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.

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.