4/12/2019 Morning Comments

Good Morning,

The last bits of Winter Storm Wesley are still swirling over the Northern Plains this morning, although the system is expected to be completely finished later this afternoon. The snow totals are nothing short of impressive, and the actual amounts that fell in the central and northeast part of South Dakota might not ever be known due to the high winds.  As of this morning, 68.4% of the Upper-Midwest was covered by snow at an average depth of 5.8”.  Compare that with 5.4% of the area covered by an average depth of 0.3” on April 9th.  Comparing the two images from April 12th and April 9th below does it some justice, although until one sees with their own eyes, it is difficult to believe.  According to another map from NOAA, there is between 2-6” of water-equivalent moisture in that snow, which will eventually melt and make its way into the river system, keeping flooding concerns a major issue.  Unfortunately, no big warm-up seen as temps slowly get toward the 40’s early next week and the 50’s by next weekend which will keep the snow in place longer than desired.  Additional moisture is being seen in the Plains by the end of next week which will not be welcome.  Temps finally work towards normal at the end of the 8-14 with precip ideas moving below normal for the entire Plains but this takes us out to April 19-25.  If this snow is still sitting around by the end of that period, we will be talking about major planting delays in the Plains and western corn belt.

Firmer markets this morning led by wheat markets as Egypt’s tender overnight should see HRW and SRW among the cheapest offers.  In addition, Algeria bought 540,000MT of optional-origin wheat this week with a good chunk expected to be HRW and the balance French.  Almost all of this new business will execute in the 2019/20 marketing year, so it will mean little for ending stocks in 2018/19.  Still, demand is demand and without knowing exactly how large our wheat crop will be this year, any additional exports we can garner before Black Sea and European wheat come back with a vengeance is a bonus.  Corn and soybeans remain inside recent ranges with their overall downtrends in place.  The latest round of export sales were less than impressive with some huge work to do this spring and summer to prevent USDA from making additional cuts to their forecasts.  Soybeans feel as though they will be within 10c of $9.00 until a trade deal is cemented.  Open interest changes yesterday saw corn up 15,283 contracts, soybeans up 10,729 contracts, meal down 755, oil down 2,674, SRW up 6,831 contracts and HRW down 3,085.

Export sales were mostly disappointing yesterday, although what did see commitments larger than the level needed.  Wheat export sales in the week ended 4/4 totaled 10.0mbu vs. the 1.4mbu needed weekly to hit the USDA forecast.  Sales haven’t been wheat’s problem as total commitments of 903.8mbu are up 7% from a year ago.  Shipments are wheat’s problem as only 690.7mbu of the 945mbu have shipped for a ratio of 73.09%.  That level of shipments to forecast as of the first week in April is the lowest on record.  This is why in the opening paragraph we suggest most of these additional sales will not in fact be executed in this marketing year with larger than normal sales being rolled over to 19/20.  Corn sales were light at 21.6mbu vs. the 27.6mbu needed weekly to hit the USDA’s recently downwardly revised forecast.  Total commitments of 1.722bbu are down 9% from a year ago while the USDA is only forecasting a 5% decline from a year ago.  Sales need to average 27.6mbu each week through August to hit the USDA forecast which would be the highest average sales program since 2006.  Not a lot of weeks we can write off as an “off-week” and still keep the USDA from making additional cuts.  Soybean sales were also low at 9.9mbu vs. the 12.9mbu needed weekly to hit the USDA forecast.  Total commitments of 1.613bbu are down 17% from a year ago with the USDA only looking for an 11.9% decline.  Like wheat, shipments are the big problem for soybeans with only 60.5% of the USDA’s forecast having been shipped as of the first week in April which would be the lowest total on record going back to 1991.  The average pace of shipments needed through August at 35.2mbu would be the largest on record by over 7mbu from the next largest program which occurred in 2017/18.  Unlikely to see that kind of summer export pull considering larger crops in Argentina and slower demand pull out of China.

The big talker Thursday was China’s purchase of 77,732MT of U.S. pork which was easily the largest purchase on record and almost tripled the previous record purchase back in 2017.  Earlier this year, analysts thought China could buy as much as 300,000MT of finished pork from the U.S. as it attempts to bridge the shortfall gap created by ASF.  We did a fourth of that total in one week and we are barely a fourth of the way through the calendar year.  Interestingly enough, U.S. pork is still subject to tariffs implemented at the beginning of the trade war, so it shows the true need for this product by China.  The ongoing purchases, should they continue, will continue to support lean hog futures and hog feeding margins which should keep expansion ramped up through year-end.  What will be critical is keeping the most stringent safety protocols in place across Canada and the U.S. to prevent the disease from spreading to North America.  ASF exposure in North America could see the entire bull narrative in hogs fall short.  Beef and poultry demand should also see continued demand.

A couple crop estimates thrown around yesterday with BAGE taking their estimate of 2019/20 Argentine wheat acres up 3.2% to 6.4 million hectares and production to 20.6MMT vs. 19.5MMT this year.  Strategie Grains cut their 2019/20 EU soft wheat estimate by 1.3MMT to 144.8MMT.  Both of these estimates mean little at this juncture, although the fact StratGrains is cutting their new crop estimates due to dryness already shows how critical spring and summer rains are to prevent further cuts.  Some concerns over dryness in parts of Ukraine as well, but difficult to get too excited about any crop issues on April 12th.  What is certain is crop adversity in other parts of the world will be needed for U.S. to see export demand of any consequence in 19/20.  August FOB offers of 11.0% protein hard wheat out of Russia are seen at $197/MT vs. German at $200/MT vs. Baltic at $198/MT with US-HRW up at $214/MT.  French new crop offers are seen at $198/MT vs. US-SRW at $203/MT.  One must keep in mind, those destinations already enjoy a freight advantage over the U.S., so for U.S. wheat to pick up business, FOB offers need to be cheaper than competitor origins.  By the time we get through harvest, our guess is variable storage rates will be on the rise and spreads will be pricing wheat to stay in storage in the U.S., not head for export hubs.

Bottom Line: Firmer markets to close the week as our space is caught between a disappointing old crop demand picture and a potentially friendly new crop supply situation if weather stays adverse.  It is still too early to get runaway bullish on planting delays of corn and soybeans, although spring wheat is already losing acres.  If the snow is reluctant to leave, however, some of the huge increase in corn acres for the Dakotas and Minnesota will have to be tempered. 

Good Luck Today.



Tregg Cronin

Market Analyst

Tregg.Cronin@halocommodities.com

www.halocommodities.com

@5thWave_tcronin

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

4/10/2019 Morning Comments

Good Morning,

Another winter storm is slamming South Dakota and southwest Minnesota this morning, bringing with it heavy snowfall totals and 2-4” of rain depending on how it falls in some spots.  Unlike the blizzard which hit a year ago across the same area, the soil moisture profile in 2019 is brimming, offering little room for the moisture falling to go into the ground.  This will keep flooding and ponding concerns up, and dry down for fieldwork especially slow.  Accurate totals are not really available yet since the storm began, but 2-4” of water-equivalent moisture is what is expected across most of South Dakota and southern Minnesota.  The storm finishes up Friday with a couple days respite before additional moisture moves into Nebraska and eastern South Dakota midweek next week.  Not much change to extended maps with below normal temps and above normal precip seen through April 23rd.

Mixed markets this morning with corn bouncing slightly while wheat and soybeans trade modestly lower.  The April WASDE came and went, delivering the needed changes which were almost uniformly bearish.  The fact markets held together as well as they did would suggest most of the bearish data from the March 1 stocks and March 29 acreage report is factored in.  That said, many respected analysts still have issues with some of the corn demand line items which could prompt additional cuts on subsequent reports.  Despite the massive storm slamming the Plains this morning, markets still don’t care about late planting, and probably for good reason.  As we discussed Monday, we have acres to give on corn, soybeans and spring wheat and still maintain comfortable carryout levels.  If we get to the end of April without any meaningful progress made, markets should start to pay a little more attention.  South American crop updates were bearish and a good reminder competition on the export front will remain fierce this summer and fall.  Open interest changes yesterday included corn up 9,266 contracts, soybeans up 11,144 contracts, SRW down 6,697 and HRW down 6,068 contracts.

The changes of most interest on the WASDE were definitely in the corn market with USDA axing feed/residual demand by 75mbu, cutting ethanol demand by 50mbu and cutting exports by 75mbu for a total demand reduction of 200mbu.  We felt the reductions to feed/residual would be larger based on March 1 stocks data, but also didn’t feel a cut to exports was coming this month.  The 50mbu reduction to ethanol demand was needed, but it could be argued another 50mbu needs to be cut unless run-rates improve dramatically through August.  The USDA clearly felt the competition with Argentina, Brazil and Ukraine was strong enough to rip the band aid off today as opposed to waiting another month.  The combined changes left ending stocks at 2.035bbu for the third year in a row.  Ending supplies at that level is such a mentality change from the much more constructive ideas of 1.5-1.6bbu thrown around last summer.  The changes should also keep the market from jumping the shark on 2019/20 demand instead of jacking up all demand line items by 100mbu just because we need to get rid of supply.  As this year is showing us, you actually have to use the bushels as opposed to just saying you will on paper.

Wheat changes were light with the USDA cutting seed use by 1mbu, feed use by 10mbu and exports by 20mbu for a total reduction of 31mbu.  Ending stocks were projected at 1.087bbu vs. 1.099bbu a year ago.  Like corn, we felt the cut to feed/residual use could have been larger based on March 1 stocks data, but not worth getting excited over.  The cut to exports was necessary, but here again, might not be enough when all of the bushels are counted on May 31.  Logistics remain poor, and despite an impressive sales pace over the last four weeks, all of the bushels will not leave the country before June 1.  Final ending stocks should prove close to 1.1bbu, although a few million bushels here or there is probably not germane to the overall wheat narrative.  Minor tweaks were made to the soybean balance sheet with ending stocks dropping 5mbu to 895mbu.

Global balance sheet changes yesterday included Brazilian soybeans being increased to 117MMT from 116.5MMT last month.  Last year’s production total was increased to 122MMT, further increasing that record.  Argentine soybeans were left unchanged at 55MMT, but the combined total of 172.5MMT was a new record for the two-country total.  Both countries had their corn production estimates raised as well with Argentina raising to 47MMT from 46MMT last month and Brazil up to 96MMT from 94.5MMT last month.  Corn exports between the two countries are projected at 61.5MMT vs. 46.1MMT a year ago which is probably the most important South American figure to focus on from yesterday.  Add in Ukrainian corn exports to the South American total and one doesn’t have to ponder long about why the USDA cut U.S. corn exports yesterday.

Back inside the U.S., we thought it worth pointing out the by-class changes in the wheat balance sheet, specifically in the HRS S&D.  USDA cut HRS export demand by another 15mbu, which helped push ending stocks up to 305mbu.  The 305mbu of ending supplies are the largest since 1987/88 with a stocks/use ratio of 51.57%.  We’ve seen 50%+ stocks/use ratios in HRW and SRW in the recent past, and when we had those, it is helpful to think about the fact we could get through November without running out of wheat if we raised zero bushels of spring wheat this year.  Unfortunately, without a sizable reduction in production for the 2019/20 growing season, we could see ending stocks rise even further.  Based on our current analysis, we would need to see HRS acres drop 1 million from a year ago to keep ending stocks unchanged at 305mbu.  While the current winter storm hitting South Dakota could be arguing for such a decrease, we will need to see similar attitudes prevail in North Dakota and Minnesota to see it become reality.  2019/20 should see MW/KW and MW/W inter-market spreads tighten significantly.

Bottom Line: The last WASDE report without a 2019/20 balance sheet on it has come and gone, allowing the market to more fully focus on new crop.  Acreage debates will rage over the next 6-weeks, especially if progress remains slow in the Plains and Upper-Midwest.  None of our markets are carrying risk-premium for late planting, and so far, they don’t need to.  If meaningful progress hasn’t been made by April 25th, the record managed fund short could start to get a bit more uncomfortable.

Good Luck Today. 

Tregg Cronin

Market Analyst

Tregg.Cronin@halocommodities.com

www.halocommodities.com

@5thWave_tcronin

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

4/8/2019 Morning Comments

Good Morning,

Another week, another bomb cyclone.  Actually, we’re not sure if the midweek storm headed for the Midwest is being classified as a “bomb cyclone” or not, but high winds, rain/snow and sub-freezing temperatures will once again grace the Plains with their presence.  0.75-3.00” of water-equivalent moisture looks set to drop on Nebraska, South Dakota, southern Minnesota, northern Iowa and most of Wisconsin.  This will exacerbate flooding conditions and prevent any meaningful drying from taking place for at least another week.  Parts of the Dakotas were already looking at an April 20th start date for spring wheat planting if conditions remained ideal, but that isn’t likely to be the case.  Extended maps from the weekend also look less than ideal with below normal temps in the 6-15 day while precip is mainly normal/above. 

Markets are mixed this morning with wheat lower and row crops mixed to better.  Corn and wheat are paying no mind to the incoming spring storm, and it could be argued they don’t need to depending on what the USDA issues in their WASDE report tomorrow morning.  There is no doubt the round of moisture will delay spring fieldwork and planting further, and the flooding conditions in many areas of Iowa and Nebraska should yield additional prevent plant acreage this year.  However, most of our markets have acres to give based on plentiful old crop supplies, hence the lack of panic so far.  HRW 11.0% protein FOB offers remain the cheapest hard wheat offers in the world by $8-18/MT vs. Black Sea and Europe.  Larger than usual May-July export demand should occur, although we aren’t sure this is enough to move the ending stocks needle for 2019/20 unless Q2-Q4 demand remains steady with a year ago.  Crop commentators suggest the HRW crop is getting larger while the SRW crop is getting smaller which is difficult to argue with at the moment.  Lots of old crop high protein HRW with some concern about low protein in the new crop, but we are 30-days from determining that.  Corn open interest fell 39,942 contracts on Friday as the first day of the GSCI roll kicked off.  Soybean open interest was up 2,729 contracts, meal down 5,514, oil up 4,969 contracts, SRW down 10,225 contracts and HRW up 652.

Friday’s COT data showed large spec traders adding 62,279 contracts to their net short position, which moved to a new record at -269,827 contracts.  This week of reporting included the report day plunge on March 29th with funds likely covering some of that position through Friday.  Commercial activity is less than inspiring with the gross commercial long adding to his position but not to a level which would suggest a call to action.  Index traders finally stopped selling corn, buying 10,662 contracts last week for their second week of buying in a row.  Funds sold 14,335 contracts of soybeans to leave them net short -91,728 contracts vs. the 6-week average of 86,549 contracts.  As we noted last week, all traders in the soybean pit feel a bit paralyzed at the moment as global supplies and Chinese demand growth give no reason for an extended rally, but the threat of a trade deal with China and large scale purchases remain enough of a deterrent to press beans to the downside.  Funds in KC sold 4,039 contracts to put them net short -48,741 contracts which is the largest since March 2016.  Crop conditions should embolden the funds to hang tight to their net short.

We’ve referenced a loss of acreage in corn and wheat as not being that big of deal since the March 29th USDA reports, and for good reason.  Based on the March 1 stocks data in corn, we should seed feed/residual demand reduced somewhere between 100-150mbu depending on how aggressive the USDA wants to get.  In addition, ethanol demand should also be reduced 50-100mbu, again depending on how aggressive the USDA wants to get at this juncture.  We feel export demand can be left alone considering an improvement in inspections as of late.  Nonetheless, the ethanol and feed changes alone could result in 150-250mbu of lost demand which will go straight to carryout.  This would put ending stocks at 1.985-2.085bbu which is just below last year’s 2.140bbu.  This changes the mentality for the 2019/20 balance sheet dramatically as 250 million bushels of corn added to beginning stocks is like planted acreage coming in at 94.352 million acres vs. the USDA’s survey-based estimate of 92.792 million.  Said another way, planted acreage could come in at 91.232 million with the extra beginning stocks and have the same supply side picture.  If the USDA would have printed 91.232 million acres on March 29 we think the trade would have viewed that in a supportive light which shows just how big of an impact that extra 150-250mbu of stocks has.

Similar situation in wheat, although not to the same degree as corn.  Demand should see reductions in feed/residual by 40-45mbu while exports are still likely overstated by 25-40mbu as well.  We aren’t sure if they will make a cut to export sales this report or wait until May, but without a pickup in actual shipments, a cut looks inevitable.  If they take steps to reduce both feed and exports this month, ending stocks would rise to 1.095-1.150bbu vs. 1.055bbu a month ago.  This would mark the third year in a row of ending stocks at or above 1.1bbu, which are the largest carryout levels since the 1980’s.  Even with the lower than expected wheat acreage, trend line yields should keep 2019/20 ending stocks over 1.00bbu next year without an unforeseen bump in export demand.  All signs point toward the Black Sea and Europe clawing back lost demand to the U.S. in 2019/20, even if the U.S. has a nice start to the year in Q1-2019/20 as those countries rebuild stocks.

Bottom Line: Grains trading in the direction of proposed changes to USDA balance sheets tomorrow.  More important to many will be the incoming winter weather which will raise stress levels for calving cattle and farmers unable to get into the fields.  Unlikely we will see farmers selling much of anything until planting conditions improve.  Unfavorable weather is likely to keep logistics snarled which should keep exports slow and difficulty in reaching current USDA export forecasts high.

Good Luck Today.



Tregg Cronin

Market Analyst

Tregg.Cronin@halocommodities.com

www.halocommodities.com

@5thWave_tcronin

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

4/5/2019 Morning Comments

Good Morning,

Favorable comments emerging from the U.S.-China trade talks on Thursday with Bloomberg reporting Vice Chairman Liu said a “new consensus” had emerged.  President Trump said there were prospects for a “monumental” agreement.  President Trump also said it may take four weeks to put together a framework for the deal and two more weeks to put the details on paper.  There were details being thrown about suggesting China may have until 2025 to meet commitments put forth in a trade deal.  As a colleague pointed out, if China agrees to buy 20MMT of U.S. corn, but they have until 2025 to do it, then this amounts to roughly 3MMT of corn purchases.  120 million bushels of corn exports per year is nothing to scoff at but it is far different than 20MMT having to be executed in the span of 12-months.

Morning GFS models are putting more moisture in the forecast for the central plains and western corn belt next week.  As of this morning, the models are suggesting 0.75-2.50” could fall in South Dakota, Nebraska, S-Minnesota and Iowa.  This will add to flooding concerns and prevent any meaningful dry down from occurring.  As if the 7-day weren’t enough fun, the 6-10 and 8-14 day maps from NOAA keep below normal temps and above normal precip in place through April 19.  If drying and firming doesn’t really start to happen until then, actual planting might not take place until May. The situation is still very much fluid, but this forecast is far more problematic sitting on April 4th than it is March 4th and on top of the already saturated soils across the Midwest.

Weaker markets across the board this morning with nominal losses being led by soybeans and KC wheat.  Lots of cross-currents at the moment, with the omnipresent trade talks at the forefront but also another spring snowstorm/rain event set to sweep through the Plains and Western Corn Belt next week.  Up to this point, there has been little concern about planting pace and progress and for good reason.  Last year, several rounds of snow moved through the Plains and WCB in April, delaying the start of planting but farmers recovered and went on to produce big crops.  This year, the flooding has been worse already, and with river systems still dealing with a large amount of run off and what appears to be more on the way, some of these acres just don’t seem likely to dry out in time.  As we’ve discussed before, prevent plant acreage in 2018 hit the lowest level since 2012 at 1.8 million acres.  That number should be sharply higher this year, but most of our balance sheets absolutely require less acres to prevent burdensome supplies getting even larger.  What will matter most at the end of the day is how many acres we lose from our starting point and whether the ample soil moisture reserves will offset the loss of a couple million acres in terms of yield potential.  Open interest changes yesterday saw corn down 19,793 contracts, soybeans up 3,901, meal up 605, oil down 4,934, SRW down 6,782 contracts and HRW down 4,168 contracts.

Export sales were a mixed bag yesterday with wheat and soybean sales solid while corn sales faltered.  Wheat export sales totaled 25.9mbu vs. the 4.6mbu needed weekly to hit the USDA forecast.  Total commitments of 893.4mbu are 6% ahead of a year ago while the USDA is looking for a 7% increase.  The issue for us is not sales, but rather shipments with only 10 weeks left in the marketing year.  We need to ship 29.5mbu per week through the end of the marketing year to hit the current USDA forecast which would be the largest since 2011.  It is unlikely these sales will be executed in 2018/19, but should still sail in Q1-2019/20.  With that in mind, it is likely USDA will cut exports on next week’s WASDE, raising carryout toward 1.0bbu.  Soybean sales were solid at 72.4mbu vs. the 12.8mbu needed weekly to hit the USDA forecast.  That level of sales were the largest for this date on the calendar on record.  Total commitments of 1.603bbu are down 15% from a year ago while the USDA is looking for an 11% decline.  Like wheat, soybean shipments are the problem, not necessarily the sales.  We have only shipped 58.7% of the USDA’s forecast, the lowest percentage for the end of March on record.  We need to ship 35.1mbu each week through the end of the marketing year which would be the largest on record by nearly 8mbu.  Corn export sales were soft at 21.2mbu vs. the 26.5mbu needed weekly to hit the USDA forecast.  Total commitments of 1.700bbu are now down 9% from a year ago while the USDA is only calling for a 2% reduction.  Unlike wheat and soybeans, we don’t need a record shipment pace but this year does need to be the second largest shipment program on record.  Essentially, we need record wheat, soybean and corn export programs through the end of their respective marketing years in a season with awful logistics or the USDA will be forced to cut their forecasts and raise carryout.

Minneapolis continues to lead downside losses, closing lower for the sixth consecutive session on Thursday, the longest losing streak since June 2018.  Comments from canola exporters suggest Canadian producers will switch away from canola in 2019/20 if the trade dispute with China is not resolved soon.  The most obvious candidate for many of these producers looking to reduce acreage by 10-15% would be spring wheat. Canada has already been undercutting U.S. hard wheat exports for months, and this would look to continue into 2019/20 if additional supplies are produced.  As we’ve written about over the last several weeks, the HRS balance sheet for both 2018/19 and 2019/20 is bearish as it stands today. With the incoming weather next week, acres could fall further given the poor profitability of HRS and the lack of nitrogen availability across the Northern Plains.  Still, by our calculation, acres would need to fall another 500,000 acres to see carryout unchanged on the year which is still the largest since the late 80’s.  Asking for a one million acre drop from last year when trade tensions are still simmering, and soybean basis remains historically poor might be a tall ask.  Pure economics favor soybeans over HRS, but economics alone rarely make the decision for a producer.

Continue to watch the variable storage rate calculation period as the WK/WN is so far averaging 36.8% of full financial carry while the KWK/KWN is averaging 39.8%.  Chicago is already at exchange minimums for daily storage at 0.00165c/day (5c/mo), while KC is at 0.00265c/day (8c/mo).  Kansas City looks likely to see storage rates drop once the calculation period is over which would put the KWN/KWU at 77.10% of full financial carry and the KWU/KWZ at 101.1% of full financial carry.  One would think commercials will be bullspreading those sort of levels in large volumes considering the spread at that level represents a risk free trade, especially if commercials are borrowing money in-house at below market interest rates.  Corn moving to variable storage rates for the CZ9/CH0 spread period is also getting more attention as that spread sits at 69.02% of full financial carry.  The spread would need to move to  -15.50c or wider which represents 80% of full financial carry in order to move storage rates out to 8c/mo.  As we get closer to that calculation period in November, expect a growing chorus about corn exports set to be ruined like wheat exports.  Corn differs from wheat in the sense that U.S. wheat has major transportation disadvantages against competitors, relegating us to the supplier of last resort.  In corn, the U.S. is still easily the largest corn exporter in the world, although this doesn’t mean commercials storing more corn to pick up storage revenue can’t hurt annual prospects.  In addition, the other major corn exporters in South America have similar transportation costs to the U.S. once corn hits port.

Bottom Line: Sloppy finish to what had been a supportive week of price action.  We will be watching next week’s storm track closely as a lot of the rain/snow looks to fall in areas which can scarcely afford any more.  Larger prevent plant acreage probably makes USDA’s total acreage pie being lower than a year ago look more believable.  Continue to watch trade talks, but extensions to when China has to buy the agreed upon tonnages will make them less impactful to our burgeoning balance sheets.

Good Luck Today.

Tregg Cronin

Market Analyst

Tregg.Cronin@halocommodities.com

www.halocommodities.com

@5thWave_tcronin

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

4/3/2019 Morning Comments

Good Morning,

Multiple media outlets are reporting U.S. and Chinese officials have resolved most of the outstanding issues in the long-running trade dispute, but it is the enforcement of a deal which remains a sticking point.  Without enforcement, the deal is essentially worthless as few think China will uphold a deal which isn’t seen in her best interests.  Also worth paying attention to today are EU Ambassadors meeting in Brussels today to decide whether to grant EU Trade Commissioner Malstrom the mandate she needs to begin formal US/EU trade talks which were agreed to last July.  Washington is tiring over the delay to these talks, raising the prospect of the Trump Administration unleashing tariffs on auto-imports which would surely result in retaliation by the EU.  In addition, the EU hasn’t agreed to bring agriculture into the trade talks which the US has demanded.  European Union farmers are some of the most subsidized in the entire world on top of the member countries being some of the most averse to GMO technology.  Cracking the European Union nut on ag imports from the U.S. would be a monumental accomplishment but one we are not holding our breath over.

Still looking at rain chances in the central/eastern corn belt as well as the Delta/Midsouth the next several days.  The entire eastern half of the contiguous United States will see varying degrees of rainfall between 0.50-5.00”.  This should keep high-water and flooding concerns alive and well along the nation’s waterways.  The MS-River in St. Paul crested yesterday with those waters working their way down the next several weeks.  The Red River in Fargo is expected to crest sometime Monday/Tuesday next week around 34.8’ which is 6’ below the all-time record of 40.8’.   Extended maps keep precip above normal during the 6-14 day outlook while temps are seen normal to below normal by the 8-14 day.  Not exactly the forecast the Northern Plains was looking for.

Firmer markets across the board this morning, led by Chicago wheat which finds itself up over 1.0% as we head toward 7:00am CDT.  Monday afternoon, the USDA confirmed the poor conditions of the SRW crop which had been bantered about most of the winter.  Uneven emergence, drowned out spots and an overall decline in acres from a year ago were all concerns.  It would appear those concerns were well-founded, and when combined with tightening old crop stocks, raises the risk premium needed for the 2019/20 growing season.  As of today, SRW is the one class of wheat which could see a fairly tight balance sheet next growing season.  Corn and soybeans are also higher as we continue to claw back from Friday’s dismal report.  Still plenty of concerns about flooded acres, higher prevent plant and the ability to obtain nitrogen ahead of seeding which didn’t get applied last fall.  Economics still argue for farmers trying to plant as much corn as possible, but mother nature and logistics can and will have a say in the final number. Open interest changes yesterday saw corn up 7,122 contracts, soybeans up 3,147 contracts, meal up 1,037, oil up 2,456, SRW up 2,704 contracts and HRW up 3,836.

Deliverable stocks in Chicago fell another 1.5mbu last week to 47.813mbu which compares with 69.722mbu a year ago.  Total wheat stocks of 55.078mbu are down 2.002mbu on the week and down 18.24mbu from a year ago.  Wheat stocks in Toledo are at their lowest level since 2013/14 while wheat stocks in Chicago proper are at their lowest level since 2007/08.  An improvement in SRW export competitiveness has helped draw those stocks down and reduce variable storage rates.  HRW wheat stocks fell 490,000 bushel last week to 100.591mbu which is 4.559mbu below a year ago.  MGEX stocks fell 144,000 bushels in both Duluth/MPLS last week to 15.741mbu which compares with 22.521mbu a year ago.  The K/N averaging period for the next VSR calculation period is underway with 11 of the 29 settlements in the books.  KWK/KWN is averaging 41.2% of full financial carry while the WK/WN is averaging 39.1%.  Chicago wheat is already at the minimum allowable storage rate of 0.165c per day and cannot be reduced even if the average ends up below 50% of financial carry.  KC on the other hand can reduce storage rates by another 3c/mo from 8c/mo to 5c/mo and be even to Chicago.  It would appear this is going to happen.

The deliverable stocks discussion leads into the 2019/20 SRW balance sheet discussion which will face growing scrutiny in coming weeks/months.  As things stand today, we see 2019/20 ending stocks of SRW around 152mbu vs. 163mbu for the current marketing year and would be the lowest since 2013/14.  We are currently using a 65bpa national average yield which is essentially the 5-yr average.  If we bend this back to a 63bpa yield as we had last year, our ending stocks fall to 142mbu.  For demand, we are assuming domestic demand is unchanged next year while exports fall 20mbu to 110mbu.  Both demand line items could be reduced it can be argued, which we have no problem with.  One of the real questions is whether planted acres or harvested acres fall further?  We are currently using an 81% harvested percentage which is the 5-yr average.  However, each of the last two years, harvested percentage fell below 75% with arguably better early season conditions than we are facing this year.  If we see harvested percentage fall to 75% or less, ending stocks begin closing in on the lowest level since 2007/08.  Lots of conjecture in this paragraph, but it feels like these are the questions the market is beginning to ask.

USDA Ag Attache to China released his initial thoughts on the 2019/20 balance sheet for soybeans yesterday, pegging imports for 2019/20 at 91.5MMT vs. 88.0MMT this year.  The growth is encouraging as the current year’s reduction in imports is the first in close to 15 years.  However, we remain a bit skeptical of returning to import growth considering we don’t know how bad the African Swine Fever situation actually is.  If culling ends up being in the 30-50% range like some are positing, then finished meat imports might surge while grain protein suffers.  So many unknowns to this story, but the one universal theme seems to be even China doesn’t know how bad it is yet.

Bottom Line: Lots of trade talk this week with negotiators meeting in Washington while European Union discussions could get restarted soon.  In addition, tariffs continue to be cut for TPP-members into Japan while they remain in place for the United States.  We are fighting trade battles on multiple fronts, and it could be argued, aren’t winning any of them at the moment.  Let’s not forget, the USMC still hasn’t been ratified by Congress and President Trump is threatening to shutdown the border with Mexico.  Lots of balls in the air.  Let’s hope this administration is good at juggling.

Good Luck Today.

Tregg Cronin

Market Analyst

Tregg.Cronin@halocommodities.com

www.halocommodities.com

@5thWave_tcronin

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

4/1/2019 Morning Comments

Good Morning,

More encouraging comments from the weekend trade talks in Beijing, although we didn’t see anything with substance as the talks shift back to Washington D.C.  Still plenty of subterfuge from both sides as one suggests a deal is close while the other side is said to be preparing for many months of ongoing discussions.  We’ve made our feelings on the issue quite well-known with a deal likely to involve significant Ag purchases of goods China was already going to buy anyway.  In return, the U.S. will drop or cut some tariffs while keeping others in place in exchange for a bit better access into Chinese markets.  At the end of the day, the relationship between the two countries will probably look little different than before the trade row began.  The trade war and the border wall are the pivotal pieces of the Trump Administrations tenure and losses on both cannot be afforded heading into 2020.

Weather maps from the weekend look quite favorable for the Midwest as this morning’s GFS shows moderate to heavy rainfall across the eastern plains, midsouth and eastern corn belt.  Totals will be heaviest in the Delta with up to 3-5” amounts expected.  Temperatures will also continue their warmup with weekend models suggesting above normal temps are far as the eye can see, especially in the 8-14 day with sharply above normal temps.  This kind of heat is exactly what is needed to warm soils and allow farmers to prep seed beds.  Precip also looks to keep moving through which is encouraging even if many areas don’t need it.  Above normal precip is expected for the majority of the Midwest in the 6-10, 8-14 and week 3&4 outlooks.

Markets are higher this morning across the board with the exception of Minneapolis wheat as our markets try to bounce from Friday’s selloff.  The USDA reports were universally bearish with maybe the exception of soybean and wheat acres, although we are taking almost everything on the acreage report with a grain of salt at this juncture.  The important data was the stocks report, and that was overwhelmingly bearish, especially for corn.  The stocks number was so big it has many questioning whether the December 1 stocks report had issues with it thanks to the government shutdown.  Another possible explanation was the amount of corn harvested after December 1 was larger than usual and didn’t get counted as “stocks” on the last report.  As we will point out below, the implications from Friday’s report are large and should change the fundamental landscape of the corn market for the next several months.  Friday’s corn volume was the largest on record at 1,127,803 contracts changing hands based on preliminary data.  Open interest changes on report day saw corn up 21,911 contracts, soybeans up 12,860, meal up 120, oil up 4,755 contracts, HRW 2,538 and SRW up 245.

Looking at the stocks report, March 1 corn stocks came in at 8.605bbu, up from the average trade estimate of 8.335bbu and just below last year’s record 8.892bbu.  The upside miss was the second largest on record for the March report since 1989, and implied Q2 feed/residual at 1.174bbu which was down from last year’s 1.503bbu and the second lowest on record.  This is the piece which had the market scratching its head as the last five years have seen Q2 feed/residual use in a very consistent grouping.  The curve ball definitely came from somewhere, but we may not know what the culprit was for several more months.  With herd sizes larger than a year ago, and feeding margins mostly favorable during the quarter, it just doesn’t make sense to see the second lowest feed/residual demand in 30-years.  The accounting of the SIAP report always leaves the door open for wild swings.  Another way to view this “surprise” 270 million bushels we didn’t know we had is that this corn supply is the equivalent of “adding” 1.5 million planted acres of corn at a 91% harvested rate.  This means one could look at the 92.792 million acres the USDA says we are going to plant could either be 94.192 million acres or would allow actual acres to drop to 91.392 million without changing the current supply outlook.  It is a heck of a beginning buffer against any yield adversity this summer.  The revised supply estimates has 2019/20 balance sheets pointing toward 2.0-2.4 billion bushels of ending stocks next year which would argue for less than $4.00 new crop corn futures.

Stocks of soybeans and wheat also came in above average trade estimates by 33mbu and 36mbu, respectively.  This will probably lead to USDA cutting wheat feed/residual use further on the April WASDE, which could come in addition to another export revision.  Wheat ending stocks should end up close to 1.1bbu for the third straight year.  USDA most likely leaves soybean demand estimates unchanged this month, especially if Census Crush data out later this afternoon does not surprise.  The soybean balance sheet has a bit of breathing room, but ending stocks will still be dependent on actual exports which are running behind the pace needed to meet current estimates.  At the end of the day, there is nothing fundamentally supportive about a 2.0bbu carryout in corn, a nearly 1.0bbu carryout in soybeans and 1.1bbu carryout in wheat.  We are back to counting on yield adversity this summer to support prices and clear excess supplies.  This is not a comfortable position to be in already with spring planting just about to begin in the southern tier of the Midwest.

One can’t pick and choose which data points they like and don’t like from Friday, but we did like to see the drop in ‘other’ spring wheat acres to 12.830 million vs. 13.419 million expected and 13.20 million a year ago.  This should result in 12.35 million acres of hard red spring using past relationships, and with an average yield of 46.0bpa would give us production of 551mbu vs. 587mbu a year ago.  Total supplies would grow, however, to 900mbu on the nose vs. 850mbu last year.  We are still using domestic demand of 290mbu which would be up 15mbu from a year ago.  Export demand is called 290mbu vs. 275mbu a year ago, although we don’t feel particularly good about either of those demand figures on April 1.  Economics say the only way we increase demand from a year ago is with lower prices.  Our current ending stocks would be implied at 314mbu vs. 289mbu a year ago with a stocks/use ratio of 53.65% vs. 51.57% a year ago.  Both carryout and stocks/use would be the largest since 1987/88 and 1991/92, respectively.  Suffices to say the HRS balance sheet could stand to “lose” a few more acres to late planting or crop rotation.

The other takeaway from Friday which has everyone talking is the shrinking acreage pie.  Principle crop acreage is expected to decline to 315.352 million acres, down another 4.226 million from last year and the lowest since 2011.  Our question is where these acres are going?  CRP enrollment is expected to increase, while several other “set-aside” type programs will take additional acres as well.  In addition, Prevent Plant acreage last year of 1.8 million acres was half the 5-yr average and the lowest since the 2012 drought.  With this year’s flooding, it is quite likely acres in that category will rise.  Still, we remain a bit apprehensive the total acreage pie could be larger with acres available to multiple crops.  To be clear, total crop acreage needs to decline in order to help clear excess supply we are currently lugging around in corn, soybeans and wheat.  However, producers always count on their neighbor to take acreage out of production and to do the “right thing” while they are free to try and outproduce their way out negative margins.  Something to keep an eye on as we move into spring.

Bottom Line:  Markets want to bounce following contract lows on Friday in futures and spreads which is probably reasonable.  The hangover from the stocks report will be with us for quite some time and will cast a negative light on our markets heading into spring planting.  We can’t trade acreage numbers before a single wheel has turned so don’t kid yourself about what our markets are paying attention to.  While the pictures of ripped open grain bins and flooded acreage are devastating to look at, they usually represent a much smaller percentage than what they appear.  How have your marketing targets changed since Friday or have they at all?  Seasonality still says we will get a chance at higher new crop prices this season.


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.

3/20/2019 Morning Comments

Good Morning,

Financial markets waiting for some details from the latest round of U.S.-China trade talks taking place in Beijing.  Secretary Mnuchin said the two sides enjoyed a “productive working dinner” on Thursday evening, but earlier in the day, President Trump’s top economic advisor, Larry Kudlow, said talks could continue for months.  This type of back-and-forth between top advisors to the President is what has traders’ patience wearing thin.  One minute a deal is close at hand while the next we are being told to prepare for months of continued talks.  We were told earlier in the week that today’s meetings in Beijing and next week’s in Washington would be pivotal to a deal being struck.  If the can is kicked down the road once again, which it appears it may, put the “out to lunch” sign on the door and pay attention to something else for a while.  The fear in our opinion is that a deal will be struck, it will include large purchases of farm commodities which China needs to buy anyway, and little will be done in the way of the more serious economic reforms this trade war was started over in the first place.  A grand, 12-month circus which lands us right back where we started.

Some moisture in the southern plains and eastern corn belt this morning which will keep the wet conditions and flooding in place.  Snow continues to melt across the upper-Midwest with 36.4% of the land area covered by snow vs. 98.3% last month and 57.2% last year.  Average depth still present in the upper-Midwest is called 2.4” vs. 4.2” a year ago, and 2018 saw heavy snow fall which by mid-month.  Still expecting heavy rain in MO/IL/E-KS the next 24-36 hours which moves out by the end of the weekend.  The Plains stay mainly dry the next week while the eastern corn belt will see a couple rounds of precip by midweek.  Extended maps from NOAA show temps mainly normal to slightly above while precip remains normal/above during the 6-15 day period.

Mixed markets this morning with the soy complex holding small gains and grains trading softer ahead of the next round of USDA reports.  Worth noting, canola futures are setting highs for the session as we close in on the seven ‘o clock hour.  We haven’t seen any updates to the China-Canadian trade row which resulted in China essentially banning all canola and canola product imports.  No fresh news from the trade talks in Beijing to speak of, although Reuters did report China buying 1.5 MMT of U.S. soybeans for July/August shipment yesterday, citing cash sources.  The purchase would be encouraging provided China begins to actually take some of the beans they’ve purchased.  The export sales report yesterday showed dismal soybean sales, so some large-scale purchases to China would be greatly appreciated.  We’ve been fearful over a bearish stocks report for all major commodities on today’s report given the awful logistics present in February.  The data is as of March 1, so the even worse logistics in March would not have affected stocks levels.  Acreage estimates should be largely cast aside as the data will have limited value after the flooding and economic differences vs. March 1.  Open interest changes yesterday saw corn up 5,646 contracts, soybeans up 1,650, meal down 612 contracts, oil down 3,677 contracts, SRW down 738 and HRW up 898 contracts.

Data yesterday included export sales which were a mixed bag.  Wheat sales were solid at 17.5mbu vs. the 6.7mbu needed weekly to hit the USDA forecast.  Total commitments of 867.8mbu are up 4% from a year ago while the USDA is calling for a 7.1% increase y/y.  However, as inspection data has been pointed out, actual export shipments of 654mbu are down 3.5% from a year ago, a 10% swing from where the USDA expects exports to finish.  There are only 10 weeks left in the marketing year, so another cut to the USDA’s export forecast appears likely.  Corn sales totaled 35.6mbu vs. the 26.3mbu needed weekly with total commitments of 1.679bbu down 8% from a year ago. The USDA is only calling for a 2% decline in export sales from a year ago which could prompt a cut to their forecast next month.  Soybean export sales were awful at 6.7mbu vs. the 15.4mbu needed weekly.  Total commitments of 1.531bbu are down 17% from a year ago while the USDA is calling for an 11.9% decline from last year.  Here again, every reason to think USDA could cut their export forecast on a future report and domestic demand isn’t strong enough in corn, wheat or soybeans to offset the cuts.

USDA also reported on the hog herd yesterday, calling the March 1 hog and pig level up 102.1% from a year ago vs. the average trade estimate of 102.0%.  The 74.296 million hogs and pigs as of March 1 is an all-time record and is over 10 million hogs larger than 5-years ago.  Lean hog futures continue to soar even with the larger inventories as all signs point toward China needing to make large scale purchases of finished pork from the U.S. as their African Swine Fever situation gets worse.  Whether a rising tide lifts all boats remains to be seen, but this level of protein shortfall in China should be supportive to the entire protein complex and eventually feed demand.  Swine kept for breeding came in at 102.2% vs. 101.9% expected while kept for marketing totaled 102.1% vs. 102.0% expected.  The Dec-Feb pig crop was 102.8% of a year ago, pigs/litter was 101.1% of a year ago and Dec-Feb farrowings were 101.6% of a year ago.  Mar-May farrowing intentions were 100.6% while Jun-Aug intentions were 99.7% of a year ago.  If the data can be taken at its word, the herd size should continue growing this quarter but slow this summer, although continued gains in price could change intention ideas quickly.

We said above the acreage ideas will have limited value given the weather over the last 30-days.  That said, it is still fun to play around with balance sheets to see what different scenarios look like for 2019/20.  The average trade guess for “other” spring wheat acres is 13.419 million acres vs. 13.20 million a year ago.  Using average relationships between “other” spring wheat and hard red spring wheat acres, this should give us around 12.90 million HRS acres vs. 12.709 million last year.  If we use an average yield of 46.0bpa, production would be around 575mbu vs. 587mbu a year ago with total supplies surging to 924mbu vs. 850mbu a year ago.  Total supplies at that level would be the largest since 1987/88.  While USDA tends to increase demand in years of large supply increases, it is difficult to move demand up too much higher than 2018/19.  Nonetheless, we bumped domestic demand by 10mbu and increased export demand by 15mbu, even though Canadian export competition should remain stiff in 2019/20.  Doing all of that, carryout comes in at a bulging 339mbu, the largest since 1987/88, and only the second time stocks/use has been over 50% since the early 90’s.  At our yield of 46.0bpa, acres need to drop by 900,000 acres from a year ago to see carryout unchanged.  If acres do come in at 12.90 million, yield would need to fall 5bpa from last year to the second lowest since 2011/12 to have carryout unchanged.  As one can see, the HRS market has its work cut out in 2019/20.

Bottom Line: Let’s get the data from the USDA out at 11:00 and go from there.  Lots of time until planters roll in the Midwest, but no reason to sound alarm bells just yet.  If stocks come in above expectations as of March 1, and carryout ideas are increased, one needs to remember this is the equivalent of planting more acres.  Logistics are improving but still slow.  Remains to be seen if we can make up the lost demand from the month of March.

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.

3/27/2019 Morning Comments

Good Morning,

Wide open radar this morning.  Midwest still looking at moisture the next three days, predominantly in areas which don’t need it.  Nebraska, Iowa, eastern Kansas, Missouri and Illinois all slated for 0.50-2.00” amounts.  Should make flooding issues worse and not allow rivers to crest and recede.  Latest river flood stages from NOAA show St. Paul hitting major flood stage currently and not peaking until next Tuesday at 20’.  This would rank around the seventh or eighth highest river crest in St. Paul on record with the all-time record of 26.01’ in 1965.  Snowpack is receding quickly across the Northern Plains but there is still plenty to go.  As of this morning, 40.9% of the upper-Midwest was covered by snow with an average depth of 3.8”.  However, areas in northern South Dakota, eastern North Dakota and northern Minnesota still sitting on up 5-10” in spots.  Lots of moisture to still move into waterways.  Extended maps are below normal on temps and above normal on precip in the 6-10 day.  The 8-14 days sees temps shift to above normal but precip remains above normal as well. 

Mixed markets this morning with row crops trading off a bit while wheat markets cling to small gains.  Despite the purchase by GASC of two cargoes of US-SRW, wheat markets mainly took it in the throat yesterday with hard wheat contracts posting six cent declines.  Chicago wheat held up better because of the purchase, but the very weak spot floor trades this week were too much to overcome in Minneapolis and Kansas City.  In addition, bulls have been encouraged by the build to record short positions by funds in Kansas City, but it remains to be seen whether they will cover these when pushed or whether they will defend them.  So far anyway, it appears as though they will defend this short position, possibly needing higher prices to put more contracts underwater and force capitulation.  Nothing all that encouraging in row crops with soybeans failing to hold the $9.00 futures level basis the May contract.  We need something out of the trade talks which begin Thursday before soybeans can make another move.  Big report day Friday, although aside from the stocks data, we aren’t expecting much of substance out of the acreage report.  Yesterday, corn open interest rose 3,775 contracts, soybeans were up 2,438 contracts, meal was up 55, oil was up 22, SRW was up 4,276 contracts and HRW up 3,005.

Some fun with stats before we dig into anything else ahead of the March 29th reports.  On the acreage side of things, corn acres on this report have come in below the average trade guess in four of the last six years while soybean acreage has come in below the average trade guess in seven of the last nine.  HRS acreage has come in above the average trade guess in five of the last seven years.  Using what we knew at the beginning of March when the survey was issued, would have to think soybean acres come in light again this year with most producers leaning higher on beans today vs. a month ago.  Corn acres likely to come in at or above trade expectations as should HRS given the data will be pre-flood.  On the stocks report, corn stocks have come in above the average trade guess in six of the last nine years including last year at 175 million bushels over the average guess.  Soybean stocks have been above the average guess in three of the last six years with last year clocking in 80mbu above the average guess.  Have to believe the potential to come in above the average guess exists again this year given the poor state of logistics in February and early March.

Egypt’s GASC bought two cargoes of US-SRW at a landed price of $248.24-248.29/MT, besting Romanian landed offers by $0.40-0.80/MT.  The US-SRW FOB offers into Egypt cleared the Romanian offers by $17/MT which illustrates very clearly what the cheapest FOB milling wheat in the world is.  In fact, US-SRW with milling specs is probably close to the cheapest feed wheat in the world as well.  The sale to GASC was encouraging, but probably doesn’t change the narrative of the US wheat export program running behind needed levels with additional cuts to the forecast likely forthcoming.  Most still assume a large April-May program to close out 2018/19, but wheat is also fighting awful rail and barge logistics which are just not allowing the needed shipments to leave the country.  Some of these sales should execute in June which obviously still matters, but 2018/19 carryout is likely headed toward 1.1 billion bushels for the third year in a row.  This provides a substantial buffer against any 2019/20 yield shortfall, limiting upside volatility in our three contracts.  Minneapolis spot floor values fell 15-50c on Tuesday, with 15’s now bid only +105K.  KCBT spot floor values fell another 15-20c after dropping 15-37c on Monday.  Freight shaking loose at least in spots.

Deliverable stocks also out yesterday with Chicago area stocks dropping another 1.401mbu to 57.080mbu.  That level is down from 74.740mbu and should continue falling through the end of the marketing year.  Have to believe commercials will be bidding hard to fill available storage once new crop bushels start coming off.  KCBT stocks fell 1.238mbu from last week to 101.081mbu which is 4.690mbu below a year ago.  Still plenty of HRW in the country and should allow KCBT calendar spreads to be the carrying charge leader.  HRS deliverable stocks fell 30,000 bushels in Duluth and Minneapolis last week.  Combined stocks of 15.885mbu compare with 22.145mbu a year ago.

Bottom Line: Weekly ethanol production on tap later this morning will be a focus as we see if the flooding materially impacts production and stocks levels.  The expectation is run rates should fall precipitously as plants remain closed and rail sits stationary.  Big events Thursday and Friday with trade talks and USDA reports.  Export sales tomorrow morning could also show the sluggish pace of movement since the flooding.  Carryout ideas are rising at the moment, not falling, which will make continued rallies difficult to sustain.

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.

3/25/2019 Morning Comments

Good Morning,

Big two week stretch for U.S.-China trade talks as Mnuchin and Lighthizer travel to Beijing Thursday to meet the Chinese vice-premier before he travels to Washington D.C.  According to experts, the three men and their staffs are expected to address the last few sticking points with these talks the best chance to either cement or scrap a trade deal.  If details are agreed upon, it is likely an official signing ceremony would happen sometime in June.  Plenty of chatter about the three-month and 10-year treasury yields inverting last week which happened for the first time since 2007.  According to analysts, the occurrence of those two yields inverting has preceded every recession since 1982.  According to Forbes, the fact this happened now puts chances of a recession at 25-30% in the next 12-months.

Some light snow in southwest South Dakota while a band of showers stretches from Louisiana to Ohio.  Next round of moisture moves into the Plains and WCB Thursday-Saturday, bringing 0.50-2.00” totals to Nebraska, Iowa, N-MO, Illinois and Indiana.  Many of those areas do not need any additional moisture at the moment, so worsening of flood conditions should occur.  In addition, snow pack continues to melt in the upper-Midwest and move into the nation’s waterways.  As of this morning, the Upper-Midwest was 53.2% covered in snow at an average depth of 5.1”.  This compares with 97.2% of the area covered a week ago at an average depth of 13.1”.  NOAA’s extended maps put below normal temps in the 6-10 and 8-14 day outlooks with mainly above normal precip for the Plains and Midwest.

Mixed markets this morning as row crops grind higher while wheat gives up overnight gains to see all three exchanges trade weaker.  Between the trade talks and March 29 USDA reports, this week has the potential to be a big one for grains.  We’ve been hearing about “big,” “huge” and “attractive” Chinese purchases of U.S. Ag products for months now, but it does feel like we are closer to a trade deal than we’ve ever been.  Bolstering this sentiment is the fact China bought 300,000MT of corn on Friday, the largest purchase in 5-1/2 years.  These tonnes were not tied to any formal announcement by the Trump Administration of Beijing, so it would appear private traders made the purchase on their own volition.  That said, cheaper FOB sources exist for China, so a purely economic play this would not appear to be.  As the week progresses, the focus will shift to the March 29 acreage and stocks reports although limited value should be placed on the acreage data this year.  This data was collected in early March before much of the flooding across the Plains and WCB took place.  With many areas expected to get off to a late start, planting intentions can and will change by the time planters roll.  Based on price and weather as of late, it feels as though soybean acres are trending higher while spring wheat and corn might be moving a little lower.  Open interest changes saw corn down 11,066 contracts, soybeans up 6,822 contracts, meal up 2,555, oil up 1,369, SRW down 242 and HRW up 1,092 contracts.

China released February import/export data overnight with a mixed bag on grain imports.  February wheat imports totaled 116,109MT, up 88.2% from the same month a year ago while corn imports of 164,768MT were up 60.8% from a year ago.  Soybean imports of 4.456MMT were down 17.9% from the same week a year ago as the slowing growth narrative remains firmly entrenched thanks to African Swine Fever.  Jan-Feb corn imports of 565,846MT are up 14.4%, while Jan-Feb soybean imports of 11.831MMT are down 14.9% from a year ago.  Chinese Jan-Feb crude oil imports totaled 81.8 MMT, up 12.2% from a year ago while Jan-Feb natural gas imports of 10.916 MMT are up 97.4% from a year ago.  Jan-Feb LNG imports of 6.44 MMT are down 29.6% from a year ago.

Friday gave us updated Commitments of Traders Data which showed funds adding to their record net short position in corn according to the Disaggregated report.  We follow the CIT report which had funds selling 3,840 contracts to put them net short -265,394 contracts.  This position accounts for 98.8% of their all-time record short set in November 2017.  Commercial activity was mixed as both the long and short positions were added to.  Importantly, index funds continue to dump their corn long which is now down at 210,344 contracts, the smallest position on record.  This trend is clear across the grain room as the index position in soybeans is the smallest since January 2018 while index funds also sell SRW.  The combined corn/soybean/SRW index position of 422,722 contracts is the smallest combined position on record going back to 2006.  We don’t have a good explanation for the passive investors decision to get out of Ags as the U.S. Dollar Index has been largely rangebound since October while interest rates have been dropping since October/November as well.  Funds bought 29,594 contracts of their net short position back in soybeans, but the market rallied just 3c during that reporting week which has to be viewed negatively.  Large spec position grew in HRW to near a record while the SRW fund short was pared back by a small amount.

Flooding impacts continue to be viewed around the Midwest as Reuters reported Friday U.S. ethanol production capacity has been reduced by 13%.  We were surprised it is not more considering the number of plants being closed.  U.S. Railcar volumes were down 21.7% from the same week a year ago last week while YTD railcar volume is down 4.0%.  To be clear, total railcar traffic is was down 6.8% last week and is down 1.3% YTD, so it isn’t just grain trains.  The brutal cold in February and early March already had railroads behind before the massive blizzard that hit the week of March 20-21 followed by the historic flooding.  We also heard any railcars which have been in standing water or rolled through running water need to have their wheels changed out before they can be returned to service.  Comments from the ethanol industry suggest this could be as many as 2500 railcars and 10,000 wheels, but this could be getting worse.  Barges aren’t much better as American Commercial Lines reported tow sizes have been reduced to 25 or less from 40 on south of Cairo, IL.  In addition, three major locations on the lower-Miss have been reduced to daylight only operations.  It Is incredibly difficult to see how current ethanol production and export estimates by the USDA can be met when transportation is this snarled?  Flooding may eventually reduce planted acreage, but the demand impact is being felt today.

Bottom Line: While the trade may want to focus on the bullish implications of a trade deal, flood-impacted demand and the March 29 stocks report could be bearish features.  With as bad as winter logistics were even before the flooding, we have to wonder if more grain will be found back on the March 1 SIAP than most are expecting?  The massive fund short across our space remains supportive, but we still need to give them a solid reason to flip to longs.  We’re not sure that reason is here universally today, even if things are starting to turn in favor of bulls.

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.

3/21/2019 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.