8/30/2019 Morning Comments

Good Morning,

More trade optimism overnight, or at least that’s what financial media are citing for the strength in equities.  President Trump told Fox News more talks were scheduled with the Chinese, without giving specifics.  U.K. Prime Minister Boris Johnson said he would increase talks with Brussels in coming weeks, giving some hope the country might avoid a hard “Brexit.”  More salient to the grain space was President Trump’s tweet yesterday referencing a “giant package” which Twitter had a field day with.  The package is said to include measures which would boost demand for biofuels, in addition to E15, which the President said was “already done.”  As important, the President also made mention of measures to “save the small refineries from certain closure…” The Renewable Fuels Association was quick to fire off a graphic which showed 17 ethanol plants having been closed in the last 12 months due to small refiner exemptions while zero oil refineries had been idled in the last year due to the RFS.  In fact, they showed 3 oil refineries having been closed due to fires and/or explosions, but not due to the RFS.  If the Administration gives aid to “small refiners,” the backlash could be harsh from the Midwest.  As many have likened measures taken by the Whitehouse with regard to agriculture in the last 18-months, it’s as if someone hit you with their car and then drove you to the hospital and were then proud for having gotten you medical attention.  Never a dull moment.

A sizable system across the Southern Plains this morning, dropping rain in Kansas, Oklahoma and Missouri while the rest of the Midwest is mainly quiet.  No gulley-slappers in the next seven days, but still plenty of moisture around as the Southern Plains sees additional rain in the 0.50-2.00” range while the Northern Plains will see areas o 0.25-0.75” on and off over the next week.  The moisture in the Northern Plains will be the last thing needed as harvest remains slow and quality is impacted.  No big changes in the extended maps with above normal precipitation seen in the 6-15 day outlook while temps slowly warm toward the end of the period for the Plains.  Below normal temps will be prevalent across the Great Lakes and the northern tier of the Eastern Corn Belt.  Still no serious frost threat seen through mid-month for anywhere in the Midwest.

Mixed markets overnight with row crops higher and following through on Thursday’s strength while wheat deals with sizable deliveries at all three exchanges by arguably the three largest commercials at all three exchanges.  Never a good sign when deliveries are heavy at all three exchanges on first notice day, especially when Cargill takes the step of delivering HRW against Chicago futures which we will discuss below.  Otherwise, we continue to watch weather maps for signs of the first frost of the season just like everyone else.  President Trump’s tweets discussed above were the talk in the market for much of the session Thursday but like so many things out of Washington, we will not be holding our breath for anything concrete.  Open interest changes yesterday saw corn down 23,968 contracts, soybeans down 9,273, meal down 1,005, soy oil down 6,686, SRW down 1,740 and HRW down 345 as positions are liquidated ahead of delivery.

Starting with deliveries, Cargill registered and delivered 440 fresh certs in East St. Louis overnight which were actually No. 2 HRW at 2.0ppm vom.  With Chicago commanding such a strong premium over KC for months, many had been speculating someone would take advantage and deliver HRW on Chicago futures.  Last night we finally saw it and futures are responding in kind with September Chicago wheat down 11.50c overnight while December is down 7.50c.  At its low, KW/W fell to -94.00c in early July, or at least the spread was implied there.  We don’t know if it actually traded there.  Still, we were close to 90.0c premium Chicago in mid-August as well, and if a commercial had the bullets and wheat in position, why not?  There were no strong commercial stoppers.  ADM issued and delivered 1,000 fresh HRW certs overnight as well with no one really stepping in there either.  In Minneapolis wheat, CHS delivered 653 of the 666 put out last night after having stood in against the May and March delivery cycles.  Minneapolis could be an interesting situation in 2019/20 given the reports of deteriorating quality.  One would think old crop supplies in Duluth, which should be good quality, would be worth retaining although the protein spec in Minneapolis deliverable down to 13.0% at a discount.  Protein reports across North Dakota have been mostly average, so a large-scale low-pro event wouldn’t seem to be upon us.  Time will tell, but the MWU/MWZ traded down to -23.00c overnight, a new contract low.

Other data yesterday included weekly export sales as we get set to tie a bow on the 2018/19 marketing year.   Old crop corn export sales featured net cancellations of 99,822 bushels with total commitments standing at 1.968bbu vs. the USDA’s 2.100bbu target.  This total might be enough to reach the USDA’s objective considering Census exports running ahead of weekly data.  Interestingly, commitments as a percentage of the USDA’s forecast at 93.7% would be the lowest on record going back to at least 2000.  In other words, the historically large spread between weekly data and Census needs to come through in a big way for August.  New crop sales were solid at 34.0mbu, pushing total commitments to 410.9mbu which is the lowest export total for this date since 2005.  Old crop soybean export sales totaled 3.4mbu, pushing total commitments to 1.789bbu vs. the USDA’s target of 1.700bbu.  Commitments are not the issue with soybeans, but accumulated exports total just 1.653bbu.  Here again, we should be close enough considering Census exports running ahead of weekly data.  Of more concern are new crop sales, just like corn.  As of August 22, new crop soybean commitments totaled 5.614MMT, the smallest total since 2006.  Like last year, we have a window from now until February to get most of our deck on and shipped before South America becomes the offer, assuming they don’t have inclement weather.

Wheat export sales were strong like bull, but that seems to hardly matter in the face of the heavier than expected deliveries.  Total sales were 24.3mbu vs. the 13.4mbu needed weekly, and were the largest sales for this week since 2010.  Total commitments of 407.2mbu are well above last year’s 329.6mbu and just ahead of the 5-yr average at 399.7mbu.  As of August 22, we’ve sold of shipped 41.7% of the USDA’s current marketing year forecast which compares with 32.1% a year ago and 41.8% average.  Wheat is obviously generating value for importers at current price levels, so futures would do well not to rally away from current levels until enough commitments are put on the books to put the export deck ahead of the curve.

A couple quickie’s to close: Ukraine’s first official estimate of this year’s wheat crop is 27.8MMT vs. 24.6MMT last year but below USDA’s last guess at 29.2MMT.  Ukraine sees wheat exports of 19.0MMT which would be in-line with USDA’s thinking at 19.5MMT but above last year’s 16.2MMT.  Germany is estimating their wheat crop at 23.0MMT, up 14% from a year ago.  Australia’s Bureau of Meteorology sees a drier than normal end to the year for most of Australia.  The three-month outlook issued yesterday sees less than 30% chance of exceeding median rainfall in Queensland, New South Wales and most of Victoria.  South Australia is also expected dry while W.A. is mainly normal.  Temps during September to November are seen as a lock of exceeding the median max temp.  This doesn’t bode well for an Australian wheat crop over 19-20MMT and should allow U.S. wheat to compete favorably into Southeast Asia.

Bottom Line: Frost maps.  Tweets.  Weekly demand.  Somewhat relegated to these three categories until more hard evidence is at hand.  As we noted on twitter yesterday, one would do well to remember 2009/10 and how that late crop year played out.  The USDA pegged us with record corn yields but because of the delayed nature of the crop, test weights were light and moisture was high, two things which negatively impacted weigh ups.  It took quarters before the lighter corn was accurately reflected in USDA supply numbers, a phenomenon which could be repeated if a frost event ends the season early and leaves us with a lot of light/wet corn.  If we get a frost event, the futures market will have a difficult time pricing in the impact, leaving that instead to the cash market which could take time.  Keep an eye on spring wheat with the Northern Plains expected to see more rain in the coming week.

Once again, would like to take an opportunity to say thank you to everyone who has read this letter the last five years.  Appreciate all the feedback I’ve received this week and will continue to stay active on Twitter as markets change.  Best of luck to everyone this fall with hopes of favorable weather and safe conditions.  See Garrett.  I didn’t cry.  Cheers.

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.

8/29/2019 Morning Comments

Good Morning,

A mostly empty Midwest radar this morning with the latest round of moisture expected in the Southern Plains the next couple days.  Morning GFS models are showing 0.50-3.00” totals in most of Kansas during the coming week as percent of normal precipitation maps continue to run well above normal. With winter wheat seeding set to kick off in less than a month, the Southern Plains should have no issues getting a crop started. No damaging cold threats in the next two weeks, although plenty of mornings in the 40’s and 50’s in the Northern Plains which will be a little too close for comfort. Extended maps from the latest GFS show above normal precipitation and below normal temps through September 11. The saving grace for the Upper-Midwest might be the above normal precip as moisture can insulate crops against light frost damage.  Yesterday’s CFS models for week 3 and 4 as interpreted by Crop Prophet showed temperatures 0.4-1.8 degrees below normal weighted across the corn and soybean production belt. These kind of temperatures would not seem to suggest a killing event, especially considering the bulk of the below normal temps September 19-25 will be in the Eastern Corn Belt and US-SE. The Northern Plains actually looks to run slightly above normal which would be a welcome relief for all.

Mixed markets with row crops seeing follow-through buying from Wednesday’s impressive reversals while wheat markets continue to languish near contract lows.  Corn seemed to lead strength Wednesday as reports surfaced about the Whitehouse getting ready to announce a package aimed at boosting biofuel demand in an effort to “assuage” farmers upset about the trade war and small refinery exemptions (SRE) granted by the EPA.  Most think this could come in the form of an increase to the Renewable Fuels Standard, although until the SRE’s being granted ceases, we’re not sure how this creates a ton of new demand for corn and soybeans.  Ag Secretary Perdue was out in full force at the Farm Progress Show in Decatur, Illinois Wednesday, doing his best to calm farmers angry with the Administration.  Having to go out and answer for some of the policies coming out of this Administration toward agriculture would not be an enviable position.  Otherwise, the focus remains squarely on weather and when the first frost/freeze might arrive in the Midwest. When traders return from the Labor Day holiday it will give a good look toward the end of the month and potential for such an event.

StatsCan was out Wednesday morning with their latest outlook on Canadian wheat production, pegging the crop at 31.25MMT vs. the average trade guess of 32.3MMT and would be down around 3% below a year ago.  Many chose to focus on the overall wheat production number being down from the average trade guess and last year’s production but we think this misses the mark. Durum production was estimated at 4.42MMT, down 23% from a year ago and winter wheat production at 1.73MMT was seen down 31% from a year ago.  However, the much more important line-item of spring wheat production is seen at 25.11MMT, up 5% from a year ago and would be the second largest spring wheat production on record.  While durum and winter wheat production are certainly important, they don’t move the export needle in the same way CWRS does.  With that in mind, there should be no shortage of spring wheat in the 2019/20 marketing year, ensuring export competition remains intense with the United States.  Other notes of interest from yesterday’s report included Barley production at 9.64MMT, up 15% from a year ago while Canola was seen at 18.45MMT, down 9% from a year ago.

Other wheat data of note yesterday included French Ag consultant Agritel pegging that country’s crop at 39.2MMT which would be the second largest production estimate since 2004/05 if realized.  This would be solidly above the USDA’s current 38.7MMT production estimate and the largest since 2015/16’s 42.750MMT.  Along with their production estimate, Agritel also believes France will need to export just over 20MMT of wheat in the coming marketing year to avoid excessive carryout stocks.  We don’t have access to French export data at our fingertips but have to believe this would be up solidly from the last several years and keep export competition especially high for HRW in coming months. Paris Milling Wheat futures have been especially weak as of late which would seem to confirm Agritel-type estimates.  Overnight trade has Paris futures just off contract lows set on August 21.

Weekly ethanol production out yesterday morning and continuing recent themes.  Weekly production was reported at 1.038 million barrels per day, up 15,000 on the week.  While encouraging, this was still 3.0% below the same week a year ago, and continues the streak of six consecutive weeks running below year ago levels.  It looks all but certain USDA will need to reduce their ethanol demand for corn line item on the September WASDE by at least 25mbu.  Industry estimates of ethanol production margins remain poor as RBOB/Ethanol spreads run well below the 50/100/200-day moving averages.  Ethanol/Corn spreads remain just above negative territory and plants are barely or not covering their variable costs at the moment.  Ethanol stocks did see a 385,000 barrel drop form the week before to 22.982 million barrels.  This did push stocks below the same week a year ago for the first time in nine weeks, but stocks remain historically large and just under record levels for the week.  Gasoline demand remains strong.

Bottom Line: Frost.  Trade War.  Possibly Biofuels policy.  All there really is to trade right now, and even those events don’t have trade too excited as evidenced by volatility.  A lot of things have to occur in the next 60-days from spring wheat harvest finishing, winter wheat planting starting, row crop harvest commencing, trade negotiations and possibly more “pacification packages” from the Whitehouse.  The U.S. farmer is still undersold and will use any rally attempt to sell into.  Growers with ample on-farm storage would do well to sell carry as well as flat price on any post-fall low recovery.  Wheat markets look like they are headed for an export dogfight the next 3-6 months which will offer basis opportunities but might not result in the flat price rally so many are craving.  Record managed fund short in Minneapolis bears watching.

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.

8/27/2019 Morning Comments

Good Morning,

The amount of subterfuge from the Whitehouse in the last 48-hours has been impressive.  Late Sunday night, President Trump announced an agreement in principle with Japan on a new trade agreement.  In the presser, President Trump said Japan would be buying “excess” U.S. corn to offset what China has failed to live up to in their previous agreements.  So many things to pick apart with that.  A) China never really agreed to buy U.S. corn given it was the loss of soybean business which impacted us most.  B) While Japan is a very large corn importer, they can hardly afford to take “excess” U.S. bushels, even if we could define what “excess” actually means.  Roll forward into Monday and we received news from President Trump that Chinese officials called and said they wanted to return to the negotiating table and make a deal.  He was very happy with this development.  As the day worn on, however, it became clear no phone call actually took place but instead Chinese Vice Premier Liu told a business conference that they were “willing to resolve the issue through consultation and cooperation with a calm attitude.”  Significantly different course of events in our opinion.  We continue to find it hard to believe a major trade deal will take place before the end of 2019 and most likely not before the 2020 elections.  President Trump has a deadline.  President Xi does not.  Which party has more of an interest to make a deal?

Pesky, lingering showers across the Northern Plains again this morning, although nothing like what moved through Sunday night.  Spring wheat harvest is turning into a nightmare all across the Northern Plains as producers battle high humidity, grain which won’t ripen and vanishing day length.  Fortunately, a drier week lies ahead for the Dakotas, Minnesota and Montana as well as the Canadian Prairies.  Humidity is supposed to fall, but so too are temperatures which will keep dry down slow.  Kansas remains on tap for big rains in the coming week with 0.50-3.00” totals expected across the entire state.  Should be zero moisture concerns heading into winter wheat planting next month.  GFS models keep below normal temperatures and above normal precipitation in place during the 6-10 and 8-14 day outlooks.  The two-week percent of normal precip map is quite impressive over the Midwest with very few if any deficits present.  If an early frost is avoided, soybean potential could be strong given the delayed maturity but generous rains during development.

Weaker grain prices across the board as the Monday trade-deal optimism fades.  We found is rather surprising the soybean market was up double digits yesterday on the few comments President Trump made regarding China.  If we have learned anything over the last 12-18 months of trade talks, it is don’t assume anything and don’t take anything for granted.  As we suggested above, in our opinion, President Trump is under more pressure to make a deal in the next 6-10 months than President Xi is considering President Xi made his presidency a lifetime appointment.  In my view, another round of MFP payments or trade war support will not be enough to “pacify” the Midwest and retain support heading into 2020.  While the focus yesterday was largely about corn and soybeans, the trade developments with Japan were probably most positive for wheat, as U.S. wheat should now enjoy the same preferential treatment as Australia and Canada after the signed on to the modified TPP.  Hopefully this allows U.S. wheat to be more competitive into Japan moving forward.  Open interest changes yesterday saw corn drop 14,925 contracts, soybeans down 994, meal down 2,226, oil down 122, SRW down 6,610 and HRW down 2,334.

Several pieces of data yesterday including crop progress with both corn and soybean conditions improving.  Corn conditions jumped one point to 57% G/E vs. 68% G/E a year ago.  Much of the improvement was due to a seven point jump in Illinois where 49% of the crop is rated G/E.  As we’ve said in previous correspondence, the outright number doesn’t mean as much to us as the trend.  If Illinois corn conditions continue to improve counter-seasonally, it would be a sign the rains in August have had a positive impact.  71% of the crop is in the dough stage which is up from 55% last week but down from 87% average.  This is the slowest dough rating since 2013 but is nowhere near the slowest on record, which is encouraging considering our planting pace.  27% of the crop is denting vs. 15% last week and 46% average.  Soybean conditions improved two points to 55% G/E vs. 66% last year.  Here again, the national increase was due in large part to a ten-point jump in Illinois to 50% G/E vs. 75% last year.  The recent rains in the Eastern Corn belt have helped.  It is just a matter of whether this crop has enough time to finish.  79% of the soybean crop is setting pods vs. 68% last week and 91% average.  This statistic remains concerning as soybeans which haven’t set pods with the calendar getting set to flip to September look unlikely to finish.

Spring wheat conditions declined one-point to 69% G/E vs. 74% G/E last year.  More important to us is the harvested percentage at 38% complete vs. 16% last week and 65% average.  Most states in the Northern Plains are around 30% behind average with weather not conducive to dry down.  Many producers are taking wheat out of the field wetter than desired just to get the crop in the bin.  Anecdotal reports suggest many bushels are being put in the bin or in a bag at 15-17% moisture.  Most elevators will not take wheat over 14% and with the lack of heat, it is unlikely this wheat is going to dry down meaningfully even in air bins.  This raises the question of storability and when this wheat might be ready to move?  Most producers are not interested in selling current cash prices anyway, with soybeans and sunflowers more likely to move off the combine.  The longer spring wheat harvest drags out, the more at-risk quality becomes.

We also saw weekly export inspections which were solid across the board.  Wheat inspections totaled 18.1mbu vs. the 18.4mbu needed weekly to hit the USDA forecast.  Total inspections of 221.0mbu are up 23.9% from a year ago.  Corn inspections totaled 25.2mbu vs. the 17.5mbu needed weekly.  Total inspections of 1.842bbu are down 17.0% from a year ago, but with the Census adjustment should be close to hitting the USDA’s 2.100bbu target.  We think when all of the bushels are counted, corn exports could fall slightly below the USDA’s target.  Soybean inspections totaled 35.3mbu vs. the 5.3mbu needed weekly.  Total inspections of 1.633bbu are down 19.9% from a year ago, but with Census adjustments will be close to the 1.700bbu target.  According to our friends at ClipperData, demand from China during the month of August has been strong.  China has taken nine vessels from the U.S. in the last week, an encouraging trend.  ClipperData continues to suggest Brazil will be unable to satisfy all of China’s needs until new crop, pushing business back to the U.S. regardless of what Chinese officials say publicly.

Bottom Line: Trade war rhetoric and frost maps.  Seems to be what the trade has been reduced to lately.  Hard to believe on August 27th we still have this much uncertainty about corn and soybean supplies.  If we make it through September without a frost, high-end potential still exists.  If we don’t, yield cuts could be dramatic.  I guess we should turn the machines off until October 1.

On another note, I wanted to take a minute and let everyone know this will be the last week I will be writing commodity commentary for Halo Commodities.  I’m going to be scaling back my market commentary and focusing more on our farming operation and family.  The last four to five years have been an excellent opportunity to interact with customers and market participants from all over the globe but time commitments are changing with a little one in the house.  Kevin and the guys at Halo will still be business as usual, but this piece will be on ice for the foreseeable future.  Have genuinely appreciated the opportunity to put a market rag in front of folks and the feedback I’ve received.  2019 has been the most challenging year I’ve ever seen in my decade of following markets, and one which we won’t forget anytime soon.  Thank you and Good Luck.

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.

8/21/2019 Morning Comments

Good Morning,

More rain in the Central Plains and Western Corn Belt this morning with the current front finishing up later today.  Another large system will work through the WCB toward the weekend, bringing with it heavy moisture.  As of this morning’s GFS runs, Iowa, Minnesota, Missouri, Eastern Kansas and Eastern parts of the Dakotas will see totals ranging from 1.00-4.00”.  There will be no moisture deficits left in the central/west corn belt after this week but the question is whether the rain arrived soon enough.  Extended maps from NOAA continue to feature below normal temperatures the next 15-days with that trend likely to continue into the week 3&4 outlook.  Precip gradually switches from above normal in the 6-10 to below normal in the 8-14 for most of the Upper-Midwest.  We have not seen anyone call for a frost/freeze in the U.S. yet, but the cooler than average temps will keep tensions high.  Frost was noted in Canada to begin the week, ending the growing season for some in the north.  According to Crop Prophet, the temperature models for week 2 of the 15-day on both the GFS and Euro trended a bit warmer overnight, although both still feature temperature departures 3-4 degrees below normal.  The 30-day CFS Ensemble features below normal temperatures as well, but only 1-2 degrees.  Either way, finishing heat is not expected through the middle of September.

Mixed markets overnight with row crops higher and wheat markets once again trending lower.  U.S. wheat export demand should improve from a year ago, especially considering the fast start to the marketing year.  That said, fulfilling the higher export forecast is contingent on second half demand showing back up as Russian and French offers are currently cutthroat.  Paris Milling wheat futures hit fresh contract lows yesterday, and are lower overnight, dragging U.S. futures lower as we try to maintain competitiveness.  Row crops continue to focus on the ProFarmer crop tour which made its way through Indiana and Nebraska on Tuesday.  More of the same was reported with immature crops in most locations.  The largest takeaway for us and our friends on tour is the lack of pods on the soybean plants.  In corn, the potential is there but the maturity is not.  In soybeans, it would appear neither the potential nor the maturity is there.  Open interest changes yesterday included corn down 6,548 contracts, soybeans up 3,168 contracts, meal up 1,707, oil up 954, SRW down 1,271 and HRW up 2,612.

The ProFarmer Tour reported an Indiana corn yield of 161.46bpa vs. the USDA at 166bpa and 182.33bpa last year.  Looking back at history, a consistent theme is present with PF tour yields in Indiana much like South Dakota and Ohio: PF typically comes in under the USDA by several bushels per acre.  This year’s Indiana yield estimate is the lowest since the 144.68bpa they found in 2015 and well below the 3-yr average of 175.81.  Our friend Pete Meyer did note that western Indiana looked markedly better than eastern Indiana, and also much more mature.  Pod counts in Indiana totaled 923.94 vs. 1,304.55 last year and 1,212.60 on the 3-yr average.  While this is not the way to extrapolate yield, if we take the percentage change of pod counts y/y, it comes to 29% which would imply a y/y yield change of 16.9bpa.  That would suggest an Indiana state yield of 41.5 vs. the USDA’s current 50bpa.  It isn’t that simple, but I think it is important to note the huge drop in pods this year vs. the last several.

In Nebraska, some really good corn was found by our friends on that leg which should not be too big of a surprise considering the favorable planting season and growing conditions much of the summer.  One big observation from scouts Nick Ehlers and Jarod Creed was the lack of hail and greensnap damage which is always prevalent in Nebraska.  PF estimated the Nebraska corn yield at 172.55bpa vs. 179.17bpa last year and the 168.97bpa on the 3-yr average.  The PF tour always underestimates Nebraska vs. USDA, which they acknowledge, because of the higher proportion of dryland fields sampled vs. irrigated.  Pod counts in Nebraska totaled 1,210 vs. 1,299 last year and the 3-yr average of 1,170.  Here again, Nebraska looks solid on soybeans and much better than most of their counterparts across the Midwest.

The other big news item yesterday was POET announcing they were idling their Cloverdale, Indiana ethanol plant due to recent decisions made by the Trump Administration regarding small refinery exemptions.  The Cloverdale plant grinds 30 million bushels annually, and the press released went on to say total grind will be reduced by over 100 million bushels at its other facilities in Iowa, Ohio, Michigan, South Dakota, Minnesota and Missouri.  POET is the largest ethanol producer in the United States, having secure the top spot in 2018 from ADM.  The release paired with a statement from Marquis Energy which said it was reducing production rates at its 100-million-gallon-a-year plant in Wisconsin.  The releases were said to send the Whitehouse into a frenzy trying to find ways to “pacify” Midwesterners heading into the 2020 election.  If there is anyone in the Whitehouse listening, producers do not want another handout nor something to keep us pacified.  We want our demand base back. 

Bottom Line: Temperature forecasts and crop tour observations will continue to be the theme this week.  No one knows when the first frost of the year will impact the Midwest, but trends do not look favorable into mid-September.  As we noted above, the difference between corn and soybeans is the potential and lack of potential.  The former has it.  The latter would not appear to have it.  Soybeans have a more comfortable balance sheet coming into the marketing year, but a severe drop in yield from a year ago could snug things up quickly.  Still a demand issue in both crops which seems omnipresent. 

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.

8/20/2019 Morning Comments

Good Morning,

Widespread rainfall across the state of Iowa this morning with notable activity in Minnesota as well.  The seven-day period ahead will be a wet one for Iowa, Nebraska, eastern Kansas, Missouri, Illinois and Minnesota.  All of the aforementioned states will see 1.00-3.00” in the coming week, helping late filling corn and soybean crops.  Erasing moisture deficits on August 20th is not the same as erasing them on July 20th, but to say the increased rainfall will not benefit seems foolish.  Above normal precipitation hangs around in the 6-10 day before flipping below normal in the 8-14 according to the CPC’s GFS run.  Temps slowly slip to below normal across the Midwest which takes us out to August 29th.  According to Crop Prophet, the Euro model for week 2 of the 15-day period sees temperatures 5.1-5.3 degrees below normal weighted by corn and soybean production areas.  The GFS is not quite as cool at -4.2 to -4.3 degrees.  The week 3 and 4 outlook from the CFS is under 1.0 degree below normal.  It certainly looks as though September will be cooler than average which does not necessarily mean killing frost/freeze but a late push of GDU’s does not look likely.

Firmer markets overnight with corn leading the way higher, up over 1.0%.  Monday’s session was characterized by weakness with the better than expected rainfall over the weekend and forecast for more in the coming seven days.  Overnight strength would appear tied to the results of the ProFarmer Crop Tour which began in South Dakota and Ohio yesterday.  We dig into the data a bit deeper below with commentary on both legs by friends of ours out in the field.  That ProFarmer is finding smaller crops from a year ago should not be a surprise, but the lack of maturity being noted by all is a bit concerning, especially with below normal temperature forecasts the next 15-days.  While many disagree with the USDA’s acreage estimates, we are here to say they aren’t changing much.  Yield is another story, and bulls who have much smaller yield projections than the USDA could still end up being right.  The question becomes how much supply do we still need to cut in order to make the likelihood of lower demand estimates seem bullish?  Corn open interest fell 5,043 contracts yesterday, soybeans up 2,422, meal down 347, oil up 940, SRW up 3,151 and HRW down 2,225 contracts.

Our friend Peter Meyer hit the eastern leg of the ProFarmer tour, beginning in Columbus Ohio and working east.  Like many, Pete made reference to the fact these crops need 2-3 weeks beyond a regular frost date to reach some semblance of full potential.  The major surprise to him and others, however, were pod counts which came in at 764 average in a 3’x3’ square vs. 1,248 last year and 1,149 on the 3-yr average.  We don’t have the data in front of us going back further, but since 2015, no year has been under 1,065 for a pod count.  The average corn yield was pegged at 154bpa vs. 179bpa last year and would be the smallest since 149 in 2016.  Looking back over the last four years, the ProFarmer Tour generally underestimates Ohio compared with the USDA by 8-10bpa, although in 2015 PF was 2bpa above the USDA.  The name of the game in Ohio is potential vs. reality along with a massive amount of prevent plant.  Needless to say, the prevent plant and acreage story is over for the foreseeable future, so Ag journalists and social media bulls would do well to not dwell on the unplanted fields.  The yield is the story.

In our home state of South Dakota, similar results were found by our friends Nick Ehlers and Jarod Creed.  We have not been in the southeast part of the South Dakota since earlier in the growing season but have heard enough anecdotal reports to confirm the PF Tour findings.  On corn, PF Tour found a South Dakota corn yield of 154.08bpa vs. the USDA at 157bpa and 178bpa last year.  This would still be the second largest South Dakota yield since 2015 and above the 5-yr average of 148.13bpa.  PF Tour does not have a great track record against the USDA, largely because the Tour does not get far enough north and west which can swing the state dramatically.  The average pod count in a 3×3 square totaled 832 pods vs. 1,024 last ear and the 5-yr average of 971.  In general, pod counts should be down across the Midwest given the compressed flowering and pod-set period due to late planting.

Data out yesterday also included weekly crop progress and export inspections.  Corn and soybean conditions both declined by a point which shouldn’t really be a focus at this stage, in our opinion.  The maturity stages are more important to us at this juncture with 55% of the nation’s corn crop in the dough stage vs. 76% average while 15% of the crop is denting vs. 30% average.  68% of the soybean crop is setting pods vs. 54% last week and 85% average.  We worry that soybeans just now setting pods have little if any chance of filling and actually making harvestable soybeans which could keep national average yield ideas under pressure.  Inspections were decent for corn and wheat, but very strong for soybeans.  Inspections totaled 42.6mbu vs. the 18.4mbu needed weekly to hit the USDA estimate.  It will come down to the final two weeks to see if we make the estimate but China taking 20.2mbu of the 42.6mbu was noteworthy.

Bottom Line: Supply narrative is still being debated and ProFarmer yield tweets will remain popular this week.  The trend of immature crops needing an extended finish will be the theme until the tour concludes Thursday in Minnesota.  After that, it all comes down to how long the Upper-Midwest can go without a killing freeze.  Underlying demand remains weak but should start to improve at these lower price points.  Soybeans are the market we want to keep an eye on if yield ideas continue to decline.

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.

8/16/2019 Morning Comments

Good Morning,

More showers across the Central and Southern Plains as well as Missouri and Wisconsin.  The Plains have been particularly wet the last week with many places from Kansas to North Dakota seeing 1.00-5.00”.  This is helping erase the moisture deficits present in Kansas the last month.  30-day percent of normal deficits are still present over Iowa, Illinois and Indiana, even though some good rains have fallen in those states the last seven days.  The central Midwest will continue to see moisture, Illinois, Missouri, Kansas and Indiana in particular.  The Northern Plains should see light showers, allowing harvest to progress in spurts.  Extended maps from the GFS continue to look favorable with above normal temperatures and mostly above normal precipitation through August 29th.  This is about the ideal forecast for accumulating late season GDU’s and pushing this crop toward maturity.

The National Weather Service and NOAA published their latest 1-month and 3-month outlooks yesterday which cover the month of September as well as the September-October-November time frame.  The 30-day outlook sees below normal temperatures in the Northern Plains, the Dakotas specifically, while the rest of the Midwest is mainly normal.  For precipitation, the Northern Plains and extending down to Nebraska and Iowa are expected to see above normal precipitation.  The SON outlook is similar on moisture with above normal precip seen throughout the Northern Plains and down in the US-southwest.  Temperatures are expected to be above normal across the entire contiguous United States.  This would certainly be welcome for delayed maturity crops, especially in the North.

Firmer markets this morning across the board, although a few cent bounce at the end of this week won’t do much to change chart action.  For the week, December corn is down 44c, November soybeans are down 17c and December Chicago wheat is down 25c.  December corn has not made new contract lows, but the lows this week were only 6c away which is truly remarkable considering just a month ago we were still north of $4.30 and many were reloading for another run toward 4.75-5.00.  The acre story is more or less over, at least if one believes in the historical relationship between FSA acres and NASS acres.  Harvested acres could still fall, especially if winter comes early.  That leaves the yield discussion as the only thing which can materially change the supply narrative.  Private forecasters we follow still believe we will see meaningful movement from the August WASDE figure, and have the stats to back it up.  You can find a piece discussing that idea here: https://www.cropprophet.com/usda-august-wasde-corn-yield-forecast-performance/.  Open interest changes yesterday saw corn down 2,640 contracts, soybeans up 4,383, meal up 1,974, oil down 872, meal down 872, SRW up 3,351 and HRW down 661.

Several pieces of demand news Thursday, beginning with export sales.  All-wheat sales were solid at 17.0mbu vs. the 13.9mbu needed weekly to hit the USDA forecast.  Total wheat export commitments stand at 361.9mbu, up 18% on the year.  On a by-class basis, HRW continues to lead commitments, up 72% from a year ago while SRW is up 14% and HRS up just 2%.  Corn sales remain atrocious with old crop sales of 2.2mbu vs. the 15.3mbu needed weekly to hit the USDA forecast.  Total commitments of 1.967bbu are down 17% from a year ago and have just three weeks to hit the 2.100bbu export forecast the USDA just solidified.  It looks like a certainty USDA will cut corn exports next month.  New crop corn sales are equally as bad at 12.2mbu on the week, pushing total commitments to 172.5mbu vs. 348.8mbu a year ago.  Old crop soybean commitments totaled net cancellations of 4.0mbu, taking total commitments down to 1.788bbu.  Commitments are above the USDA forecast of 1.700bbu, but shipments stand at 1.580bbu with three weeks remaining.  New crop soybean commitments of 30.0mbu were solid, but total 2019/20 commitments of 164.2mbu are way behind the 421.7mbu at this time last year.

Also out yesterday was July NOPA crush which blew away the average trade guess at 168.093mbu vs. 155.8mbu expected.  This came somewhat out of left field considering crush margins weren’t all that changed from June.  The strong crush blew away June’s 148.8mbu and was above last year’s 167.7mbu to set a new monthly record.  Assuming the NOPA/U.S.-wide crush relationship remains the same, August crush would only need to be around 152mbu in order to meet the USDA’s marketing year forecast.  The USDA may need to bump their crush estimate back up 10mbu after cutting it 20mbu on the August WASDE. Soybean oil stocks totaled 1.467 billion pounds vs. 1.530 billion expected and 1.764 billion last year.  This is encouraging considering crush was a new record but didn’t result in an explosion of stocks.

Egypt’s GASC bought 295,000MT of wheat for Sept 15-30 delivery yesterday at prices ranging from $217.19-218.90/MT C&F.  The origins were 175,000MT of Russian and 120,000MT of Ukrainian.  US-SRW was $12-15/MT out of the running, and shouldn’t be in the mix for any of this business during the 2019/20 marketing year given current supply projections.  US-HRW on the other hand is close, which should speak to the current flat price levels and how much downside is warranted.  US-HRW should not be priced into Egypt in late summer, and with HRW already 90c discount to SRW, this spread has likely run its course.  In addition, KWU/CU at 30c, and KWZ/CZ at 30c is likely too cheap considering the balance sheet projections we got at the beginning of the week.  If corn doesn’t need to ration all of the demand we thought two weeks ago, HRW probably shouldn’t be working into feed rations anymore.

Bottom Line: Still picking up the pieces after the early week fallout.  Waiting on harvest to really get rolling in the Northern Plains as HRW harvest is slowly finished up but HRS in South Dakota remains several points away.  The forecast looks better, but the HRS harvest may never truly be felt this year.  Bulls continue to argue that corn should grab around current levels, and we can’t argue.  Expecting a big relief rally before yield ideas can be confirmed to be dropping seems foolish, however.  The demand narrative needs to change.

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.

8/15/2019 Morning Comments

Good Morning,

Recession is the word of the week.  After disappointing growth figures in the U.K. last week, and Germany this week, investors sold equities hard on Wall Street Wednesday as fears of recession mount.  It should be pointed out a recession is two consecutive quarters of economic contraction and the U.S. does not even have one yet.  However, there are many signals which have preceded recessions in the past.  For starters, the yield on 30-year T-bonds fell to 1.96% yesterday, the lowest level on record going back to the 1970’s.  Yields on 30-yr U.K. Gilts fell below 1% for the first time on record.  As has been the case for much of his presidency, we should expect President Trump to try and jawbone the market higher or bully the Federal Reserve into keeping rates low or even cutting them.  If the U.S. does eventually head into recession, it will be difficult to point at anything more responsible than the current trade war with China.

Showers across Nebraska and North Dakota this morning while the rest of the Midwest is mostly quiet.  It will be a fairly active Western and Central Midwest storm track the rest of the seven-day period with heavy totals expected in MO/IA/IL to the tune of 1.00-2.00” and peripheral areas seeing 0.50-0.75”.  Moisture is welcome outside of the Northern Plains where wheat harvest is trying to make up ground.  Extended GFS models look favorable for late season crop growth as both the 6-10 and 8-14 day outlook sees above normal temperatures and above normal precipitation.  In another two weeks, maps at the end of August should be able to give us clues about any early frost potential.  While the longer the better, a frost-free period through the month of September will go a long way towards Upper-Midwest crops reaching some level of full potential.

Mixed markets this morning as corn and soybean prices are firmer while wheat markets are mixed to weaker.  Spring wheat continues to hold value relative to K.C. and Chicago as harvest remains delayed and managed funds retain their record net short position.  Quality is still very much up in the air for the HRS crop, but odds certainly point toward a lower than average protein level considering the above average rainfall and below normal temperatures much of the summer.  December corn continues to trade weakly, but did bounce off the 3.70 level late in the session Wednesday as light buying surfaced.  The discussion has shifted to yield and demand now that acres have been put to bed.  Plenty of movement can happen in either category but yield ideas aren’t likely to change materially until the October WASDE when more objective yield samples can be worked into the calculation process.  Demand will remain a bearish input until end users start reaching for U.S. origin corn and ethanol margins can lift a shoulder off the mat.  Against a backdrop of slowing global economic growth, certainly not a positive headwind.  Open interest changes during the session Wednesday included corn down 8,476 contracts, soybeans up 5,527 contracts, meal down 2,505, oil up 3,071, SRW down 5,211 contracts and HRW up 1,651.

There will be a great deal of yield discussion in coming weeks but we thought it worth taking a look at the scope of change from here through January.  In corn, changes from the August report can be sizable with the largest cut from August to January since 2000 occurring in 2004 at 11.4bpa while the largest increase occurred in 2010 at 12.4bpa.  The average change from August to January is 0.84bpa, highlighting the equal chances of an increase or decrease from this point.  In 1993, the year everyone is pointing toward as an analog year, the national corn yield fell 15.3bpa from August to January.  If something of that magnitude were to happen, supply would be cut 1.2 billion bushels from current ideas.  Possible? Yes.  Likely? No.  In soybeans, the average change from August to January is also around 0.8bpa with the largest decrease since 2000 occurring in 2005 at -4.4bpa while the largest increase occurred in 2003 at +5.5bpa.  Under those sort of yield changes, one would be talking about a supply swing of 300-400mbu.  So, large yield changes can still occur, but we aren’t sure bulls or bears should be hanging their hat on that alone to make their supply or demand projections “fit.”

Weekly ethanol production was released yesterday, increasing 5,000 bbls/day to 1.045 million bbls/day but was still 2.5% below last year’s same week production.  This was the fourth consecutive week of production below year ago levels when production needs to be running as much as 7% above year ago levels to meet the USDA’s marketing year forecast.  Despite the fact the USDA just cut their ethanol demand for corn line item on last week’s WASDE by 25mbu, it looks as though they will need to cut that figure by another 25-50mbu on the September WASDE.  Ethanol stocks surged by 766,000 barrels last week to 23.883 million barrels, rising 4% above last year’s same week stocks.  Stocks at this level are a record for the week and helped largely offset the huge plunge in stocks seen the week before.  The bottom line with ethanol production is margins remain under pressure as ethanol prices have fallen just as fast as corn prices.  Our simple measure of taking the price of ethanol multiplied by 2.85 (average ethanol yield from a bushel of corn) and subtracting the price of corn futures is showing a -9.9c per bushel.  This simple measure shows the price of ethanol is not offsetting the cost of corn and speaks to the negative operating environment currently experienced at many plants throughout the Midwest.  Until this relationship changes, it is difficult to see corn prices putting a foot in the ground.

K.C. spreads continue to be a focus with KW/W inter-market spreads hitting record lows on a daily basis.  The KWU/WU closed at -91.75c yesterday, the lowest close on record for the spot month spreads.  The spreads would seem justified when one starts looking at the two balance sheets in relationship to one another.  2019/20 SRW ending stocks as a percentage of HRW ending stocks is currently projected at 26.01%, which is the lowest since 2001/02.  SRW total supplies as a percentage of HRW total supplies stands at 31.05%, the lowest level since 1987/88.  A similar story is present in SRW/HRS as the ending stocks ratio is projected at 36.3%, the lowest since 2001/02 and the total supplies ratio of 47.90% the lowest since 1987/88.  SRW should retain sharp premiums over HRW and probably continue to eat away at the premium of HRS vs. HRW.  At record lows, hard to see why hedges shouldn’t go in Chicago if one is in the HRW market.

Bottom Line: Markets defended some technical objectives well yesterday with the 3.70 level being the downside target for the Head-And-Shoulders pattern dating back to mid-summer.  Yield ideas will continue to be batted around, especially with the ProFarmer Tour hitting fields next week.  Unfortunately, many private yield ideas will simply gravitate toward the 169.5bpa yield the USDA issued Monday.  Cash and spreads will still give clues about short-term direction but hopes for managed funds to come riding back in to save the day seem fleeting.

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.

8/13/2019 Morning Comments

Good Morning,

The Argentine peso fell to new record lows on Monday of 53.00:1 against the U.S. Dollar after pro-market President Mauricio Macri’s party suffered big losses in the recent primary.  Markets now wonder if this spells trouble for the Argentine economy as former President Cristina Fernandez de Kirchner sits on the ticket of the opposition party running for President.  Former President Kirchner was at the helm when Argentina suffered some of its darkest days economically, all but bankrupting the country and causing massive capital flight.  With the Argentine peso spiraling, it becomes a question of whether that encourages producer selling of grain stocks or hoarding as has been seen in the past.  Argentine producers opt to hold grain as a hedge against inflation when currency fluctuations become violent.

Some heavy rainfall totals posted in the past 24 hours, especially in the Dakotas, Nebraska, NW-Kansas, SW-Iowa and N-Missouri.  Southcentral Illinois also saw good rains, but the system which moved across Iowa did not hold together as well as it appeared to.  A quiet couple days before the next disturbance fires up in the central plains and WCB and eventually moves into the heart of the belt by the weekend.  The 7-day GFS is showing 0.75-2.00” totals across a big area in Nebraska, Iowa, Kansas, Missouri, Illinois and Wisconsin.  All of that moisture should be welcome while the Northern Plains sees a drier stretch which will also be welcome as fields attempt to dry and allow HRS harvest to commence.  Extended maps look favorable with above normal temps across much of the Midwest while precip is mainly above normal outside of the Southern Plains.  Heat at this point in the season will be very good for finishing crop development.

Picking up where we left off in corn and wheat overnight as bears press losses and bulls run for cover.  There isn’t much to say about Monday’s WASDE except “wow.”  The data released from the USDA was more bearish than even the most bearish pre-report estimates, hitting bulls with both barrels in the way of higher than expected corn acres and higher than expected corn yield.  Soybeans actually saw a somewhat constructive report, helping to post gains overnight, but it is difficult to dismiss the demand cuts seen in the U.S. and globally which should ensure ample supplies of the oilseed during the 2019/20 marketing year.  The wheat report didn’t offer much except larger U.S. production estimates as the focus was squarely on corn and soybeans.  Wheat didn’t have a story before the WASDE without corn and it certainly doesn’t have one after.  The report will send bulls to their corner to reassess as the narrative posted yesterday is not changing until at least combines roll and either confirm or deny what the USDA presented yesterday.  Cash markets will reveal in coming days how much old and new crop the farmer has sold, and we fear it larger than anyone wants to admit.  Open interest changes yesterday included corn down 1,715 contracts, soybeans down 4,581 contracts, SRW up 1,903 and HRW up 3,158 contracts.

There is no doubt the biggest issue the market had yesterday was with corn planted acres coming in at 90.0 million vs. the average trade guess of 87.707 million and 91.7 million at the end of June.  We are actually surprised the average trade guess was 87.7 million as it felt like many in the market were expecting something in the neighborhood of 85-86 million.  Adding confusion to the matter were FSA certified acreage data being released at the same time as the WASDE showing 85.871 million acres planted and 11.2 million acres of prevent plant on corn.  Some jumped on this and said the lower FSA acreage was proof WASDE acres were too high, even though every year this data is reported and always shows lower than WASDE acres as not all acres end up being certified with the FSA office.  In addition, the 11.2 million acres did not mean producers intended to plant 101 million acres of corn, and only planted 90.0 million, or that actual planted acreage should be 80 million.  With the way reporting to crop insurance offices and the FSA office works, it is possible to have large planted acreage and large prevent plant acres designated as corn.  The two are not mutually exclusive.  Farmers had every incentive to call prevent plant acres “corn,” even if they were actually supposed to be soybeans or what because of the revenue projections for corn vs. other crops.  Producers could declare prevent plant on corn up to their maximum planted acreage total over the last four years.  Looking at past FSA data, the relationship between August acres and final acres would imply the 90.0 million planted is within 1% of what final acres will be.  So, bulls expecting there to be a massive drop in planted acres down the road should start shifting their attention elsewhere.

The other issue bulls had was with USDA taking yield up to 169.5bpa from 166.0bpa last month and 176.4bpa last year.  This we can get on board with a little bit as condition-based models and weather-based models certainly didn’t imply such a large jump in yield was forthcoming.  In addition, much of the crop is dependent on avoiding an early frost, something we won’t have a good feeling on for another 30-days.  We aren’t in the camp that says a 169.5bpa national average yield isn’t possible, but don’t have extreme confidence on this date.  Nonetheless, this yield isn’t likely to change meaningfully until the October WASDE when at least some harvest data is available.  Making matters worse for the corn balance sheet were a 20mbu bump in old crop ending stocks to 2.360bbu via lower ethanol demand.  The new crop balance sheet saw total supplies rise by 46mbu while demand was cut by 125mbu.  The result was ending stocks of 2.181bbu, up 171mbu on the month and an average farm price of $3.60 per bushel vs. $3.60 last year.  Pretty remarkable we are right back where we started after the slowest planting campaign on record with excessive moisture in the WCB and dryness much of July in the ECB.  Unlikely yield doesn’t move from here, but the narrative is in place for the next two months.

Global changes worth noting included Chinese soybean imports being cut by 2MMT for both 2018/19 and 2019/20, moving in-line with private estimates although many of those private analysts still have imports lower than USDA.  Russia and the EU both saw wheat production estimates cur further with Russia now sitting at 73.0MMT vs. 74.2MMT last month and 71.7MMT last year.  The EU is seen at 150.0MMT vs. 151.3MMT last month and 136.9MMT last year.  The global wheat export market will be incredibly competitive in the 2019/20 marketing year, especially if Australian production rebounds above 20MMT this fall.  Global soybean ending stocks are projected at 101.7MMT vs. 114.5MMT, corn at 307.7MMT vs. 328.6MMT last year and wheat at 285.4MMT vs. 275.5MMT last year.

Bottom Line: The WASDE is behind us and now the market’s job is to recalibrate trading ranges into fall harvest.  Bulls will continue to dispute the data in the coming days but this seems like a waste of time in our opinion.  The goal posts have been moved, and there doesn’t seem to be much point in trying to roll the clock backwards.  We feel December corn should grab between 3.70-3.80 as end users dip toes into the water and extend coverage.  Keeping an eye on ethanol margins and where those turn back positive should be a good indicator.

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.

8/8/2019 Morning Comments

Good Morning,

Equity and currency volatility has been impressive this week against a backdrop of four major central banks reducing interest rates or planning to in the coming month.  Multiple economic commentators have made note of the slowing global economy and the opinion we may already be in global recession and not know it.  This has central banks intent on keeping the easy money flowing and the landing less hard than it may otherwise be.  This is causing treasuries to rally hard, equities to sell off and commodities to get dumped.  The Bloomberg Commodity Index hit the lowest level since early 2016 as crude oil sinks toward $50/bbl.  Crude has its own fundamentals to deal with but sinking prices on the back of softening demand speaks to the slow-growth mentality.  Difficult for managed funds to have a positive tilt toward grains if recessionary forces are being contemplated.

Heavy rain across the Southern Plains this morning which is bringing relief to dry patches in Kansas, Oklahoma and Texas.  Over the last month, this area had been running 25-50% of normal precipitation, a trend not desired less than 45 days out from HRW seeding.  Quite a bit of rain around the Midwest in the coming 7-day period, especially in the WCB/Northern Plains.  This rain is not welcome as the area attempts to harvest HRW and get started on HRS.  The ECB also looks to see moisture late in the weekend and early next week with 0.50-1.50” expected across IL/IN/OH.  This would be very much welcome for an area which has been especially dry since the Fourth of July.  Below normal temps/above normal precip are expected across the Midwest in the 6-10 but maps turn warmer and drier in the 8-14 which would be a welcome sight for most as we try to sprint to the finish on crop development.

Higher markets across the board, led by Chicago wheat and corn in what would appear to be somewhat of a relief bounce.  Consolidative trade has been the name of the game this week as we prep for the almighty August WASDE on Monday.  Farmers, brokers, funds and end users have an incredible amount riding on Monday with many having staked their reputation on one outcome or another.  While the volatility should be a sight to behold at 11:01am CDT Monday, we also think some could be setting themselves up for major disappointment if the USDA doesn’t offer the most sweeping changes in modern history.  While this year is indeed historic in many ways, it is worth noting the largest changes in corn acreage since 1970 in either direction are 2.0-3.0 million acres.  We’ve never seen a late planting year quite like this one, so records could be broken, but would still point out what the odds are for a 5.0-8.0 million acre change like some are touting.  In addition, average trade estimates for yield see corn at 164.9bpa vs. 166.0bpa in July.  This is hardly the 5-10bpa change some are suggesting, begging the question of what a bearish yield would look like and what a bullish yield would look like?  We discuss the average trade estimates a bit more below.  Corn open interest fell yesterday by 7,974 contracts, soybeans were down 2,051, meal was down 1,503, oil up 4,699, SRW down 9,829 and HRW down 10,040.

We’ve been writing about the lack of confidence by the trade toward the August WASDE for several weeks and the average trade estimates bear that out.  On planted acreage, the high to low on corn area is 89.8 million acres down to 83.494 million, a range of 6.3 million, or just shy of the entire state of Kansas.  On the Bloomberg average trade estimates, the high to low spread is 11 million acres, or the size of Illinois.  Imagine missing the USDA’s planted area number by a factor equivalent to Illinois!  Soybeans aren’t a whole lot better with the high to low spread of 83.5 million to 78.0 million equal to the entire planted area in Indiana.  What’s worse are “analysts” offering an acreage target but providing multiple caveats of why they could be wrong and why the USDA would then be wrong.  The fact is, no one knows what Monday is going to bring, and no one wants to be wrong.  While the supply changes will take center stage, we can’t help but think many will overlook what should be bearish cuts to demand in both 2018/19 and 2019/20 on corn and soybeans.  It is quite conceivable we could add 50-150mbu of supply to 2018/19 ending stocks/2019/20 beginning stocks via demand cuts.  We could also see huge cuts to new crop demand based on export commitments to-date, ethanol economics, the trade war, African Swine Fever, etc.  The demand changes should be overshadowed by supply changes, but we also wouldn’t gloss over them either.

Speaking of ethanol demand, weekly indicators remain putrid with production up 9,000bpd to 1.040 million bpd but this was still 5.5% below a year ago.  In fact, the deficit with a year ago was the largest in 19-weeks and makes achieving the USDA estimate next to impossible.  It is not difficult to see why run-rates continue to disappoint as ethanol/corn spreads remain in negative territory as spot ethanol fails to cover the cost of spot corn.  In the Eastern Corn Belt, these margins are most likely even worse considering those plants are still grinding through some very expensive corn purchased in June and July.  Ethanol stocks saw a historic drop, falling 1.351 million barrels to 23.117 million barrels.  However, even with such a large weekly change, stocks are still record large for this week.   Crude oil and RBOB prices at 2019 lows aren’t helping the situation especially as RBOB/Ethanol spreads fell to 20c per gallon yesterday, the lowest since June.  Discretionary blending is not seeing a boost with gasoline/ethanol spreads at those levels.

Bottom Line: Higher markets but we aren’t going anywhere fast.  Everything comes down to Monday and whether the trade gets the supply cuts they want.  A question producers should be asking is what they will do with a limit down move and what they will do with a limit up move?  Both could be real possibilities and would require opposing plans of action.  As we always find ourselves saying around this time of year, on October 1 or November 1 (pick your date), there will be no shortage of corn in the United States, regardless of crop size.  The question becomes what price range becomes fair value once this crop is in the bin.  Are the pie-in-the-sky price projections off the table, or are they still fair game?  How much work will basis and spreads have to do and how much will be on the board?  All things which should be easier to answer after Monday.

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.

8/5/2019 Morning Comments

Good Morning,

Trade war and forex moves are dominating financial market headlines this morning after President Trump said he would implement another 10% tariff on the remining $300 billion worth of Chinese imports.  He walked this back slightly late Friday and over the weekend saying something to the effect of he might not implement the tariffs if China agrees to buy more U.S. farm products before September.  China said they would retaliate to any U.S. aggression, keeping the escalation in place.  At the Sunday night open, the Chinese renminbi fell through 7.00:1, the weakest trade since May of 2008 during the depths of the financial crisis.  Regardless of “winning” the trade war, the currency weakness is not a good sign for global growth and Chinese protein demand.  All of these steps will continue to stifle growth in the world’s second largest economy which is a long-term negative for U.S. agriculture. 

Active radar track across the Western Corn Belt and Northern Plains this morning with moisture falling where it isn’t necessarily needed and not falling where it is.  The 30-day percent of normal precipitation maps from NOAA continue to show a large pocket in Iowa, Illinois, Indiana and Michigan which is running below 50% of normal.  A sizable pocket in Iowa and Illinois is running below 25% of normal.  Separately, dryness is becoming more of an issue across Kansas, Oklahoma and Texas with a large swath running 25-50% of normal over the last month.  The dryness certainly has implications for fall crops, but more importantly, the dryness will need to be monitored heading into September and HRW sowing.  Overnight GFS and European models continue to see better precip returns across the entire belt in the week 2 forecast with the GFS suggesting 144-145% of normal from August 12-August 18 according to Crop Prophet.  The Euro isn’t quite as wet but still seeing 115-116% of normal precip during that time frame.  Temps are seen mostly near normal to slightly above the next two weeks.  Difficult to argue with current forecasts which gets us through mid-month.

Sharply lower prices overnight led by Chicago wheat and corn with the former down over 2.00% in the September contract while the latter is down 1.50%.  The combo platter of negative trade war headlines, poor demand data and a mostly favorable weather forecast is just too much to overcome at the moment.  Funds are still carrying a net long position in corn despite having sold corn aggressively the last two weeks.  We are now a week out from the August WASDE and the bulls are still convinced the report will save the day with cuts to yield and acres.  The market is certainly offering a golden buying opportunity if one believes the report is sitting on a massive bullish surprise.  While supply could very well come down, we aren’t sure it’s the silver bullet many have been waiting for considering the recent U.S. Dollar strength, the Chinese halting purchases of U.S. farm products and a domestic demand picture which is hardly supportive.  As odd as this sounds, it’s almost like the supply shortfall (if there is one) picked the wrong place and time to have the full effect it may have had in another marketing year.  Open interest changes Friday included corn up 286 contracts, soybeans up 4,150, meal up 9,215, oil down 662, SRW up 7,785 contracts and HRW up 3,117.

Friday’s Commitments of Traders data had a little something for everyone.  In corn, funds sold 34,752 contracts last week which was the largest single week of selling since April 1.  Their net long in corn is now just 74,107 contracts which is the smallest since mid-June.  Commercials cut their long and short exposure last week.  In soybeans, funds sold 7,137 contracts to put their net short at 63,523 contracts which is back to the largest net short since mid-June.  Like corn, commercials reduced both their gross short and long positions.  Funds bought both Kansas City and Chicago wheat to cut their net short positions moderately but nothing much to see in the commercial positioning.  The real focus in wheat continues to be in Minneapolis in our opinion as funds sold another 2,176 contracts to take their net short to 16,586 contracts, a new record.  Their net short now accounts for 26.3% of total open interest, which compares to 8% in soybeans and 4% in KC wheat.  The gross commercial long position in Minneapolis rose to 38,473 contracts, the largest position for this group since November 20, 2018.  Difficult to get bearish Minneapolis wheat when end users are buying and funds are carrying record short positions.  At the very least, there should be value in owning Minneapolis vs. Kansas City, although we are less enthused about owning Minneapolis against Chicago.  The SRW balance sheet still has some fireworks in store in our opinion.

Census export data was released Friday covering everything from corn bi-products to whole grain exports.  DDGs exports totaled 962,592MT for the month of June, down from 1.020MMT last month and 1.023MMT a year ago.  YTD exports of 5.349MMT compare with 5.624MMT a year ago.  Ethanol exports totaled 486.1 million liters which was up from last month’s 377.0 million liters but down from last year’s 569.6 million liters.  YTD ethanol exports are down notably from the same period in 2018.  June corn exports were soft at 3.068MMT which was the smallest June total since 2013.  The figure compares with 4.689MMT in May and 7.182MMT in June of 2018.  Marketing-year-to-date corn exports of 46.630MMT are down from 49.174MMT a year ago, which is actually less bad than weekly inspection data would imply.  June wheat exports totaled 2.155MMT which was down from May at 2.758MMT but above last year’s historically poor 1.559MMT.  Not much to say about wheat, but we should see a slow down in July.  Soybean exports were surprisingly strong at 3.193MMT vs. 2.560MMT in May and was the largest June total on record.  The total was around 68 million bushels larger than what weekly inspections data would imply, putting the marketing year total not as far behind the needed pace as once thought.  There are still a large number of exports needed in July and August, but the total might be doable now.  China was the largest destination by far at 1.727MMT vs. second place Mexico at 242,528MT.  Unfortunately, it would seem difficult to have China take such a large amount of soybeans in July and August considering the political ramifications.

FWIW, FC Stone released their estimates of corn and soybean production Friday based on a survey of their elevator clientele.  They see corn production at 13.992bbu with an average yield of 167.4bpa which compares with the USDA in July of 13.875bbu and 166.0bpa.  On soybeans, the brokerage sees 3.743bbu and a national average yield of 47.2bpa which compares with the USDA at 3.845bbu and 48.5bpa.  We found it interesting their yield ideas were trending higher when so many seem hell bent on yield and production slipping further from the July figures.  We have not seen average trade estimates for the August WASDE but it will be interesting to see what the masses think on the change from July.

Bottom Line: Bulls continue to fight the tape, attempting to keep their nostrils above water for another week when the USDA Whitehorse is expected to ride in and save the day.  The weakening cash basis as futures have plunged is a signal of just how much old crop was actually in the country even after pundits all kept asking “where is the corn?”  Nothing positive from outside markets to stem the tide either. No reason to look to wheat for support in our opinion as the Northern Hemisphere spring wheat harvest has yet to begin and it would appear we have enough supplies with the major exporters to meet the projected demand increase.

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.