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.
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.