Not a great deal of change to weather maps this morning, although the Northern Plains might have seen totals for this weekend’s storm backed down slightly. Still most areas of the Great Plains are slated for at least some moisture by the weekend, with best chances in W-NE and NE-SD. The Delta will remain especially wet during the next week with 0.75-2.00” amounts seen for AR/LA/MS/TN/KY/NC/SC/GA/AL. Wetness fears have been voiced, but corn planting progress is ahead of schedule. Extended maps keep below normal temps over the Northern Plains through April 17th while the Southern Plains stays well above normal. Midwest is above normal on precip, below normal for Southern Plains.
Well another boring session with absolutely nothing to talk about… Definitely don’t need to say that this morning with the long awaited, much-anticipated tariffs being slapped on US soybeans by China overnight. According to newswires, China put tariffs on 106 US products including soybeans, automobiles, chemicals, whisky, cigars, some types of beef, corn, tobacco and a host of other things amounting to $50 billion. The soybeans are obviously the star of the show given we export close to 50% of the soybeans we raise, and China is far-and-away the largest destination. Yet, wheat and corn were also included. Our first instinct was to look at Dalian futures markets to see if there had been any clues to the pending selloff. None. Dalian soybeans closed up 1.38% at the highest level since October, while soymeal futures closed at new contract highs and the highest spot level since October as well. The chart damage inflicted on CBOT soybeans is incredible as front-month beans sliced through the 50 and 100-day moving averages and are just 10c above the 200-day moving average. For reference sake, we haven’t traded below the 200-day moving average since January 8th. Adding to the panic selling is record open interest in soybeans of 906,316 contracts, but On-Balance-Volume remains negative with bears seemingly in control. These sort of moves are always difficult to navigate, and could last several more days, although the net effect on global trade could be minimal.
Prior to the overnight malaise, we had been looking at how badly lean hog futures had been beaten up the last month, which was probably the first Ag market to feel the brunt of Chinese tariffs. Spot month hog futures closed at new contract lows and the lowest front-month prices since December 2016. The lean hog/corn and lean hog/soymeal ratios are hitting some fairly extended levels. The lean hog/meal ratio of 14.0231 is at the lowest level since October 2016, while the lean hog/corn ratio of 13.7708 is at the lowest since November 2016. CME Hog crush spreads were calculated with last night’s closes at $77.16/hd vs. $83.61/hd last week and $81.51/hd a year ago. Still nowhere near lows set in the fall of 2016 around $28.00/hd, but profitability is not strong in the hog sector thanks to the recent tariffs.
The moves since Thursday’s Prospective Plantings report are throwing wrenches in everyone’s carefully laid plans, and making estimates incredibly difficult to formulate. We had been in the camp of spring wheat losing acres appreciably to soybeans, and probably corn to a lesser extent, thanks to the weather and price moves since Thursday. Obviously the overnight moves complicate that theory slightly, although weather could still end up being the final word in the Northern Plains at least. The SX8/MWU8 spread has corrected 50c in the last two sessions alone while MWU8/CZ8 has corrected around 12c. We ran three different acreage scenarios for the HRS balance sheet last night including unchanged acres from the USDA, a 5% drop, a 10% drop and matching the largest March to Final drop in history (2011). Unchanged acres would give us around 12.094 million planted acres of HRS and harvested acres of around 11.815 million. With a national average yield of 46bpa, and our demand forecast of 545mbu, carryout would come in at 233mbu vs. 185mbu this year and 214mbu on the 5-yr average. A 5% drop in planted acreage would be 11.4893 million planted and 11.2250 million harvested, and provides a carryout of 206mbu with 545mbu of demand. A 10% acreage drop would be 10.8846 million planted and 10.63 million harvested (10.5 and 9.7 in 2017/18), giving us a carryout of 174mbu. The largest ever March to Final acreage drop was 2.083 million acres in 2011, which was a 14.7% drop within the season. The drop from the year before was 1.197 million, or 8.8%. This sort of in-season drop would see planted acreage at 10.01 million, harvested at 9.78 million and a carryout of 140mbu with demand of 545mbu. The spring wheat balance sheet is very much a moving target, especially with 4.0% overnight moves in soybeans.
Bottom Line: Not much else to talk about until the tariff situation shakes out one way or another. Moves in the next 24-72 hours could be violent, with option volatility spiking and traders running for cover. Protection will be expensive to buy. Watch calendar spreads and basis for clues about the futures rout either continuing or reversing. SN/SX tied contract lows of -5.00c overnight, and is up around 7c from those levels at this writing. We will update global balance sheets today to see what kind of impact could be seen on the US balance sheet.
Good Luck Today.