7/9/2019 Morning Comments

Good Morning,

More rainfall across the Plains this morning with showers present in every state from Montana to Oklahoma.  This will add to an already impressive week of rainfall which has seen 1.0-5.0” in almost all of the Plains.  While the rain has likely caused some harvest delays, it will be welcome as much of the Midwest heads into a warm/dry period for the next 10-days.  High temps the next 7-days will be mainly in the upper-80’s to low 90’s across the Plains and Corn Belt which should see vegetative growth explode after the recent moisture.  6-10 and 8-14 days maps are  putting above normal temps for almost the entire CONUS, while below normal precip will be the feature for the Plains.  Normal/above precipitation will be the feature in much of the Corn Belt which is a more favorable outlook than the weekend and Monday’s runs which were stoking heat/drought fears.

Weaker markets across the board this morning, led by Chicago wheat and corn as forecasts turned a bit more favorable than was present Sunday/Monday.  It now looks as though the heat will be in place the next 15-days, but not nearly as dry as what was being feared Sunday.  The week two forecast for both the GFS and Euro model are calling for close to 100% of normal precipitation after seeing 60-70% of normal during the coming week according to Crop Prophet.  The CFS model is showing 100-118% of normal for weeks 3 and 4, while temps are seen 1-2 degrees above normal in week 3 and 2 degrees below normal in week 4.  To us, this looks like a pretty favorable forecast considering the crop will get a bout of heat the next 2-weeks, along with dryness in the coming week followed by a return to normal precip and normal to slightly cooler temps about the time pollination hits.  I’m sure there is someone who will say this forecast is not ideal, but with as varied as the conditions are this year, no one forecast will be perfect for all corners of the Midwest.  Open interest changes yesterday saw corn up 23,343 contracts, soybeans up 15,805, meal up 546, oil up 3,744, SRW up 911 and HRW up 1,527.

The weekly crop progress report didn’t have any outright surprises but did offer a few concern areas while wheat conditions continue to confirm solid crop prospects.  Corn conditions improved 1pt to 57% G/E vs. 57% G/E expected but is below 75% G/E a year ago.  Illinois saw a 5pt decline to 37% G/E vs. 81% G/E a year ago.  The Eastern Corn Belt conditions are eye-opening, although shouldn’t be surprising.  Indiana is rated 38% G/E vs. 76% a year ago, Ohio is 34% G/E vs. 82% G/E a year ago and Michigan is 46% G/E vs. 66% a year ago.  The corn crop is 8% silked vs. 22% average and confirms pollination of this crop will not occur until the last 10-days of July and first 10-days of August.  Soybean conditions posted a notable decline of 2pts to 53% G/E vs. 55% expected and compares to 71% G/E a year ago.  Planting progress was seen at 96% complete vs. 96% expected, 92% last week and 100% average.  Illinois posted a 6% drop and is rated 38% G/E vs. 72% G/E a year ago.  Only 28% of Ohio’s soybeans are rated G/E vs. 75% a year ago.    10% of the soybean crop is blooming vs. 32% average.

Winter wheat conditions improved 1pt to 64% G/E vs. ideas conditions would fall 1pt.  Condition ratings had already ended a year ago, a sign of how delayed this crop is.  The fact conditions are still improving this late in the game does speak to yields vs. expectations.  Conditions for this date are the highest since 1999.  Winter wheat harvest progress was seen at 47% complete vs. 30% last week and 61% average.  Kansas is 61% harvested vs. 84% average while cutting is just getting going in Nebraska and still 2-3 weeks away in South Dakota.  Spring wheat conditions saw a notable jump to 78% G/E, up 3pts on the week and just below last year’s 80% G/E.  Last year saw record HRS yields, so inching closer to that condition mark is noteworthy.  The spring wheat crop is the second highest rated crop since 2010 with 56% of the crop headed vs. 52% average.  After a dismal spring sowing campaign, it is noteworthy to see heading catching up and passing average pace.  We’ve also seen precious little in the complaint department on social media as of late with regards to the Canadian crop which usually means one thing.  A quick glance at the percent of normal precip map from the last 30-days tells quite the tale.  Granted, excess moisture in June and early July will not totally offset the damage caused by a historically dry spring, but it will help.  Doesn’t look like there will be a shortage of North American spring wheat this year.  Protein could be another story.

Weekly export inspections were also released yesterday with wheat continuing their strong early start with 22.4mbu inspected vs. 16.4mbu needed weekly to achieve the USDA estimate.  Cumulative exports now total 95.3mbu which is up 48.1% from a year ago while the USDA is looking for exports to decline 50mbu from last season.  Most knew the export program would be partially front-loaded as export supplies in Russia and Europe are reloaded after harvest.  How long the pace continues could have a lot to say about the full year estimate.  Corn inspections totaled 27.7mbu vs. the 35.3mbu needed weekly to hit the USDA estimate.  Inspections have now missed the needed level for four straight weeks with cumulative exports down 10.1% from a year ago.  We need a massive shipping program the last month and half to hit the USDA mark, so we feel the USDA has ample evidence to make a cut on this month’s WASDE.  Soybean inspections totaled 27.8mbu, narrowly missing the 29.4mbu needed weekly to hit the USDA estimate.  Cumulative exports of 1.391bbu are down 24.8% from a year ago, and are also at risk of missing the USDA estimate.  All of the commitments held by China (212mbu) are still sitting out there and unlikely to be totally fulfilled by the end of August.

The CFTC released their COT data Monday afternoon due to the 4th of July holiday with few surprises contained.  Funds sold 17,439 contracts last week to leave them net long 130,798 contracts.  Still a decent net long, but nothing like what we were expecting they’d be at this juncture.  Commercial positions still being rebuilt after July went into delivery, so difficult to see a lot there.  Very little action in soybeans last week with funds selling 1,523 contracts to leave them net short 57,984 contracts.  Nothing of note by commercials.  In KC wheat, funds bought 755 contracts to lighten their net short to -17,462 contracts.  Commercials continue to lightly pare their gross short position which is consistent with the falling prices as of late.  If that position starts to rise, we may have seen an intermediate term bottom.  Funds bought 7,185 contracts of Chicago wheat to cut their net short to -13,693 contracts.  This is the smallest net short position held by funds since September 4, 2018.  Interestingly, the gross commercial long position in SRW of 63,442 contracts is the smallest for this group since June 27, 2017.  Not a great sign if commercials aren’t increasing ownership at these price levels.

Bottom Line: Difficult to argue with an improvement in the forecast after bulls got a little excited over the weekend, especially in front of what will appear to be a less than supportive WASDE if USDA implements the supply side changes as expected.  In our view, December corn could be in a 4.25-4.50 trading range until the August WASDE when a bit more certainty comes into the market.  If trading ranges are going to be put in place, and volatility is going to calm a bit, it would be a good opportunity for producers to review percent sold on old and new crop as well as develop a strategy for when prices move outside the range, both higher or lower.  Stress test lower prices and put sales targets in place with higher prices based on what the crop looks like today.  If too much uncertainty exists to do that, then options had better be part of your risk management plan.  Doing nothing is a strategy and can be a costly one.

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.

7/3/2019 Morning Comments

Good Morning,

An active Midwest radar this morning with some rain in almost every state.  The rest of this week and through the weekend will continue an active pattern with moderate to heavy rainfall seen by Sunday in most states, especially in the Western Corn Belt.  The heaviest totals according to the GFS will be in Nebraska, eastern South Dakota, North Dakota, Minnesota and almost all of Iowa to the tune of 1.00-3.00”.  The Eastern Corn Belt will see lighter amounts.  Extended maps still support vegetative growth with above normal precip and below normal temps in the 6-10 days with cooler temps continuing into the 8-14.  Precip will be above normal in the 6-10 while the 8-14 sees the Northern Plains begin to dry out with below normal precip centered over the Dakotas.  This could be well-time with HRW harvest starting in South Dakota and spring wheat moving from flowering into the dough stage.  Crop observers remain torn between wanting heat to push the crop along but recognizing that a lack of stress during July is still a good thing if given the choice.

Higher markets this morning with the exception of spring wheat which is struggling around unchanged.  A fairly disappointing week of trade up to this point, especially for soybeans which saw the most supportive report on Friday of any commodity.  The huge reversal posted Monday along with follow through selling Tuesday seemed to suggest the trade is not yet ready to trade lower yield ideas for the soybean market.  The nearly 1.1 billion bushel carryout expected at the end of this marketing year will offer a massive buffer against yield disruption but it only takes 3-4 bushels per acre off the national average yield to make things interesting. A national average yield of 45bpa with current USDA demand gets carryout down to 544 million bushels which is not tight from historical standards but is a massive mindset shift from the current carryout projection.  We still have issues with the export forecasts for both 2018/19 and 2019/20, especially as long as the trade war rolls on.  We feel the USDA is being optimistic on global demand growth, including how much of that growth the U.S. will grab.  Open interest changes include corn up 4,780 contracts, soybeans up 9,856, SRW down 5,424 and HRW up 2,972 contracts.

Pretty light on data yesterday with the exception of deliverable stocks which are finally reflecting the ongoing harvest efforts.  In Chicago, deliverable stocks rose 693,000 bushels to 38.849mbu which compares with 67.395mbu a year ago.  Non-deliverable grades are currently 1.380mbu below a year ago, but the composition of the deliverable/non-deliverable grades will be worth watching as harvest moves north in the SRW belt.  Still lots of concern about test weight, damage and vomotoxin, although North Carolina is about as far north as any serious harvest has taken place.  HRW stocks rose 2.944mbu to 88.583mbu which is down 32.386mbu from a year ago.  Based on anecdotal reports from the country, space could become a problem based on the yields we are hearing and the amount of grain on-hand as of June 1.  Kansas City wheat could/should see a situation where carries get wider as the market needs to pay someone to store what is turning into nice sized crop, but there should be competition for these bushels to ensure space is filled.  Because of the VSR mechanism, we could see weak carries but firm basis which will give futures prices confliction signals.  We also remain out of contention based on recent tender business which will not be a supportive influence.  HRS stocks continue their draw ahead of harvest with deliverable stocks dropping 251,000 bushels to 12.895mbu which compares with 15.454mbu a year ago.

With the swings in price of the last week, now is a good time to check in on end users of corn according to RJ ‘O Brien.  Composite broiler crush slipped last week to 72.97c per pound vs. 73.99c the week before and vs. 98.27c per pound a year ago.  Broiler prices have been softening more than the drop in corn and soybean meal.  Hog board crush improved last week to $75.82 per head vs. $65.60 the week before and is better than the $59.80 per head a year ago.  These margins are still well short of the record margins seen earlier this year around $130.00/hd amid the ASF scare.  Cattle board crush fell last week to $124.15/hd vs. $155.29/hd the week before but still much better than a year ago at $85.50.  Ethanol margins slipped to $0.56/gallon from $0.58/gallon last week and is down from $0.70/gallon a year ago.  Ethanol margins remain in a long-term downtrend dating back to July of 2017 and until the narrative out of Washington changes, or the trade war is over and China comes back to our market, it remains difficult to see how or why this situation will change markedly?  C-IL cash soybean crush margins remain solid at $1.21 per bushel even though this is down from $1.47 last week and $2.21 last year.

Bottom Line: All of our markets are in short-term downtrends with most posting intermediate term downtrends as well.  We remain impressed with corn’s performance this week considering the data received Friday.  We wondered how long it would take for the corn market to move to the yield discussion and away from the acre discussion, and it would appear that may have started.  Despite the more supportive data, soybeans are difficult to rally until blooming and pod set starts.  The market knows full yield potential is probably already off the table because of the compressed growing season, but the question now is to what degree?  What will struggle until corn mounts another assault higher.  Big yields with over half the crop left to harvest and all of the spring wheat crop to harvest is a lot of bushels to chew through.  Dryness and heat in Europe and the Black Sea remains a talker but you wouldn’t know it based on price changes in their markets.

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.

7/1/2019 Morning Comments

Good Morning,

Rain across the Upper-Midwest this morning as well as Illinois in what looks to be a wet week for much of the corn belt.  After a hot weekend, temperatures will generally cool across much of the Midwest into the 70’s and 80’s for slightly below normal temps by the 4th of July.  While the crops are behind, it is difficult to argue with current conditions from a stress standpoint.  That said, until corn reaches the pollination phase, generally hot weather would be welcome to push the crop through the vegetative stage.  Updated GFS models put heavy rainfall across the Dakotas, southern Minnesota, Iowa and Wisconsin in the coming week while extended maps keep things wet and cool.  From a production standpoint, the Crop Prophet weather suite says the Euro model is showing corn and soybean production areas as 2.4-2.5 degrees above normal.  The GFS is 1.8-1.9 degrees above normal while the Northern Plains are mainly cooler than average.  The GFS sees 2.8” above normal over the next 15-days for corn and soybean production areas while the Euro is 2.1-2.2” above normal.

Weaker markets as we get ready to kick off the day session in this holiday-shortened week which is a bit surprising considering the stronger open last evening.  Soybeans opened as much as 10-12c higher but are barely above unchanged while corn prices have given up 3-5c gains to trade 1-2 lower.  It was the general belief the market would shake off Friday’s unusual USDA report and instead trade more on the anecdotal and physical evidence present across the corn belt.  That said, analysts are also starting to pose additional questions about what the scope of the acreage cut can be and when we might actually know?  Unfortunately, even with an acreage resurvey which will be available on the August WASDE, we will have to trade the current numbers for the next 45-days.  Even then, a resurvey still might not do a great job of picking up actual planted acreage, nor will it give us a sense of acres elected for prevent plant.  The Farm Service Agency will not begin releasing certification data until the end of August which will be our first glimpse at prevent plant.  This data set is parceled out from August to December, becoming more complete which each passing month.  With the late planting season, odds are high the data set will take even longer than normal to become “complete.”  In the meantime, markets will have to do the job they always have to do at this time of year which is predict yield.  Unfortunately, key pollination weather will not occur until the end of July or even into August, so it could be another couple weeks before model-to-model changes really start driving prices.  Open interest changes on Friday included corn up 15,342 contracts, soybeans down 588, meal down 12,082 contracts, oil down 2,503, SRW up 3,674 and HRW up 4,590 contracts.

A few quick notes on the acreage numbers received Friday.  Soybean acreage at 80.04 million was a major shock, the largest bullish surprise for this report on record.  We are currently using a 47.5bpa national average yield which would be the lowest since 2014/15 given the abbreviated growing season.  The crop produced would be 3.766 billion bushels which would be the smallest since 2013/14.  However, because of the gigantic carry-in, total supplies of 4.857bbu would be the second largest on record behind only last year’s 5.000bbu.  If you use USDA’s export forecasts, 2019/20 carryout falls to 662mbu from 1.071bbu this year and would be the second largest on record.  However, we still think 2018/19 exports could prove smaller and definitely feel 2019/20 exports have downside from 1.950bbu until ASF gets better or the trade war is resolved.  If we cut exports to 1.800bbu for 2019/20 which would still be 100mbu larger than the current year, carryout rises to 812mbu which could hardly be described as supportive.  As always, this balance sheet will come down to yield which there is no strong evidence on as of July 1.

In corn, few are adopting USDA’s 91.7-million-acre whole-hog, but for illustration purposes, we will plug it in.  With a 166 yield, would give us a crop of 13.974bbu which would be the smallest since 2015/16.  Leaving demand unchanged, carryout falls to 2.019bbu vs. 2.195bbu in 2018/19.  If we cut acres back by 6 million, which we feel is pretty common for estimates, production falls to 13.212bbu, and carryout slips to 1.257bbu which the market is not reflecting today.  However, it is very easy for us to dice up the demand side of the balance sheet by way of lower feed/residual demand as well as paring ethanol demand back.  Exports at 1.800bbu vs. 2.2bbu is probably fair for now, but competition will remain cutthroat from South American for the next several months.  If yield falls from 166bpa, things get bullish very quickly.  The trick the next several weeks will be staying objective on yield potential.  With the current forecast, crop conditions will be improving as moisture and heat are received.  Does this mean yield ideas are rising from 166bpa?  Not necessarily, but it will also be difficult to cut yield ideas further at this juncture.  Areas which got crops planted look strong, but everyone knows the prospects for corn which will not be knee high by the 4th of July.    

The other area of interest for us was spring wheat acres on Friday’s report.  “Other Spring” wheat acres totaled 12.43 million acres which would produce hard red spring planted acreage of around 11.95-12.00 million.  We are using 12.0 million acres in our balance sheet for the time being.  Assuming USDA is correct in their 2018/19 ending stocks of 313mbu, we see a crop of 535mbu assuming a national average yield of 46.0bpa.  Yield ideas could be even a bit higher as weather is very conducive to filling heads and adding bushels.  Our demand estimates see 285mbu of domestic demand which is a hair above the 5-yr average.  Exports are currently pegged at 290mbu which would be the largest in four years and the second largest since 2010/11.  Total demand of 575mbu is the largest since 2014/15.  Current ending stocks would be around 334mbu which is the largest since 1987/88.  Taking a step back, it is difficult to get bearish supply from our current estimate in our opinion.  Weather looks good and we are running out of time to cut production.  On the demand side, one could argue for higher demand, but this will require staying competitive with Canadian export offers as well as keeping spreads tight with HRW to incentivize blending.  Neither of those happen with sharply higher prices.  Based on this look at the HRS balance sheet, we feel $6.00 futures will be a good value should we be able to sustain strength from current prices.

Bottom Line: It may take some time for our markets to shake Friday’s USDA reports, especially if conditions improve on this afternoon’s crop progress report.  Funds got longer corn going into the report than most had anticipated, which could keep liquidation the name of the game for a spell.  Yield is still what matters, and we haven’t gotten any assurances it will be higher than the 166bpa the USDA used in June.  However, it will be likely the WASDE board will have to adopt the NASS acreage numbers on the July WASDE which could look bearish to the computer trade which now makes up 50% of trading volume (h/t @MisterCommodity).  We have to change the narrative, but USDA might be the only group that can do that.

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.

6/28/2019 Morning Comments

Good Morning,

A sizable system in western North Dakota as well as a band moving across NE-Iowa, S-Wisconsin and Michigan this morning, otherwise the Midwest is quiet.  Weather models weren’t in great agreement yesterday on temperatures for week 2 with the Euro trending cooler while the GFS trended a bit warmer.  Mostly similar on precip with little change from the previous runs.  Crop Prophet is still looking for things to be mainly wetter than average for corn and soybean production areas, especially in the Northern Plains.  The dryness will allow HRW harvest to accelerate across the Southern Plains, although fall crops could be trending a bit dry in NE/KS/MO/W-IA.  NOAA’s CPC maps continue to point toward above normal precip for the entire Midwest with temperatures normal to above normal.  Ideal forecast as long as corn is still in the vegetative stage.

The long-awaited USDA reports are finally here.  Mixed markets heading into the numbers with soybeans posting small gains while wheat and corn are lower.  Wheat suffered a notable reversal during Thursday’s session, rallying as much as 7-9c higher before giving all of the gains back and KC charts posting noticeable reversal candles.  Wide open week of harvest with anecdotal reports of good yields and improving quality will add hedge pressure.  Some big HRW total crop ideas being thrown around after analysts were in a rush to cut production as recently as two weeks ago due to excessive rain.  USDA was 794mbu on the June WASDE for HRW production but some are suggesting the crop could be 875-900mbu.  We will reserve judgement on that at this time.  Today’s USDA reports will end up being all about the stocks report given the skepticism toward the acreage report.  Given the timing of the survey, and the fact producers are still trying to plant soybeans, it will be difficult to know what to do with this round of acreage guesses.  It is very likely we won’t have a good handle on fall crop acreage until combines roll in October.  Corn open interest fell 18,604 contracts yesterday with just 29,040 remaining inn the July. Soybean open interest fell 965 contracts with 11,463 in the July.  SRW open interest was down 5,289 with 3,958 in the July while HRW was down 2,250 with 1,657 contracts still in the July.

Today is First Notice Day with delivery receipts going to the exchanges last night.  The notable move included Cargill registering a fresh 790 receipts and delivering same.  The move was interesting considering the river is trading above gross delivery equivalence, not to mention the record interior basis levels being paid at some major ethanol plants.  As is usually the case, commercials can have something work for them which doesn’t work for anyone else based solely on space and logistics.  The pertinent thing is there were no strong commercial stoppers and the receipts could get kicked around for a few days.  Also noteworthy, there were 862 deliveries in Minneapolis, the bulk of which were put out by Wells Fargo customer, but LDC also through out 211.  CHS House stopped 533 of them, all of which were 2.0 vomotoxin or under.  Not much reaction Minneapolis on the news.  As the great Charles Soule used to say, “buy heavy deliveries and sell light deliveries… or something like that.”  There were five deliveries in Kansas City, five soybean deliveries and none in Chicago wheat.

Export sales were a mixed bag yesterday with wheat strong and the others just ho-hum.  All wheat sales totaled 22.5mbu vs. the 12.5mbu needed weekly to hit the USDA forecast.  Total commitments now stand at 255.3mbu, up 25% on the year with the HRW book specifically up over 112% from a year ago.  Corn sales were poor at 11.6mbu vs. the 23.0mbu needed weekly.  Total commitments of 1.918bbu are down 15% from a year ago and at risk of seeing a cut on the July WASDE.  Export sales have missed the level needed the past four weeks.  Commitments for the 2019/20 marketing year are 125.1mbu vs. 168.8mbu a year ago.  Not off to a good start and the South American competition should be fierce for the foreseeable future.  Soybean export sales totaled 6.2mbu which continues to raise total commitments further above the USDA’s target.  Total commitments of 1.751bbu are already above the USDA’s 1.700bbu export target with 10 weeks left in the marketing year.  The concerning part remains shipments which are at 1.363bbu vs. 1.786bbu a year ago and only 80% of the USDA’s target.  We have to ship 20% of the export deck in the final 10-weeks of the marketing year with the Upper-Mississippi just now opening.

As far as today’s report goes, we fell the trade will be quick to dismiss the acreage report, regardless of what it actually says.  As we noted yesterday, market participants would do well to remember these acreage numbers today are completely independent from anything issued in March or on the June WASDE.  This data is comprised of a separate survey which was conducted in late May and early June, a time in which both corn and soybeans were still being planted heavily.  So while the data will certainly not pick up all of the prevent plant data, it also isn’t likely to pick up all of the planted acreage.  There is a slide in the USDA powerpoint which will show estimated acres left to plant.  Normally, this shows something around 1-2% left to plant on corn, but it is likely to show much more than that on this report and the final figure could be telling.  The true nature of soybean acreage isn’t likely to be known for weeks or even months.  The more important data on today’s report will be the stocks in our estimation.  Lots of speculation about June 1 corn stocks and why they could be higher or lower than trade estimates, hence the 720 million bushel range in pre-trade estimates.  The record basis levels being paid suggest stocks should come in smaller than trade ideas, although how tightly farmers are holding on to grain could have a lot to do with basis being paid.

Bottom Line: Not much else to say until we get the USDA’s numbers behind us.  Strap in and make sure you’re comfortable with levels sold and risk-management in place before the report.

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.

6/27/2019 Morning Comments

Good Morning,

Moderate to heavy showers working across much of the Dakotas this morning where rain has fallen on and off the past several days.  After a fairly dry June, the Northern Plains are finally getting back in the wet cycle with most areas running above average over the last 7-days and 14-days.  The 30-day percent of normal precip map is right at average to a smidge below for the Dakotas and Minnesota.  Elsewhere across the Midwest, the 14-day percent of normal precip map has almost everyone above normal as would be expected.  With planting mostly complete, weather is much more about supporting vegetative growth than seeing dry weather for additional seeding.  7-day forecasted precip maps from the GFS show the Northern Plains continuing to receive rain during the next week while the Southern Plains are favorably dry for harvest.  The Midwest will see heavy rain in southern Minnesota and northern Iowa while the Eastern Corn Belt is mostly average on rainfall.  Extended maps from the CPC sees above normal precip for the entire Midwest while temps are split with normal/below temps in the Plains and west while normal/above temps dominate in the central and eastern corn belt.

Mostly higher markets overnight led by wheat with U.S. wheat markets leading the charge as Paris futures are up just 0.5-0.8%.  The strength in wheat despite what looks to be a wide-open week of harvest is a bit perplexing but also impressive.  Traders have remarked that momentum-driven funds were warming to wheat given the technical tilt it had been displaying.  This was exacerbated when Chicago wheat broke out to fresh seven-month highs, putting what was left of the managed fund wheat short underwater.  In addition, the StatsCan data from Wednesday was supportive as the early season dryness and smaller acreage has Canadian estimates coming down.  This also had implications for the SRW balance sheet which will be discussed below.  Otherwise, row crops are biding their time until Friday’s acreage and stocks report.  Based on the pre-report estimates, tomorrow could be a doozy, at least until the trade discards the data as old news and switches back to trading weather models.  Open interest changes yesterday corn down 25,440 contracts as the July continues to be liquidated ahead of FND.  Soybean open interest was down 8,760 contracts, meal down 9,156, oil up 599, SRW down 11,501 and HRW down 3,021.

StatsCan released updated acreage ideas yesterday with all-wheat area coming in at 24.595 million which was down from their 25.7 million April estimate.  Their updated figure is down from 24.734 million a year ago.  Spring wheat acreage was actually up 8.4% from a year ago at 18.772 million with the surprise drops coming in winter wheat (-25.0% y/y) and durum (-20.9%).  There was a fair amount of abandonment with winter wheat as acres seeded last fall totaled 1.346 million but acres remaining were just 929,000 acres.  Overall, the spring wheat portion of the acreage is the most important given that is the bulk of Canadian exports.  With the recent rainfall, we have a feeling CWRS production could still be sizable.  The durum balance sheet has the potential to get very tight, especially with the expected decline in acreage in the U.S. on tomorrow’s report.  In addition, the decline in winter wheat acres is due to a drop in SRW acres in Ontario.  This should mean increased imports from the U.S. at a time in which the SRW balance sheet is already expected to be the tightest in five years.  If memory serves, we won’t get an updated look at Canadian yield and actual production until August.

Weekly ethanol production declined 9,000bbls/day from last week to 1.072 million bbls but was the third week in a row above the needed level to meet the USDA forecast.  Four of the last six weeks have been above the level needed with production basically needing to run unchanged to down 1% through August to hit the USDA’s estimate.  The USDA’s current 5.450-billion-bushel target may have to be bumped higher slightly.  Ethanol stocks declined 46,000 bbls to 21.567 million, and are now the lowest in over a year.  Ethanol stocks have declined in 11 of the last 13 weeks, which is typical given the seasonality of ethanol stocks.  We remain cognizant of the fact ethanol, crude oil and RBOB gasoline prices remain well below the levels witnessed the last time corn ascended to these heights.  Ethanol/corn spreads are above the record lows witnessed at the end of 2018 and the beginning of 2019, but are still nothing to write home about.  With ethanol plants paying +20 to +40N in the Eastern Corn Belt, we have to wonder how long this will be sustainable?  It is our hope tomorrow’s stocks report sheds light on the situation so the market can better gauge whether the basis strength is the result of lower than expected stocks or whether farmer selling has dropped to such low levels due to the lack of planted acreage end users simply haven’t been able to pry it loose. 

Russian wheat crop estimates garnering a lot of attention the last couple days, mainly because of the spread that has developed between firms.  The USDA has remained steady around 78MMT.  However, Agritel and SovEcon have published numbers between 81.7-82.2MMT in the last couple of weeks.  Then, an unnamed tour went through much of the Russian wheat growing areas and returned a number around 73MMT.  A 8-10MMT spread in Russian wheat production at the end of June is incredible and probably means additional volatility is yet to come.  If we plug the 81.7MMT estimate into our balance sheet with USDA demand, carryout rises to 11.428MMT and would be the second largest since 2010/11.  If we plug the 73MMT estimate in,  carryout drops to 2.728MMT, the smallest since 2000/01.  Hence the expectation for volatility.  The most open interest in Black Sea wheat futures exists in the July, and that contract hasn’t done a whole lot as of late.  Settlements yesterday were at $198.50/MT which is still below the 6/3 highs of $202.50/MT.  These contracts along with Black Sea FOB offers should give us some clue as to the trend in Russian wheat production, but if feels as though the market was positioned for a crop size larger than the USDA which could be in jeopardy now.

Bottom Line: Export sales should help set the tone for the session heading into tomorrow’s reports.  Unfortunately, the only clarity we will get tomorrow will be on June 1 stocks as the acreage estimates will be dismissed quickly.  We would remind folks the acreage data tomorrow is based on a brand new survey issues in June, not a chance from the March Prospective Plantings report.  This survey and report are completely independent of findings in March which means getting another 3-4 million acre drop from the March number might be difficult, especially considering how the questions were phrased on this survey.  Producers were still asked about intentions as of June 1-10 which included a lot of acres which were still intended on being planted even if prospects were dim.  June 1 stocks should also clear up some confusion which arose around the March 1 stocks thanks to the government shutdown and the unusually large find back of bushels.  Do we “lose” those bushels on this report or does the market “find” even more bushels that were tucked away in producer bins until they were accurately accounted for at the commercial level?  Strap in.  It’s going to be a bumpy ride.

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.

6/20/2019 Morning Comments

Good Morning,

A healthy band of rain moving from NW-ND to SE-NE this morning bringing moderate to heavy rainfall, all of which is welcome at this point in the summer.  Areas which have crops planted in the Northern Plains and Western Corn Belt need the rain, and areas without crops in the ground have passed the threshold to get anything else in the ground anyway.   Weather models are in pretty good agreement right now for the next 10-14 days.  Rains will continue to plague the Midwest, especially the central and eastern corn belt, through the weekend before a ridging pattern takes place bringing above normal temps and mostly below normal precip.  Forecasters are not calling for the ridge to set up for the long-term, or for any Dome of Doom to bring blast furnace-type heat, but seeing the ridge break down beyond the 4th of July holiday will be important.  According to Crop Prophet’s interpretation of the CFS model, week 3 temperature anomalies cool to 1.4 degrees above normal while week four is -0.6 degrees below normal.  The precipitation anomaly for that time period is seen at 115-117% of normal precip over the corn and soybean production areas, so a rather favorable forecast should it verify.

Weaker markets this morning, although corn has seen both sides during overnight trade as some traders express interest in owning July corn sub-4.40 ahead of option expiration tomorrow afternoon.  We continue to believe highs have been set pre-USDA report next week as the market needs more verification of what has been planted and what weather models look like into mid-July.  Based on our reading of the tealeaves, we aren’t seeing anything too stressful for crops which actually got planted and made it out of the ground.  Granted, weather will need to be better for longer this season as the maturity of the crop lags and significant ground needs to be made up before any sort of fall frost.  We also continue to maintain more acres got planted than most of the Twitter experts would like to believe both in our back yard and in the eastern corn belt.  There will still be significant prevent plant acreage, but we just feel the high watermark numbers of 10 million plus acres are likely off the table.  This is to say nothing of their yield potential which we still have plenty of time to trade.  Export sales on tap today which should be nothing to write home about considering the premium to competitor origins corn, soybeans and wheat are currently carrying.  Open interest changes yesterday saw corn up 5,605 contracts, soybeans down 33,001 contracts, meal down 5,488 contracts, oil down 7,079, SRW wheat up 259 contracts and HRW down 700.

Weekly ethanol production declined 15,000 bbls/day last week to 1.081 million barrels per day but this was still better than the level needed to hit the USDA’s marketing year forecast.  This was the 5th week in a row of production above year ago levels, and run rates are averaging +2.3% above year ago levels during that period.  It seems likely the USDA will need to raise their ethanol production forecast modestly before the end of the marketing year should these sort of run-rates continue.  That said, we are concerned with the basis levels being paid in the Eastern Corn Belt and the ability of some plants to continue grinding.  Between this week and last, we have heard of +40N up to +58N being paid in Indiana and Ohio.  That is near $5.00 cash corn with $5.00 being paid at the highs this week.  Square that with crude oil at $55.66 per barrel, RBOB Gasoline futures at $1.74 and ethanol futures at $1.57.  Earlier this week, the spread between RBOB and Ethanol dropped to 10c per gallon, the smallest premium since February.  Keep in mind, the last time corn futures were at these levels, crude oil was $100 per barrel, gasoline was over $3.00 per gallon and ethanol prices were over $2.00 per barrel.  We don’t run an ethanol plant.  However, it doesn’t take a PhD in engineering to reason those sort of spread relationships are not positive for ethanol margins and probably not sustainable in the long-term.  Everyone has been quick to cut yields and acres, projecting carryout and negative 3.0 billion bushels, but what does carryout look like if we start closing ethanol plants at the same time South America is taking all of our swing export business?  These are the sort of questions we need to be asking and answering at the same time we are projecting the tightest corn carryout in recorded history.

Egypt’s GASC was in tendering for wheat yesterday and ended up buying 290,000MT of Russian and Romanian wheat at $210.00-211.21/MT C&F.  These prices were $1-2 per tonne above their last tender, but there was close to 900,000MT offered in a sign of how much wheat is available.  There were no U.S. offers which is not all that surprising considering the unknown nature of U.S. quality, and especially bushel size with respect to the SRW crop.  Still, the fact U.S. wheat isn’t even being offered for new crop slots is a little disheartening.  If we are to see any GASC business, it will likely be on the back end of the marketing year once Russian and European supplies have been exhausted, if they ever get to that point.  Keep in mind, this spring was the first Egypt business the U.S. has participated in for several years.  It is not a guarantee we will be active in the major international tenders, especially if quality issues arise like it looks like they will.

Export sales estimates for later this morning see wheat at 150-500TMT, corn at 400-800TMT, soybeans at 300-700TMT, soymeal at 100-300TMT and oil at 5-25TMT.  We will be surprised if corn, wheat or soybean export sales are anywhere near the top end of those ranges.

Bottom Line: Weather and waiting for USDA reports.  Corn and soybeans have both pushed positive while we have been writing which will keep some major strikes in play for option expiration.  That said, feels like more consolidative trade until Friday of next week.  We are leaving behind the weather needed for planting and transitioning to the weather needed for successful growth and pollination.  Let the Twitter weather debates begin!

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.

6/19/2019 Morning Comments

Good Morning,

It would appear the era of low interest rates and cheap money will last forever, so if you are a Baby Boomer tough luck but if you are a Millennial, keep borrowing to your heart’s content.  Odds are very high the FOMC board of the Federal Reserve will leave interest rates unchanged at the conclusion of their 2-day policy meeting today, but odds are at 80% they cut rates at their July meeting.  This was followed/preceded by Mario Draghi of the European Central Bank yesterday saying the ECB will launch another round of stimulus should the climate of weak growth and political uncertainty fail to lift.  It would seem the developed economies of the world have for too long watched countries like China add stimulus and keep their currency weak to spur growth, while developed countries were expected to shoulder the weight of keeping monetary policy steady and responsive to market forces.  For now, it would appear everyone wants cheap money until something bad happens and it will be addressed when/if it does.

Showers all across the Midwest and Mid-South this morning as well as a few bands in the Northern Plains.  These showers will kick off what looks to be a rather wet week across U.S. growing areas.  Morning GFS models have moderate to heavy rains from the Canadian Prairies to Tennessee with the heaviest amounts scheduled for Saskatchewan as well as IA/IL/IN/OH/KY.  The rains will be especially welcome in the Canadian Prairies which have been running dry most of the spring, but the rain will not be welcome in the ECB where producers are still trying to slam beans in the ground ahead of June 20 final plant dates.  Extended maps continue to keep things fairly wet in the 6-10 and 8-14 day, but the feature would definitely be the heat surfacing in the 8-14 day for much of the Midwest.  Whether this develops into larger ridging remains to be seen but the risk for crops which have been mudded in would be heat and dry.

Weaker markets for the second session with winter wheat markets leading losses as early quality which has hit elevators in Oklahoma and Texas is not as bad as feared and yields are said to be very large.  We are still 7-14 days away from serious combining in Kansas, if weather allows, but traders must be realizing the HRW crop is not going to be killed by too much water.  Corn and soybeans are following through with losses from yesterday.  We had two trusted contacts working their way through the eastern corn belt the last two days with very interesting observations.  In spots, it is as bad as feared with unplanted acres in Ohio stacked up large.  In Indiana and Illinois, however, they were surprised at the number of acres which were planted considering the anecdotal reports most of June.  That said, most of the crops are incredibly immature with much of the corn only in the 1-2 leaf stage.  The yield potential on these crops is completely unknown at this point from both a good and bad point of view.  Some producers who have crops in the ground are still optimistic they could reach APH or trend line yields.  Others aren’t sure crops will make the frost.  The universal theme, however, is a lack of optimism toward the soybeans which got planted.  It is just difficult to think anything near trend or APH yields can be achieved when the growing season has been cut this far short, considering soybeans are a daylight sensitive crop and even with copious rain in August and September can’t make up for a long pod-fill period.  As one of our contacts said, he will be excited to see that area in a month because it will tell him what we should have known on June 19th.  This market will have a tough time getting ahead of itself in our opinion given the likelihood of resurveys, FSA Prevent Plant data, yield checks on immature crops and a weather map debate on Twitter the likes of which we have never seen.  Open interest changes during yesterday’s session included corn down 11,722 contracts, soybeans down 13,784 contracts, meal up 4,009, oil down 12,168, SRW up 2,684 and HRW down 3,055 contracts.

Deliverable stocks were one of the only data points released yesterday.  SRW stocks are actually working their way higher seasonally as harvest slowly begins down south while export challenges keep wheat mostly domestic.  Total wheat stocks in Chicago were up 3.03 million bushels to 41.732 million which compares with 67.084 million a year ago.  SRW stocks for this date are the lowest since 2014/15 and the second lowest of at least the last 10 years.  HRW stocks were down 2.105mbu to 86.347mbu which compares with 113.501mbu a year ago.  HRW stocks for this date are the lowest since 2015/16 with the delayed harvest causing stocks to be drawn down further.  Still plenty of high quality blending stock available.  HRS stocks were down 231,000 bushels to 13.446mbu which compares with 16.563mbu a year ago.  The spring wheat harvest will be late this year, so a handle on quality and the need to preserve old crop won’t be known for another month at least.

Something we continue to keep an eye on are the amount of outstanding soybean sales still on the books, especially to China.  As of May 30, the last export data available, shipments as a percentage of the USDA forecast totaled 72.2%.  This is the lowest level on record with second place all the way up at 80.2% back in 1991.  A large reason for this is the outstanding commitments to China which totaled 6.3MMT as of last week, or 233 million bushels.  China did take several million bushels in the last reporting week according to the inspections report, but a large amount remain on the books.  These are a major risk in our opinion because of the sensitivity of the trade talks.  President Trump said he and President Xi will meet at the G20 Summit in Japan at the end of the month, but we’ve heard this song and dance a hundred times.  The commitments to China remain at risk of being rolled into the 2019/20 marketing year which would bump ending stocks levels directly.  With carryout already over 1.0bbu, this would just add additional supply buffer for the 2019/20 marketing year.  Granted, these sales could end up executing next marketing year, but as long as ASF remains uncontained and no trade deal exists between the U.S. and China, there is no reason to think export demand will rebound next year.  We are not confident in the USDA’s current 1.950bbu export forecast for next year which again adds available supply back into the balance sheet should yield fail to achieve trend.

Bottom Line: Feels as though the market doesn’t want to trade sharply in either direction until more data is at hand next week.  We are gaining confidence the 10-12 million prevent plant acreage ideas are not going to happen, although this says nothing about eventual yield potential.  The market needs to trade what it is front of it and not try to trade things like frost date, final yield and final carryout without having any of that information at hand.  There will be plenty of time to trade yield yet this summer, but right now the market seems to be suggesting unplanted acreage might not be as bad as some of the bottom-barrel ideas thrown out a couple weeks back.

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.

6/14/2019 Morning Comments

Good Morning,

Rain in the Southern Plains as well as scattered showers in the Northern Plains and Wisconsin this morning.  The focus has been all about excessive rainfall the last two weeks, especially in Kansas, Illinois, Indiana and Ohio.  It is interesting to take a look at the 14-day percent of normal precip map, however, and see the moisture deficits which exist in parts of the Northern Plains, Iowa, central Illinois and southeast Kansas as the map below shows.  Fortunately, this dry spell allowed extra acres to be seeded, but many of those acres will need consistent rainfall to overcome less than ideal planting conditions.  There is rain around the next seven days for the Northern and Southern Plains as well the bulk of the corn belt.  GFS totals in the southern Corn Belt actually look excessive if models verify.  Extended maps still show above normal precip and below normal temps through the end of June.

Higher prices across the board overnight as the rally continues and the trade begins to worry about the soybean balance sheet.  Trade estimates are pegging soybean planting progress to be around 85% complete as of Monday vs. 93% average.  This would leave roughly 12.7 million acres of soybeans left to plant as of June 17 which would be unprecedented.  One can make the argument overall acres were above the March PP estimate, but it does feel as though we could lose a few million.  As we tried to write about yesterday, one has to lose 4 million or more to make the soybean balance sheet look even somewhat constructive.  The real question comes down to yield, and while folks are quick to plug in sharply below trend yields on June 14, we are not ready to do that yet.  In addition, if the demand story wants to be discussed in soybeans, one has an even easier time axing demand there than in the corn market.  We are not trading demand destruction yet on any commodity as we are still in the discovery phase for supply.  Sometime between now and the end of July, the market will be more comfortable with supply and highs are likely to be made.  The balance of the marketing year will be about spreads and basis with an incredibly long tail to futures prices.  Open interest changes yesterday saw corn up 36,089 contracts following its 43,000-contract surge yesterday. Soybean open interest was up 21,484 contracts, meal down 2,433, oil down 3,265, SRW down 4,158 and HRW up 1,755 contracts.

The Canadian Prairie weather situation is one which we continue to keep close tabs on.  Much of the last month and change has witnessed sharply below normal precipitation, but those fortunes appear to be turning as the 7-day forecasted precip maps are putting 0.50-4.00” totals across some of the driest areas of Saskatchewan, Alberta and Manitoba.  Temperatures are also expected to be below normal much of the next 10-15 days with the same weather stretching into North Dakota.  With Canada being dry for much of the spring, planted acreage likely exceeded pre-season estimates, and with temps and precip now cooperating, Canada could be setting itself up for a whale of a crop if conditions persist.  The USDA already had Canada at 10.0 million hectares for harvested area which would be the largest area since 2013/14.  As mentioned, it would not surprise us to see an even higher planted and harvested area with the near ideal seeding conditions.  Production at 34.5MMT would be the largest since 2013/14’s record and the second largest production total ever.  These rains for the Canadian Prairies need to verify, but things look good at the moment.

Export sales yesterday weren’t anything to write home about, and it is clear global importers remain a little shell-shocked over what is happening with the grain rally.  Wheat export sales were light at 12.0 million bushels vs. the 12.6mb needed weekly to hit the USDA forecast.  It is surprising the U.S. is doing any export business right now considering the premium we are carrying to competing origins.  Total commitments of 225.9mb are up 36% from a year ago thanks to a front-loaded program as importers wait for France and Russia to get exportable supplies into place following harvest.  Corn sales were weak at 6.6mb vs. the 16.9mb needed weekly to hit the USDA forecast.  Total commitments of 1.905bbu are down 14% from a year ago with the USDA looking for a just a 9.8% decline.  Corn exports will remain one to watch the balance of the summer as the full-year total could still prove smaller yet.  Soybean sales totaled 9.4mbu which is above the net cancellations needed to achieve the USDA forecast.  Total commitments of 1.724bbu are above the full-year marketing total of 1.700bbu which the USDA just updated Tuesday.  However, it has never been about soybean sales but rather the shipments.  Cumulative exports of 1.310bbu are down from 1.734bbu a year ago.  China still has commitments on the books, and Reuters was carrying headlines about Chinese crushers wanting to roll these contracts further out the curve.  The marketing year forecast for soybeans could still be getting smaller.

Bottom Line: The path of least resistance is higher, especially for soybeans and wheat which are still sporting net short positions in the managed fund category.  It is hard to fight higher prices with cash corn and spreads rallying to the degree they are, even if the supply tightness is a lack of selling as opposed to a lack of physical bushels being available.  The demand debate is not happening now, but it will at some point, especially if export sales continue poor and ethanol margins revert back to the levels witnessed most of the spring.  What does your marketing plan and balance sheet look like if the market breaks 50c as opposed to rallying another 50c?  The right questions need to be asked and answered in between the daydreaming about $6.00 corn.

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.

6/13/2019 Morning Comments

Good Morning,

A few scattered showers across the Dakotas and a sizable system in Michigan this morning, otherwise the Midwest is mainly quiet.  Scattered showers across the Midwest until the weekend when the next big round of rain is set to arrive.  The main band will stretch from Oklahoma to Ohio with 0.50-2.00” totals quite common.  By mid-week next week, another round of rain rolls through the entire corn belt with moisture seen from Alberta to the Eastern Corn Belt.  Almost all of the Midwest will see measurable precip.  There will be mixed feelings about this as the crops in and out of the ground need rain while producers who are still struggling to seed soybeans will not appreciation the extra moisture.  Extended maps keep below normal temps and above normal precip in place through June 26 which will keep crop growth behind normal.

Firmer markets across the board this morning led by the corn market.  While the strength in futures is nothing new, the strength in corn spreads the last 24-48 hours has been an impressive feature.  The CN/CU spread rallied to -6.00c overnight, the highest trade since the end of March while the CN/CZ shot to -14.25c which is the highest trade since May 28.  The spread strength is certainly in-keeping with basis strength in the Central and Eastern Corn Belt as premier ethanol plants are paying as much as +45N in Indiana while the flagship plant in Decatur is said to be paying +14N.  The strength in spreads and basis is interesting considering the lack of new crop getting planted will obviously manifest itself on the back end of the curve, not the front end.  In addition, according to the March 1 stocks data, which is admittedly dated now, there should be no physical corn tightness in 2018/19, although we will be getting an update to that in a couple weeks’ time.  The physical corn tightness is most likely tied to producers who have little or no crop planted clinging tightly to remaining old crop supplies because basis levels in the Western Corn Belt can still be found around -30 to -40N.  Definitely still a distinction between supply and available supply.  Soybeans joining in on the party finally with a solid rally yesterday and overnight strength.  Concerns over final soybean acreage are growing, although still a long way from being dire.  Open interest changes yesterday included corn up 43,726 contracts, soybeans up 7,298 contracts, meal up 3,727, oil down 2,293 contracts, SRW down 3,476 and HRW down 1,422.  Corn open interest is now within 172,283 contracts of the all-time record set back in June 2018.

The soybean strength yesterday had many asking “what’s the deal with soybeans.”  The most logical answer is concern about the wet weather rolling into the Corn Belt the next week and change and an extended forecast which is cool and wet.  As of Monday, there were 30 million acres of soybeans left to plant, with around 3-7 million usually double crop after winter wheat.  Some analysts are beginning to slash their final soybean planted acre numbers, although we don’t have a great deal of confidence one way or the other.  Before this week, we were still of the opinion soybeans would gain acres from their March Prospective Planting estimate.  Now, we are probably closer to the actual March number to maybe a couple million below.  To get a good look at the soybean balance sheet, we axed 4 million acres from the March estimate, putting planted acreage at 80.617 million.  We left yields alone at 49.5bpa as there is no real reason to adjust soybean yields at this juncture in our opinion.  Total supplies with those ideas would be 5.044 billion vs. 5.000 billion a year ago.  For demand, we are using USDA’s estimates, although we have a hard time subscribing to their 1.950 billion bushel export forecast.  With African Swine Fever still running rampant, and a trade war which has no signs of being over, we aren’t sure we can count on the third largest export program in history with so much South American supply available.  Regardless, carryout would be seen at 849 million bushels which would be the second largest on record by a gigantic margin.  Stocks/use would be 20.26%, behind 2018/19’s 27.2%.  To bring the stocks/use ratio down to the second largest of the last 20-years at 18.7%, we would need to lose a total of 6 million acres from the March PP report.  We could also get to an 18.0% stocks/use ratio if yield fell 1bpa to 48.5.  Lots of balls in the air, but the soybean fundamentals are nowhere near corn’s, and this should be kept in mind when bulls attempt to paint a bullish S&D picture.

The focus in the corn market has been all about supply as of late but we received a welcome bump from demand on the ethanol front.  Weekly ethanol production surged to the third highest on record last week and was the highest week since August 2018.  Average weekly production totaled 1.096 million barrels per day, up 52,000 on the week.  Production is slowly, but surely, starting to run above year ago levels after running well below year ago levels for most of the winter and spring.  If current growth rates over last year can be maintained, it looks solid we can achieve the USDA’s 5.450 billion bushel target, and possibly even exceed it slightly depending on late summer run rates.  Ethanol stocks fell 751,000 barrels last week to 21.802 million, the lowest stocks figure since late last summer.  Ethanol stocks for this week are actually below each of the last two years after running at record levels from September through February.  All of this said, ethanol margins have improved, but are still not stellar.  In addition, crude oil prices maintaining weakness, along with gasoline prices trending lower will not incentivize discretionary blending or consumers to use high ethanol blends.

Bottom Line: The path of least resistance is still higher, especially in the commodities in which funds are still short.  Corn is driving the bus, but will pull soybeans and wheat along for the ride.  The story is not the same in beans and wheat, but their balance sheets can turn more constructive if the former loses acres and the latter sees demand pick up in the way of a major feed program.  Still feels like we are in the first few innings of this game, yet producers seem intent on waiting for the highs before entertaining the idea of marketing.

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.

6/12/2019 Morning Comments

Good Morning,

A band of showers stretching from N-TX to Wisconsin is present on radar this morning, otherwise the Plains are mostly quiet.  Forecasts come down to those who have crops planted vs. those who don’t as well as those with crops ready to harvest vs. those who don’t.  If your crops are in the ground, or out of the ground as it were, the forecast looks nearly ideal with below normal temps and mostly above normal precip for the majority of Midwest growing areas.  For those who do not have crops in the ground, an open window for seeding does not look promising.  The central and eastern corn belt will see several rounds of rain in the next week, especially early next week with 1.00-3.00” totals expected in OK/E-KS/MO/AR/IL/IN/OH/MI with lesser totals in NE/IA/MN/E-SD/ND.  In the Plains, producers with wheat ready to harvest in OK/TX/KS will see repeated rainfall chances which will delay harvest further and possibly compromise quality.  Further north, NE/SD/ND where HRW is not ready for harvest or HRS is still developing, weather looks solid.  Extended maps keep above normal pecip and below normal temps in place through the 15-day outlook.  This is not ideal for helping catch up late crops, but stressful weather is certainly not present into the end of June.

Mixed markets this morning with row crops softer while wheat contracts have seen both sides and are pressing green as we head into the 7:00 hour.  Yesterday’s WASDE had something for everyone with larger than expected cuts to yield and acres for corn, but precious little for bulls in either soybeans or wheat.  The cuts to yield and acres on corn were not unprecedented, although the severity of the cuts they made certainly were.  The market reacted as expected, although we have still not taken out the 4.54 high from 5/29.  It feels as though the corn market will need more confirmation on acres being lower or some hard signs the national average yield is slipping below the USDA’s 166bpa estimate.  Soybeans are now faced with the prospect of back-to-back billion-bushel-carryouts for the first time in history.  While some are already arguing the soybean yield should have been dropped on the June WASDE, that is not an argument that needs to happen in mid-June.  Similarly, the wheat market is facing another 1.00-billion-bushel carryout with the only route for a sub-1.00-billion-bushel carryout being an extraordinarily large feed program.  With the wet weather forecast for the southern plains, that is something which could certainly happen.  Open interest changes on report day saw corn open interest up 4,991 contracts, soybeans down 1,605, meal down 2,482, oil down 15,080, SRW up 2,795 and HRW down 2,368 contracts.

The corn balance sheet saw old crop exports reduced 100 million bushels, which many thought possible this month, but certainly not a guarantee.  2018/19 ending stocks were therefore projected at 2.195 billion bushels.  The new crop balance sheet took most of the focus with acres reduced 3.0 million to 89.8 million while yield was cut 10bpa to 166bpa.  Most weather-based yield models had the national average yield between 166-170bpa, so the market knew this was a possibility although few thought it probable.  Production was therefore reduced 1.350 billion bushels while imports were raised 15 million to cut toal supplies by 1.235 billion when larger beginning stocks were added in.  The USDA had to make some demand cuts, although we posit they did not make enough.  Feed/residual was reduced 300 million bushels, while exports were reduced 125 million.  We think exports could have been cut even further considering the increases which were made to Brazilian and Argentine production and exports.  Combined use was therefore down 425 million bushels which netted ending stocks down 810 million at 1.675 billion.  By the time we get well into the 2019/20 balance sheet, the USDA has a strong track record of reducing demand 0.868 bushels for every one bushel of supply.  In other words, if the USDA cut total supplies by 1.235 billion, they will try to cut demand by 1.071 billion, which would have left carryout at 2.321 billion.  However, they will not make demand cuts like that this early in the marketing year even though supply cuts they have more confidence in.  The point here is to not get complacent thinking ending stocks will sit at multi-year lows the entire year.  Demand will be rationed, and usually much more quickly than the market thinks.

Sticking with corn today, the USDA also increased the 2018/19 Brazilian corn crop estimate to a new record 101MMT from 100MMT last month.  This is up sharply from last year’s drought-reduced crop of 82MMT.  The Argentine crop was held steady at 49MMT, but exports for both countries were increased to 34MMT and compare with Argy at 22.5MMT last year and Brazil and 25.1MMT.  Total supplies of Argentine/Brazilian/Ukrainian corn for the 2018/19 marketing year now stand at 197.993MMT vs. 159.915MMT last year and the previous record of 178.061MMT.  This is a combined 38.078MMT of additional supply which was not available last year, or 1.496 billion bushels.  Granted, much of that Ukrainian supply has already been consumed, but early season prospects for next year are already solid.  Even if one wants to compare to the previous record, the three country combined supply is up 783 million bushels.  Yet, the USDA cut exports between the 2018/19 and 2019/20 marketing year just 225 million bushels.  Our point here is there is much, much more room to cut exports from the U.S. balance sheet if the market deems it necessary.  We could go down the same line of thinking when it comes to feed demand as the U.S. wheat balance sheet is staring at its fourth consecutive 1.00-billion-bushel carryout.

We will spend some time on the wheat and soybean balance sheets the rest of the week, but it was clear the focus yesterday was about corn.  The big focus in wheat the next several weeks will be additional delays to harvest and potential quality issues from excessive rains on mature wheat.  It is quite likely we will be looking at some of the slowest harvest paces for various HRW states on record, and with a front-loaded Q1 demand book, this could cause issues for exporters who are short boats.  In addition, the market will remain leery about developing dryness across the U.S. Northern Plains and Canadian Prairies.  Most of Saskatchewan is running less than 40% of normal precip over the last 30-days.

Bottom Line: The market got its desired cuts to the corn balance sheet yesterday, and now the onus is on bulls as to what they should do with it.  If December corn fails to take out 4.54, it could be a sign acres have been more or less priced in while the focus has shifted to yield.  We have lots of ways to ration corn demand from bushels outside the U.S. to a potentially large wheat feeding program.  The market isn’t required to go to any futures level, and producers who get complacent with their marketing waiting for a number they feel is deserved could be left holding the bag. 

Good Luck Today.

Tregg Cronin

Market Analyst

Tregg.Cronin@halocommodities.com

www.halocommodities.com

@5thWave_tcronin

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