3/21/2019 Morning Comments

Good Morning,

Lots of financial headlines yesterday including the Federal Reserve turning dovish on monetary policy which helped drive the U.S. Dollar Index down to the lowest levels since February 4th.  The Fed-dot plot also sees only one more interest rate hike through 2020 as the FOMC is nervous about slowing economic growth in the U.S. and abroad.  There isn’t a central bank anywhere in the world who wants to return to tighter monetary policy first or too fast, instead pushing the obligation to another country.  Trade war headlines also got murkier as President Trump said Wednesday that a trade deal with Beijing is “coming along nicely” but warned that he would not lift tariffs on Chinese goods until he is sure the country is abiding by the terms of the potential agreement.  In other words, the threat of tariffs staying in place or increase is going nowhere which should be a comforting feeling for the Chinese.  Mnuchin and Lighthizer are headed to Beijing next week with Chinese officials coming to Washington D.C. the week after for further negotiations.  At least everyone is maxing out their frequent flyer programs.

Mostly quiet across the Midwest this morning except for some light showers in the eastern corn belt.  Several rounds of rain/moisture across the southern plains and mid-south the next several days, but the heart of the corn belt and Northern Plains will be mostly dry.  Temperatures stay warm which will further melt snowpack, although extended maps remain a concern for those facing flooding issues already.  The 6-10 and 8-14 day outlook sees above normal precip in both time frames while temps go from normal in the 6-10 to below normal in the 8-14.  Hopefully, this does represent another round of snow, delaying spring warmup and melt further.  Most of the Northern Plains is still showing 2-6” of water-equivalent moisture locked up in the snow pack which has yet to make its way into the river system.  This will keep flooding a problem for the foreseeable future and raise risks for planted acreage.

Mixed markets this morning with corn leading the way higher and wheat lower although wheat has been both sides through the overnight session.  Keeping track of the latest trade war headlines has been a dizzying effort and almost not worth the time.  Each headline which comes out contradicts the previous one, and none of them leads us to believe we are any closer than we were a month ago, despite what Trump officials might suggest.  Because of this, our markets have no confidence in what is coming next and almost seem paralyzed into inaction.  Why take a position when the next headline which comes out could completely reverse the fundamental landscape?  It is true funds are holding record or near record short exposure to Ag’s, but their positions are also well in the money and nothing is giving them reason to cover yet.  Their positions will become precarious if flooding concerns don’t abate by this time next month and planted acreage takes a big hit.  We discuss prevent plant totals below.  Open interest changes yesterday included corn down 78 contracts, soybeans up 1,872 contracts, meal up 3,925, oil down 3,751, SRW down 4,275 and HRW up 2,168 contracts.

Lots of discussion about prevent plant acreage as of late, and for good reason.  In 2018, we had 1.891 million acres of prevent plant acreage, despite the fact the Northern Plains got off to an incredibly slow start seeding spring wheat.  The lack of PP acreage was due to one of the warmest May’s on record which helped firm seed beds in short order.  Counting on record warmth isn’t always a safe bet.  Looking at the last several years, 2018 was definitely light on PP.  The 5-yr average of prevent plant acreage is 3.786 million while one of the largest years on record was back in 2011 when 11.059 million acres nationally went unseeded.  We are not suggesting anything of that magnitude, but returning to a “normal” 3-5 million acres of PP, especially with the flooding concerns this year wouldn’t be unreasonable.  While we never want to see producers not be able to seed intended acres, this would be the year multiple commodities could stand to “lose” a few million acres.  Chiefly, spring wheat and soybeans would do well to see planted acres fall 1-2 million and 3-4 million, respectively.  If either commodity comes anywhere close to seeded acreage in 2018, carryout will balloon to record or near record levels, depressing already depressed prices.  This will be a moving target which we won’t have a firm handle on until at least the June 30th acreage report, but it is a situation to remain abreast of.

Weekly ethanol production was released yesterday and the numbers were actually a bit surprising.  Weekly production fell just 1,000bbls/day to 1.004 million bbls/day when most had thought the flooding prevalent in the WCB would impact production more severely.  I think the production hits will still come, possibly as early as next week.  There are too many ethanol plants underwater to not see production fall.  Still, production was down 4.3% from last year while we need to average a 3.0% increase over last year to hit the USDA’s forecast.  Inevitable the USDA cuts ethanol production again, just a matter of when.  Ethanol stocks saw a build of 681,000 barrels to 24.412 million barrels, which is a new all-time record.  Here again, most though we would see a drop in ethanol stocks as production falls, but this too has been delayed.  Reports yesterday suggested refiners are running math to bring in trucks full of ethanol to keep blending obligations current but that seems like a stretch.  In addition, contacts of ours suggested ethanol tanker cars which have been through water or are standing in water need to have their wheels replaced before they can return to service.  Some of the numbers shared with us suggest as many as 10,000 cars will need to be serviced before being put back on the tracks.  The logistical woes facing ethanol are not bullish corn just as the lack of corn exports is not bullish either.  Lost demand is nearly impossible to be made up.

Continue to watch spot floor trades, especially Minneapolis as basis was another 5-25c firmer yesterday with 13.5-14.0% now quoted +205K and 15.0’s seen at +160/230K.  20-30 cars per day are still making it on the spot, but no telling how back-logged rail is at the moment.  Best guess is Northern Plains rail providers are 3-4 weeks behind on placements.  Minneapolis May futures have clawed back above the 50-day moving average with prices knocking on the 100-day yesterday.  Minneapolis caught between a rock and hard place at the moment as movement is impossibly slow, causing domestic users to overbuy.  However, carryover supplies will be large this year and have the prospect of being especially large next year if acreage comes anywhere close to 2018/19.  How far can spring wheat rally before farmers hit the bid and spring wheat buys too many acres?  $5.75 old crop futures and $6.00 new crop futures (MWZ9) should bring out a wall of selling by the producer who still has 25-50% of the crop unpriced by most estimates.

Bottom Line: More wandering in the dark is the best way to describe our grain trade at the moment.  Lots of market moving events on the horizon, but the flooding and trade talks feel like the dollar on the end of the fishing pole: just as we are about to grab it, it gets snatched away.  Volatility probably stays tamped down until next week in the build up to the March 29th reports.  The Prospective Plantings report will hold very little value this year given the flooding and snow pack still present.  The March 1 stocks report will be of importance, however, especially given how delayed the December 1 data was when it was released in early February.  With the difficult logistics the past 60-days, unlikely we are going to see anything bullish out of the stocks report, unless the lack of movement kept more grain from moving into commercials hands, and therefore being accounted for accurately.

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.

3/19/2019 Morning Comments

Good Morning,

More discussion this morning about the other trade spat the U.S. is involved with, the decision to not participate in the Trans-Pacific-Partnership.  While the U.S. has been preoccupied with China, the TPP has gone into effect with tariffs being dropped for competitor nations as we speak.  On April 1, additional tariffs will be dropped for Australia, Canada and the European Union while the U.S. will still have full tariffs in place.  U.S. Trade Representative Bob Lighthizer acknowledged the seriousness of the situation saying “we have a real problem. We have a situation that’s not good now and it’s going to get back very quickly.”  The administration has hopes they can agree on a deal for agriculture first and wait to negotiate the other issues in a larger trade agreement.  The current situation on trade with the focus being solely on China, while relationships suffer with other countries, is the definition of not being able to see the forest for the trees.

7-day GFS still calling for dry weather the next week for the Northern Plains while the Southern Plains should stay amply watered.  KS, OK and TX will all see 0.50-1.50” amounts by Sunday.  Most of the Midwest will also be dry, which is welcome, although above normal precip is featured in the 6-10 and 8-14 day outlook.  Temperatures are expected to be normal to above the next 15-days which will really kick the spring melt into gear.  Flooding concerns could be exacerbated, although most rivers are expected to crest or already have which have had the worst issues.  With the amount of snowpack left to melt, and the amount of drying which needs to occur, it could be the middle to end of April before any planting progress is occurring across the Northern Plains.  Corn belt states will probably firm up quicker as they deal with less overall snowpack.

Mixed to better markets this morning as wheat leads the way higher on Turnaround Tuesday with market structure supporting prices.  Spring wheat failed to break with winter wheat yesterday as late-spring and logistical concerns support.  Stories all over the Northern Plains of rail cars still being dug out, derailed trains and a complete lack of movement.  Railroads were 2-4 weeks behind want dates before last week’s blizzard, and it isn’t likely to improve anytime soon.  In addition, the later spring actually starts, the more likelihood there is farmers could switch to another crop with better profitability.  New crop spring wheat futures at $5.71-5.80 along with 40-60c under the U or Z basis is below break evens almost everywhere.  Below we take a look at how many acres we can afford to “lose” this spring and still maintain a comfortable balance sheet.  In row crops, no real hurry to go anywhere as we await more clarity on acres at the end of the month.  Ethanol prices remain a feature as they rally to 7-month highs on flooded ethanol plants and underwater railways.  Open interest changes yesterday included corn up 18,500 contracts, soybeans down 1,387, meal up 11, oil up 2,029, SRW up 3,686 contracts and HRW up 2,750.

Starting with ethanol, futures rallies yesterday to a high $1.429 yesterday, the highest level since August 7th.  Pictures of underwater ethanol plants and rail track have been splashed all over social media the last several days, cutting dumping hours or closing plants altogether.  While this will slow grind rates for corn, it should help alleviate the record ethanol stocks levels which have persisted for months.  This is directly illustrated by calendar spreads which saw the April-May spread settled at a 1.1c inverse Monday while the May-June spread closed at a 0.7c inverse.  Plant profitability is improving as well as the ethanol rally outpaces the corn bounce last week.  Ethanol multiplied by 2.85 minus the price of corn closed at +34.34c per bushel yesterday, the highest value since August 6th.  While a temporary setback in production is helping profitability in the near-term, the small refinery exemptions and lack of trade deal with China is still hurting long-term profitability.  We will be surprised if the E15 rule gets put in place by the summer driving season, and even if it does, it will not be the savior of the ethanol industry some are making it out to be.

Lots of concern about spring wheat at the moment as the Northern Plains looks set for its second late spring in a row.  We’ve been working with unchanged spring wheat acres for the last several weeks, even though many have been touting an appreciable increase most of the winter.  Profitability against other crops just doesn’t agree with sharply higher acreage, late spring issues notwithstanding.  With unchanged HRS acres and a national average yield of 46.0bpa, production would be seen at 567.1mbu vs. 587mbu a year ago due solely to harvested percentage being down just a touch.  Total supplies, however, would be 916mbu vs. 850mbu a year ago.  With domestic demand up 10mbu and export demand up 15mbu, our carryout would rise to 330mbu vs. 289mbu this past year.  Carryout at that level would be the largest since 1987/88 with a stocks/use ratio of 56.38%.  If we see acres down 500,000 from last year, using the same yield and demand, carryout would only drop to 308mbu.  In fact, to see carryout unchanged from 2018/19, we would need to see acres fall 1 million from 2018/19.  We feel confidence about acres not rising, but in order to see a drop of 1 million acres, spring would have to get incredibly late or price ratios move even sharper than they have in favor of corn and soybeans.  Bottom line is we have acres to “lose” and still maintain a comfortable balance sheet in spring wheat, so any rally on late seeding concerns might be a rally to take advantage of.

Adding to wheat’s woes were poor export inspections yesterday.  Wheat inspections totaled 13.0mbu vs. the 24.7mbu needed weekly to hit the USDA forecast.  Total inspections of 660.5mbu are down 6.2% from a year ago while the USDA is calling for a 7.0% increase.  There are only 11 weeks left in the marketing year, and it is looking increasingly likely we will not meet the USDA’s recently reduced export forecast.  If additional export cuts need to be made, these will go straight to carryout, which should push ending stocks toward 1.100bbu for the third straight year.  Part of wheat’s export woes are the poor logistics on U.S. water and railways, so there is a chance these sales execute in 2019/20.  Still, any front-loaded demand in Q1-2019/20 likely comes out of total demand the rest of the year as importers simply shift a larger portion of their Q2-Q4 demand to the Black Sea and Europe.  Corn inspections totaled 31.3mbu vs. the 43.1mbu needed weekly.  Total inspections of 1.078bbu are up 25.7% from a year ago, but this is falling swiftly as two weeks ago we were up 35.9%.  Soybean inspections were soft at 30.9mbu vs. the 32.0mbu needed weekly to hit the USDA forecast.  Total inspections totaled 1.017bbu, down 31.2% from a year ago as we await the large Chinese purchases to lift.

Brazilian crop progress was also released yesterday with Brazilian soybean harvest estimated at 62% complete vs. 52% last week, 56% last year and 55% average.  Brazilian 1st crop corn harvest was estimated at 48% complete vs. 43% last week, 52% last year and 48% average.  2nd crop corn planting was estimated at 99% complete vs. 91% last week, 93% last year and 81% average.  Texas and Oklahoma issued winter wheat conditions yesterday with Oklahoma improving to 60% G/E vs. 56% G/E last week.  Texas also improved to 33% G/E vs. 28% a week ago.

Bottom Line: More hurry-up-and-wait trade as the Prospective Plantings report is just nine sessions away.  Trade remains at the forefront of U.S. ag markets as a deal with China looks further away and relations with Japan continue to unravel.  There is no doubt trade agreements needed updating, but the current tactics haven’t produced any concrete results and could be altering relations for decades to come.  The last thing the U.S. needs is to become the supplier of last resort for all commodities the way we have for wheat.  Market structure encourages storing of grain instead of shipping and using it, building supplies and only becoming a meaningful exporter when other countries see production shortfalls.  We can’t allow developing countries to become the trade suppliers to the world’s importers while U.S. farmers simply get paid to sit on grain until they need money.

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.

3/18/2019 Morning Comments

Good Morning,

Quite a bit on the economic docket this week with the Federal Reserve’s FOMC meeting Tuesday/Wednesday which will feature a revised Fed-dot forecast on interest rates and possibly a announcement on balance sheet reduction.  In addition, OPEC+ (OPEC along with Russia, Mexico and Kazakhstan along with seven other oil producers) will meet in Azerbaijan today.  Investors expect the group to “stay the course” with planned production cuts.  Plenty of Brexit talk this week as well which everyone seems to have gotten bored with.  Later in the week, China’s President Xi will travel to Italy to sign a framework agreement with the Italian Prime Minister related to the Belt and Road infrastructure program.  Traders will be watching the ceremony and comments closely for any hints toward U.S.-China trade talks.

Wide open Midwest radar this morning which will largely be the case until later in the week when the next big round of moisture arrives.  By the weekend, rains are expected to move into the southern plains, bringing 0.50-2.00” amounts to most of Kansas, Oklahoma, Texas, Arkansas and Missouri.  Some of this rain will be welcome in the southern part of the region, while areas to the north do not need any additional precip for a while.  The Northern Plains will be largely dry this week which will be incredibly welcome as the area tries to melt a record snowpack.  As of this morning, the upper-Midwest was covered by an average snow depth of 13.1” on 97.2% of its area.  Plenty of water in this snowpack as well with NOAA suggesting 2-6” of water in much of the Dakotas and Minnesota.  Temps are mainly above normal in the extended maps while precip trends back toward above normal as well.

Mixed to weaker trade across the grain room this morning, which is only fitting considering wheat posted its first higher weekly close since January and the largest weekly gain since August.  In addition, Friday’s Commitments of Traders data exposed the managed fund positions as teetering toward record territory in most of the Ag markets.  Many of these positions are very close to being underwater as we will discuss below.  Positive comments over the weekend from Chinese-based research firms about “huge purchases of U.S. corn, wheat, sorghum, DDGs and ethanol” presumably in addition to soybeans.  This will be a constant feature in the markets, both bearish and bullish depending on one’s stance, until an actual agreement is signed with clear details.  Otherwise, plenty of comments about how “bad” the SRW and HRW crops in the U.S. look in spots.  Lots of folks suggesting farmers in both regions will plow up poor looking wheat which has minimal establishment.  This sounds like a cut and dried process, but one must remember the fall insurance price for winter wheat was $5.72 for SRW and $5.74 for HRW.  Those compare quite favorably to $4.73 for SRW and $4.50 for HRW this morning.  Ripping that wheat up to plant something else will either forego that insurance premium to insurance a spring planted crop, or the producer must take that insurance payout and plant another crop without insurance.  Not cut and dried in our opinion.  Corn open interest rose 7,769 contracts on Friday, while soybeans were down 4,304, SRW was down 3,411 and HRW was up 2,708 contracts.

Friday’s COT data showed funds adding to 71,301 contracts to their net short position in corn, leaving them net short -258,582 contracts.  This is the third largest position on record (CIT report), accounting for 97.4% of the all-time record short.  On the disaggregated report, funds are already record short.  In addition, index funds hold their smallest net long on record at +218,827 contracts going all the way back to January of 2007.  Some commercial buying, but not nearly the level we would like to see to suggest a turning point is imminent.  In soybeans, funds sold 34,250 contracts to leave them net short -116,742 contracts which is the largest net short since October.  Index funds sold another 9,877 contracts, cutting their net long to 117,546 contracts, which is the smallest position since January 2018.  Here again, not robust commercial buying just yet.  Funds remain heavy net shorts in meal as well at -44,543 contracts compared with their all-time record short of -55,215 contracts.  The combined corn+soymeal net short position held by funds of -303,125 contracts is the largest on record.

Plenty of nuggets in the wheat section as well with funds selling 3,151 contracts of HRW to put them net short -44957 contracts.  This is 81% of the all-time record fund short in HRW on the CIT report while on the disaggregated report funds are record net short.  In looking at price levels these contracts were added, a few observations come to the surface,  For starters, funds added 28,240 contracts to their gross short position from 2/5-3/5.  The average price of those short positions using that day’s settlement is $4.66 basis May futures.  We acknowledge all of these short positions are not sitting in the May contract, but this just provides a general idea.  5,498 of those shorts were added at 4.51, 4,625 at 4.44 and 9,729 contracts were added at 4.60.  In other words, a 3c rally from this morning’s prices begins to put some of these shorts underwater while a 10c rally puts a large portion under water.  We looked at the same thing in Chicago wheat with 54,981 contracts added to their gross short over the last 4-weeks at an average price of $4.76.  30,808 of those shorts were added between 4.53-4.68 vs. this morning’s spot price of 4.58.  Another 24,173 contracts were added at 4.92, which admittedly, looks a long way away this morning.  The aggregate fund short position across Chicago-Kansas City-Minneapolis of -162,095 contracts is the largest since January 2018.  A couple other quick notes, the combined corn/wheat/soybean index fund position of 441,186 contracts is the smallest on record while the combined managed funds position across C/S/W/KW/MW/BO/SM of -571,599 contracts is the third largest net short on record.  Lots of record or near record positions held by managed and index funds in our space heading into a seasonally strong time of year.

Encouraging to see spot ethanol prices rally Friday and again this morning.  Spot prices at $1.403 are at the highest level since August 8th and sharply above their 50/100/200-day moving averages.  The spot ethanol-corn spread we follow which simply converts ethanol prices into bushels (ethanol x 2.85) is at the highest level since August 6th and is a poor man’s way of tracking ethanol plant profitability.  For much of November through February, ethanol was not covering the input cost of corn which is a large negative.  Calendar spreads in the ethanol market rallied sharply last week as well with the April/May spread settling at a small inversion Friday.  Stocks of ethanol have been sitting at record or near record levels for months thanks in part to poor rail logistics.

Lastly, NOPA released February member crush data on Friday, missing estimates but still setting records.  February crush came in at 154.498mbu vs. the average trade guess of 158.7mbu, 171.6mbu in January and 153.7mbu a year ago.  Soybean oil stocks were 1.752 billion pounds vs. 1.612 billion expected, 1.549 billion last month and 1.856 billion a year ago.  Even though crush has set monthly records each month since the start of the marketing year, crush still needs to notch strong run-rates through the end of the marketing year to achieve the USDA estimate.  Soybean oil stocks at the end of February were the largest since July of 2018, but slightly below year ago levels.

Bottom Line: Mixed trade but market structure wouldn’t suggest prices have a lot of room to go down or test recent lows.  Flooding pictures and snowpack estimates will keep late-planting talk alive and well, although whether intentions have changed at all so far is anybody’s guess.  We are 10 sessions away from the Prospective Plantings report which will give the USDA’s first blush at acres using actual farm surveys.  With a late spring, this data takes on less importance than normal years as changes can and will be made right up until wheels turn.

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.

3/15/2019 Morning Comments

Good Morning,

Equity markets are firmer this morning as media outlets are reporting Chinese state media said “substantive progress” on trade talks is being made.  In addition, Beijing passed a new foreign investment law designed to smooth the way to a new trade deal with the U.S.  These are the first positive signs in the trade talks we’ve seen in a couple weeks, although we are still cognizant of the fact the planned meeting between President Xi and President Trump has been postponed until at least April. The comments from the Trump Administration flip flop each day it seems between “a deal is close at hand” to “we’re very far apart with major differences still present.” President Trump also saw his emergency declaration at the Mexican border wall blocked by the Senate which will prevent him from beginning construction. President Trump could be anxious to strike a deal with China and claim a political victory.

Mostly clear Midwest radar this morning, and should continue to be for the next 7-days or so.  After the Upper-Midwest started to see its snowpack melt earlier this week, the mid-week blizzard slammed the region, adding to the impressive total.  According to NOAA, the Upper-Midwest has 98.7% of its area covered by snow at an average depth of 14.6”.  This compares with last year at 82.0% coverage with an average depth of 8.0”.  The snowpack is record large for this date going back to 2003.  Temperatures are expected to be mainly above freezing for the next 7-10 days, so the snow is expected to begin melting soon.  Extended maps show mainly above normal temps for the Midwest in the 6-10 and 8-14, while precip is below normal in the 6-10 but moves back toward above normal in the 8-14.  Soil moisture profiles are in the 90-99th percentile of all years on record.

Mixed grain markets this morning as traders have a host of price signals to factor in as the week draws to a close.  Export sales yesterday were a mixed bag but mainly poor with the exception of the large purchases by China.  Otherwise, export demand slowed for all commodities as competition heats up from South America on corn and wheat business flounders after a strong February.  Trade war comments from China are certainly encouraging, although difficult to think a signing is imminent based on comments from state-owned media in Beijing.  In addition, weather is throwing a completely different set of factors at the market as traders contemplate acreage switching and potential flooding/prevent plant. It is still very early in our opinion, but the amount of water which is still set to come down the nation’s waterways will make flooding and logistics worse.  The lack of fall field work done pushed a larger than normal amount of fertilizer application to the spring which is also not happening.  Ideally, nitrogen would be applied at least a week ahead of corn planting which could prove challenging this year.  Open interest changes yesterday included corn up 5,314 contracts, soybeans down 857, meal down 5,407, oil down 855, SRW wheat down 1,707 and HRW up 156 contracts.

Export sales of wheat were generally poor at 9.7mbu vs. the 7.9mbu needed weekly to hit the USDA forecast.  The sales were the smallest for this week on the calendar since 2008.  Total commitments are now 3% ahead of last year while the USDA is calling for a 7.0% increase.  Total commitments as a percentage of USDA’s forecast are now 86.9% which is still the smallest since 2012 but is no longer the lowest level on record.  Shipments as a percentage of the USDA forecast at 64.7% also picked up but are still below the 70-72% 5-yr average.  Corn export sales totaled just 14.6mbu which were the smallest sales for this week since 2013.  Total commitments of 1.607bbu now account for 67.6% of the USDA forecast which is ahead of last year’s 66.6%.  Shipments as a percent of the USDA forecast are 44.7% which is well ahead of the 37% 5-yr average.  We still need to sell 26-29mbu of corn each week through August to hit the USDA forecast, so no time to rest on our laurels. Soybean sales were strong at 70.2mbu, the second largest sales week on record.  However, of that total, China accounted for 62mbu, almost all of which was previously known.  Therefore, sales to the rest of the world were scant and a bit troubling if the Chinese purchases come to a halt due to trade talks.  The concerning stat for us is shipments as a percent of the USDA forecast at 53.6% which is the lowest on record.

Earlier in the week, the Norther American Millers’ Association released their 2019/20 SRW production estimate of 269mbu.  This was generally seen below the 280-300mbu average range of estimates and would be the smallest SRW crop since 2010/11.  If production came in at that level, total supplies would be the smallest since 2005/06.  Many have commented in recent weeks about the poor shape the SRW crop is in along with an expectation flooding and abandonment will grow as spring draws closer.  Economic calculations are being run, and in many spots, ripping the SRW crop up and planting soybeans or corn would be more profitable.  Our current demand ideas have exports down 20mbu from 2018/19, while domestic demand is largely flat.  This produces ending stocks of 123mbu which would be the smallest since 2013/14.  If a supply situation such as this materializes, it should support calendar spreads as commercials try to outbid each other to fill available storage.  Carries aren’t as lucrative as they have been in recent years, but having the wheat in-house is worth some level of premium.  As it stands today, SRW and HRW ending stocks should fall in 2019/20 while HRS grows depending on how spring planting turns out.

The USDA Ag Attache to China issued an update on pulse demand Thursday which had a few interesting tidbits. 2018/19 dried pea imports for China are forecast at 2.1MMT, up about 10% from 2017/18 on growing feed demand.  China continues to produce less of its own pulses as crop revenue is not as great as other crops. Yet, demand continues to rise, creating an opportunity for greater exports.  Pulse crops are offered no subsidies besides land rotation incentives, putting them at a big disadvantage to other crops.  India has been a large source of imports for pulses in recent years, but this marketing year they continue to have large import tariffs on foreign peas and lentils to protect their own market. With India often flipping from major importer to nothing, China could offer another home for North American pulse crops.  Strong competition exists for the U.S. from Canada and Australia whose supplies are much cheaper.  According to the attache report, the average quote for Canadian and Australian peas from January to August 2018 was $265/MT compared with U.S. peas at $545/MT.  The report’s prices for U.S. peas looks exceptionally high.

Bottom Line: Wheat trying to close higher on the week for the first time since January.  With end users stepping in, and funds already hitting record net short levels, it would appear wheat prices have found a low.  Seasonally, strength should be seen into April as the focus shifts to weather and other major exporters’ production prospects.  Too early in our opinion to be trading lower corn acreage, but that doesn’t mean we won’t try.  Huge incentive to plant corn from a futures and insurance standpoint, and until we get deep into April with no progress, bulls need to keep their powder dry.

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.

3/13/2019 Morning Comments

Good Morning,

Two articles caught our attention overnight.  The first summarized US Trade Rep Bob Lighthizer’s comments to the Senate finance committee on Tuesday in which he said negotiations with China were at risk of failing due to “major, major issues” which needed to be resolved before and agreement can be reached.  He said he could not “predict success at this point.”  This stands in direct contrast to rumors circulating that a trade deal was close at hand and one could be signed by the end of the month.  The former comments would certainly agree more with the weak trade in grains as of late.  Another article from the FT talked about China’s birth rate continuing to decline and pointing toward population decline in coming decades.  The number of new births in China last year fell 2 million to 15.2 million, the second consecutive year of decline since China repealed its “one child” policy in 2015.  China’s population expanded by 0.38% last year, a rate similar to many western European countries and well short of the rate associated with booming populations.  This was the lowest pace since 1961 when China was still struggling with famine which killed 40 million people.  Estimates suggest China’s population will peak in 2029 around 1.44 billion before declining.  The number of people aged 60 or over will reach 479 million in 2050, or about 1/3 of the population vs. 16% today.  Big changes for China in the coming decades.

Still bracing for winter storm “Everyone is Tired of This,” which is expected to begin this afternoon in the Dakotas and Nebraska and last through Thursday.  Precip totals are downright impressive with many areas looking at 1-2” of water-equivalent moisture, but just a matter of how it will fall at this point.  With the ground still frozen in many places, much of this moisture is expected to run off, causing flooding and overflowing waterways.  After this storm, things are mainly dry the rest of the 7-day outlook which extends through the 6-10 day.  Above normal precip is seen in the 8-14 day outlook.  Temps slowly warm to above normal for much of the southern plains and Midwest in the 8-14 day, while the Northern Plains remains stubbornly normal to below normal.  Spring does look like it is on its way, however.

Weaker Ag markets across the board this morning led by our old familiar friend wheat after it enjoyed a brief hiatus in the sun.  The rally yesterday in winter wheat contracts was impressive, and caught many off-guard, but the bounce seemed completely technical and structural in nature.  When managed funds positions reach record levels, air-pockets of short-covering can take place for no apparent reason.  This appears to have been the case yesterday as futures attempt to give back a bit less then half of yesterday’s gains.  Global wheat markets are off this morning as well with Paris futures lower, while Black Sea futures closed lower yesterday despite the rallies elsewhere.  Row crops are lower this morning as comments from trade negotiators seem less than optimistic after we’ve been trying to price in huge Chinese purchases for 90-days.  The trade war comes down to this in our opinion: we got into this fight to force China to make structural economic reforms, and unless that takes place, the last 10-months have been a complete waste of time.  Even a grain farmer who would love to see China buy U.S. grains can see that if all we get out of this kerfuffle is some grain purchases China likely would have made anyway, the current administration will not be held in high regard in 2020.  Open interest changes yesterday saw corn up 18,711 contracts, soybeans up 2,345, meal up 3,038 contracts, oil up 8,235, SRW down 2,403 contracts and HRW up 1,899 contracts.

In addition to CONAB’s updated production forecasts, we also got Brazilian crop progress yesterday.  Soybean harvest was pegged at 52% complete vs. 38% last week, 46% last year and 46% average.  Largest production state Mato Grosso is 89% complete with soybean harvest.  1st crop corn harvest was seen at 43% complete vs. 40% last week and 43% average.  2nd crop corn planting was ahead of schedule at 91% complete vs. 80% last week, 83% last year and 81% average.  Most believe Brazilian corn prospects will continue moving higher due to favorable weather during February and March, especially as the 2nd crop makes up such a large portion of the total production vs. several years ago.

Analytics firm Informa Economics released their latest estimate of 2019/20 acreage ahead of the March 31st USDA numbers.  They see corn at 91.771 million which would be up 2.642 million from a year ago, and in-line with most average estimates.  Soybean acreage is seen at 85.494 million acres, down 3.702 million from a year ago, which looks a bit light compared with some of the recent numbers we’ve seen.  Spring wheat acreage is seen at 13.580 million, up 380,000 from a year ago, but here again, we are a bit skeptical of that kind of increase based on weather and economics.  Sunflower acreage is seen at 1.464 million, up 163,000 acres from a year ago.  Cotton acreage is seen at 14.702 million, up 603,000 from 2018/19.  From their last estimate in February, corn acreage moved up, soybeans down and all-wheat down.

China’s Ministry of Agriculture said yesterday their total pig herd was down 13% from last year at the end of January with breeding sows down around 15% from a year ago.  Officially, only 1 million head of been culled due to ASF, but it is apparent many more than that have been culled.  In addition, ASF has now been found in feral hogs in Russia.  ASF has now been found in Russia, Vietnam, Mongolia and Belgium, although more countries could probably be added to that list which have been detected yet.  This is why Brazilian soybean production falling a couple million tons pales in comparison to the potential demand destruction from an outbreak like ASF.  Imagine if ASF manages to actually hop continents as it was rumored to have done a few weeks ago into Canada?  African Swine Fever is a textbook definition of a “Black Swan,” an unforeseen event which materially alters the fundamental landscape.  As is usually the case, Black Swans are typically bearish events as this one most certainly is.  Heap on top of slowing demand trade talks which seem to be going nowhere, and bulls have to wonder if they are living on borrowed time in the soy complex?

One last note, it was reported in several outlets yesterday and overnight that USDA’s NASS would discontinue its objective yield component of the August 1 Crop Production report for corn and soybeans.  This is the first objective yield survey of the year in which USDA enumerators head into the fields to get hard data of our maturing crop.  Removing this report would rely more heavily on farmer-based surveys and satellite data which he USDA appears to be getting increasingly confident with.  Satellite data is how USDA obtains most of its yield data around the globe at current, so it was probably inevitable, and cheaper, to move in this direction.  Nonetheless, it will change relationships which have been present in the August survey for decades.  This will increase the exposure and reliance on private companies which forecast U.S. crops, which may or may not be a good thing depending on the objectivity and reliability of some of these private methods.

Bottom Line: Wheat markets are trading on the lows at the 7:00 hour, making Tuesday look like nothing more than a short-covering bout of profit taking.  As we noted yesterday, funds have all the equity in their recent short positions, so until they are materially threatened, difficult to see them exiting these positions in rapid fashion.  Otherwise, weather and trade talks will dominate until we get to the end of the month reports.  New crop corn, soybean and spring wheat prices are trading at multi-month lows, so do not expect the farmer to be engaged anytime soon, especially considering the date on the calendar.

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.

3/12/2019 Morning Comments

Good Morning,

Showers in the southern plains this morning, but mainly quiet across the corn belt ahead of the next blast of winter weather.  Winter looks like it will give one more valiant effort before warmer weather moves in.  Wednesday into Thursday is expected to see heavy snow, rain and wind grip the central and northern plains with 12-18” of snow along with 40-60mph sustained winds.  The worst of the weather looks to be in northern Nebraska and most of South Dakota.  This will add to snow pack totals, although those have been shrinking the last day or two.  Temperatures warm to the 30’s most of this week, and there is talk of 50’s next week which should bring on a rapid melt.  Temperatures are still below normal through the 8-14 day for much of the Northern Plains, but moisture outlooks are below normal for the 6-10 and 8-14 day which will be welcome for all.

Grain markets are higher this morning while the soy complex is a tick weaker as we try to bounce from yesterday’s selloff.  The losses continue worst in the wheat pits where winter wheat shed another 10c on Monday, while spring wheat saw smaller losses of 3c.  The momentum trade by funds and algo’s is powerful at the moment with open interest on the rise as new positions are being added.  The Johnny-come-lately’s will be at most risk if/when prices do stage a recovery, but every position the funds have added the last several weeks is a winner with equity growing on a daily basis.  The funds have been right since early February, so the bulls screaming about cheap US wheat and extraordinary export business can continue turning blue in the face as long as they want.  The wheat weakness is dragging corn lower as are softer ethanol prices which hit a one-month low yesterday.  Poor logistics across the Midwest are keeping ethanol stocks at record levels, depressing margins and holding grind rates down.  Despite the 25mbu cut to ethanol demand for corn on Friday’s WASDE, there will be another 50-75mbu worth of cuts in coming months unless grind rates rebound.  Open interest changes yesterday on the selloff saw corn up 9,955 contracts, soybeans up 1,588 contracts, meal up 4,088 contracts, oil down 676, SRW up 3,985 contracts and HRW up 2,864.

Export inspections released Monday were mostly weak as slow rail and barges limit export loadings.  Wheat inspections totaled 21.8mbu vs. the 23.8mbu needed weekly to hit the USDA forecast.  Inspections did see one vessel of spring wheat declared for China which had been in the lineups for several weeks.  Total inspections of 646.8mbu are down 5.9% from a year ago while the USDA is calling for a 7% increase.  Export shipment data confirms the same as we’ve shipped 61.96% of the USDA’s revised export forecast which is the lowest on record for this week of the year.  Granted, we are expected to see a decent export pull the last couple months of the marketing year, but there remains downside risk to the USDA’s forecast in our opinion.  Corn inspections were also soft at 30.1mbu vs. the 42.7mbu needed weekly.  Total inspections of 1.045bbu are still up 30.5% from a year ago, but this is down from 38.5% two weeks ago and inspections haven’t hit the needed level in seven weeks.  Soybean inspections were 32.1mbu vs. the 32.0mbu needed weekly to hit the USDA forecast.  Total inspections are down 32.5% from a year ago while the USDA is calling for a 13% decline.

Spot floor premiums were higher again Monday in Kansas City by 4-7c with 12.0% pro bid +155/170K vs. +140/155K a week ago.  Minneapolis spot floor premiums were weak, down 10-40c yesterday as a few more cars were for sale including 77 cars and two trains.  However, the lack of bids seem tied to the fact logistics remain awful across the Northern Plains with railroads still 3-4 weeks behind.  Does it make sense to pay more for cars you still aren’t going to get?  Elevators in the country have remarked they are still waiting for freight from mid-Feb want dates.  Wheat weakness helped drive wheat/corn spreads to fresh lows Monday with the KWK/CK at +56.75c overnight.  The futures weakness helped push the cash relationship in the southern plains to 99% wheat to corn.  This is the first time we’ve seen HRW trade less than 100% of the weight-adjusted price of corn this marketing year, although actual tonnage trading into feedlots is still probably limited at this point.  SRW remains at 91% of the weight-adjusted price of corn in North Carolina.

CONAB released their latest estimate of Brazilian crop prospects, pegging the soybean crop at 113.5MMT vs. their February forecast of 115.3MMT and last year’s 119.3MMT.  This would still be the third largest soybean crop ever produced in Brazil, although it is down sharply from the 120-125MMT ideas back in December.  CONAB’s corn crop estimate increased to 92.8MMT vs. 91.7MM% in February and would be sharply higher than the 80.7MMT raised last year.  This is just under 2MMT smaller than the USDA’s last estimate of 94.5MMT, although many in the trade though CONAB could come up to USDA’s ideas after favorable growing conditions in Feb.  While smaller supplies are encouraging, whether Brazil is 113MMT or 117MMT probably doesn’t matter considering slowing growth in China due to ASF.  There are plenty of soybeans in the U.S. and World to satisfy any and all demand at current price levels.

Bottom Line: Traders will be bracing for what everyone hopes will be the last big storm of the season.  Farmers and bulls alike keep wondering what will change the narrative to end the downtrends and produce a rebound.  With the Summit between Presidents Xi and Trump now on shaky ground, along with a brimming soil moisture profile across the Midwest and carryout growing in wheat and corn, that reason looks fleeting.  It will take more than a delayed start to planting to change trends given how quickly we can plant crops in the United States in 2019.  Funds holding large or even record shorts is not a reason to get bullish until they are forced to cover.  They are not being forced to cover today, and in fact, are being given every reason 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.

3/8/2019 Morning Comments

Good Morning,

Chinese import/export data for the month of February is the talker overnight as the trade war and tariffs sink their teeth in further.  Exports from China during the month of February fell 20.7% from February 2018, the largest monthly decline from the previous year since February 2016 and sharply worse than the 4.8% expected by economists.  Imports also fell by 5.2%, worse than the 1.2% expected by economists.  This marked the smallest trade surplus for China in 11-months, causing major Chinese stock indices to fall more than 4.0%.  Chinese imports from the U.S. fell by 35% during the first two months of 2019 ahead of what was the March 1st deadline when tariffs were set to increase by the United States.  Uncertain at the moment whether this will cause the Chinese to be a bit more flexible in the negotiations later this month.

The Upper-Midwest is bracing for another winter storm this weekend with the morning GFS models putting substantial snow and rain from Texas to North Dakota and east to Ohio.  Precip totals on this morning’s maps show as much as 4.00-5.00” in AR/LA/MS/AL/TN/KY.  Most of the Midwest is expected to see 1-2” of water-equivalent moisture in the next week.  Temperatures will remain mostly below normal the next 10-15 days, although some parts of the Northern Plains will see their first above freezing day in months.  Precip chances shift from above normal in the 6-10 to below normal in the 8-14 which will be a welcome sight for absolutely everyone.  Fingers crossed for above normal temps in the week 3 and 4 outlook released later this afternoon.

Higher grain markets this morning as the dead cat bounces, because there is certainly nothing fundamentally bullish in our space at the moment.  Export sales yesterday were mixed to weak, funds are continuing to add to their winning short positions and no one seems to have any confidence in the rumored trade deal by the end of the month.  Producers still hold a large portion of the 2018/19 crop unpriced, which will cap any rally attempt while the 2019/20 winter wheat crop will be breaking dormancy in a few weeks as prices scrape contract and multi-year lows.  At the moment, the May Kansas City wheat contract is at the lowest price for this date going back to 2005.  One has to go back to the early 2000’s to find lower wheat prices than we are currently, and in those years, we saw futures drop into the 2-handle.  We do not think anything of that nature is in order, but simply want to illustrate how weak this market is ahead of what should be a seasonally strong time of year with supply uncertainty still high.  March WASDE on tap today, although it is unlikely to contain anything for bulls to put in their pocket.  Open interest changes yesterday saw corn up 23,520 contracts, soybeans up 6,260, meal down 1,237 contracts, oil down 8,180, SRW up 14,567 contracts and HRW up 3,861.

While export sales data technically hit the level needed in several commodities, it still felt like an underwhelming week.  Wheat export sales totaled 22.8mbu vs. the 10.4mbu needed weekly to hit the USDA forecast.  Total commitments of 829.7mbu are up 3% from a year ago, but the USDA is still calling for a 10.9% increase ahead of today’s WASDE.  While commitments have caught last year, shipments remain well behind with poor logistics and an hour glass which is running empty for this marketing year.  It is highly unlikely we will get all of the wheat we have on the books shipped in 2018/19, which should result in a downgrade of the export forecast from 1.00bbu and help push carryout close to 1.100bbu.  At that level, we would essentially be unchanged from the previous two marketing years which saw prices hit the low-$4 area and in one case into the 3’s.  It is likely some of these sales will still be executed in June and July, but then the other Northern Hemisphere exporters should take over, pushing the U.S. back to the supplier of last resort in 2019/20.  By-class sales were strongest in HRW with 10.2mbu followed by HRS at 5.7mbu and WW at 4.0mbu.

Corn export sales were solid at 38.2mbu vs. the 29.4mbu needed weekly to hit the USDA mark, but down from last week’s 48.8mbu.  Total commitments have now slipped below year ago levels by 1%, but the USDA is calling for exports to be essentially unchanged from last year.  Last year, we enjoyed a near record AMJJ export period as South America sported drought-reduced crops and the world came back to the U.S. during the summer months.  The same is unlikely to happen this year as weather remains conducive to above trend crops.  Soybean export sales were very poor at 11.4mbu vs. the 18.0mbu needed weekly to hit the USDA forecast.  Total commitments slipped back to an 18% deficit from a year ago at 1.442bbu.  The rumor mill churned yesterday as cash traders tried to suggest 2.0MMT of soybean business was conducted to China for July-September.  While this could be true, we wonder whether this is part of the 10MMT signed in the Oval Office, or whether this is a new deal, or whether this is tied to earlier promises, or some other deal?  Keeping track of the promises and MOU’s and handshakes are getting exhausting, and no matter how one wants to slice it, it doesn’t feel like enough.

Wheat/corn spreads continue lower with the WK/CK trading at +74.75c this morning while KWK/CK is sitting at +64.00c.  New contract lows are being set on a daily basis as our weight-adjusted cash prices in the major feed regions of the U.S.  In SW-KS, HRW closed at 100% of the weigh-adjusted price of corn while in North Carolina, SRW sits at 91% of the weight-adjusted price of corn.  Wheat has everything on its side for making a major bottom in the near future as funds are historically short, wheat is trading at very cheap valuations relative to corn and seasonally, wheat tends to add premium through the spring as the crop is being made.  That said, it remains difficult to try and catch the falling knife in this environment as funds appear ready and willing to add to their winning positions.  Black Sea and Paris futures have been falling just as fast or faster than U.S. futures, unfortunately, and until they bottom, it is tough saying the U.S. can put a foot in the ground.

Bottom Line: Heading into another weekend of people guessing how the trade talks will turn out.  Fortunately, the March WASDE should grab our attention for at least a day before we go back to worrying about a late spring.  In our opinion, the financial incentive to plant corn is too great to worry about not planting 91-92 million acres at this stage.  Spring wheat on the other hand is not offering a great incentive for producers to plant it over row crops. 

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.

3/6/2019 Morning Comments

Good Morning,

Blank Midwest radar ahead of the next two winter storms which are expected Thursday and Saturday across the upper-Midwest.  7-day forecasted precip maps are showing significant moisture from E-TX to MN with the heaviest spots in TX/AR showing between 2-3” of water while much of KS/MO/IA/NE/SE-SD/S-MN/IL will see up to 2” of water-equivalent moisture.  Depending on how this moisture falls, it could be anywhere between 12-24” of snow.  Temperatures are expected to warm into the weekend with the system, so the snow is likely to be fairly wet, but will still add to the significant snow pack already in place.  Still no real relief in temps through the 8-14 day with NOAA saying below normal temps for all of the Plains and most of the WCB into March 19th.    Precip is mostly seen above normal for the 6-15 day outlook. 

Weaker markets this morning as any overnight gains have been relinquished as upside momentum is still hard to come by.  One of the more interesting headlines overnight was China moving to block Canadian canola imports due to the growing tension between the two countries.  So far, only Richardson International has lost its permit to deliver canola to China, but quite likely other exporters will be wary of doing any business which may leave tonnes stranded at a Chinese port.  The move is in relation to Canada continuing to detain a senior Huawei official in Vancouver.  While the news just broke, it would appear canola has been pricing this in for a while as front-month futures hit the lowest level since August 2016 on Monday and have been trending lower much of February.  Difficult to know how this may affect trade negotiations with the U.S., if at all, but less oilseeds competing into China should be a good thing, all things equal?  Open interest changes yesterday included corn down 4,656 contracts, soybeans up 2,171, meal up 3,921 contracts, oil down 2,766, SRW up 1,449 and HRW down 1,842.

Another headline we found interesting overnight was from Reuters stating China’s top grain producing region plants to increase subsidies for corn growers as a stock glut eases and will keep soybean subsidies high for a second straight year.    The increase in corn subsidies marks a change in direction from last year when the PRC moved to cut subsidies to manage the supply glut.  The combination of higher subsidies in both commodities shouldn’t come as a surprise given the ongoing trade war.  The bad part is before the trade war, China was just starting to make some necessary reforms in the subsidy area.  It appeared as though officials were recognizing they could source needed grains much cheaper on the global market than what they were paying their own farmers to raise it.  It would appear that line of thinking has been thrown out the window over the last 8-12 months with the trade war intensifying.  Any thoughts that China had about reliably sourcing food stuffs abroad has likely been recalculated, and could make getting U.S. grains which aren’t tied to a larger trade deal harder to get into the country.

Data yesterday included the most recent COT data which was dated 2/26.  In that week, managed funds sold a bit more corn to take their net short position to -120,962 contracts, the largest net short since 9/25.  Funds bought a token amount of soybeans to leave them net short -74,489 contracts vs. -81,030 contracts the week before.  The most important fund position in our opinion was in wheat where trend followers sold another 6,196 contracts of HRW to put them net short -41,226 contracts.  This is the largest net short since April 2016, and is now 75% of the all-time record short.  We use the Commodity Index Trader report from the CFTC while others used the Disaggregated report, which shows managed funds already holding a record net short in HRW.  More important to us is consistency with one report as opposed to outright positions from one report to another.  In SRW, funds sold another 20,702 contracts to put them net short -95,359 contracts.  We are nowhere near the record fund short in SRW which is all the way down at -189,432 contracts, but anytime the funds amass around -100,000 contracts worth of a net short, it is meaningful.  The combined net short across MPLS/CGO/KC of -188,951 contracts is the largest net short since 1/23/18 and should grow with next week’s CFTC data.  One other note, the managed funds net short in soymeal of -48,612 contracts is 88% of the all-time record.

Deliverable stocks also reported yesterday with a draw taking place in MPLS/Duluth for the third straight week.  Combined stocks were down 703,000 bushels to 15.699mbu, the smallest for this week since 2012.  Stocks are down a combined 1.506mbu over the last three weeks despite poor logistics across much of the Northern Plains which helped support spot floor values yesterday.  14.0-15.0% were all up 5-35c yesterday with 15’s now big +175K +140K a week ago.  Chicago stocks were down 1.235mbu from a week ago at 59.539mbu which compares with 77.903mbu a year ago.  Non-deliverable grades of 8.443mbu are nearly double a year ago at 4.895mbu.  Kansas City stocks were mostly unchanged on the week, although spot floor values were up 3-16c from yesterday for 11.0-12.80% as railroads continue to underperform.

Bottom Line: Producers are busy meeting with crop insurance agents this week as spring prices have been set and revenue guarantees can begin.  Corn should be the big winner given the highest spring prices in four years following three years of essentially record corn crops.  Soybean revenue guarantees will be off from last year, but probably still look better than spring wheat in many instances.  The weather needs to turn quickly to give Northern Plains’ producers a better attitude about planting wheat.  With the late start to last year’s sowing campaign, even though soil moisture was not really a problem, it is difficult to replace a month out of the growing season from a yield perspective.  Late planted wheat is more likely to face yield drag, plain and simple.

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.

3/4/2019 Morning Comments

Good Morning,

The Wall Street Journal put out an article this weekend stating the U.S. and China have a trade deal close at hand, although specifics were lacking as usual.  It does appear we are closer to a deal than at anytime over the last 12-months, especially with President Trump suffering another political “defeat” in Vietnam last week.  Critics suggest President Trump is eager to make a deal, regardless if the issues which have been mostly hotly contested are not resolved.  If this were to happen, U.S. Ag purchases would likely be at the center of the deal as that would be the easiest thing for Beijing to cross off the list.  We maintain a serious deal with meaningful tonnages would have a negative effect on the Brazilian Real and Brazil’s stock exchange.  Neither is suggesting anything imminent, even though most think a deal could be signed by the end of March.

Mostly clear Midwest radar this morning, although frigid temperatures remain in place from North Dakota to Texas.  Highs and lows from the weekend were anywhere from 20-30 degrees below normal for the first days of March, and that trend should continue for the foreseeable future.  Even by the weekend across the Dakotas, high temps are only seen in the low 20’s which would be 10-15 degrees below normal.  This is will prevent melting weather from beginning the slow process of getting rid of substantial snowpack.  Across the Upper-Midwest, 99.0% of the area was covered by snow with an average depth of 12.8”.  This is snow-water equivalent of 2.7” while some spots in the Northern Plains have as much as 12” of snow-water equivalent locked up.  The 6-10, 8-14 and Week 3&4 outlooks have below normal temps throughout which puts us out to March 29th.

Mixed markets this morning with row crops leading the way higher while wheat markets struggle to add to the impressive reversal from Friday.  Row crops would be the largest benefactors to any trade deal signed with China, even though Chinese purchases of U.S. corn and wheat have been rumored for months to no avail.  China might buy some U.S. wheat, but the idea they are going to swoop in and buy 5-7MMT of wheat seems unlikely given their perceived supply situation, and the fact their imports of Canadian wheat are sharply higher than a year ago.  Plus, any Chinese buy of U.S. wheat should be easily accommodated by the current balance sheet which is set to carryout 1.0bbu for the third straight year.  Even if China bought 7MMT, carryout would fall to around 750mbu which is obviously much lower than 1.0bbu but still not an environment which requires wheat prices $2.00/bu higher than spot.  In addition, if China did buy a big tranche of U.S. wheat, it would likely not happen in a vacuum.  In other words, the U.S. selling China wheat would probably happen at the expense of other destinations which would be forced to buy the remaining Black Sea supplies or European origin.  Deliveries continue to rack up against the March, reflecting the poor logistical situation on the river and by rail.  Open interest changes Friday saw corn up 18,117 contracts, soybeans up 8,562 contracts, meal up 3,369, oil up 6,111, SRW up 2,530 and HRW up 4,04 contracts.

Friday saw the latest COT data released, although it still has limited usefulness given the date on the data is 2/19.  Still, it is reflecting the growing net short positions which have helped drive us to current prices.  In KC wheat, funds sold another 8,147 contracts to put them net short -35,030 contracts.  This is the largest net short since August of 2016 and accounts for 63% of the largest net short on record.  Given the continued sell pressure, we think this position is probably closer to -50,000 contracts at current.  Commercial buying has occurred, but not to the levels one would like to see to feel better about a bottom.  In Chicago, funds sold 30,753 contracts to put them net short -74,657 contracts.  This was among the six largest weeks of net fund selling on record.  Funds are now net short -115,590 contracts of corn, the largest net short since September and a big shift from the 60,000-contract net long witnessed in December.  Commercials have been adding aggressively to their gross commercial long. In soybeans, funds are net short -81,030 contracts, the largest net short since November.

Additional registrations of corn overnight as deliveries continue to pile up there.  Total deliveries measured 2,267 contracts, bringing the month-to-date total to 5,152 contracts.  Over 25 million bushels have been thrown at the March contract, which puts the current logistical situation into perspective.  There were 80 fresh registrations in Kansas City Friday with total deliveries of 86 noted overnight.  The majority of which were Cargill.  Soybean deliveries totaled 545, bringing the month-to-date total to 2,020 contracts.  March SRW deliveries also continue to circulate with no strong stoppers.  Overnight there were 553 deliveries with the total now at 1,530 contracts.  Contract lows were noted in the SK/SN and CK/CN, while H/K spreads continue to enjoy a volatile delivery cycle.

Lots of seasonal studies and sentiment research flying around about wheat given the plunge to new lows last week.  Looking at the May contracts of both Chicago and Kansas City over the last 10-years, we see Chicago has now closed in on the lowest price for a May contract of the last decade.  In KC, current prices are the lowest since 2009 for this date on the calendar.  It begs the question what we are trying to price in considering the calendar says March 4th and the entire Northern Hemisphere growing season is still in front of us?  We also did some backtesting using the backtest engine on www.sentimentrader.com.  Their opinion index, or Optix, dropped to 24 last Thursday which would be considered excessively pessimistic.  We wanted to see what the returns were over the next 4-weeks every time wheat has had an Optix reading of 25 or less.  According to their data, the average return 4-weeks later was 2.58% with a win rate of 70%.  Over the last 5-years, there have been 147 times wheat has returned an Optix reading of 25 or less.  Expanding the results to multiple timeframes, wheat produced winners a majority of the time under every time frame from 1-week later to 1-year later with the highest win rate being 2-weeks later at 75% of the time.  Between the lowest prices of the last 10-years for early March, as well as pessimistic sentiment, we think downside is limited in wheat from current levels and a rebound in the coming weeks is likely.

Bottom Line: Higher row crops on trade war optimism, and even wheat contracts are trying to push higher at the 7:00 hour.  Things have likely gone far enough in wheat, although a neck-breaking rally doesn’t need to occur either.  The Saudi and Iraq tenders going to the U.S. would be a victory.  Otherwise, waiting on a turn in the weather or details from the trade deal.  At this point, not even sure we could call is buy the rumor sell the fact or sell the rumor buy the fact, because no one knows what is rumor and what is fact. 

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.

3/1/2019 Morning Comments

Good Morning,

In the last 24 hours since President Trump and Kim Jong Un walked away without a deal in Vietnam, the focus has shifted back to the Chinese trade talks.  Chatter out of Washington D.C. suggest President Trump has instructed his team to make a deal quickly, obviously wanting to produce a win after no agreement with North Korea and a “failure” in trying to secure his border wall.  In our opinion, a deal which is hastily put together after many months of negotiations will benefit Ag the most.  Our reasoning is it will be relatively easy for China to placate the U.S. by agreeing to buy a bunch of soybeans along with other Ag products while fending off calls for more serious reforms to intellectual property theft, currency manipulation, investment in state-owned companies and technology transfer.  On one hand, the Midwest will benefit, but on the other, the last 12-months will have been essentially for nothing as China gets to continue operating outside the lines of the developed world.  It will be interesting to see the reaction from various Ag groups and political parties on how this is received if the talks do indeed take this path.

Snow across the Dakotas, W-MN and NW-IA because most were getting concerned it didn’t know how to snow anymore.  Snow will linger most of Friday before clearing out though there are more snow chances in the Upper-Midwest later in the weekend and early next week.  Nothing hopeful in the extended maps with below normal temps persisting through the 8-14 day which puts us out to March 14th.  Yesterday, NOAA issued their one-month outlook for the month of March, and much like the 6-10 and 8-14 day, showed below normal temps for the majority of the Midwest and Plains.  Most of the Northern Plains will see normal to slightly below normal precip, but the southern plains and Midwest will be mainly above normal.  Assuming this outlook proves accurate, no big warmup to melt the snowpack until April it would appear.

Mixed markets this morning with soybeans leading the charge higher while wheat languishes.  Strength in the soy complex is presumably tied to ideas of a trade deal being close at hand.  Additional soybean sales to China were announced in yesterday’s export sales report, although it is difficult for us to believe additional purchases will continue considering Brazilian soybeans are still cheaper with or without the tariffs.  Loading up on U.S. soybeans when they aren’t in the most favorable export position Mar-Aug would really throw global supply lines out the window and most likely keep more South American soybeans around to compete with U.S. new crop this fall.  Additional deliveries overnight with ADM dropping bombs in the corn market.  Not a lot of incentive to ship corn instead of deliver when the river logistics are awful and rail is arguably worse.  Open interest is still coming out of the March, but we did see overall open interest rising as the new month rolls in.  Corn open interest was up 21,129 contracts yesterday, soybeans were up 8,876 contracts, meal up 3,350 contracts, oil down 100, SRW up 5,105 and HRW up 3,491.

Focus on export sales yesterday which were solid, although several pointed out these likely had some catch-up sales related to the government shutdown as to the reason for the big beat.  Wheat sales totaled 17.5mbu vs. the 13.1mbu needed weekly to hit the USDA forecast.  Total export commitments of 806.9mbu are now up 2% from a year ago which is still behind the roughly 11% increase the USDA is calling for.  Shipments are still 7.7% behind a year ago, so both sales and shipments need to pick up in the final quarter of the year.  Corn sales totaled 48.8mbu vs. 31.2mbu needed weekly to hit the USDA forecast.  If the previous six weeks are averaged together, this week’s sales were the best since late December.  Total commitments of 1.557bbu are up 1% from a year ago which is in-line with the USDA’s forecast, although this gain has slipped from 4% two weeks ago.  Last year’s sales ran strong well into the summer as the drought-stricken South American crop pushed additional business back to the U.S.  This is not likely to happen this year.  Soybean sales totaled 80.7mbu vs. the 17.7mbu needed weekly.  Total commitments of 1.431bbu are down 14% from a year ago, but this deficit has decreased from 20% two weeks ago.  Chinese sales now stand at 9.2MMT vs. 7.4MMT last week.  Meal and oil sales were on the lighter side.

Canada released export sales data from the month of January yesterday with total shipments measuring 1.455MMT vs. 1.589MMT in December but above the 1.363MMT a year earlier.  Marketing-year-to-date shipments total 9.468MMT vs. 7.966MMT with durum shipments totaling 1.702MMT vs. 1.919MMT Aug-Jan a year ago.  Of particular interest were shipments to China which saw another 115,400MT sent during January vs. 28,000MT a year ago.  Total shipments this marketing year measure 1.107MMT vs. 443,900MT a year ago, a 149% increase.  We don’t have updated Australian export data in front of us, but have to imagine the trade war with China has pushed the Chinese demand to those two countries as opposed to the U.S.  Oat exports are slightly ahead of a year ago, barley exports are up 32% and canola is down 6.3%.

ADM registered a fresh 768 corn certs last night, delivering same as part of a total 1,975 dumped last night.  This brings the total delivery period to 2,885 contracts with no real strong commercial stoppers.  Can’t ship, deliver.  The Andersons registered another 200 SRW certs last night, putting total deliveries last night at 577.  That brings month-to-date to 977 with one stepping forward.  Soybean deliveries totaled 655 last night with LDC stopping 223.  Month-to-date deliveries measure 1,475 contracts.  There were no deliveries in Kansas City last night, although with the spread inverted by close to 2.0c, that could change this weekend.  There were 80 deliveries in Minneapolis, although CHS House stepped into stop 65 of them.  That spread remains inverted by close to 10.0c, so additional deliveries could be a feature but CHS has consistently stepped in to stop any and all deliveries going back to the December cycle.

Saudi Arabia issued a tender for 595,000MT of 12.5% hard wheat for Apr-Jun delivery yesterday.  Offers are due today, and the U.S. should be positioned to pick up a majority of the business.  However, with rallying freight on the front end, the HRW cash market now has an impressive carry in place, which could limit commercial participation.  It would be stereotypical of the HRW market to sit at contract lows and in desperate need of export business, only to see carries limit commercial participation.

Bottom Line:  More waiting on a trade deal.  Spring insurance pricing is over with December corn barely squeaking out $4.00 and November soybeans just barely above $9.50.  Still, these are not “bad” prices, and should allow some margin to be captured if soybean basis improves.  Spring wheat guarantees will look low compared with last year and soft cash prices but is mostly in-line with the 5-yr average.  Spring weather could have as much to say about planted acres as futures prices do.

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.