8/1/2019 Morning Comments

Good Morning,

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

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

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

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

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

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

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

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

Good Luck Today.

Tregg Cronin

Market Analyst

Tregg.Cronin@halocommodities.com

www.halocommodities.com

@5thWave_tcronin

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

7/31/2019 Morning Comments

Good Morning,

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

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

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

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

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

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

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

Good Luck Today.

Tregg Cronin

Market Analyst

Tregg.Cronin@halocommodities.com

www.halocommodities.com

@5thWave_tcronin

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

7/26/2019 Morning Comments

Good Morning,

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

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

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

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

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

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

Good Luck Today.

Tregg Cronin

Market Analyst

Tregg.Cronin@halocommodities.com

www.halocommodities.com

@5thWave_tcronin

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

7/25/2019 Morning Comments

Good Morning,

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

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

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

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

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

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

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

Good Luck Today.

Tregg Cronin

Market Analyst

Tregg.Cronin@halocommodities.com

www.halocommodities.com

@5thWave_tcronin

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

7/23/2019 Morning Comments

Good Morning,

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

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

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

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

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

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

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


Good Luck Today.

Tregg Cronin

Market Analyst

Tregg.Cronin@halocommodities.com

www.halocommodities.com

@5thWave_tcronin

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

7/19/2019 Morning Comments

Good Morning,

More showers across the Dakotas this morning, some of which were not forecast as recently as yesterday, which speaks to the abundance of moisture in the ground and air which has kept the storm track active.  The soil moisture map below accurately reflects the surplus nature of groundwater supplies across much of the Midwest, especially South Dakota which is sitting in the top 95th percentile of all years on record.  The next 3-days will see an active storm track in the Western Corn Belt and Plains before a drier stretch takes hold.  The precipitation anomalies from Crop Prophet remain a bit concerning from both the GFS and Euro models as the two-week moisture anomaly weighted across corn and soybean production areas based on yesterday’s forecast stands at 81% for the GFS and 76-78% for the Euro. The dry spots in southern Iowa, northern Missouri and western Illinois remain the areas of most concern.  The week 3 and 4 outlooks from the CFS model point toward 118% of normal precip, and cooler temperatures, which would encompass the period August 1-14.  Should Crop Prophet’s take on the models prove correct, it could be very well-timed for reproducing soybeans.

Higher markets across the board this morning as most contracts try to limp out a positive session into the weekend.  All three of the major commodities are carrying 25-28c losses for the week, but surprisingly, only Chicago wheat has made new lows for the move.  September wheat is trading at the lowest levels since the end of May while corn and soybeans are still well above June lows.  We’ve been hammering home the idea of rangebound trade into the August WASDE, and there is little in front of this market to change that view today.  Weather forecasts are mixed enough for both bulls and bears, and we can’t go a day without someone reminding us this crop isn’t going to finish.  The comfortability with the current ranges is evident in the collapse of volatility, especially with the July WASDE behind us.  November soybean volatility has dropped from 20.46% a week ago to 17.23% yesterday.  December corn vol has dropped from 30.43% to 27.78% yesterday. While the drop-in volatility may not mean new lows for certain, it definitely pares back chances of a run at new highs in the near-term.  In fact, yesterday was the first time since spring bulls began entertaining the idea that maybe seasonal highs have been set?  We posed the question of what the American farmers percent sold/marketing plan would look like if he knew the highs were in? Open interest changes yesterday saw corn down 5,067 contracts, soybeans up 2,770, meal up 1,359, oil up 7,659, SRW 3,552 and HRW down 126 contracts.

The focus is squarely on weather at the moment, as it should be, but lurking in the background are poor demand indicators we can’t seem to shake.  Export sales yesterday were disappointing across the board, and were it not for uncertainty around acreage, should have brought more pressure in our opinion.  All wheat sales totaled 12.8mbu vs. the 13.7mbu needed weekly to hit the USDA forecast. Export sales have missed the needed level in five of the last six weeks, although total commitments are still up 22% from a year ago at 288.7mbu.  After a strong start due to a lack of export offerings out of the FSU/EU, the U.S. has watched interest in its wheat wane considerably.  We would prefer not to push all of the perceived demand off to the second half of the marketing year like we did in 2018/19 and then struggle right to the final week.  Corn export sales were poor at 7.9mbu vs. the 13.6mbu needed weekly.  Export sales have missed the level needed in six of the last seven weeks.  Total commitments of 1.953bbu are down 16% from a year ago which is a bit more than the 11% drop the USDA is forecasting.  Shipments are the real concern at 1.760bbu, leaving 340mbu left to ship by the end of August.  Soybean export sales were 4.7mbu, which is above the level needed, but here again it will come down to shipments.  Cumulative exports now total 1.447bbu, leaving 253mbu left to ship in the remaining seven weeks of the marketing year.  We would expect small cuts to both corn and soybean exports on the August WASDE.

Major exporter balance sheets for both corn and soybeans continue to be a focus of ours.  Updating our major corn exporter balance sheet earlier this week, we see production is expected to decline in 2019/20 to 551.4MMT from 565.5MMT last year and down from the record production of 569.7MMT in 2016/17.  This is not a surprise given the cuts to production in the United States, but it is important to note total supplies are expected to be 629.2MMT, just below last year’s record of 636.7MMT.  Total usage is still expected to rise to a record next year of 562.2MMT but it will see ending stocks fall to four year low of 66.9MMT.  While the U.S. will be the focus for the coming weeks, we can’t help but notice the record total supplies expected in the coming year for Argentina/Brazil/Ukraine combined.  Those three countries are expected to see 200.03MMT of total corn supplies, up from last year’s record 200.00MMT by a hair.  Granted, the corn crops in South America still need to be planted, but the price incentive will be there to maximize acreage.  Total usage out of those three countries will rise to a new record, and the increase in supplies from 2-3 years ago is just staggering.  The previous record high of 178.0MMT was set in 2016/17 which was more than 20MMT below this year and next.  The buffer added will go a long way toward easing any supply shortfall in the United States, even if that can’t be overcome completely.  In our view, these “extra” supplies are part of the reason calls for $6.00-7.00 corn are proving unrealistic.  Global trade dynamics are not the same as they were in 2012/13 when the U.S. last faced a supply driven bull market.  This market has not finished determining supply, but the bullish enthusiasm has been pared in part because of our global competitors stepping up to the plate.

Bottom Line: Rallying into the weekend to help offset a poor week of trading. Still all about weather, and traders will be anxious to see the Sunday model runs ahead of the evening open.  As we saw this week, the market’s interpretation of the weather can change drastically from the start of the week to the end, so don’t write these markets off just yet.  The tone of social media seemed to change yesterday, and while we don’t profess to know where prices will go next, producers would do well to at least entertain the idea of the highs possibly being in.  How proud of your marketing plan would you be if you knew with certainty the highs were already in?  Would you change anything?  Conversely, if you knew with certainty the lows were in, and new highs were still in the offing, would you need to get longer or do you still have 50% of your crop unpriced?  As our old boss used to remind folks, there really isn’t a reason to be re-owning anything until half of your crop is priced.  Tighten it up.  Tighten it up.

Good Luck Today.

Tregg Cronin

Market Analyst

Tregg.Cronin@halocommodities.com

www.halocommodities.com

@5thWave_tcronin

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

7/18/2019 Morning Comments

Good Morning,

Showers across the Upper-Midwest again this morning, especially in Wisconsin where the entire state seems to be getting rain.  There are also showers moving across Iowa which wasn’t supposed to be the case earlier in the week.  The totals haven’t been impressive but any rainfall will help headed into a dry 10-day stretch.  Iowa will see additional rain chances this weekend with much of Iowa, southern Minnesota and Wisconsin slated for 0.75-1.50”.  Extended maps from the CPC continue to point toward below normal precip and below normal temps in the 6-10 and 8-14 day outlook.  Crop Prophet sees the GFS pointing toward temps in the week 2 outlook around two degrees below normal, while the Euro is not quite as cool and closer to normal temps.  It is the precip outlooks which remain the concern with Crop Prophet suggesting the Euro is pointing toward 64-66% of normal precip July 24-29 and the GFS at 69% for the production-weighted belt.  Week 3 and 4 outlooks from the CFS according to Crop Prophet put things at 100-117% of normal precip, so a bit more favorable as we get into August.  Below we show the blended week 1-2 precip outlook for both the GFS and Euro models.

Weaker markets across the board this morning, led by corn as surprise showers in Iowa and Illinois yesterday, along with an active radar this morning are helping to pare bullishness.  The weather debates on social media are as lively as we can remember with seemingly every detail bringing out both bulls and bears in full force.  Warm temperatures are detrimental because corn is pollinating or close to it.  Cool temperatures are detrimental because this crop has no chance to finish before a first frost.  Rain is detrimental because so much of the corn belt is laboring under surpluses and additional rain won’t allow the crop to root down.  Lack of rain is detrimental because it’s a lack of rain.  There doesn’t appear to be a forecast which could be deemed favorable, yet somehow, the market hasn’t been able to hold strength at all this week and even the vaunted $4.40 level basis the December contract has given way this morning.  We are not discounting the fact that acreage and yield changes will still drive this market, eventually.  Until we get to the August WASDE, however, we need to trade what is in front of the market, and at the moment, that is a less threatening forecast.  Back to the precipitation anomaly discussion above, if the rainfall returns are that low by the end of the 15-day time frame, we doubt the market will still be trending weaker.  Corn open interest yesterday was up 6,297 contracts, soybeans were up 4,557 contracts, meal up 1,853, oil up 7,181, SRW up 2,355 and HRW up 2,167 contracts.  Interesting to see all the open interest increases on lower closes.

Demand indicators continue to be a point of weakness for row crops with weekly ethanol production coming in at 1.066 million barrels, up 19,000 barrels on the week, but missing the level needed at 1.100 million barrels per day.  This production level was essentially unchanged from a year ago, but this is short of the roughly 3% gain needed each week through August to hit the USDA’s objective.  To put this in perspective, the all-time weekly production record is 1.108 million barrels per day, so the next 6-weeks need to have record production to justify USDA’s estimate.  It looks increasingly likely USDA will have to come down 10-15 million bushels from their July estimate.  Weekly ethanol stocks surged 356,000 barrels from the week before to 23.365 million barrels which was the highest level in eight weeks and the second highest of the last 15.  Stocks are a record for this week on the calendar.  Ethanol/corn spreads have been trending lower as of late, and while ethanol futures have not traded today, the close yesterday showed a negative ethanol/corn spread, implying ethanol prices are not covering the variable cost of corn.  This environment does not give us confidence in the USDA’s 2019/20 ethanol forecast either.

Winter wheat harvest as of Monday was estimated at 57% complete and should be near 75% by next Monday with spring wheat harvest not yet started.  It is interesting to take a closer look at the Minneapolis wheat market structure, however, and see the managed fund short position within 500 contracts of their all-time record.  Their position accounts for 23.3% of total open interest, however, which is an all-time record by a fair margin.  Considering we have the entire North American spring wheat harvest still in front of us, this position would seem to be well-placed at the moment.  However, it is difficult for us to envision a scenario in which funds are able to add to this record short in any meaningful capacity, leaving one direction for them to go.  That said, the natural seller in this market has not been engaged for weeks.  The gross commercial short position stands at 22,746 contracts which is the smallest since July 17, 2018.  A year ago, the gross commercial short bottomed at 20,189 contracts the second week of July before rising to 36,859 by August 14.  Over that time frame from July 10 to August 14, December Minneapolis wheat hit a low on 7/12 at 5.42 ¼ before rallying to 6.56 on August 7 and then selling off to 5.60 ¼ by the middle of September.  Are we setting up for a similar trade this year?  Difficult to say but the composition of this market looking so familiar to a year ago bears watching in the coming weeks.

Bottom Line: With no weather able to be bearish, it is awfully interesting how the market has traded in one direction this week.  There is a huge contingent in this market who have staked themselves to the cross of sharply higher prices and a crop which won’t be enough no matter how good the finish is.  We are much more interested in trading the market that is front of us and not dying on any one particular hill.  If the crop is as small as what some suggest, then we will eventually realize it and the market is providing plenty of buying opportunities.  If the crop isn’t as small as what some want to believe, then there will have been ample opportunities to have sold 4.40-4.60 futures.  Pulling from the movie Joe Dirt in which he says “is this where you want to be when Jesus comes back?” we feel like applying that to grain marketing.  Is your current marketing position where you want to be if the opposite scenario for which you are positioned occurs? 

Good Luck Today.

Tregg Cronin

Market Analyst

Tregg.Cronin@halocommodities.com

www.halocommodities.com

@5thWave_tcronin

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

7/16/2019 Morning Comments

Good Morning,

Showers moving across the Dakotas and western Iowa this morning with rain also falling in the Delta.  The next 3-days will continue to see rain impact the Upper-Midwest with totals between 0.50-1.50” expected in most of South Dakota, southern North Dakota, Minnesota, northern Iowa and Wisconsin.  Separately, there also looks to be better rainfall potential in the Eastern Corn Belt than was forecast over the weekend.  The 6-10 still sees above normal temps and below normal precip, but the 8-14 day turned markedly cooler with normal/below temps in much of the Midwest.  In addition, above normal precip is now working its way back into the Plains while mostly dry weather is still seen in the Central/East Corn Belt.  At a minimum, the forecast looks much less threatening today than it did going into the weekend for what should be a major pollination period across the Corn Belt.

Softer markets this morning led by corn as traders try to price in a less threatening forecast than what was presented going home Friday.  In addition, crop conditions improved last week when trade expectations saw a further decline.  We are putting very little stock in crop conditions, mainly because of the lack of comparison to other years in recent history.  When the only applicable crop condition scores are from over 20-years ago, the metric loses credibility.  More important in our mind is the trend in conditions seen by enumerators because at its very fundamental level, the same observers are seeing the same fields and making an assessment of weather it looks better or worse than it did a week prior.  While one can’t glean much from an objective, data-driven perspective, it still helps put a finger in the air as to the change in conditions.  With the about face in prices yesterday and today, it looks even more likely the June highs will hold until we get to the August WASDE or we see a sharp turn in weather for the better or worse.  The $4.40-4.50 level in December corn looks as though it could be one of those bands which the trade looks back on and says “that should have been bought” or “that should have been sold” based on the amount of time we are spending in it.  Corn open interest during yesterday’s session fell 2,532 contracts, soybean open interest was down 10,398, meal was up 124, oil was up 3,231, SRW up 4,445 and HRW down 1,595 contracts.

Plenty of data to unpack from yesterday beginning with export inspections which were favorable for row crops but soft for wheat.  All-wheat inspections totaled 11.6mbu vs. the 17.6mbu needed weekly to hit the USDA forecast. Inspections are now going the way of sales the last several weeks with interest in U.S. wheat dropping after a solid start to Q1.  The FOB spread between U.S. and competitor origins suggest little to no interest should be had in U.S. wheat, pushing the increase in demand to H2.  Cumulative exports of 107.1mbu are up 30.6% from a year ago but this is down from a 48.5% increase last week.  Corn inspections were solid at 26.6mbu vs. the 22.7mbu needed weekly.  Cumulative inspections of 1.699bbu are down 11.0% from a year ago with exports needing to see 400mbu of activity in the last seven weeks of the marketing year.  Soybean inspections totaled 31.4mbu vs. the 29.1mbu needed weekly.  Cumulative exports of 1.422bbu are down 24.1% from a year ago with roughly 280mbu of exports needed in the final seven weeks to hit the USDA forecast.  Of that 280mbu, roughly 210mbu are open to China, creating large risk those sales get rolled into new crop and old crop carryout rises.

The weekly crop progress report showed corn conditions improved to 58% G/E vs. 56% expected, 57% last week and 72% last year.  A 1-2 point oscillation week-to-week is not that big of deal, but if conditions continue to improve heretofore, it should be a sign of stabilizing and even rising yield potential.  Widespread increases were noted in the Eastern Corn Belt while Minnesota and North Dakota saw 2pt declines.  17% of the crop is silking vs. 8% last week and 42% average for this week.  The big pollination window should therefore be the last 5-10 days of July into the first 5-10 days of August.  Soybean conditions were seen at 54% G/E vs. 53% expected, 53% last week and 69% average.  Again, improvements were noted in the Eastern Corn Belt.  Blooming progress was estimated nationally at 22% vs. 10% last week and 49% average, putting pod-set and pod-fill well into August.  Spring wheat conditions saw a “surprise” 2pt drop to 76% G/E vs. 80% last year.  A sharp decline was noted in Idaho while South Dakota and Minnesota saw 2-3 pt improvements.  The spring wheat crop is still the second highest rated of the last nine years with solid yield potential expected.  78% of the spring wheat crop is headed with harvest still 3-weeks out in South Dakota.  Winter wheat harvest, conversely, was reported at 57% complete vs. 47% last week and 71% average.  Kansas is now 81% harvested while Nebraska was reported at 14% vs. 52% average with progress not yet registering in South Dakota.

The other big data item yesterday was June NOPA crush which came in sharply below expectations at 148.8mbu vs. 154.4mbu on the average trade guess.  This also compares to 154.8mbu in May and 159.2mbu in June of 2018.  The June NOPA crush figure was actually the lowest crush total for any month going back 21 months to September 2017.  Board crush margins have been declining, and now have most contracts below $1.00 per bushel out through August 2020.  This is not poor profitability, just much lower than what has been seen most of the last 18-months.  Oddly enough, even after the USDA reduced their marketing year crush forecast on last month’s WASDE, it now looks as though their 2.085bbu forecast may prove lofty.  In order to achieve that figure, crush during July and August would have to essentially tie last year’s record crush months, a scenario which seems highly unrealistic based on recent performance.  A poor showing on crush and an export balance sitting in the Chinese category are not the signs the soybean market needs as we get set to tie a bow in the 2018/19 marketing year.

Bottom Line: It looks increasingly likely almost a week removed from the July WASDE that the Ag-wide rally had more to do with wheat than it did anything with row crops.  Much of the nation’s corn crop is still in the vegetative phase, not yet entering the key pollination window for another 10-14 days.  With that in mind, an excess of heat units is not necessarily a bad thing provided the pattern changes by the end of the month as it seems to be suggesting it will.  The corn crop north of I-80 is behind schedule and needs help to avoid an early finish to fall.  Most would agree yield potential has diminished from trend, but if a 165-170bpa is still on the table, then the market needs to ask and answer the question if $4.73+ futures are required? Still a lot of Northern Hemisphere wheat to harvest which will delay any post-harvest recovery.  The U.S. looks to be in a position to capture some second half demand, but it would do well to not wait on picking up this business until Q4 like it did last marketing year.

Good Luck Today.

Tregg Cronin

Market Analyst

Tregg.Cronin@halocommodities.com

www.halocommodities.com

@5thWave_tcronin COMMODITY TRADING INVOLVES RISK AND MAY NOT BE SUITABLE FOR ALL RECEIPIENTS OF THIS EMAIL. Neither the information presented, nor any opinions expressed, constitutes a solicitation for the purchase or sale of any commodities. The thoughts expressed in this email and basic data from which they are derived are believed to be reliable, but cannot be guaranteed due to uncertainty about future events and complexities surrounding commodity markets. Those acting on the information are responsible for their own actions.

7/12/2019 Morning Comments

Good Morning,

Some light showers in the Dakotas this morning, otherwise the Midwest is mainly quiet.  Morning GFS models still show a decent amount of rainfall in the Northern Plains the next 7-days while the Southern Plains will be dry for continued harvest efforts.  Much of the corn belt will also be dry, although the tropical storm in the Gulf will shove moisture up the Mississippi River into southern Illinois and southern Indiana.  Delta states are expected to be pounded with rain with some totals approaching 10-20”.  Extended maps look a bit concerning with above normal temps seen the next 15-days with precipitation expected to slowly drop to below normal across the Plains and Midwest.  The 15-day outlook from both the GFS and Euro see temps 3-5 degrees above normal through July 24.  The precipitation anomalies for the same period see 59-77% of normal precip according to Crop Prophet which would not be favorable heading into the key pollination window.

Softer grain markets following the impressive rally posted Thursday, especially in wheat which is a rarity for a July WASDE.  The fact wheat was the focus yesterday says a lot about the current state of our corn and soybean markets.  Clearly, traders had their minds made up before the report was released with a huge contingent of the market still betting on sharply reduced acres.  Yield is a completely different story, and still very much up for debate, so we will not go down that path just yet. Still, the fact supplies rose on the corn balance sheet, and also saw demand cuts, yet managed to rally says the market is looking ahead to the August WASDE.  Not to take the focus off the wheat market, however, the USDA made sweeping cuts to major exporter supplies with additional cuts possible in subsequent WASDE reports.  The USDA also tightened up the U.S. balance sheet by way of increased wheat feeding and exports, counting on a strong second half program once major exporter stocks have been depleted.  This was the same strategy employed last year, but it never came to fruition with export limping to the finish.  The difference this year could be the strong start we are off to as importers await refreshed supplies in the FSU/EU.  Corn open interest was up 4,395 contracts, soybeans were up 1,436, meal up 323, oil 2,893, SRW up 3,211 and HRW up 1,685.

We aren’t going to spend much time on the corn and soybean numbers given everyone seems to hate the USDA’s estimates when it comes to these two commodities.  Wheat stole the show, and for good reason.  On the world front, USDA cut Russian production by 3.8MMT from last month to 74.2MMT which would be up from last year’s 71.865MT but still well below the 80-83MMT estimates from a month ago.  Combined with a 3-yr low on carry-in, total supplies are at a 3-yr low as well.  USDA sees Russian wheat exports at 34.5MMT which are down from 36MMT this year and the lowest since 2016/17.  To us, the lack of participation in this week’s GASC tender speaks to exporters apprehension toward getting too aggressive too early in the season.  USDA also cut Ukrainian wheat production by 1MMT to 29MMT but would still be up from 25.1MMT a year ago.  In addition, USDA reduced Australia to 21.0MMT from 22.5MMT last month and Canada down to 33.3MMT from 34.5MMT last month.  The European Union was also cut to 151.3MMT from 153.8MMT last month but would still be up sharply from 137.2MMT a year ago.  The risk is USDA makes additional cuts next month to some of these key exporters, further wiping out any exportable surplus above and beyond a year ago.  Still, we remain wary of inking all of this additional U.S. export demand this early in the season after the way 2018/19 ended.

On the U.S. side, the USDA increased 2018/19 feed/residual demand by 41mbu to 91mbu and cut exports 14mbu.  Along with some other minor changes, ending stocks were reduced to 1.072bbu from 1.102bbu.  On the new crop side, planted acreage was reduced 200,000 acres while harvested was dropped 600,000 to 38.4 million.  USDA increased the all-wheat yield to 50.0bpa, the second highest on record, but total supplies still fell 12mbu thanks to a smaller carry-in.  Feed/residual demand was increased 10mbu to 150mbu while exports were bumped higher by 50mbu.  Ending stocks are not projected at 1.000bbu vs. 1.072bbu last month.  Some feel the feed/residual demand item can go higher than 150mbu with some up around 200-220mbu.  There is definitely wheat feeding occurring, but we wonder now whether HRW and SRW needs to be pricing itself into feed bunks if the export demand is expected to grow vs. a year ago and quality could be at a premium?  Much of the wheat balance sheet depends on the corn balance sheet and how much demand corn needs to ration so keeping feed and exports way they are for a couple months would do no harm.

We also had export sales yesterday morning which were another disappointment in our eyes.  All-wheat sales totaled 10.4mbu vs. the 14.3mbu needed weekly to hit the USDA forecast.  Total commitments are up 23% from a year ago, but will not want to rely on a large early deck for too long if the same pitfalls from 2018/19 are to be avoided.  Corn export sales totaled 19.9mbu and were close to the level needed to achieve the USDA’s reduced export forecast.  Cumulative exports are still only at 1.733bbu, leaving a large shipment obligation with only eight weeks left in the marketing year.  New crop corn sales of 127.0mbu are down from 183mbu at this time a year ago which is not an encouraging sign.  Soybean sales totaled 4.9mbu with commitments now up to 1.785bbu vs. the USDA’s forecast of 1.700bbu.  The soybean export program comes down to whether China takes all of their beans, and with trade negotiations looking rocky at best, we are not holding our breath.  Cumulative exports are only 1.415bbu with 2-months remaining.  New crop soybean sales of 95.7mbu are down sharply from 303.2mbu a year ago.

Bottom Line: We were told on social media yesterday the close after a WASDE is the only thing that matters, not any trade between 11:00am-1:14pm.  So, we’re not sure what that means for the day after a WASDE report and whether this has any meaning at all?  Model-to-model changes will take on increasing importance as we move through July, especially with forecasts looking less than ideal for pollination.  The most important takeaway for corn and soybeans yesterday, considering supply wasn’t really addressed, is demand matters.  If the forecasts keep rolling warmer and drier from here, corn has a shot to move above 4.50 and toward 4.73 but otherwise we see rangebound trade persisting.

Good Luck Today.

Tregg Cronin

Market Analyst

Tregg.Cronin@halocommodities.com

www.halocommodities.com

@5thWave_tcronin

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

7/10/2019 Morning Comments

Good Morning,

Scattered showers in various places across the Midwest this morning, although no major systems present like the last few days.  The Midwest will be entering a much drier pattern the next 7-10 days than what has been seen the previous couple weeks with the only real moisture seen in South Dakota and southern Minnesota.  There will be a plume of moisture coming up from the Gulf which is expected to bring heavy moisture to Louisiana, Arkansas, Alabama, Mississippi and southern Missouri early next week.  The patch of heat and dry will be welcomed by most, provided it doesn’t last too long.  According to maps from the Climate Prediction Center, above normal temps will persist through July 23, while moisture will be mixed with the Plains below normal and most of the central/eastern corn belt above normal.  The main change with weather models yesterday was an increase in expected temperatures with the Euro model showing 2-5 degrees above normal for the Corn Belt during the Week 1 and Week 2 outlook.  The 30-day CFS Outlook still sees an overall cooling trend to take place by Week 3 and Week 4.  There will be some dry spots to keep track of by the end of Week 2 in the Eastern Corn Belt.

Weaker markets with follow through selling seen corn and wheat while soybeans fail to hold all of the Tuesday reversal gains.  We can’t help but notice how well December corn is following the head-and-shoulder pattern we outlined over the weekend, especially if weakness persists and December corn finds itself down around the neckline at 4.20-4.25.  These classic chart patterns have lost a bit of their luster in recent years because it seems like algorithmic trading programs and High Frequency Traders do not respect or analyze them the way traditional traders and programs did.  Regardless, if the pattern were to hold together, the downside target after a break of the neckline would be all the way down at 3.70ish.  We are not advocating a move like that with pollination still 2-3 weeks away, but the pattern is ominous.  Otherwise the big talkers have been the Attaché reports on China this week, gearing up for another USDA report which the trade has already said they will cast aside as garbage unless it says what they want it to say and monitoring trade war developments which look no further advanced than they did in June.  Open interest changes yesterday saw corn up 6,046 contracts, soybeans up 4,953, meal up 679, oil up 3,027, SRW up 4,928 contracts and HRW up 3,133.

Earlier in the week, the USDA Ag Attaché to China released updated balance sheets on the Chinese soybean market with notable cuts to imports.  He cut his 2018/19 import forecast by 1MMT to 84MMT and cut marketing-year crush to 85.5MMT from USDA’s 86MMT.  Our friend at clipperdata.com, Ken Smithmeier, said their vessel-tracking is pointing toward 2018/19 imports at 80MMT.  In 2019/20, Chinese soy imports are seen at 83MMT vs. USDA at 87MMT last month.  Crush was cut 3.5MMT to 82.5MMT which left ending stocks more or less unchanged.  These are not positive changes as the Attaché clearly sees the impact from African Swine Fever persisting well into 2019/20.  This stands in direct contrast to the USDA’s current 2019/20 U.S. soybean export forecast which sees a rebound of 250 million bushels.  How exactly do we see soybean exports rebounding almost 15% when the largest soybean importer in the world is still seeing demand impacts, not to mention the trade conflict we started with them doesn’t appear to be ending anytime soon?

On the corn balance sheet, the Ag Attaché made some serious alterations here as well, axing 2018/19 feed/residual demand by 15MMT to 177MMT which ballooned ending stocks to 221.835MMT vs. USDA at 209.8MMT.  Ending stocks at the Attaché’s level would be essentially unchanged from last year compared with the much more constructive look from the USDA.  Even more changes were made for 2019/20 with production cut by 24MMT thanks to a serious outbreak of fall armyworm.  Total supplies are seen at 457.8MMT vs. 470.8MMT from the USDA.  On demand, feed/residual demand was cut 20MMT to 170MMT as ASF continues to impact feed grain demand.  All told, ending stocks were seen at 198.8MMT vs. USDA at 191.8MMT.  So despite a massive cut to production, the supply situation in China has actually gotten worse because demand is that far off from what economists had been penciling in.  Analysts had been saying as far back as last winter/spring the impacts from ASF would be greater than we could possibly imagine, and it would appear those chickens are coming home to roost.

Deliverable stocks reports from the various exchanges confirm wheat harvest is occurring full bore.  In Chicago, deliverable stocks rose by 606,000 bushels to 39.455mbu but are still 31.5mbu below year ago levels.  Non-deliverable grades amount to 5.599mbu vs. 7.454mbu a year ago, a category we will want to monitor closely in coming weeks.  In Kansas City, total wheat stocks were 96.399mbu, up 7.816mbu on the week but still more than 25mbu below year ago levels.  Storage could still get tight based on the June 1 stocks levels in Kansas for corn, soybeans, wheat and milo, something HRW basis is starting to reflect as harvest advances across the state.  No spring wheat harvest is occurring, but deliverable stocks still rose 502,000 bushels on the week to 13.397mbu which compares with 15.353mbu a year ago.  Typically, HRS stocks do not bottom out until the first couple weeks in August.

We missed it earlier in the week but the Census Bureau issued May import and export statistics which helped fill in the blanks for corn, soybean and wheat exports but also gave us an update on DDGs and Ethanol exports.  Ethanol exports during May totaled 377.0 million liters, the lowest monthly total since September 2018 but up marginally from last year’s May total of 345.0 million liters.  The biggest culprit looks like Brazil importing just 40.1 million liters vs. 154.7 million last month.  DDGs exports totaled 1.020MMT, the largest  monthly total since September and up from May 2018’s level of 987,151MT.

Bottom Line: The price action this week has been less than inspiring, especially after the way bulls started to show their teeth on some heat in the maps Sunday evening.  The focus is squarely on supply, but more and more data points continue to remind us that demand does matter, even if we don’t want to talk about it right now.  Yield will still be the ultimate price driver, but we find it hard to believe USDA will update that on tomorrow’s WASDE given the flack they took for updating acres on the June WASDE only to have NASS go in the opposite direction at the end of the month.  It appears the 4.25-4.50 range for December will hold until weather warrants a move outside of that range or we get closer to the August WASDE.

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.