The US Dollar Index rallied sharply yesterday, tying its 2018 high and the highest trade since October of last fall. Several positive technical factors have occurred with the USD in recent days and weeks including two golden crosses as the 50-day moving average crossed above the 100-day on May 14th, and crossed above the 200-day on June 8th. It is always important to remember these lagging indicators move because of the underlying price action, not the other way around, but occurrences like these crosses speak to the larger upside momentum of the security. Sharp weakness in the Euro due to a more cautious approach by the ECB and a hawkish stance by the Fed helped exacerbate the move, but the weakness extended to emerging market currencies as well with huge moves in the Brazilian Real and Argentine Peso. The currency strength in part helped commodity indices produce big weakness as the Bloomberg Commodity Index hit the lowest level since early May, and the Bloomberg Commodity Ag Sub-Index hit new contract lows. Rising interest rates from the Fed, in and of itself, is also negative commodity prices as it costs more money to store physical assets.
A band of showers from N-MN to S-IL is working its way east this morning, bringing additional moisture ahead of the warm up this weekend. Widespread 90’s will be present from E-SD to OH today through Sunday before temps finally ease to the mid-80’s for much of the corn belt next week. The Northern Plains should be much cooler than the corn belt with highs in the 70’s and 80’s instead of 90’s and multiple rounds of moisture chances this weekend. The 7-day forecasted pecip map shows heavy rain for KS/E-CO/NE/SD/NW-IA/MN over the next week. If half the totals forecasted actually fall farmers would be pretty happy. The central and eastern corn belt have chances of rain, but on average look to dry out a bit the next week. More of the same in the 6-10 and 8-14, although below normal precip is being forecast for ND. Temps will be above average for the entire Midwest.
Sharply weaker overnight, led by the soy complex with wheat a close second. The losses this week have been severe, and a little unexpected considering the calendar still says mid-June, with so much developmental weather still in front of the corn and soybean market. For the week, KC wheat is down 23.75c, soybeans are down 57.50c and corn is down 17.75c. There seem to be two schools of thought about the losses this week: 1) managed funds have been selling soybeans aggressively as a hedge against equity exposure to any happenings related to the trade-war and tariffs. 2) The market is bracing itself for a bearish acreage and/or stocks report at the end of the month. On the subject of the former, President Trump did approve $50 billion in tariffs against Chinese goods last night, which were the tariffs announced last month but not yet implemented. They are now implemented. Obviously the market fears retaliation against US soybeans, although we’ve seen this storyline play out before, and the response in Brazilian FOB premiums has been the same. Brazilian cash rallies sharply, trades to a big premium over US beans, other-origin buyers come to the US to fill their needs and it all balances out. Export sales on soybeans yesterday were an 8-week high which we will discuss below. If the selloff is more related to point 2), then I think that is actually more bearish. The June report over the last several years has found more acres than the March report as well as more stocks than expected. Average trade estimates have not yet been released for the report, but those will be key for setting expectations as we close out June. Open interest increased 7,824 contracts in corn yesterday, was up 3,885 contracts in beans, down 3,152 contracts in Chicago wheat and 2,113 in KC wheat.
Touching on the acreage point first, we wanted to take a look at the planted acreage expectations for 2018 and see if there is in fact room for corn and soybean acres to move a little bit. As of the March prospective plantings report, USDA expected US farmers to plant a combined 224.3 million acres of corn, soybeans and all-wheat. In addition, they see 12.319 million acres combined of oats, barley, sorghum and sunflowers. The C/S/W combined total of 224.3 million is the smallest total since 2011 and down 2.0 million acres from last year. The combined total of O/B/S/S of 12.3 million would be up 221,000 acres from last year but the second lowest since 2011 as well. The entire combination of all those crop acres would be 236.6 million, the smallest since 2011 and down 1.8 million from a year ago. There are reports of drowned out acres and prevent plant along the IA/MN border, so that will affect the total, but even without changing the acreage mix, there are 2.0 million acres from last year still available to be planted. This would seem to be part of the narrative being used to beat down soybeans at the moment which almost everyone thinks will see an appreciable jump over March.
Export sales yesterday were a mixed bag with a poor showing in wheat once again while row crops continue to be solid. All-wheat sales totaled 11.1mbu vs. the 15.4mbu needed weekly to hit the USDA’s export forecast. Total commitments of 166.3mbu would be the lowest level of commitments for the first week of June since 2010. The general theory with the USDA’s export forecast seems to be that smaller crops in the Black Sea, and a still uncertain Australian crop, will force buyers back to the US in Q3/Q4. That remains to be seen, especially as US futures are priced to store and US cash offers remain at sharp premiums to competitor origins. Corn export sales totaled 36.9mbu vs. the 6.7mbu needed weekly. Total commitments of 2.213bbu are up 3% from a year ago as we work towards USDA’s recently revised 2.300bbu export projection. Soybean sales totaled 19.1mbu vs. the 2.2mbu needed weekly and sales were an 8-week high. As we noted above, if Brazilian FOB premiums continue to trade at huge premiums to the US as China buys her beans there, other origins will come to the US for old crop summer business.
The flat price losses, and lack of meaningful open interest drop, are concerning enough but the fact new contract lows are being set on a daily basis for corn, soybeans and wheat adds another level of bearishness. The CN/CU, CU/CZ and CZ/CH all hit or tied contract lows this week while the CZ8/CZ9 hit -19.00c this morning, the lowest trade since January and compares to +5.00c and the end of May. Exact same situation in soybeans with SX8/SX9 hitting -3.00c overnight, the lowest print since mid-January. The front end of the wheat curve has held up much better, although WZ/WH hit new contract lows overnight of -20.50c, and KC spreads have given back some of their sharp gains as harvest pressure expands. Minneapolis calendar spreads remain just off contract lows throughout the curve, appearing eager to join its HRW and SRW brethren as pricing wheat to store as opposed to consume. If calendar spreads were bucking the trend and showing some strength in the face of the flat price selling, it might be a sign commercials are pricing and finding value here. Hard to make that argument with forward curves being beaten down as bad as they are. Basis is also not showing any clear signs of strength with Gulf premiums weaker for corn and soybeans yesterday and mixed for SRW & HRW.
Bottom Line: Soy meal is trying to close lower for the 13th session out the last 14, while soybeans are working on their 12th lower close in the last 14 sessions. The selling pressure has been relentless and should prompt a severe correction when it happens. However, Fridays are trend days and the trends are sharply lower in corn and soybeans. There remains uncertainty with weather, but it would appear not enough to turn the market. As several have noted in recent days, it is difficult to be bullish corn on a balance sheet which looks supportive 6-months from now when the crop appears to be getting larger. A massive amount of length has been shed by the managed fund community, and now it is just a matter of whether the end user has picked up that length or not. The natural seller, i.e. the farmer, should be pretty quiet for a while.
Good Luck Today.
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