8/16/2019 Morning Comments

Good Morning,

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

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

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

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

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

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

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

Good Luck Today. 

Tregg Cronin

Market Analyst

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.

8/15/2019 Morning Comments

Good Morning,

Recession is the word of the week.  After disappointing growth figures in the U.K. last week, and Germany this week, investors sold equities hard on Wall Street Wednesday as fears of recession mount.  It should be pointed out a recession is two consecutive quarters of economic contraction and the U.S. does not even have one yet.  However, there are many signals which have preceded recessions in the past.  For starters, the yield on 30-year T-bonds fell to 1.96% yesterday, the lowest level on record going back to the 1970’s.  Yields on 30-yr U.K. Gilts fell below 1% for the first time on record.  As has been the case for much of his presidency, we should expect President Trump to try and jawbone the market higher or bully the Federal Reserve into keeping rates low or even cutting them.  If the U.S. does eventually head into recession, it will be difficult to point at anything more responsible than the current trade war with China.

Showers across Nebraska and North Dakota this morning while the rest of the Midwest is mostly quiet.  It will be a fairly active Western and Central Midwest storm track the rest of the seven-day period with heavy totals expected in MO/IA/IL to the tune of 1.00-2.00” and peripheral areas seeing 0.50-0.75”.  Moisture is welcome outside of the Northern Plains where wheat harvest is trying to make up ground.  Extended GFS models look favorable for late season crop growth as both the 6-10 and 8-14 day outlook sees above normal temperatures and above normal precipitation.  In another two weeks, maps at the end of August should be able to give us clues about any early frost potential.  While the longer the better, a frost-free period through the month of September will go a long way towards Upper-Midwest crops reaching some level of full potential.

Mixed markets this morning as corn and soybean prices are firmer while wheat markets are mixed to weaker.  Spring wheat continues to hold value relative to K.C. and Chicago as harvest remains delayed and managed funds retain their record net short position.  Quality is still very much up in the air for the HRS crop, but odds certainly point toward a lower than average protein level considering the above average rainfall and below normal temperatures much of the summer.  December corn continues to trade weakly, but did bounce off the 3.70 level late in the session Wednesday as light buying surfaced.  The discussion has shifted to yield and demand now that acres have been put to bed.  Plenty of movement can happen in either category but yield ideas aren’t likely to change materially until the October WASDE when more objective yield samples can be worked into the calculation process.  Demand will remain a bearish input until end users start reaching for U.S. origin corn and ethanol margins can lift a shoulder off the mat.  Against a backdrop of slowing global economic growth, certainly not a positive headwind.  Open interest changes during the session Wednesday included corn down 8,476 contracts, soybeans up 5,527 contracts, meal down 2,505, oil up 3,071, SRW down 5,211 contracts and HRW up 1,651.

There will be a great deal of yield discussion in coming weeks but we thought it worth taking a look at the scope of change from here through January.  In corn, changes from the August report can be sizable with the largest cut from August to January since 2000 occurring in 2004 at 11.4bpa while the largest increase occurred in 2010 at 12.4bpa.  The average change from August to January is 0.84bpa, highlighting the equal chances of an increase or decrease from this point.  In 1993, the year everyone is pointing toward as an analog year, the national corn yield fell 15.3bpa from August to January.  If something of that magnitude were to happen, supply would be cut 1.2 billion bushels from current ideas.  Possible? Yes.  Likely? No.  In soybeans, the average change from August to January is also around 0.8bpa with the largest decrease since 2000 occurring in 2005 at -4.4bpa while the largest increase occurred in 2003 at +5.5bpa.  Under those sort of yield changes, one would be talking about a supply swing of 300-400mbu.  So, large yield changes can still occur, but we aren’t sure bulls or bears should be hanging their hat on that alone to make their supply or demand projections “fit.”

Weekly ethanol production was released yesterday, increasing 5,000 bbls/day to 1.045 million bbls/day but was still 2.5% below last year’s same week production.  This was the fourth consecutive week of production below year ago levels when production needs to be running as much as 7% above year ago levels to meet the USDA’s marketing year forecast.  Despite the fact the USDA just cut their ethanol demand for corn line item on last week’s WASDE by 25mbu, it looks as though they will need to cut that figure by another 25-50mbu on the September WASDE.  Ethanol stocks surged by 766,000 barrels last week to 23.883 million barrels, rising 4% above last year’s same week stocks.  Stocks at this level are a record for the week and helped largely offset the huge plunge in stocks seen the week before.  The bottom line with ethanol production is margins remain under pressure as ethanol prices have fallen just as fast as corn prices.  Our simple measure of taking the price of ethanol multiplied by 2.85 (average ethanol yield from a bushel of corn) and subtracting the price of corn futures is showing a -9.9c per bushel.  This simple measure shows the price of ethanol is not offsetting the cost of corn and speaks to the negative operating environment currently experienced at many plants throughout the Midwest.  Until this relationship changes, it is difficult to see corn prices putting a foot in the ground.

K.C. spreads continue to be a focus with KW/W inter-market spreads hitting record lows on a daily basis.  The KWU/WU closed at -91.75c yesterday, the lowest close on record for the spot month spreads.  The spreads would seem justified when one starts looking at the two balance sheets in relationship to one another.  2019/20 SRW ending stocks as a percentage of HRW ending stocks is currently projected at 26.01%, which is the lowest since 2001/02.  SRW total supplies as a percentage of HRW total supplies stands at 31.05%, the lowest level since 1987/88.  A similar story is present in SRW/HRS as the ending stocks ratio is projected at 36.3%, the lowest since 2001/02 and the total supplies ratio of 47.90% the lowest since 1987/88.  SRW should retain sharp premiums over HRW and probably continue to eat away at the premium of HRS vs. HRW.  At record lows, hard to see why hedges shouldn’t go in Chicago if one is in the HRW market.

Bottom Line: Markets defended some technical objectives well yesterday with the 3.70 level being the downside target for the Head-And-Shoulders pattern dating back to mid-summer.  Yield ideas will continue to be batted around, especially with the ProFarmer Tour hitting fields next week.  Unfortunately, many private yield ideas will simply gravitate toward the 169.5bpa yield the USDA issued Monday.  Cash and spreads will still give clues about short-term direction but hopes for managed funds to come riding back in to save the day seem fleeting.

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.

8/13/2019 Morning Comments

Good Morning,

The Argentine peso fell to new record lows on Monday of 53.00:1 against the U.S. Dollar after pro-market President Mauricio Macri’s party suffered big losses in the recent primary.  Markets now wonder if this spells trouble for the Argentine economy as former President Cristina Fernandez de Kirchner sits on the ticket of the opposition party running for President.  Former President Kirchner was at the helm when Argentina suffered some of its darkest days economically, all but bankrupting the country and causing massive capital flight.  With the Argentine peso spiraling, it becomes a question of whether that encourages producer selling of grain stocks or hoarding as has been seen in the past.  Argentine producers opt to hold grain as a hedge against inflation when currency fluctuations become violent.

Some heavy rainfall totals posted in the past 24 hours, especially in the Dakotas, Nebraska, NW-Kansas, SW-Iowa and N-Missouri.  Southcentral Illinois also saw good rains, but the system which moved across Iowa did not hold together as well as it appeared to.  A quiet couple days before the next disturbance fires up in the central plains and WCB and eventually moves into the heart of the belt by the weekend.  The 7-day GFS is showing 0.75-2.00” totals across a big area in Nebraska, Iowa, Kansas, Missouri, Illinois and Wisconsin.  All of that moisture should be welcome while the Northern Plains sees a drier stretch which will also be welcome as fields attempt to dry and allow HRS harvest to commence.  Extended maps look favorable with above normal temps across much of the Midwest while precip is mainly above normal outside of the Southern Plains.  Heat at this point in the season will be very good for finishing crop development.

Picking up where we left off in corn and wheat overnight as bears press losses and bulls run for cover.  There isn’t much to say about Monday’s WASDE except “wow.”  The data released from the USDA was more bearish than even the most bearish pre-report estimates, hitting bulls with both barrels in the way of higher than expected corn acres and higher than expected corn yield.  Soybeans actually saw a somewhat constructive report, helping to post gains overnight, but it is difficult to dismiss the demand cuts seen in the U.S. and globally which should ensure ample supplies of the oilseed during the 2019/20 marketing year.  The wheat report didn’t offer much except larger U.S. production estimates as the focus was squarely on corn and soybeans.  Wheat didn’t have a story before the WASDE without corn and it certainly doesn’t have one after.  The report will send bulls to their corner to reassess as the narrative posted yesterday is not changing until at least combines roll and either confirm or deny what the USDA presented yesterday.  Cash markets will reveal in coming days how much old and new crop the farmer has sold, and we fear it larger than anyone wants to admit.  Open interest changes yesterday included corn down 1,715 contracts, soybeans down 4,581 contracts, SRW up 1,903 and HRW up 3,158 contracts.

There is no doubt the biggest issue the market had yesterday was with corn planted acres coming in at 90.0 million vs. the average trade guess of 87.707 million and 91.7 million at the end of June.  We are actually surprised the average trade guess was 87.7 million as it felt like many in the market were expecting something in the neighborhood of 85-86 million.  Adding confusion to the matter were FSA certified acreage data being released at the same time as the WASDE showing 85.871 million acres planted and 11.2 million acres of prevent plant on corn.  Some jumped on this and said the lower FSA acreage was proof WASDE acres were too high, even though every year this data is reported and always shows lower than WASDE acres as not all acres end up being certified with the FSA office.  In addition, the 11.2 million acres did not mean producers intended to plant 101 million acres of corn, and only planted 90.0 million, or that actual planted acreage should be 80 million.  With the way reporting to crop insurance offices and the FSA office works, it is possible to have large planted acreage and large prevent plant acres designated as corn.  The two are not mutually exclusive.  Farmers had every incentive to call prevent plant acres “corn,” even if they were actually supposed to be soybeans or what because of the revenue projections for corn vs. other crops.  Producers could declare prevent plant on corn up to their maximum planted acreage total over the last four years.  Looking at past FSA data, the relationship between August acres and final acres would imply the 90.0 million planted is within 1% of what final acres will be.  So, bulls expecting there to be a massive drop in planted acres down the road should start shifting their attention elsewhere.

The other issue bulls had was with USDA taking yield up to 169.5bpa from 166.0bpa last month and 176.4bpa last year.  This we can get on board with a little bit as condition-based models and weather-based models certainly didn’t imply such a large jump in yield was forthcoming.  In addition, much of the crop is dependent on avoiding an early frost, something we won’t have a good feeling on for another 30-days.  We aren’t in the camp that says a 169.5bpa national average yield isn’t possible, but don’t have extreme confidence on this date.  Nonetheless, this yield isn’t likely to change meaningfully until the October WASDE when at least some harvest data is available.  Making matters worse for the corn balance sheet were a 20mbu bump in old crop ending stocks to 2.360bbu via lower ethanol demand.  The new crop balance sheet saw total supplies rise by 46mbu while demand was cut by 125mbu.  The result was ending stocks of 2.181bbu, up 171mbu on the month and an average farm price of $3.60 per bushel vs. $3.60 last year.  Pretty remarkable we are right back where we started after the slowest planting campaign on record with excessive moisture in the WCB and dryness much of July in the ECB.  Unlikely yield doesn’t move from here, but the narrative is in place for the next two months.

Global changes worth noting included Chinese soybean imports being cut by 2MMT for both 2018/19 and 2019/20, moving in-line with private estimates although many of those private analysts still have imports lower than USDA.  Russia and the EU both saw wheat production estimates cur further with Russia now sitting at 73.0MMT vs. 74.2MMT last month and 71.7MMT last year.  The EU is seen at 150.0MMT vs. 151.3MMT last month and 136.9MMT last year.  The global wheat export market will be incredibly competitive in the 2019/20 marketing year, especially if Australian production rebounds above 20MMT this fall.  Global soybean ending stocks are projected at 101.7MMT vs. 114.5MMT, corn at 307.7MMT vs. 328.6MMT last year and wheat at 285.4MMT vs. 275.5MMT last year.

Bottom Line: The WASDE is behind us and now the market’s job is to recalibrate trading ranges into fall harvest.  Bulls will continue to dispute the data in the coming days but this seems like a waste of time in our opinion.  The goal posts have been moved, and there doesn’t seem to be much point in trying to roll the clock backwards.  We feel December corn should grab between 3.70-3.80 as end users dip toes into the water and extend coverage.  Keeping an eye on ethanol margins and where those turn back positive should be a good indicator.

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.

8/8/2019 Morning Comments

Good Morning,

Equity and currency volatility has been impressive this week against a backdrop of four major central banks reducing interest rates or planning to in the coming month.  Multiple economic commentators have made note of the slowing global economy and the opinion we may already be in global recession and not know it.  This has central banks intent on keeping the easy money flowing and the landing less hard than it may otherwise be.  This is causing treasuries to rally hard, equities to sell off and commodities to get dumped.  The Bloomberg Commodity Index hit the lowest level since early 2016 as crude oil sinks toward $50/bbl.  Crude has its own fundamentals to deal with but sinking prices on the back of softening demand speaks to the slow-growth mentality.  Difficult for managed funds to have a positive tilt toward grains if recessionary forces are being contemplated.

Heavy rain across the Southern Plains this morning which is bringing relief to dry patches in Kansas, Oklahoma and Texas.  Over the last month, this area had been running 25-50% of normal precipitation, a trend not desired less than 45 days out from HRW seeding.  Quite a bit of rain around the Midwest in the coming 7-day period, especially in the WCB/Northern Plains.  This rain is not welcome as the area attempts to harvest HRW and get started on HRS.  The ECB also looks to see moisture late in the weekend and early next week with 0.50-1.50” expected across IL/IN/OH.  This would be very much welcome for an area which has been especially dry since the Fourth of July.  Below normal temps/above normal precip are expected across the Midwest in the 6-10 but maps turn warmer and drier in the 8-14 which would be a welcome sight for most as we try to sprint to the finish on crop development.

Higher markets across the board, led by Chicago wheat and corn in what would appear to be somewhat of a relief bounce.  Consolidative trade has been the name of the game this week as we prep for the almighty August WASDE on Monday.  Farmers, brokers, funds and end users have an incredible amount riding on Monday with many having staked their reputation on one outcome or another.  While the volatility should be a sight to behold at 11:01am CDT Monday, we also think some could be setting themselves up for major disappointment if the USDA doesn’t offer the most sweeping changes in modern history.  While this year is indeed historic in many ways, it is worth noting the largest changes in corn acreage since 1970 in either direction are 2.0-3.0 million acres.  We’ve never seen a late planting year quite like this one, so records could be broken, but would still point out what the odds are for a 5.0-8.0 million acre change like some are touting.  In addition, average trade estimates for yield see corn at 164.9bpa vs. 166.0bpa in July.  This is hardly the 5-10bpa change some are suggesting, begging the question of what a bearish yield would look like and what a bullish yield would look like?  We discuss the average trade estimates a bit more below.  Corn open interest fell yesterday by 7,974 contracts, soybeans were down 2,051, meal was down 1,503, oil up 4,699, SRW down 9,829 and HRW down 10,040.

We’ve been writing about the lack of confidence by the trade toward the August WASDE for several weeks and the average trade estimates bear that out.  On planted acreage, the high to low on corn area is 89.8 million acres down to 83.494 million, a range of 6.3 million, or just shy of the entire state of Kansas.  On the Bloomberg average trade estimates, the high to low spread is 11 million acres, or the size of Illinois.  Imagine missing the USDA’s planted area number by a factor equivalent to Illinois!  Soybeans aren’t a whole lot better with the high to low spread of 83.5 million to 78.0 million equal to the entire planted area in Indiana.  What’s worse are “analysts” offering an acreage target but providing multiple caveats of why they could be wrong and why the USDA would then be wrong.  The fact is, no one knows what Monday is going to bring, and no one wants to be wrong.  While the supply changes will take center stage, we can’t help but think many will overlook what should be bearish cuts to demand in both 2018/19 and 2019/20 on corn and soybeans.  It is quite conceivable we could add 50-150mbu of supply to 2018/19 ending stocks/2019/20 beginning stocks via demand cuts.  We could also see huge cuts to new crop demand based on export commitments to-date, ethanol economics, the trade war, African Swine Fever, etc.  The demand changes should be overshadowed by supply changes, but we also wouldn’t gloss over them either.

Speaking of ethanol demand, weekly indicators remain putrid with production up 9,000bpd to 1.040 million bpd but this was still 5.5% below a year ago.  In fact, the deficit with a year ago was the largest in 19-weeks and makes achieving the USDA estimate next to impossible.  It is not difficult to see why run-rates continue to disappoint as ethanol/corn spreads remain in negative territory as spot ethanol fails to cover the cost of spot corn.  In the Eastern Corn Belt, these margins are most likely even worse considering those plants are still grinding through some very expensive corn purchased in June and July.  Ethanol stocks saw a historic drop, falling 1.351 million barrels to 23.117 million barrels.  However, even with such a large weekly change, stocks are still record large for this week.   Crude oil and RBOB prices at 2019 lows aren’t helping the situation especially as RBOB/Ethanol spreads fell to 20c per gallon yesterday, the lowest since June.  Discretionary blending is not seeing a boost with gasoline/ethanol spreads at those levels.

Bottom Line: Higher markets but we aren’t going anywhere fast.  Everything comes down to Monday and whether the trade gets the supply cuts they want.  A question producers should be asking is what they will do with a limit down move and what they will do with a limit up move?  Both could be real possibilities and would require opposing plans of action.  As we always find ourselves saying around this time of year, on October 1 or November 1 (pick your date), there will be no shortage of corn in the United States, regardless of crop size.  The question becomes what price range becomes fair value once this crop is in the bin.  Are the pie-in-the-sky price projections off the table, or are they still fair game?  How much work will basis and spreads have to do and how much will be on the board?  All things which should be easier to answer after Monday.

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.

8/5/2019 Morning Comments

Good Morning,

Trade war and forex moves are dominating financial market headlines this morning after President Trump said he would implement another 10% tariff on the remining $300 billion worth of Chinese imports.  He walked this back slightly late Friday and over the weekend saying something to the effect of he might not implement the tariffs if China agrees to buy more U.S. farm products before September.  China said they would retaliate to any U.S. aggression, keeping the escalation in place.  At the Sunday night open, the Chinese renminbi fell through 7.00:1, the weakest trade since May of 2008 during the depths of the financial crisis.  Regardless of “winning” the trade war, the currency weakness is not a good sign for global growth and Chinese protein demand.  All of these steps will continue to stifle growth in the world’s second largest economy which is a long-term negative for U.S. agriculture. 

Active radar track across the Western Corn Belt and Northern Plains this morning with moisture falling where it isn’t necessarily needed and not falling where it is.  The 30-day percent of normal precipitation maps from NOAA continue to show a large pocket in Iowa, Illinois, Indiana and Michigan which is running below 50% of normal.  A sizable pocket in Iowa and Illinois is running below 25% of normal.  Separately, dryness is becoming more of an issue across Kansas, Oklahoma and Texas with a large swath running 25-50% of normal over the last month.  The dryness certainly has implications for fall crops, but more importantly, the dryness will need to be monitored heading into September and HRW sowing.  Overnight GFS and European models continue to see better precip returns across the entire belt in the week 2 forecast with the GFS suggesting 144-145% of normal from August 12-August 18 according to Crop Prophet.  The Euro isn’t quite as wet but still seeing 115-116% of normal precip during that time frame.  Temps are seen mostly near normal to slightly above the next two weeks.  Difficult to argue with current forecasts which gets us through mid-month.

Sharply lower prices overnight led by Chicago wheat and corn with the former down over 2.00% in the September contract while the latter is down 1.50%.  The combo platter of negative trade war headlines, poor demand data and a mostly favorable weather forecast is just too much to overcome at the moment.  Funds are still carrying a net long position in corn despite having sold corn aggressively the last two weeks.  We are now a week out from the August WASDE and the bulls are still convinced the report will save the day with cuts to yield and acres.  The market is certainly offering a golden buying opportunity if one believes the report is sitting on a massive bullish surprise.  While supply could very well come down, we aren’t sure it’s the silver bullet many have been waiting for considering the recent U.S. Dollar strength, the Chinese halting purchases of U.S. farm products and a domestic demand picture which is hardly supportive.  As odd as this sounds, it’s almost like the supply shortfall (if there is one) picked the wrong place and time to have the full effect it may have had in another marketing year.  Open interest changes Friday included corn up 286 contracts, soybeans up 4,150, meal up 9,215, oil down 662, SRW up 7,785 contracts and HRW up 3,117.

Friday’s Commitments of Traders data had a little something for everyone.  In corn, funds sold 34,752 contracts last week which was the largest single week of selling since April 1.  Their net long in corn is now just 74,107 contracts which is the smallest since mid-June.  Commercials cut their long and short exposure last week.  In soybeans, funds sold 7,137 contracts to put their net short at 63,523 contracts which is back to the largest net short since mid-June.  Like corn, commercials reduced both their gross short and long positions.  Funds bought both Kansas City and Chicago wheat to cut their net short positions moderately but nothing much to see in the commercial positioning.  The real focus in wheat continues to be in Minneapolis in our opinion as funds sold another 2,176 contracts to take their net short to 16,586 contracts, a new record.  Their net short now accounts for 26.3% of total open interest, which compares to 8% in soybeans and 4% in KC wheat.  The gross commercial long position in Minneapolis rose to 38,473 contracts, the largest position for this group since November 20, 2018.  Difficult to get bearish Minneapolis wheat when end users are buying and funds are carrying record short positions.  At the very least, there should be value in owning Minneapolis vs. Kansas City, although we are less enthused about owning Minneapolis against Chicago.  The SRW balance sheet still has some fireworks in store in our opinion.

Census export data was released Friday covering everything from corn bi-products to whole grain exports.  DDGs exports totaled 962,592MT for the month of June, down from 1.020MMT last month and 1.023MMT a year ago.  YTD exports of 5.349MMT compare with 5.624MMT a year ago.  Ethanol exports totaled 486.1 million liters which was up from last month’s 377.0 million liters but down from last year’s 569.6 million liters.  YTD ethanol exports are down notably from the same period in 2018.  June corn exports were soft at 3.068MMT which was the smallest June total since 2013.  The figure compares with 4.689MMT in May and 7.182MMT in June of 2018.  Marketing-year-to-date corn exports of 46.630MMT are down from 49.174MMT a year ago, which is actually less bad than weekly inspection data would imply.  June wheat exports totaled 2.155MMT which was down from May at 2.758MMT but above last year’s historically poor 1.559MMT.  Not much to say about wheat, but we should see a slow down in July.  Soybean exports were surprisingly strong at 3.193MMT vs. 2.560MMT in May and was the largest June total on record.  The total was around 68 million bushels larger than what weekly inspections data would imply, putting the marketing year total not as far behind the needed pace as once thought.  There are still a large number of exports needed in July and August, but the total might be doable now.  China was the largest destination by far at 1.727MMT vs. second place Mexico at 242,528MT.  Unfortunately, it would seem difficult to have China take such a large amount of soybeans in July and August considering the political ramifications.

FWIW, FC Stone released their estimates of corn and soybean production Friday based on a survey of their elevator clientele.  They see corn production at 13.992bbu with an average yield of 167.4bpa which compares with the USDA in July of 13.875bbu and 166.0bpa.  On soybeans, the brokerage sees 3.743bbu and a national average yield of 47.2bpa which compares with the USDA at 3.845bbu and 48.5bpa.  We found it interesting their yield ideas were trending higher when so many seem hell bent on yield and production slipping further from the July figures.  We have not seen average trade estimates for the August WASDE but it will be interesting to see what the masses think on the change from July.

Bottom Line: Bulls continue to fight the tape, attempting to keep their nostrils above water for another week when the USDA Whitehorse is expected to ride in and save the day.  The weakening cash basis as futures have plunged is a signal of just how much old crop was actually in the country even after pundits all kept asking “where is the corn?”  Nothing positive from outside markets to stem the tide either. No reason to look to wheat for support in our opinion as the Northern Hemisphere spring wheat harvest has yet to begin and it would appear we have enough supplies with the major exporters to meet the projected demand increase.

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.

8/1/2019 Morning Comments

Good Morning,

Despite getting the expected outcome, equity markets did an about-face following the conclusion of the Federal Reserve meeting Wednesday after language from the Fed Chair suggested this was not the state of a new monetary easing campaign.  The FOMC cut benchmark interest rates by 25bp, but Jay Powell seemed to lower the chances of another cut at future meetings.  In response, the U.S. Dollar Index rallied to the highest level since mid-May 2017. With no country wanting to be the first to transition off easy money, Brazil’s central bank cut its benchmark interest rate for the first time in over a year as their economy continues to flounder. The IMF recently trimmed its forecast for GDP in South America’s largest economy to 0.8% for 2019 from 2.1% previously.

A sizable system along the KS/MO/OK/AR border this morning, otherwise just a few scattered showers in the Dakotas and southern Ohio.  Dryness concerns remain prevalent across Iowa, Illinois and Indiana with much of those states running less than 50% of normal precip over the last two weeks and a large chunk in IA/IL running less than 25% of normal. If one looks at the 30-day percent of normal precip map, the deficits become more widespread with KS/OK/TX showing meaningful departures from normal with another winter wheat sowing campaign just around the corner.  More pressing are the moisture needs for pollinating corn and pod-setting soybeans which is occurring in the central/eastern corn belt.  Unfortunately, there is little to nothing in the way of moisture prospects for IA/IL/IN/OH in the next 7-days according to the overnight GFS model.  Temperatures remain non-threatening through August 14 with widespread below normal temps outside of the Southern Plains.  The GFS does want to keep putting more moisture into the Midwest during week 2 of the forecast but much of that, if it verifies, could come too late for those crops in the Eastern Belt.

Crop Prophet’s take on the overnight models agrees with the temperature outlook as the average temperature departure from normal should be less than one degree the next two weeks.  Crop Prophet also likes the week 2 forecast turning wetter for the central/east corn belt with the Euro suggesting 127-130% of normal precipitation over the production-weighted corn and soybean belt while the GFS sees 136-140% of normal from August 8-August 14.  Moisture during August will help. Period.  It is just a matter of what stage that crop is in from a reproductive standpoint as to how much the moisture will help.  Another 7-10 days of dry weather heading into that stretch could make the rainfall less curative than were it to fall this week.

Mixed markets with grains higher but soybeans still clinging to small losses as we round out the overnight session.  Wednesday’s price action was demoralizing for bulls after gaps were closed and there still proved to be no buying interest on the part of the bulls.  December corn sank to $4.09 ½ on Wednesday, the lowest level since May 24 and essentially wiping out the entire late-planting rally and erasing remaining risk premium.  It is hard to believe the market has become totally comfortable with the current supply outlook but it is difficult to fight the tape after a 50c shellacking and the August WASDE still two weeks away.  Bulls remain steadfast with their call for lower yields and lower acres, but bears are armed with the opaqueness of this year’s USDA reporting and the fact we might not know the actual supply situation until well after the August WASDE.  In addition, bears have a steady stream of negative data on the demand front as rationing of U.S. corn appears to clearly be taking place both domestically and internationally.  On Wednesday’s break, corn open interest was up 23,581 contracts, soybeans were up 12,274 contracts, meal up 4,116, oil up 2,419, SRW up 8,567 and HRW up 2,583 contracts.

The negative data train rolled on Wednesday with weekly ethanol production falling to 1.031 million barrels per day, down 8,000 mbpd to the lowest average weekly production since late April.  This week’s production was down 3.1% from the same week a year ago which is well below the 5-6% increase from a year ago which would need to be seen to support the current USDA estimate.  It looks certain the USDA will be forced to trim their marketing year ethanol estimate after production rebounded in June and made the estimate look doable.  Ethanol stocks shot higher by 779,000 bbls to 24.468 million bbls which is a new all-time record.  Considering production has been less than stellar the last several weeks, the build in stocks would seem to indicate soft domestic demand and potentially a rough patch in exports.  We will receive June export data early next week.  Export sales are due out later this morning, and not expected to show anything solid, putting over half of the U.S. demand base at risk of cuts on future WASDE reports.  The supply situation does look as though it will tighten but we clearly do not have the demand base at the moment to support current and higher future prices.

A sign demand was turning soft has been the weakness in cash markets across much of the corn belt and at export centers.  CIF corn has eased 3-4c over the last 7-10 days, while major ethanol plant basis has softened as much as a dime.  The narrative during much of the rally was the old crop corn stocks were overstated and the corn simply wasn’t out there.  More astute observers noted the areas with the strongest basis levels were also spots with higher incidence of prevent plant.  More likely were farmers clinging to remaining old crop stocks until they had more confidence in what was actually planted.  It would appear growers in many areas now have more confidence in new crop supplies and have begun parting with these phantom bushels.  The CU/CZ calendar spread would certainly agree with this assessment and basis as it has been flattened from -3.75c on July 22 to a low of -10.75c on July 29 before recovering to -9.00c the last couple sessions.  Unless the USDA was completely off base in their June 1 stocks data, projections told us we would still carryout 2.2-2.3 billion bushels of corn on September 1, regardless of how small new crop prospects were.  Combine that with awful export and ethanol demand the last two months as well as one of the strongest wheat feeding campaigns in recent memory and it isn’t difficult to see the market having taken its rationing job seriously.  The question now becomes whether the market recognizes the error of its ways and begins to encourage demand, or whether we continue rationing it until more clarity is allowed on the 2019/20 supply situation?

Export sales estimates for Thursday morning’s report show wheat sales at 300-500TMT, corn at 400-900TMT, soybeans at 200-750TMT, meal at 100-350TMT and oil at 5-25TMT.  We would lean on the lower side of most of those numbers given the lack of prospects during the reporting week.

Bottom Line: Markets want to bounce a little today which is warranted after the rout yesterday.  Bears are in control, and there doesn’t seem to be any demand data out there willing to support current prices, especially after another round of poor trade negotiations in Shanghai.  The trade conflict isn’t going away anytime soon.  Bulls seem to be pinning their hopes on the USDA releasing a bombshell on the August WASDE which puts them back in control and allows a run at summer highs.  Anything is possible, but the trend in price would seem to suggest the entire market place is wrong, or there is enough supply in the United States to produce a comfortable S&D in 2019/20.  Time will tell.

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.

7/31/2019 Morning Comments

Good Morning,

Rain showers moving across South Dakota, Iowa and northern Missouri this morning, helping to fill in dry spots in Iowa but making wetness concerns worse in South Dakota.  Rainfall the last 7-days has been heaviest in Eastern South Dakota, Central Minnesota, Northern Missouri and the Iowa borders.  Over the last two weeks, the largest moisture deficits exist in Eastern Iowa and Northern Illinois which are running less than 50% of normal and in some cases less than 10% of normal.  The saving grace has been the cooler temperatures which are limiting the amount of evaporation, even if the plant is technically using a good deal of water at this stage of development.  Rains the next 7-days will be heaviest along the Missouri River Valley on down to the KS/MO border where 1.00-3.00” is expected.  Otherwise more rain is seen for the SD/NE border which will slow wheat harvest efforts.  Extended maps from NOAA show below normal temps and above normal precip which continues to be a double edged sword.  The weather is ideal for reproduction of corn and soybean crops, but will not do any favors for this crop getting pushed toward maturity.  As we’ve been suggesting, this crop should cross one bridge at a time, and the one directly in front of the market is getting through pollination/pod-set successfully.

No big arguments from Crop Prophet on the overnight model runs, although their take sees a bit more heat in the week 2 GFS than do the Climate Prediction Center maps.  They see the August 7-August 13 period with 1.4-1.5 degrees above normal across the corn and soybean belt.  Both the Euro and GFS overnight runs see the corn and soybean belts at 104-120% of normal precipitation during that time frame which should be about ideal for filling pods.  As cool as the month of July has felt, according to the Crop Prophet models, the month of July has actually been 37-42 growing degree units ahead of normal.  An agronomist friend of ours suggested this is because the crop never saw a period of searing heat which shut the crop off for a stretch as is usually the case.  Despite July being cool, the crop never stopped growing, allowing it to make progress toward getting back to normal.  This is undoubtedly why the silking and doughing progress relative to normal don’t look as bad as one would think given how delayed planting was.  The July Growing Degree Unit anomaly map from Crop Prophet is below.

Weaker markets across the board this morning with no buying interest surfacing after December corn finally filled the gap from back on May 24/28.  While not all gaps get filled, this one will be cited for months and years to come as we’ve now round tripped much of the late-planting/June weather rally.  If a person would have polled the trade back before the June acreage report and again after, I doubt few if any would have said December corn would be trading 4.20 on the last day of July.  Many in the trade are ready to leave the month of July behind and move on to August which will see the August WASDE update acres and yield.  August also brings with it a bit better seasonality.  According to www.sentimentrader.com, the month of August has witnessed an average return of 0.98% over the last 30-years while corn has averaged a 0.358% return.  Chicago wheat has averaged 1.21% over the last 30-years, although July is typically the strongest month on the calendar, averaging 2.54%.  July 2019 saw a 6.4% drawdown, so that is why seasonality is only as good as the particular year you happen to be in.  Open interest changes during Tuesday’s session saw corn up 6,353 contracts, soybeans up 412, meal down 250, oil down 10,082 contracts, SRW up 22 and HRW up 2,521 contracts.

Trade talks ended in Shanghai early this morning with both sides agreeing to continue discussions in September.  Reports said the topic of Chinese purchases of U.S. farm goods was discussed, a demand made by President Trump via Twitter.  It feels as though these discussions are at a point where nothing can be done until one side is willing to blink or give up major concessions, something neither side is willing to do.  China will not buy large quantities of U.S. farm products until the threat of U.S. tariffs is removed.  The U.S. isn’t willing to remove tariffs until purchases have been made, let alone concessions on the more sensitive issues like forced technology transfer, currency manipulation and intellectual property.  Why would China negotiate a major deal with Trump when he could be out of office in 14-months, or conversely why strike a deal now when they may have four more years of Trump to negotiate with?  Media in general, and Ag media specifically, would do well to not get so excited each and every time a an off-hand comment gets made by an official on either side.  Taking a step back and looking at the trade war from a wide angle shows the unlikeliness that either side is willing to bend unless economic data from that particular country turns especially negative.

South American corn harvest continues to advance at a breakneck pace with Brazil’s second crop corn harvest now 74% complete vs. 61% last year and 48% average.  Argentina’s corn harvest is estimated at 82% complete vs. 76% last week, 90% last year and 78% average.  This is part of the reason South American export offers have been so aggressive, so early as both countries have the stem in place with no real long-term storage options.  The May 2020 soybean/corn ratio at 2.14 is encouraging South American farmers to once again sow a large corn crop which should lay the groundwork for extreme competition again in 2020.

Wheat harvest is advancing in spirts in South Dakota with HRW cutting thought to be around 25-40%.  High humidity levels and a lack of heat is preventing rapid dry down, which is in-turn not allowing HRS to push towards maturity.  Based on the eye-test, HRS harvest isn’t expected to begin in north central South Dakota for another two weeks, which would put the earliest harvest efforts in North Dakota out to the third week of August.  The bulk of North Dakota’s spring wheat harvest could happen the last week of August and into the first two weeks of September.  This of course unless the pattern changes markedly in August.  With days getting shorter during the month of August, harvest conditions exist for a much shorter amount of time each day.  With this in mind, there might not be a lot of hedge pressure against the September contract in Minneapolis wheat, which could in turn support the MWU/MWZ.  We’ve seen decent strength in that spread the last handful of sessions, and it may be worth looking at getting hedges moved out to the December before that isn’t an option.

Bottom Line: Hurry up and wait for a turn in the weather, or the August WASDE or the last of the old crop push to happen.  Bulls are nowhere to be found, or at least none which have the capacity to do anymore buying.  Farmers are undersold on both ends of the curve because they’ve been told since May that corn was going higher and all they had to do was wait.  That could still end up being true, but there are very few who are proud of their marketing based on expected crop size.  In our opinion, there will be an opportunity to sell better levels, but from what level the rally comes is the question.  With December corn now below 4.20, there isn’t much in the way of support until the 4.00 mark.

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.

7/26/2019 Morning Comments

Good Morning,

Market Facilitation Payments were the talk of the market yesterday with some growers pleasantly surprised while others were downright disappointed.  The methodology seems somewhat straightforward, although the payment structure does not with talk of three tranches of payments, two of which will be dependent on market conditions and trade negotiations with China.  The payments will do little to shake the subsidy cloud hanging over American Agriculture, yet few can deny the fact agriculture has been at the tip of the spear in President Trump’s campaign against China.  The payments going out would seem to suggest to us that we aren’t close to solving the differences between the U.S. and China, and the conflict is likely to rage into 2020.

Scattered showers across the Midwest but no organized systems to speak of.  Mostly dry weather until things fire up again this weekend across South Dakota and head into Minnesota by Sunday.  There are chances of rain in western Iowa and western Missouri, otherwise the central and eastern Corn Belt looks dry the next seven days.  Totals for SD/MN as of the morning GFS models show 0.50-1.50” totals for much of the two states.  Extended maps from the Climate Prediction Center show temperatures easing from above normal to normal by the 8-14 day with precip returns flipping from below normal to above normal.  We continue to see 50% or less of average precip in Iowa and Illinois over the last two weeks.  According to Crop Prophet, the Euro model keeps the heat in place throughout the 2-week outlook, showing temps 2-3 degrees above normal.  The Euro model is also drier, and not willing to embrace the above normal precip shown on the GFS.  According to Crop Prophet, the corn and soybean belts will see 83-85% of normal precip August 1-August 7 while the GFS sees 100-109% of normal.

Weaker grains and slightly higher soybean prices as most contracts limp toward the finish after a disappointing week of trading.  For the week, December corn is down 9.75c, November soybeans are down 19.0c and December Chicago wheat is down 10.0c.  Forecasts have improved as the week has progressed, or at least not gotten any more threatening.  In addition, each and every demand update we seem to get for the corn and soybean markets has been disappointing.  Export sales, ethanol production and crush performance have all been worse than expected during the months of June and July.  If a person had a real-time ending stocks tally which updated with supply and demand changes as they occurred, it feels like ending stocks would have been rising this week.  Bulls remain focused on potential yield and acre cuts on the August WASDE, but that remains two weeks out and does little for day-to-day price action.  The Wheat Quality Council Tour wrapped in Fargo yesterday afternoon with tour results discussed below.  Open interest changes yesterday included corn up 4,285 contracts, soybeans down 6,871, SRW down 6,669 and HRW down 3,559.

Export sales data released yesterday was strong for wheat and disappointing for everything else.  All-wheat sales totaled 24.2mbu vs. the 13.5mbu needed weekly to hit the USDA forecast.  This was a marketing year high for wheat sales, which bumped total commitments to 312.9mbu, up 25% from a year ago.  The solid export sales along with wheat/corn spreads trading back toward new contract lows should add price support to wheat moving forward, at least on a relative basis.  Corn sales were poor at 4.8mbu vs. the 15.1mbu needed weekly to hit the USDA forecast.  Total commitments of 1.958bbu are down 16% from a year ago while the USDA is only calling for a 13% reduction.  As has been the concern for a while, cumulative exports stand at 1.782bbu, leaving 320mbu left to ship in the remaining six weeks of the marketing year.  New crop corn sales are nothing spectacular either at 147.5mbu vs. 242.9mbu at this time a year ago.  Old crop soybean sales saw net cancellations of 2.9mbu, reducing total commitments to 1.785bbu vs. the USDA marketing year forecast of 1.700bbu.  Still, it is the shipments which remain the problem at 1.470bbu, leaving 230mbu left to ship in the next six weeks.  As concerning are new crop sales at 111.2mbu vs. the 361.2mbu on this date a year ago.  Sales are down 69% from a year ago while the USDA expects exports to INCREASE by 10% in 2019/20.

The Wheat Quality Council tour produced a tour average spring wheat yield of 43.1bpa vs. 41.1bpa a year ago but was below the 44.6bpa 5-yr average.  Lots of variability on days two and three with some pockets containing huge yields and others rather disappointing.  Nearly the entire state of North Dakota has been running a surplus on moisture the last thirty days with the exception of the area around Devils Lake and Grand Forks which is where some of the lowest yields were noted.  Still, it is worth noting that the tour pegged the average yield at 41.1bpa last year while the USDA went on to call the national hard spring wheat yield a new record at 47.2bpa.  Last year could be partially blamed on the late maturity of the crop, making assessing yield potential difficult.  This year is no different with harvest being called 3-4 weeks out in many spots.  It would take a massive surprise once combines roll to materially alter the supply situation in spring wheat, but quality is still very much up in the air.  Signs point toward an average to below average protein crop this year, although the market carried out almost half of last year’s above average protein crop, which should make blending opportunities abundant.

Bottom Line: Disappointing price action this week with most of our markets finishing the week near the lows.  The corn market desperately needs bullish updates from the USDA in a couple weeks, or the U.S. farmer will look back at a wasted summer of marketing opportunities.  To be fair, growers have been told since April by everyone from brokers, to academics, to hedge funds to the USDA that this year is a disaster and higher prices are a certainty.  As the price action this month is showing, there is no guarantee to anything, especially in grain markets.  Plenty of analogs exist for years in which new highs were made August forward, but hanging your hat on an analog year hasn’t been safe in 2019. 

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.

7/25/2019 Morning Comments

Good Morning,

Trade war headlines will take a back seat for a day or two as media outlets continue to regurgitate the Mueller testimony, and in a week’s time we won’t know anything we didn’t know at the beginning of the week.  Depending on which side of the aisle one leans, they can get either optimistic about the trade war with China as goodwill purchases seem likely in the next week or two, or one can get pessimistic because nothing concrete has changed and this conflict looks sure to drag into 2020.  The European Central Bank will release post-meeting text later this morning with ideas they will set the stage for a 10-basis point cut at their September meeting.  This will precede the Federal Reserve meeting next week, at which the central bank is expected to cut their benchmark rate by 25-50bp.  The U.S. Dollar Index rose to the highest level since June 3 on Wednesday.

Rain across the Dakotas and Nebraska this morning with showers expected in Minnesota later today.  The rest of the Midwest is quiet.  Late in the weekend and early next week, maps turn wetter for much of the Corn Belt with widespread 0.50” totals expected east of the Missouri River.  NOAA’s Climate Prediction Center is still calling for mainly above normal temperatures in the 6-14 day outlook while precip returns are mixed with below normal in the west and normal/above in the east.  Crop Prophet’s (CP) interpretation of the models sees temps warming to 2.2-2.5 degrees above normal according to the Euro for week 2 (July 31-August 6), although the bulk of the heat is in the Northern Plains which would be welcome at this juncture.  Heat is needed to dry soggy soils and allow wheat harvest to begin.  CP sees close to normal precipitation for the week 2 forecast with much of the corn belt around 85-96% of normal precip.  It is difficult for us to see a lot of problems with this forecast as the heat is less severe than maps earlier in the week were suggesting, and there appears to be enough precip around to keep conditions from getting stressful.  Weighted by production value, the corn and soybean belts are still running 1.8-1.9 standard deviations wetter than average over the last 30-days which is a pretty incredible way to look at (shown below).

Mixed markets this morning with corn and wheat contracts lower while soybeans maintain slight gains.  Corn turned in a particularly disappointing session yesterday as prices rallied mid-session only to give up the ghost toward the close and finish with a near-doji settlement.  In our opinion, the price action shows a large amount of indecision by both bulls and bears at current prices with neither group willing to stake a meaningful claim in the short-term.  Bulls need confirmation from the USDA that acres are below the June survey and yields are at or below the July WASDE’s 166bpa.  Bears need to get through pollination and be able to say definitively the weather was beneficial enough to support current yield estimates or higher, not to mention get through September without an early frost.   Bears have poor corn demand on their side while bulls have the threat of needing to ration more supply than the market sees currently.  Interesting enough, corn volatility has not dropped the way we would have expected with December ATM vol settling last night at 27.5% vs. 27.7% a week before.

Demand continues to be a soft spot for the corn market with notices of ethanol plants cutting hours or closing altogether making the rounds across the corn belt.  Ethanol production last week fell 27,000 bbls/day to 1.039 million bbls per day, the lowest weekly production total in 11-weeks.  This was also over 3.0% below the same week a year ago which was the first y/y decline in 10-weeks.  It looks increasingly likely we will see a reduction in the USDA’s marketing year ethanol forecast of 5.450 billion bushels on next month’s WASDE.  Something in the neighborhood of 20-40mbu reduction seems likely.  Stocks have been surging as well, up 324,000 barrels last week to 23.689 million barrels, a record for the week and the highest outright stocks in four months.  We don’t like the trend stocks are projecting on exports either.  Ethanol margins are not pretty and are implying grind rates will slow further. 

A quick check on South American progress as their season wraps up.  2nd crop corn harvest in Brazil is estimated at 61% complete vs. 48% last week, 41% last year and 37% average.  The progress over the last couple years and average is impressive, although we aren’t sure if this is simply due to favorable harvesting conditions or if the crop is slightly smaller than last estimate.  Earlier in the month, the USDA called the 2018/19 Brazilian corn crop 101.0MMT, a new all-time record by 2.5MMT.  They are currently projecting the same production estimate for 2019/20 with back-to-back years of 34MMT+ exports.  No sense in putting the Brazilian crop for next year in the bin already but suffices to say current corn/soybean spreads will encourage plenty of corn acres to be planted this fall.  Argentine corn harvest was estimated at 76% complete vs. 72% last week, 86% last year and 73% average.  Not a lot to say about the Argentine corn crop which was estimated by the USDA earlier in the week at 51MMT, a new record.  Like Brazil, the high corn prices are expected to produce another huge crop in Argentina barring adverse weather with the USDA currently pegging 2019/20 corn production at 50MMT and exports of 33.5MMT vs. 35MMT in 2018/19.

Day 2 of the spring wheat crop tour wrapped last night in Devils Lake, North Dakota.  Day 1 found big yields and solid potential while Day 2 was a bit more variable.  The Day 2 average on 151 stops was 39.7bpa on spring wheat vs. 41.1bpa last year while the durum yield was seen at 29.7bpa vs. 44.6bpa a year ago.  North-central North Dakota saw a 60% increase in yields from a year ago, but a huge dip across west-central North Dakota pulled the tour average lower.  It looks likely we will see an average yield similar to last year when all is said and done which should be produce more than enough spring wheat based on current demand ideas.  Of central focus to us will be quality as we’ve seen back-to-back above average spring wheat protein.  With the mild temperatures and excessive rainfall across North Dakota, it would seem unlikely to achieve average or above average protein levels this year.  There is a lot of high protein laying around from last year, so unlikely we will see a protein crisis, but an improvement in spreads would be expected.  Early cutting of HRW in South Dakota is seeing below average protein but above average yields with test weights 60 pounds or above.

Bottom Line: The trade feels like we are in a hurry to do nothing, biding time until we get more concrete evidence of yield declines or acreage cuts.  The 30c decline from recent highs has obviously priced in a fair amount of beneficial weather, but also seems to be covering bases on demand cuts as well.  It certainly feels like we are rationing demand without having a good handle on potential supply cuts but there will be plenty of time to price both September forward.  The 4.40-4.50 level in December corn feels like it would generate a lot of farmer selling if we were to get back there as production ideas get more refined.  Keep that in mind if we have a recovery attempt.

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.

7/23/2019 Morning Comments

Good Morning,

It feels like it has been a while since we’ve been able to say this but the Midwest radar is blank this morning.  Dryness will remain the feature, a welcome one at that, until the weekend when the next round of moisture is slated to move over South Dakota and southern Minnesota.  The soil profile and humidity in South Dakota are such that each and every chance of rain seems to bring meaningful moisture to an already saturated landscape.  By the end of the weekend and into early next week, showers will move into Iowa, Wisconsin and Missouri.  These showers will be welcome as moisture deficits still exist in Iowa, Missouri and Illinois.  Models are bringing heat back into the equation in the week 2 outlook running from July 29-August 4 according to Crop Prophet.  The Euro model sees temperatures across the corn and soybean belt running 3.5-4.0 degrees above normal while the GFS isn’t as extreme at 2.4-2.6 degrees above normal.  Corn will be pollinating during this stretch but this could be more of a concern for pod-setting soybeans.  Moisture returns are fairly skimpy with both the Euro and GFS returning 0.5-0.7” over the Corn Belt the next two weeks.  The week two returns are closer to normal or even above but still not a lot of moisture around in our opinion.  All in all, the weather forecast isn’t threatening but it is difficult to know what kind of weather these crops need considering the incredibly late planting and the excessive moisture up to this point.

Higher market across the board, led by Kansas City and Minneapolis wheat as all of our markets attempt to bounce from a tough session Monday.  The sell off yesterday seemed to be predicated on a non-threatening forecast into the first week of August, during which a majority of the corn crop should be pollinating.  As we get out into August, the heat is getting dialed up, which does seem like a concern for the soybean crop but a bit early to say at this juncture.  Combine a mostly benign forecast with the continued stream of weak demand indicators, and it isn’t difficult to see why bulls are having a difficult time moving prices higher.  Conditions were expected to rise on Monday’s crop progress report but they remained steady or fell, a possible sign the recent string of weather has not been beneficial.  It feels as though our markets will have a difficult time rallying until we get confirmation from the USDA on yield and/or acres on the August WASDE.  The troubling thing is the fact the delayed maturity of this year’s crop will lower confidence in yield estimation for the August WASDE.  In addition, the USDA is not using objective yield plots on the August WASDE for the first time, relying instead on satellite maps and farmer surveys, which will undoubtedly be used as a scapegoat for anyone who gets the yield wrong.  Open interest changes yesterday saw corn down 4,703 contracts, soybeans down 11,609, meal down 1,059 contracts, oil up 586, SRW down 286 and HRW up 1,464 contracts.

The weekly crop progress report showed corn conditions at 57% G/E vs. 58% expected, 58% last week and 72% last year.  Conditions fell most notably in South Dakota (-4), Indiana (-4), Michigan (-4) and Ohio (-3).  Small improvements were seen in Kansas, Nebraska, Iowa and Illinois.  Conditions remain the lowest rated since 2012 and the second lowest since 2004. 35% of the crop is silking vs. 17% last week and 66% average.  This should put the bulk of the corn crop in the heat of the corn belt pollinating next week and the week after.  5% of the crop is in the dough stage vs. 10% average.  Soybean conditions were seen at 54% G/E vs. 54% expected and 70% last year.  Broadly mixed from one of the corn belt to the other with the Dakotas seeing 4-5 point drops while Illinois, Nebraska and Kansas were all 2-4 points better.  The soybean crop in the Dakotas is laboring under excessive moisture which has plants yellow and stunted.  The heat this week and next will be welcome for that crop.  Soybeans blooming were seen at 40% vs. 22% last week and 66% average.  Soybeans setting pods were pegged at 7% nationally vs. 28% average.

Spring wheat conditions were unchanged at 76% G/E vs. 76% G/E expected and 79% G/E a year ago.  Somewhat surprising to see the national index unchanged considering South Dakota fell 4 points, Montana was down 3 points and Washington fell 9 points with the only improvement being Idaho +3.  North Dakota and Minnesota were unchanged at lofty levels.  The concern across the Northern Plains is disease and lodging as moisture levels remain excessive on a nearly mature crop.  Wheat is beginning to lodge in South Dakota, a condition that is likely to make its way into North Dakota.  The U.S. has been blessed with two years of back-to-back high quality and above average protein.  The concern at the moment would be a reversion to the mean or even a sub-par year on quality and protein.  Winter wheat harvest was pegged at 69% complete vs. 57% last week and 79% average.  Kansas is 96% harvested while Nebraska is 33% harvested vs. 76% average and South Dakota has yet to begin harvest.  Winter wheat harvest should break loose in South Dakota this week and next, rain depending.

Other data out yesterday included weekly export inspections were poor across the board, a theme the market is getting all too used to.  As some were pointing out on social media last night, inspections are not as important as sales, but they are still worth noting to give confidence the sales you have on the books are actually being executed on and your export sales estimate is accurate.  It is true that the majority of the sales which do not get executed in the current marketing year will be rolled into the next year, but it is still a fact those bushels will be in the country as of the next Quarterly Stocks report, inflating supply levels above and beyond what the market may have been using.  Wheat inspections totaled 15.9mbu vs. the 17.6mbu needed weekly to hit the USDA forecast.  Total inspections of 124.7mbu are still up 27.5% from a year ago but this down from 49.2% ahead two weeks ago.  Corn inspections totaled 17.2mbu vs. the 23.5mbu needed weekly.  Total inspections of 1.716bbu are down 12.5% from a year ago with just six weeks left in the marketing year.  Soybean inspections totaled 20.6mbu vs. the 30.4mbu needed weekly to hit the USDA mark.  Total inspections of 1.443bbu are down 24% from a year ago with six weeks left.  We think it next to impossible China will take all of the soybeans still on the books with the key being weather they roll these sales into next year or cancel them altogether.  We feel it is unlikely they cancel them given the financial repercussions which are now attached to such an action.

We continue to monitor the Minneapolis wheat market structure with funds now sitting on a new record net short position of 13,027 contracts.  Last week, their position was a record as a percentage of open interest but not their nominal position.  This week they have both.  In addition, the gross commercial short position at 24,802 contracts is up 2100 contracts from the week before, but still just off the lowest level in over a year.  Considering the crop is delayed this year, and considering the Wheat Quality Council tour embarks on its yield tour today, we would be mindful of this position the next several weeks.  A year ago we watched price rally $1.10 from mid-July to the first week of August once harvest got rolling.  We aren’t suggesting the same is going to happen this year but the structure of this market seems a bit peculiar in our estimation.

Bottom Line: A little friendlier on the lack of condition improvement but still acknowledging the weather forecast is pretty decent.  The thing we are struggling with is the weather-to-date and what kind of top end yield potential we can still expect?  In addition, we have been running GDU calculators on our own corn crop and realize we would need to get to the 1st of October without a frost to reach Black Layer.  This is possible but average first frost dates are around the middle of September.  Unfortunately, we aren’t likely to have any handle on yield until combines roll in October. 


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.