26 per bushel by July 16.  Granted, much of that decline was due to solid crop conditions which were promoting ideas of a record crop.  Still, it is undeniable the trade war and zero demand from China helped push prices lower.  The $2.36 drop in the board was more than the $1.65 assistance payment, and we wonder if the market would simply try to offset another $1.00-1.60 payment should one be provided.  This would mean futures prices somewhere in the low “7’s,” and cash prices in the “6’s.”  It is hard to have a lot of conviction in such a forecast, but we just do not feel another farm assistance package would be what the market or U.S. farmers want to see.  A band-aid on top of a band-aid still doesn’t fix a bullet hole.

Bottom Line: Trade war and weather.  What spooks the record managed fund short position and what would make them add to their winning positions? Another aid package would be some of the worst news we could expect in our opinion.  That said, it does feel as though grain prices are near a bottom as bearish news doesn’t seem to be producing new lows.  Weather in the southern plains the next 2-3 weeks bears watching to see how much larger or smaller the HRW crop can get.

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.

4/30/2019 Morning Comments

Good Morning,

Lots of moisture around the Midwest and Southern Plains this morning and this should be the case for much of the week.  Rain will fall throughout the week in the Mississippi River corridor as well as the eastern portion of the Southern Plains.  GFS model totals are impressive this morning with a huge area seen receiving 1.50-4.00” with a much wider portion of the Midwest seeing 0.75-1.50”.  Little to no fieldwork should be occurring this week, which will make planting deficits with average grow.  Warmer temperatures slowly return toward the weekend, but extended maps keep below normal temps in place for the upper-Midwest and above normal precip for the entire Midwest.  The 8-14 day maps take us out to May 13th with the same pattern in place, so it would not appear a wide open week of weather is looming which would allow catch-up progress to be made.

Mixed to weaker grain markets this morning as corn and wheat are softer while the soy complex is slightly better.  The selling pressure, especially in wheat, is getting debilitating for almost all involved, especially producers.  Fresh contract and multi-year lows in winter and spring wheat contracts with harvest still 30-days away in the southern plains is shaping up for a painful beginning to the 2019/20 marketing year.  The selling in corn has also been overwhelming, especially as it is widely believed the farmer is still holding on to a larger than normal percentage of old crop, and his new crop marketing is woefully inadequate.  The hefty on-farm stocks is what is tempering bullish ideas of a massive fund short-covering event, even though funds have absolutely no reason to panic with their equity-filled positions.  Planting is occurring slower than what farmers would like to see, but there is still no reason for panic as the calendar gets set to flip to May.  The entire corn belt will be going into the growing season with one of the largest soil moisture profiles on record, so as long as the crop gets in, it will have a buffer against early season dryness.  Open interest drops were sharp in front of first notice day with corn down 58,657 contracts, soybeans down 20,816, meal down 4,059, oil down 7,305, SRW down 889 and HRW down 2,369 contracts.

We are into the growing season, so that means Monday afternoons the trade looks forward to crop progress reports.  Corn planting progress was seen at 15% complete vs. 6% last week, 14% expected and 27% average.  Planting progress was unchanged from a year ago despite what most would call more flooding and a wetter April.  As we were expecting, Iowa made good progress last week with 21% of the state planted vs. 4% last week and 26% average.  Larger delays exist in the eastern corn belt where Illinois is just 9% planted vs. 43% average while Indiana is 2% planted vs. 17% average.  Deficits vs. average will likely grow in the coming week as most of the belt sees rain.  3% of the crop is emerged vs. 5% average.  Soybean planting progress was seen at 3% planted vs. 1% last week and 6% average.  Delays are growing in the Delta with AR/LA/MS all 16-21% behind average.

Spring wheat planting progress was estimated at 13% nationally vs. 5% last week and 33% average.  South Dakota is posting the largest deficits with just 8% of her area seeded vs. 60% average.  This is the slowest progress since 1997 when just 2% of the crop was planted.  There will be little to no progress made in South Dakota this week either as weekend rain and snow will be followed by more rain this evening.  It is very likely producers will switch some HRS acres out in favor of corn, soybeans and sunflowers in coming weeks.  Other HRS producers are not posting as severe of deficits yet with ND at 5% planted vs. 21% average, MN at 3% planted vs. 33% average and MT at 24% planted vs. 34% average.  Still, acreage changes are worth keeping an eye on.  Winter wheat conditions were also released yesterday and remain strong at 64% G/E, up 2pts on the week and well better than the 33% G/E a year ago.  HRW conditions are the best since 2010 while SRW conditions are at their lowest level since 2007.  White wheat conditions are just above the 5 and 10-yr averages.

The Wheat Quality Council tour begins today in Kansas with results expected at the end of the week.  Lots of crop commentators are suggesting the HRW crop could be in excess of 800 million bushels which would be a 3-yr high.  Lots of folks thinking the Kansas wheat crop could post record yields, which would be needed with planted acres at 100-year lows.  If the HRW balance sheet is graced with an 800mbu crop, we see carryout around 518mbu compared with 490mbu in 2018/19.  Our export forecast is 10mbu smaller than the current marketing year while domestic demand is seen up 33mbu.  The stocks/use ratio of 66.18% we are currently forecasting would be the highest since 1986/87.  We’ve already been over the overburdened HRS balance sheet, but the fact the two largest classes of U.S. wheat are staring at their largest surpluses since the late 1980’s is a terrible way to begin a marketing year.

Export inspections also released yesterday with grains solid while beans continue bad.  Wheat inspections were 23.2mbu which were just a shade under the 23.4mbu needed weekly to hit the USDA forecast.  Total inspections of 785.8mbu are down 2.4% from a year ago, and one of the main reasons exports will likely be trimmed once again on the May WASDE.  Corn inspections were solid at 53.8mbu vs. the 36.9mbu needed weekly and were the largest since October.  Inspections are still 10.7% above a year, but the corn market needs to have a very strong sales and shipment program this summer to meet current forecasts.  Soybean inspections totaled 18.1mbu vs. the 34.2mbu needed weekly.  This was the third week in a row which failed to meet the USDA forecast.  Total inspections of 1.159bbu are down 27.5% from a year ago while the USDA’s current forecast is only calling for an 11.9% decline.  Based on our reading of the tea leaves, the soybean export forecast needs to come down 100-125mbu to make the current sales and shipping pace “work.”  This of course without some major Chinese purchases coming in, although we aren’t sure those would execute in 2018/19 anyway.

Today is first notice day and there was a fair amount of delivery activity.  The Anderson’s registered 1,000 fresh receipts in Toledo, and delivered same.  There were no strong stoppers from what we could tell, and The Anderson’s will probably end up stopping all of their own receipts back and retaining ownership in their elevator, although they no doubt benefited from selling the WK/WN ahead of FND.  Selling wheat futures or the front-month spread 10-15 sessions in front of delivery has been one of the surest bets for the last couple years.  There were 453 soybean deliveries with no real commercial participation.  There were zero HRW deliveries but CHS House did drop 924 deliveries on the market in Duluth out of the 938 outstanding.  There were 856 corn deliveries.

Bottom Line: Waiting on weather to make a difference or something to come out of the trade talks which gives bulls a reason to lift a shoulder off the mat.  There is simply too much old crop inventory left in the farmer’s hands and the market seems to know it.  This is the reason behind the stronger than normal basis for this time of the year, not some conspiracy theory about the bushels not being out there.  If planting gets completed, would expect to see this grain start to move in heavier volumes, and let’s all hope end users can handle it.

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.

4/24/2019 Morning Comments

Good Morning,

Fertilizer prices at the Gulf continue to move higher, presumably on logistical issues on the U.S. river systems which are not allowing the free-movement of product.  Spot UREA swaps were up another $2.25/ton yesterday and are up $27/ton since the beginning of March.  May swaps have witnessed the most movement with that slot up $4.00/ton yesterday to $268.50/ton, the highest since mid-January. With corn planting breaking loose in Iowa and Nebraska this week, the rush to get fertilizer applies ahead of planters is hot and heavy.  The Dakotas and Minnesota are probably another 5-10 days away from putting any corn in the ground, assuming the looming weekend weather does not delay progress too long.

Rains across Texas and parts of the Delta while showers also impact Illinois, SE-Iowa and Indian this morning.  Forecasters are focused on the system moving into the Northern Plains and Upper-Midwest this weekend which will bring with it moderate to heavy rain with the potential for snow in some northern locales.  Morning GFS models are putting 1.25-2.00” across almost all of Iowa, S-MN, WI and NE-KS while slightly less totals will be seen in NE and SD.  North Dakota should largely avoid the moisture as well as N-MN, although temps will cool next week which will slow additional dry down for areas waiting on sunshine.  Extended maps could look better with below normal temps and above normal precip for the Northern Plains while most areas of the Midwest will see normal to above normal temps but also slated for above normal precip.  Looks like a start-and-stop affair into May.

Mixed grain markets this morning as winter wheat contracts once again post losses following their brief 1-day hiatus on Tuesday while row crops are attempting to recover a bit from yesterday’s washout.  The 15c losses in soybeans were impressive, and felt like the market coming to grips with the fact that the only thing bullish in the Ag space right now is a potential trade deal with China which carries with it large purchases of U.S. grains.  Short of a trade deal, weather is about the only thing which could stabilize our space as supplies remain bearish, and demand is less than impressive from any sector.  A ton of comparisons with a year ago and the last five years in terms of setting price highs and lows which we will touch on below. Every market pundit in the Midwest is writing about the record short positions being held in grains, but what they fail to mention is these traders are being given zero reason to cover.  They have a ton of equity in their positions and are much more willing to fight than flight at this juncture.  Open interest changes yesterday saw corn up 25,479 contracts, soybeans up 8,770 contracts, meal down 1,022, oil up 9,252 contracts, SRW up 6,041 and HRW up 903.

We’ve discussed in the past the propensity of December corn to make highs in certain months vs. others.  In 2018, December corn made its calendar year highs in May for just the second time since 1990.  The other came back in 2000, and was definitely one of the reasons farmers were undersold the balance of 2018 as most expected another round of highs in June and July like we typically see.  So far in 2019, 4.06 was the December corn high back on January 18th.  In similar fashion, December corn has made its calendar year highs in January just one time since 1990.  Appropriately enough, 2001 was the last time December corn put highs in during January, which would follow the only other year we set highs in May. We are certainly not suggesting the calendar year highs are in for December corn, as seasonality and odds still suggest a run at 4.06 sometime May-July, but it also doesn’t seem like anyone has a plan in case that doesn’t happen?  In soybeans, the calendar year high so far is February, which has contained our calendar year highs only one other time back in 1998.

Lots of comparisons with last year taking place in winter wheat as well with those contracts setting contract lows on a daily basis.  A year ago, July KC wheat settled at $5.12 before rallying to a high of $5.74 at the end of May.  Tuesday, July KC wheat settled at $4.21, a full 90c below a year ago.  Based on our current estimates of production, total HRW supplies for 2019/20 are seen at 1.265bbu vs. 1.249bbu a year ago.  Our carryout estimate is 483mbu vs. 490mbu a year ago, although we could be 10-15mbu light if exports underwhelm.  Still, it is quite striking to see price down over 17% from a year ago when total supplies are seen up just barley over 1.0%.  Obviously, the implications of rising supplies globally are what are beating the wheat market down, but it also makes one question whether the price strength back in 2018 was way overblown?  Minneapolis spring wheat for September is trading at $5.26 this morning vs. $6.06 a year ago as late planting plagued farmers through May.  Doing the same exercise in spring wheat, we see total supplies for 2019/20 at 890mbu vs. 850mbu a year ago, which turned out to be the largest total supplies since 1987/88.  We just didn’t know it at the time.  Our carryout estimate for 2019/20 is currently 319mbu vs. the 305mbu estimate for 2018/19.  Much of our demand estimate hinges on how aggressive Canadian export offerings are next year which we have no reason to doubt sitting here today.

Other data out yesterday included weekly deliverable stocks which saw Chicago stocks fall another 1.474mbu from a week ago to 42.903mbu and compare with 67.537mbu a year ago.  Whether Chicago is able to maintain tighter than average carrying charges in 2019/20 will depend largely on the ability to rebuild deliverable supplies.  Production prospects are expected to be down in SRW in 2019/20.  HRW stocks rose 166,000 bushels to 99.073mbu which compare with 105.257mbu a year ago.  Minneapolis wheat stocks fell 759,000 bushels to 15.586mbu which are down from 21.719mbu a year ago.  A huge run of cars on the Minneapolis spot floor yesterday which saw 187 cars including 6 trains.  This compared with 11 cars a year ago.  Values fell 5-30c with 14’s now seen at +85/100K while 15’s were indicated t +105/115K.  Our two-week rally on logistics came and went with values right back to where they started before the winter weather hit hard in March and April.

Bottom Line: Sentiment is negative and the two things which could support price, trade resolution and adverse weather, seem fleeting at the moment.  Folks involved with trade negotiations have a long-play view and agriculture is not their chief concern.  Weather is a mixed bag, but not severe enough to put weather premium back in at this time in our opinion.  Yes, the funds are short.  No, they are not being given a reason to cover at this time.  One can go broke buying in front of a large-scale fund short-covering event.

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.

4/22/2019 Morning Comments

Good Morning,

A large system moving across the upper-Midwest this morning bringing moderate to heavy rains in localized places.  Not much for rainfall returns yet but there are places getting up to 0.50” since midnight.  Plenty of rain around in the southern plains and upper-Midwest the next 7-days with the former seeing 0.50-2.00” amounts on a large swath of Oklahoma and Texas.  MN/IA/WI will see rains of 0.50-2.00”  broken down between the current system and one toward the weekend.  The eastern corn belt will be mainly dry which should promote seeding progress.  Extended maps keep above normal precip in place the next two weeks while temps slowly cool toward below normal in the north by the 8-14.  Worth keeping an eye on Kansas as the 30-day percent of normal precip map is running a bit dry although conditions to-date have been very good.

Weaker markets across the board this morning, led lower by winter wheat contracts which are down over 1.0%.  The favorable conditions to-date along with solid rain potential for OK/TX this week continues to promote ideas of above-trend yield potential.  In addition, many analysts cut their U.S. export forecasts for the 2018/19 marketing year over the weekend with those ideas now close to last year’s 901mbu.  If exports do indeed prove that low, carryout will be well over 1.1 billion bushels and provide a huge buffer against any growing season stress.  Add in ideas of a bounce-back in production out both the EU and FSU, and it is difficult to construct a narrative which include wheat being markedly higher than spot prices.  Wheat looks as though it is in for another year of producers being incentivized to store wheat, but the lucrative storage returns will only come to those willing to lock in carries out to 2020.  Corn planting progress broke loose heading into the weekend for Iowa and Nebraska.  Areas to the north are still waiting on fields to dry and warm, but progress as of May 1 isn’t likely to show the delays being talked about a couple weeks back.  Lots of trade talk the next two weeks to keep the market interested.

Friday saw the Commitments of Traders data released with large spec traders selling another 29,313 contracts to leave them net short -323,665 contracts, a new record.  Not only is this a new record, but it is almost 10% larger than the previous record from last week, showing how aggressively short the funds have gotten.  Over the last three weeks, funds have sold 116,117 contracts.  Encouragingly, commercials have been buying corn with the gross commercial long up to 734,529 contracts, which is the largest since July 24.  This position is among the top ten largest on record and is record large from a seasonal perspective.  Funds sold 23,401 contracts of soybeans last week, bumping their net short back up to -108,362 contracts.  In KC wheat, funds sold 4,171 contracts to leave them net short -49,818 contracts.  This is not a record short on the CIT report, but it is within 5,000 contracts of a record.  Of interest, the gross commercial short position at 98,617 contracts is the smallest since January 2017 and record small from a seasonal perspective.

The global wheat market is most interested in production ideas from Europe and the Black Sea after last year’s drought in Europe and slightly lower than expected production in Russia.  There had been dryness concerns creeping into Europe once again, although weekend forecast maps show widespread rains across Europe the next 10-days.  In fact, many areas will see 100-200% of normal rains in the next 10-day period.  In Russia, export ideas for the 2019/20 marketing year are about steady with 2018/19 as lower beginning stocks will prevent Russia from getting off to a blazing start.  Based on some of the early production ideas in the market of 80-83MMT, we could see exports rebound to 38MMT from 36.5MMT, and still leave a decent carryout of 9.468MMT vs. 7.468MMT projected in 2018/19.  At that level, exports would be 43.20% of total supplies and would be 48.41% of total demand.  For reference, the 5-yr average for exports/supplies is 40.58% while exports/demand is 45.21%.  Admittedly, our ideas of 43.2% and 48.4% look high relative to average, but not relative to the last two years which saw higher percentages as well.  As long as the Ruble remains weak, and the government stays out of the export market, Russia will be positioned to regain lost market share in 2019/20.  Europe will also remain strong competitors after a down year, leaving US-HRW on the outside looking in.  An issue in the U.S. with production is no longer enough to rally wheat markets by itself.  It takes a minimum of two major exporters, and preferably three, with below trend crops to create an environment in which demand needs to be rationed globally.

Friday saw the latest cattle-on-feed report released with on-feed at 102.0% of year ago levels vs. ideas for 101.7%.  Cattle-on-feed of 11.964 million is the largest on-feed total for any month since December 2011.  Placements of 104.8% were larger than expected as the trade pegged them at 103.4%.  Marketings were 96.6% vs. estimates of 96.9%.  The stronger than expected cattle on feed with larger placements should keep feed demand strong heading into the summer months, although the animal numbers and feed demand correlation has been about as bad as it could be the last two quarters.  This is precisely why estimating feed/residual demand is almost futile considering how the USDA arrives at that number.  Nonetheless, feeding margins remains strong in both cattle and hogs, and the strong forward pricing opportunities thanks to the ASF scare in China should keep expansion underway through 2019.

Bottom Line: Remember when crops were going to be late planted? Yeah, me neither.  Now that planting delays aren’t likely to be a major issue, combined with above normal to record soil moisture, early season doubts are fleeting.  We could still see corn acreage below March USDA ideas, but we’ve got acres to give, especially if further cuts to ethanol and exports are still to come.  Spring wheat acres are likely to be lost in South Dakota, although less than feared a couple weeks ago and could be made up in North Dakota and Montana.  Feels like a breakthrough in trade talks with China is about the only thing which is going to provide this market with lift.  Large bearish positions held by the funds, winning positions at that, are not a reason to be bullish until they are forced to cover.  They are being every reason to stand their ground at the moment.

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.

4/17/2019 Morning Comments

Good Morning,

The much-anticipated release of Q1 GDP from China was released overnight with the country growing at 6.4% from the same quarter a year ago, better than the 6.3% expected by economists. I’m not sure there was any way China wasn’t going to meet or exceed estimates on growth as negotiations are headed down the final stretch in the trade war.  There was a big surge in industrial production, rising 8.5% from a year ago vs. 5.3% growth in the Jan-Feb period.  Year-to-date fixed asset investment was also strong in Q1 at +6.3% vs. 5.3% last year.  Still, everyone thinks to keep China growing at even a 6.0% growth rate moving forward will take a monumental stimulus effort.  There is no doubt the trade war has slowed both Chinese and U.S. growth, with the question being how quickly it can bounce back if tariffs are removed and unrestrained trade can take place.

Rains across the Northern Plains this morning, with parts of the system expected to drop upwards of an inch of rain throughout the day.  This will help melt the snow cover faster, but the moisture is scarcely needed and will keep ponding/flooding issues present.  Mostly quiet after the current system moves at least until early next week when the southern plains and central Midwest have their next chance at moisture.  The 7-day QPF maps show 1.50-3.00” totals across a huge swath of the Midwest east of the MS-River.  Extended maps keep the above normal precip in place through the 8-14 day, but fortunately temps are also above normal the next two weeks.

Firmer markets across the board with the exception of Minneapolis wheat which has been the whipping boy as of late with the late season snowfall failing to spark any interest in owning the Northern Plains staple.  While delays will persist in South Dakota, Minnesota and SE-North Dakota, drills have been running in Montana and western North Dakota.  Acres will be lost in SD/MN, but there should be ample opportunity to make them up elsewhere and unless the acreage drop is more than 1 million from the USDA Planting Intentions report, difficult to see a major draw on 2019/20 ending stocks.  Also no concerns about late planting in corn yet either, and a look at recent history would support this view.  Going back to 2013/14, every year posted a national average yield above trend regardless of how fast or slow planting progress occurred.  We look at this a little closer below.  Soybeans remain inside their impressive downtrend dating back to February.  Movement on the trade war or further delays which would support even more acres moving back to soybeans would seem to be the only thing which will drive price sharply higher or lower.  Open interest changes yesterday saw corn up 23,317 contracts, soybeans up 20,125 contracts, SRW up 1,608 and HRW up 2,704 contracts.

Looking back at corn planting progress as of week #17, which is more or less the First of May, we’ve seen progress range from as little as 5% in 2013 to as fast as 45% in 2016.  The range of yields during that time frame was 158.1-176.6bpa.  2013/14 had the low yield at 158.1bpa, but at the time, this was third highest national average yield on record behind only 2004’s 160.3 and 2009/10’s 164.7bpa.  The point here is as long as corn planting progress doesn’t drag out to an extreme level, actual planting date hasn’t had too strong of a correlation with final yield.  Weather the balance of the marketing year is much more important than planting date, not to mention, corn planted in May is usually going into warmer soils which promotes better emergence and stand counts.  The same could be said about soybeans with progress since 2013/14 ranging from 6% in 2013 to 36% in 2016 as of week #19, which is around the 10th-15th of May.  During that stretch, the national average soybean yield ranged from 44bpa in 2013 to 52bpa in 2016/17.  At the time, the 44bpa yield in 2013/14 was tied for the highest national average yield on record.  If corn and soybean planting is still lagging averages badly by mid-May, it will be time to add risk premium.

Data out yesterday included weekly deliverable stocks with recent trends mostly persisting.  Chicago deliverable stocks fell 871,000 bushels to 44.377mbu which compares with 67.912mbu a year ago.  This is a 34% decline from a year ago, and puts a lot of pressure on rebuilding deliverable supplies with high quality wheat this year.  Non-deliverable grades at 6.393mbu are up 1.666mbu from a year ago.  Kansas City wheat stocks fell 309,000 bushels w/w to 98.907mbu and are down 5.986mbu from a year ago.  From a historical perspective, still a lot of wheat in warehouses in Kansas.  Unless things change drastically, the KWK/KWN should see variable storage rates reduced by another 3c/mo to the exchange-minimum 5c/mo.  That said, new crop spreads are pricing in storage levels to rise back to 8c/mo as they price in a large crop with what would appear to be limited new crop demand.  HRS deliverable supplies rose 477,000 bushels on the week to 16.345mbu as rail movement improves following the March and April blizzards.  Still the lowest wheat stocks since 2014, but well above the levels witnessed in 2008, 2012 and 2009.

Brazilian crop progress data was also released yesterday with soybean harvest wrapping up at 89% complete vs. 83% last week and 85% average.  1st crop corn harvest was seen at 69% complete vs. 63% last week and 72% average.  Other tidbits include Germany’s association of farm coops seeing a 21% rise in the country’s wheat production from a year ago.  They see 24.4MMT being harvested vs. 20.3MMT a year ago which was ravaged by drought.  There is a U.S. delegation of wheat officials, including US Wheat Associates and Kansas Wheat Commission, headed to Brazil to encourage the country to act on the 750,000MT of duty-free imports agreed upon at last month’s summit between the Brazilian president and President Trump.

Bottom Line: A little relief bounce, but it is difficult to see gains going anywhere until we have a trade resolution or planting progress fails to make any headway by the end of April.  As we discussed, not much use in getting excited about planting progress on April 17th.  Bulls are quick to remind funds are carrying hefty net short positions, but those aren’t relevant until they are given a reason to cover.  At the moment, they are being encouraged to add to their winning positions.

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.

4/15/2019 Morning Comments

Good Morning,

A mix of light rain and snow in the Dakotas and N-Minnesota this morning, otherwise a fairly empty Midwest.  Morning GFS models are showing an active week for the corn belt and parts of the southern plains with 0.50-2.00” expected in the I-states and Delta.  In addition, Kansas is slated for 0.50-1.50” this week which is the first meaningful moisture for the state in several weeks.  Percent of normal precip maps were showing sizable deficits for Kansas over the last month, so this rain if it falls as forecasted, should promote strong conditions to hold.  Extended maps keep above normal precip for the 6-10 and 8-14 in most of the Midwest but temps are finally warming to above normal which is badly needed across the entire Midwest.  The Northern Plains are still sitting under a heavy blanket of snow which is going to take 7-10 days to get rid of, let alone dry up assuming no other precip falls.

Mixed markets this morning as row crops and Minneapolis wheat are higher while winter wheat contracts are lower.  The weakness is winter wheat is probably two-fold as the best chance for moisture across Kansas in a month showed up for later this week, and US-SRW missed out on Friday’s GASC tender despite cheaper FOB offers from the week before.  The competitiveness of Romanian and Ukrainian offers was a bit surprising considering US-SRW cleaned up the last tender, and Black Sea offers should be mostly nil until harvest.  The USDA’s 945mbu export forecast is still counting on a fair amount of late-season HRW and SRW business to occur, so missing out on a high-profile tender like GASC is not bullish.  Strength in row crops and Minneapolis wheat can be attributed to the larger than expected managed funds short positions revealed on Friday, especially as fieldwork looks to be delayed at least another week across a huge cross-section of the Midwest.  Acreage changes absolutely happening across the Northern Plains, but final tallies won’t be known for several weeks.  Open interest changes Friday included corn up 15,655 contracts, soybean futures were down 3,849, SRW down 3,096 and HRW up 772.

Friday’s COT data showed large spec traders selling another 24,525 contracts to put them net short -294,352 contracts which is the largest on record.  The record short is 9% larger than the previous record from a week ago, and a truly massive position ahead of the entire Northern Hemisphere growing season.  We were also encouraged by the gross commercial long position which rose to 700,202 contracts last week, the largest position for that group since September.  The chart below shows the gross commercial long position relative to history with the current position being record large for this week on the calendar.  Funds bought 6,767 contracts of soybeans to trim their net short to -84,961 contracts, and they were small net buyers in Chicago and KC wheat.  The other market of interest was spring wheat in which managed funds sold 7,279 contracts last week to notch their single largest week of selling on record.  This pushed their net short to -9,457 contracts, which is the largest net short since January but only 73% of the record net short from July.  This position is worth watching after spring wheat futures plumbed decade lows a week ago.

NOPA crush out later this morning with the trade expecting 168mbu crushed in March vs. 171.86mbu a year ago.  Soy oil stocks of 1.783 billion pounds are seen vs. 1.752 billion at the end of Feb and 1.946 billion at the end of March 2018.  Crush will need to be scrutinized closely moving forward as that demand category has been moving higher to largely offset the lighter export program.  Crush needs to continue to run near record levels through the end of the marketing year to achieve the USDA’s forecast.  With export still likely overstated, a slowing crush sector would probably guarantee carryout ends up close to 950mbu as opposed to slightly under 900mbu as currently expected.  At the end of the day, 50mbu probably doesn’t matter much to a market with that much excess but could prove pivotal to the market’s ability to hold $9.00.

Bottom Line: Tonight’s crop progress report should show national corn planting progress near the 5% average which probably keeps bulls at bay another week, even though the forecast looks less than ideal.  The fact is, until the calendar reads May and progress is behind schedule, going to be difficult to spook managed funds into covering.  In addition, the U.S. farmer feels undersold on both ends of the curve, so he is likely to throw a fair amount of length at any rally attempt.  Likely losing spring wheat acres in the Dakotas, but the actual amount remains a moving target.

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.