4/22/2019 Morning Comments

Good Morning,

A large system moving across the upper-Midwest this morning bringing moderate to heavy rains in localized places.  Not much for rainfall returns yet but there are places getting up to 0.50” since midnight.  Plenty of rain around in the southern plains and upper-Midwest the next 7-days with the former seeing 0.50-2.00” amounts on a large swath of Oklahoma and Texas.  MN/IA/WI will see rains of 0.50-2.00”  broken down between the current system and one toward the weekend.  The eastern corn belt will be mainly dry which should promote seeding progress.  Extended maps keep above normal precip in place the next two weeks while temps slowly cool toward below normal in the north by the 8-14.  Worth keeping an eye on Kansas as the 30-day percent of normal precip map is running a bit dry although conditions to-date have been very good.

Weaker markets across the board this morning, led lower by winter wheat contracts which are down over 1.0%.  The favorable conditions to-date along with solid rain potential for OK/TX this week continues to promote ideas of above-trend yield potential.  In addition, many analysts cut their U.S. export forecasts for the 2018/19 marketing year over the weekend with those ideas now close to last year’s 901mbu.  If exports do indeed prove that low, carryout will be well over 1.1 billion bushels and provide a huge buffer against any growing season stress.  Add in ideas of a bounce-back in production out both the EU and FSU, and it is difficult to construct a narrative which include wheat being markedly higher than spot prices.  Wheat looks as though it is in for another year of producers being incentivized to store wheat, but the lucrative storage returns will only come to those willing to lock in carries out to 2020.  Corn planting progress broke loose heading into the weekend for Iowa and Nebraska.  Areas to the north are still waiting on fields to dry and warm, but progress as of May 1 isn’t likely to show the delays being talked about a couple weeks back.  Lots of trade talk the next two weeks to keep the market interested.

Friday saw the Commitments of Traders data released with large spec traders selling another 29,313 contracts to leave them net short -323,665 contracts, a new record.  Not only is this a new record, but it is almost 10% larger than the previous record from last week, showing how aggressively short the funds have gotten.  Over the last three weeks, funds have sold 116,117 contracts.  Encouragingly, commercials have been buying corn with the gross commercial long up to 734,529 contracts, which is the largest since July 24.  This position is among the top ten largest on record and is record large from a seasonal perspective.  Funds sold 23,401 contracts of soybeans last week, bumping their net short back up to -108,362 contracts.  In KC wheat, funds sold 4,171 contracts to leave them net short -49,818 contracts.  This is not a record short on the CIT report, but it is within 5,000 contracts of a record.  Of interest, the gross commercial short position at 98,617 contracts is the smallest since January 2017 and record small from a seasonal perspective.

The global wheat market is most interested in production ideas from Europe and the Black Sea after last year’s drought in Europe and slightly lower than expected production in Russia.  There had been dryness concerns creeping into Europe once again, although weekend forecast maps show widespread rains across Europe the next 10-days.  In fact, many areas will see 100-200% of normal rains in the next 10-day period.  In Russia, export ideas for the 2019/20 marketing year are about steady with 2018/19 as lower beginning stocks will prevent Russia from getting off to a blazing start.  Based on some of the early production ideas in the market of 80-83MMT, we could see exports rebound to 38MMT from 36.5MMT, and still leave a decent carryout of 9.468MMT vs. 7.468MMT projected in 2018/19.  At that level, exports would be 43.20% of total supplies and would be 48.41% of total demand.  For reference, the 5-yr average for exports/supplies is 40.58% while exports/demand is 45.21%.  Admittedly, our ideas of 43.2% and 48.4% look high relative to average, but not relative to the last two years which saw higher percentages as well.  As long as the Ruble remains weak, and the government stays out of the export market, Russia will be positioned to regain lost market share in 2019/20.  Europe will also remain strong competitors after a down year, leaving US-HRW on the outside looking in.  An issue in the U.S. with production is no longer enough to rally wheat markets by itself.  It takes a minimum of two major exporters, and preferably three, with below trend crops to create an environment in which demand needs to be rationed globally.

Friday saw the latest cattle-on-feed report released with on-feed at 102.0% of year ago levels vs. ideas for 101.7%.  Cattle-on-feed of 11.964 million is the largest on-feed total for any month since December 2011.  Placements of 104.8% were larger than expected as the trade pegged them at 103.4%.  Marketings were 96.6% vs. estimates of 96.9%.  The stronger than expected cattle on feed with larger placements should keep feed demand strong heading into the summer months, although the animal numbers and feed demand correlation has been about as bad as it could be the last two quarters.  This is precisely why estimating feed/residual demand is almost futile considering how the USDA arrives at that number.  Nonetheless, feeding margins remains strong in both cattle and hogs, and the strong forward pricing opportunities thanks to the ASF scare in China should keep expansion underway through 2019.

Bottom Line: Remember when crops were going to be late planted? Yeah, me neither.  Now that planting delays aren’t likely to be a major issue, combined with above normal to record soil moisture, early season doubts are fleeting.  We could still see corn acreage below March USDA ideas, but we’ve got acres to give, especially if further cuts to ethanol and exports are still to come.  Spring wheat acres are likely to be lost in South Dakota, although less than feared a couple weeks ago and could be made up in North Dakota and Montana.  Feels like a breakthrough in trade talks with China is about the only thing which is going to provide this market with lift.  Large bearish positions held by the funds, winning positions at that, are not a reason to be bullish until they are forced to cover.  They are being every reason to stand their ground at the moment.

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.

4/17/2019 Morning Comments

Good Morning,

The much-anticipated release of Q1 GDP from China was released overnight with the country growing at 6.4% from the same quarter a year ago, better than the 6.3% expected by economists. I’m not sure there was any way China wasn’t going to meet or exceed estimates on growth as negotiations are headed down the final stretch in the trade war.  There was a big surge in industrial production, rising 8.5% from a year ago vs. 5.3% growth in the Jan-Feb period.  Year-to-date fixed asset investment was also strong in Q1 at +6.3% vs. 5.3% last year.  Still, everyone thinks to keep China growing at even a 6.0% growth rate moving forward will take a monumental stimulus effort.  There is no doubt the trade war has slowed both Chinese and U.S. growth, with the question being how quickly it can bounce back if tariffs are removed and unrestrained trade can take place.

Rains across the Northern Plains this morning, with parts of the system expected to drop upwards of an inch of rain throughout the day.  This will help melt the snow cover faster, but the moisture is scarcely needed and will keep ponding/flooding issues present.  Mostly quiet after the current system moves at least until early next week when the southern plains and central Midwest have their next chance at moisture.  The 7-day QPF maps show 1.50-3.00” totals across a huge swath of the Midwest east of the MS-River.  Extended maps keep the above normal precip in place through the 8-14 day, but fortunately temps are also above normal the next two weeks.

Firmer markets across the board with the exception of Minneapolis wheat which has been the whipping boy as of late with the late season snowfall failing to spark any interest in owning the Northern Plains staple.  While delays will persist in South Dakota, Minnesota and SE-North Dakota, drills have been running in Montana and western North Dakota.  Acres will be lost in SD/MN, but there should be ample opportunity to make them up elsewhere and unless the acreage drop is more than 1 million from the USDA Planting Intentions report, difficult to see a major draw on 2019/20 ending stocks.  Also no concerns about late planting in corn yet either, and a look at recent history would support this view.  Going back to 2013/14, every year posted a national average yield above trend regardless of how fast or slow planting progress occurred.  We look at this a little closer below.  Soybeans remain inside their impressive downtrend dating back to February.  Movement on the trade war or further delays which would support even more acres moving back to soybeans would seem to be the only thing which will drive price sharply higher or lower.  Open interest changes yesterday saw corn up 23,317 contracts, soybeans up 20,125 contracts, SRW up 1,608 and HRW up 2,704 contracts.

Looking back at corn planting progress as of week #17, which is more or less the First of May, we’ve seen progress range from as little as 5% in 2013 to as fast as 45% in 2016.  The range of yields during that time frame was 158.1-176.6bpa.  2013/14 had the low yield at 158.1bpa, but at the time, this was third highest national average yield on record behind only 2004’s 160.3 and 2009/10’s 164.7bpa.  The point here is as long as corn planting progress doesn’t drag out to an extreme level, actual planting date hasn’t had too strong of a correlation with final yield.  Weather the balance of the marketing year is much more important than planting date, not to mention, corn planted in May is usually going into warmer soils which promotes better emergence and stand counts.  The same could be said about soybeans with progress since 2013/14 ranging from 6% in 2013 to 36% in 2016 as of week #19, which is around the 10th-15th of May.  During that stretch, the national average soybean yield ranged from 44bpa in 2013 to 52bpa in 2016/17.  At the time, the 44bpa yield in 2013/14 was tied for the highest national average yield on record.  If corn and soybean planting is still lagging averages badly by mid-May, it will be time to add risk premium.

Data out yesterday included weekly deliverable stocks with recent trends mostly persisting.  Chicago deliverable stocks fell 871,000 bushels to 44.377mbu which compares with 67.912mbu a year ago.  This is a 34% decline from a year ago, and puts a lot of pressure on rebuilding deliverable supplies with high quality wheat this year.  Non-deliverable grades at 6.393mbu are up 1.666mbu from a year ago.  Kansas City wheat stocks fell 309,000 bushels w/w to 98.907mbu and are down 5.986mbu from a year ago.  From a historical perspective, still a lot of wheat in warehouses in Kansas.  Unless things change drastically, the KWK/KWN should see variable storage rates reduced by another 3c/mo to the exchange-minimum 5c/mo.  That said, new crop spreads are pricing in storage levels to rise back to 8c/mo as they price in a large crop with what would appear to be limited new crop demand.  HRS deliverable supplies rose 477,000 bushels on the week to 16.345mbu as rail movement improves following the March and April blizzards.  Still the lowest wheat stocks since 2014, but well above the levels witnessed in 2008, 2012 and 2009.

Brazilian crop progress data was also released yesterday with soybean harvest wrapping up at 89% complete vs. 83% last week and 85% average.  1st crop corn harvest was seen at 69% complete vs. 63% last week and 72% average.  Other tidbits include Germany’s association of farm coops seeing a 21% rise in the country’s wheat production from a year ago.  They see 24.4MMT being harvested vs. 20.3MMT a year ago which was ravaged by drought.  There is a U.S. delegation of wheat officials, including US Wheat Associates and Kansas Wheat Commission, headed to Brazil to encourage the country to act on the 750,000MT of duty-free imports agreed upon at last month’s summit between the Brazilian president and President Trump.

Bottom Line: A little relief bounce, but it is difficult to see gains going anywhere until we have a trade resolution or planting progress fails to make any headway by the end of April.  As we discussed, not much use in getting excited about planting progress on April 17th.  Bulls are quick to remind funds are carrying hefty net short positions, but those aren’t relevant until they are given a reason to cover.  At the moment, they are being encouraged to add to their winning positions.

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.

4/15/2019 Morning Comments

Good Morning,

A mix of light rain and snow in the Dakotas and N-Minnesota this morning, otherwise a fairly empty Midwest.  Morning GFS models are showing an active week for the corn belt and parts of the southern plains with 0.50-2.00” expected in the I-states and Delta.  In addition, Kansas is slated for 0.50-1.50” this week which is the first meaningful moisture for the state in several weeks.  Percent of normal precip maps were showing sizable deficits for Kansas over the last month, so this rain if it falls as forecasted, should promote strong conditions to hold.  Extended maps keep above normal precip for the 6-10 and 8-14 in most of the Midwest but temps are finally warming to above normal which is badly needed across the entire Midwest.  The Northern Plains are still sitting under a heavy blanket of snow which is going to take 7-10 days to get rid of, let alone dry up assuming no other precip falls.

Mixed markets this morning as row crops and Minneapolis wheat are higher while winter wheat contracts are lower.  The weakness is winter wheat is probably two-fold as the best chance for moisture across Kansas in a month showed up for later this week, and US-SRW missed out on Friday’s GASC tender despite cheaper FOB offers from the week before.  The competitiveness of Romanian and Ukrainian offers was a bit surprising considering US-SRW cleaned up the last tender, and Black Sea offers should be mostly nil until harvest.  The USDA’s 945mbu export forecast is still counting on a fair amount of late-season HRW and SRW business to occur, so missing out on a high-profile tender like GASC is not bullish.  Strength in row crops and Minneapolis wheat can be attributed to the larger than expected managed funds short positions revealed on Friday, especially as fieldwork looks to be delayed at least another week across a huge cross-section of the Midwest.  Acreage changes absolutely happening across the Northern Plains, but final tallies won’t be known for several weeks.  Open interest changes Friday included corn up 15,655 contracts, soybean futures were down 3,849, SRW down 3,096 and HRW up 772.

Friday’s COT data showed large spec traders selling another 24,525 contracts to put them net short -294,352 contracts which is the largest on record.  The record short is 9% larger than the previous record from a week ago, and a truly massive position ahead of the entire Northern Hemisphere growing season.  We were also encouraged by the gross commercial long position which rose to 700,202 contracts last week, the largest position for that group since September.  The chart below shows the gross commercial long position relative to history with the current position being record large for this week on the calendar.  Funds bought 6,767 contracts of soybeans to trim their net short to -84,961 contracts, and they were small net buyers in Chicago and KC wheat.  The other market of interest was spring wheat in which managed funds sold 7,279 contracts last week to notch their single largest week of selling on record.  This pushed their net short to -9,457 contracts, which is the largest net short since January but only 73% of the record net short from July.  This position is worth watching after spring wheat futures plumbed decade lows a week ago.

NOPA crush out later this morning with the trade expecting 168mbu crushed in March vs. 171.86mbu a year ago.  Soy oil stocks of 1.783 billion pounds are seen vs. 1.752 billion at the end of Feb and 1.946 billion at the end of March 2018.  Crush will need to be scrutinized closely moving forward as that demand category has been moving higher to largely offset the lighter export program.  Crush needs to continue to run near record levels through the end of the marketing year to achieve the USDA’s forecast.  With export still likely overstated, a slowing crush sector would probably guarantee carryout ends up close to 950mbu as opposed to slightly under 900mbu as currently expected.  At the end of the day, 50mbu probably doesn’t matter much to a market with that much excess but could prove pivotal to the market’s ability to hold $9.00.

Bottom Line: Tonight’s crop progress report should show national corn planting progress near the 5% average which probably keeps bulls at bay another week, even though the forecast looks less than ideal.  The fact is, until the calendar reads May and progress is behind schedule, going to be difficult to spook managed funds into covering.  In addition, the U.S. farmer feels undersold on both ends of the curve, so he is likely to throw a fair amount of length at any rally attempt.  Likely losing spring wheat acres in the Dakotas, but the actual amount remains a moving target.

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.

4/12/2019 Morning Comments

Good Morning,

The last bits of Winter Storm Wesley are still swirling over the Northern Plains this morning, although the system is expected to be completely finished later this afternoon. The snow totals are nothing short of impressive, and the actual amounts that fell in the central and northeast part of South Dakota might not ever be known due to the high winds.  As of this morning, 68.4% of the Upper-Midwest was covered by snow at an average depth of 5.8”.  Compare that with 5.4% of the area covered by an average depth of 0.3” on April 9th.  Comparing the two images from April 12th and April 9th below does it some justice, although until one sees with their own eyes, it is difficult to believe.  According to another map from NOAA, there is between 2-6” of water-equivalent moisture in that snow, which will eventually melt and make its way into the river system, keeping flooding concerns a major issue.  Unfortunately, no big warm-up seen as temps slowly get toward the 40’s early next week and the 50’s by next weekend which will keep the snow in place longer than desired.  Additional moisture is being seen in the Plains by the end of next week which will not be welcome.  Temps finally work towards normal at the end of the 8-14 with precip ideas moving below normal for the entire Plains but this takes us out to April 19-25.  If this snow is still sitting around by the end of that period, we will be talking about major planting delays in the Plains and western corn belt.

Firmer markets this morning led by wheat markets as Egypt’s tender overnight should see HRW and SRW among the cheapest offers.  In addition, Algeria bought 540,000MT of optional-origin wheat this week with a good chunk expected to be HRW and the balance French.  Almost all of this new business will execute in the 2019/20 marketing year, so it will mean little for ending stocks in 2018/19.  Still, demand is demand and without knowing exactly how large our wheat crop will be this year, any additional exports we can garner before Black Sea and European wheat come back with a vengeance is a bonus.  Corn and soybeans remain inside recent ranges with their overall downtrends in place.  The latest round of export sales were less than impressive with some huge work to do this spring and summer to prevent USDA from making additional cuts to their forecasts.  Soybeans feel as though they will be within 10c of $9.00 until a trade deal is cemented.  Open interest changes yesterday saw corn up 15,283 contracts, soybeans up 10,729 contracts, meal down 755, oil down 2,674, SRW up 6,831 contracts and HRW down 3,085.

Export sales were mostly disappointing yesterday, although what did see commitments larger than the level needed.  Wheat export sales in the week ended 4/4 totaled 10.0mbu vs. the 1.4mbu needed weekly to hit the USDA forecast.  Sales haven’t been wheat’s problem as total commitments of 903.8mbu are up 7% from a year ago.  Shipments are wheat’s problem as only 690.7mbu of the 945mbu have shipped for a ratio of 73.09%.  That level of shipments to forecast as of the first week in April is the lowest on record.  This is why in the opening paragraph we suggest most of these additional sales will not in fact be executed in this marketing year with larger than normal sales being rolled over to 19/20.  Corn sales were light at 21.6mbu vs. the 27.6mbu needed weekly to hit the USDA’s recently downwardly revised forecast.  Total commitments of 1.722bbu are down 9% from a year ago while the USDA is only forecasting a 5% decline from a year ago.  Sales need to average 27.6mbu each week through August to hit the USDA forecast which would be the highest average sales program since 2006.  Not a lot of weeks we can write off as an “off-week” and still keep the USDA from making additional cuts.  Soybean sales were also low at 9.9mbu vs. the 12.9mbu needed weekly to hit the USDA forecast.  Total commitments of 1.613bbu are down 17% from a year ago with the USDA only looking for an 11.9% decline.  Like wheat, shipments are the big problem for soybeans with only 60.5% of the USDA’s forecast having been shipped as of the first week in April which would be the lowest total on record going back to 1991.  The average pace of shipments needed through August at 35.2mbu would be the largest on record by over 7mbu from the next largest program which occurred in 2017/18.  Unlikely to see that kind of summer export pull considering larger crops in Argentina and slower demand pull out of China.

The big talker Thursday was China’s purchase of 77,732MT of U.S. pork which was easily the largest purchase on record and almost tripled the previous record purchase back in 2017.  Earlier this year, analysts thought China could buy as much as 300,000MT of finished pork from the U.S. as it attempts to bridge the shortfall gap created by ASF.  We did a fourth of that total in one week and we are barely a fourth of the way through the calendar year.  Interestingly enough, U.S. pork is still subject to tariffs implemented at the beginning of the trade war, so it shows the true need for this product by China.  The ongoing purchases, should they continue, will continue to support lean hog futures and hog feeding margins which should keep expansion ramped up through year-end.  What will be critical is keeping the most stringent safety protocols in place across Canada and the U.S. to prevent the disease from spreading to North America.  ASF exposure in North America could see the entire bull narrative in hogs fall short.  Beef and poultry demand should also see continued demand.

A couple crop estimates thrown around yesterday with BAGE taking their estimate of 2019/20 Argentine wheat acres up 3.2% to 6.4 million hectares and production to 20.6MMT vs. 19.5MMT this year.  Strategie Grains cut their 2019/20 EU soft wheat estimate by 1.3MMT to 144.8MMT.  Both of these estimates mean little at this juncture, although the fact StratGrains is cutting their new crop estimates due to dryness already shows how critical spring and summer rains are to prevent further cuts.  Some concerns over dryness in parts of Ukraine as well, but difficult to get too excited about any crop issues on April 12th.  What is certain is crop adversity in other parts of the world will be needed for U.S. to see export demand of any consequence in 19/20.  August FOB offers of 11.0% protein hard wheat out of Russia are seen at $197/MT vs. German at $200/MT vs. Baltic at $198/MT with US-HRW up at $214/MT.  French new crop offers are seen at $198/MT vs. US-SRW at $203/MT.  One must keep in mind, those destinations already enjoy a freight advantage over the U.S., so for U.S. wheat to pick up business, FOB offers need to be cheaper than competitor origins.  By the time we get through harvest, our guess is variable storage rates will be on the rise and spreads will be pricing wheat to stay in storage in the U.S., not head for export hubs.

Bottom Line: Firmer markets to close the week as our space is caught between a disappointing old crop demand picture and a potentially friendly new crop supply situation if weather stays adverse.  It is still too early to get runaway bullish on planting delays of corn and soybeans, although spring wheat is already losing acres.  If the snow is reluctant to leave, however, some of the huge increase in corn acres for the Dakotas and Minnesota will have to be tempered. 

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.

4/10/2019 Morning Comments

Good Morning,

Another winter storm is slamming South Dakota and southwest Minnesota this morning, bringing with it heavy snowfall totals and 2-4” of rain depending on how it falls in some spots.  Unlike the blizzard which hit a year ago across the same area, the soil moisture profile in 2019 is brimming, offering little room for the moisture falling to go into the ground.  This will keep flooding and ponding concerns up, and dry down for fieldwork especially slow.  Accurate totals are not really available yet since the storm began, but 2-4” of water-equivalent moisture is what is expected across most of South Dakota and southern Minnesota.  The storm finishes up Friday with a couple days respite before additional moisture moves into Nebraska and eastern South Dakota midweek next week.  Not much change to extended maps with below normal temps and above normal precip seen through April 23rd.

Mixed markets this morning with corn bouncing slightly while wheat and soybeans trade modestly lower.  The April WASDE came and went, delivering the needed changes which were almost uniformly bearish.  The fact markets held together as well as they did would suggest most of the bearish data from the March 1 stocks and March 29 acreage report is factored in.  That said, many respected analysts still have issues with some of the corn demand line items which could prompt additional cuts on subsequent reports.  Despite the massive storm slamming the Plains this morning, markets still don’t care about late planting, and probably for good reason.  As we discussed Monday, we have acres to give on corn, soybeans and spring wheat and still maintain comfortable carryout levels.  If we get to the end of April without any meaningful progress made, markets should start to pay a little more attention.  South American crop updates were bearish and a good reminder competition on the export front will remain fierce this summer and fall.  Open interest changes yesterday included corn up 9,266 contracts, soybeans up 11,144 contracts, SRW down 6,697 and HRW down 6,068 contracts.

The changes of most interest on the WASDE were definitely in the corn market with USDA axing feed/residual demand by 75mbu, cutting ethanol demand by 50mbu and cutting exports by 75mbu for a total demand reduction of 200mbu.  We felt the reductions to feed/residual would be larger based on March 1 stocks data, but also didn’t feel a cut to exports was coming this month.  The 50mbu reduction to ethanol demand was needed, but it could be argued another 50mbu needs to be cut unless run-rates improve dramatically through August.  The USDA clearly felt the competition with Argentina, Brazil and Ukraine was strong enough to rip the band aid off today as opposed to waiting another month.  The combined changes left ending stocks at 2.035bbu for the third year in a row.  Ending supplies at that level is such a mentality change from the much more constructive ideas of 1.5-1.6bbu thrown around last summer.  The changes should also keep the market from jumping the shark on 2019/20 demand instead of jacking up all demand line items by 100mbu just because we need to get rid of supply.  As this year is showing us, you actually have to use the bushels as opposed to just saying you will on paper.

Wheat changes were light with the USDA cutting seed use by 1mbu, feed use by 10mbu and exports by 20mbu for a total reduction of 31mbu.  Ending stocks were projected at 1.087bbu vs. 1.099bbu a year ago.  Like corn, we felt the cut to feed/residual use could have been larger based on March 1 stocks data, but not worth getting excited over.  The cut to exports was necessary, but here again, might not be enough when all of the bushels are counted on May 31.  Logistics remain poor, and despite an impressive sales pace over the last four weeks, all of the bushels will not leave the country before June 1.  Final ending stocks should prove close to 1.1bbu, although a few million bushels here or there is probably not germane to the overall wheat narrative.  Minor tweaks were made to the soybean balance sheet with ending stocks dropping 5mbu to 895mbu.

Global balance sheet changes yesterday included Brazilian soybeans being increased to 117MMT from 116.5MMT last month.  Last year’s production total was increased to 122MMT, further increasing that record.  Argentine soybeans were left unchanged at 55MMT, but the combined total of 172.5MMT was a new record for the two-country total.  Both countries had their corn production estimates raised as well with Argentina raising to 47MMT from 46MMT last month and Brazil up to 96MMT from 94.5MMT last month.  Corn exports between the two countries are projected at 61.5MMT vs. 46.1MMT a year ago which is probably the most important South American figure to focus on from yesterday.  Add in Ukrainian corn exports to the South American total and one doesn’t have to ponder long about why the USDA cut U.S. corn exports yesterday.

Back inside the U.S., we thought it worth pointing out the by-class changes in the wheat balance sheet, specifically in the HRS S&D.  USDA cut HRS export demand by another 15mbu, which helped push ending stocks up to 305mbu.  The 305mbu of ending supplies are the largest since 1987/88 with a stocks/use ratio of 51.57%.  We’ve seen 50%+ stocks/use ratios in HRW and SRW in the recent past, and when we had those, it is helpful to think about the fact we could get through November without running out of wheat if we raised zero bushels of spring wheat this year.  Unfortunately, without a sizable reduction in production for the 2019/20 growing season, we could see ending stocks rise even further.  Based on our current analysis, we would need to see HRS acres drop 1 million from a year ago to keep ending stocks unchanged at 305mbu.  While the current winter storm hitting South Dakota could be arguing for such a decrease, we will need to see similar attitudes prevail in North Dakota and Minnesota to see it become reality.  2019/20 should see MW/KW and MW/W inter-market spreads tighten significantly.

Bottom Line: The last WASDE report without a 2019/20 balance sheet on it has come and gone, allowing the market to more fully focus on new crop.  Acreage debates will rage over the next 6-weeks, especially if progress remains slow in the Plains and Upper-Midwest.  None of our markets are carrying risk-premium for late planting, and so far, they don’t need to.  If meaningful progress hasn’t been made by April 25th, the record managed fund short could start to get a bit more uncomfortable.

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.

4/8/2019 Morning Comments

Good Morning,

Another week, another bomb cyclone.  Actually, we’re not sure if the midweek storm headed for the Midwest is being classified as a “bomb cyclone” or not, but high winds, rain/snow and sub-freezing temperatures will once again grace the Plains with their presence.  0.75-3.00” of water-equivalent moisture looks set to drop on Nebraska, South Dakota, southern Minnesota, northern Iowa and most of Wisconsin.  This will exacerbate flooding conditions and prevent any meaningful drying from taking place for at least another week.  Parts of the Dakotas were already looking at an April 20th start date for spring wheat planting if conditions remained ideal, but that isn’t likely to be the case.  Extended maps from the weekend also look less than ideal with below normal temps in the 6-15 day while precip is mainly normal/above. 

Markets are mixed this morning with wheat lower and row crops mixed to better.  Corn and wheat are paying no mind to the incoming spring storm, and it could be argued they don’t need to depending on what the USDA issues in their WASDE report tomorrow morning.  There is no doubt the round of moisture will delay spring fieldwork and planting further, and the flooding conditions in many areas of Iowa and Nebraska should yield additional prevent plant acreage this year.  However, most of our markets have acres to give based on plentiful old crop supplies, hence the lack of panic so far.  HRW 11.0% protein FOB offers remain the cheapest hard wheat offers in the world by $8-18/MT vs. Black Sea and Europe.  Larger than usual May-July export demand should occur, although we aren’t sure this is enough to move the ending stocks needle for 2019/20 unless Q2-Q4 demand remains steady with a year ago.  Crop commentators suggest the HRW crop is getting larger while the SRW crop is getting smaller which is difficult to argue with at the moment.  Lots of old crop high protein HRW with some concern about low protein in the new crop, but we are 30-days from determining that.  Corn open interest fell 39,942 contracts on Friday as the first day of the GSCI roll kicked off.  Soybean open interest was up 2,729 contracts, meal down 5,514, oil up 4,969 contracts, SRW down 10,225 contracts and HRW up 652.

Friday’s COT data showed large spec traders adding 62,279 contracts to their net short position, which moved to a new record at -269,827 contracts.  This week of reporting included the report day plunge on March 29th with funds likely covering some of that position through Friday.  Commercial activity is less than inspiring with the gross commercial long adding to his position but not to a level which would suggest a call to action.  Index traders finally stopped selling corn, buying 10,662 contracts last week for their second week of buying in a row.  Funds sold 14,335 contracts of soybeans to leave them net short -91,728 contracts vs. the 6-week average of 86,549 contracts.  As we noted last week, all traders in the soybean pit feel a bit paralyzed at the moment as global supplies and Chinese demand growth give no reason for an extended rally, but the threat of a trade deal with China and large scale purchases remain enough of a deterrent to press beans to the downside.  Funds in KC sold 4,039 contracts to put them net short -48,741 contracts which is the largest since March 2016.  Crop conditions should embolden the funds to hang tight to their net short.

We’ve referenced a loss of acreage in corn and wheat as not being that big of deal since the March 29th USDA reports, and for good reason.  Based on the March 1 stocks data in corn, we should seed feed/residual demand reduced somewhere between 100-150mbu depending on how aggressive the USDA wants to get.  In addition, ethanol demand should also be reduced 50-100mbu, again depending on how aggressive the USDA wants to get at this juncture.  We feel export demand can be left alone considering an improvement in inspections as of late.  Nonetheless, the ethanol and feed changes alone could result in 150-250mbu of lost demand which will go straight to carryout.  This would put ending stocks at 1.985-2.085bbu which is just below last year’s 2.140bbu.  This changes the mentality for the 2019/20 balance sheet dramatically as 250 million bushels of corn added to beginning stocks is like planted acreage coming in at 94.352 million acres vs. the USDA’s survey-based estimate of 92.792 million.  Said another way, planted acreage could come in at 91.232 million with the extra beginning stocks and have the same supply side picture.  If the USDA would have printed 91.232 million acres on March 29 we think the trade would have viewed that in a supportive light which shows just how big of an impact that extra 150-250mbu of stocks has.

Similar situation in wheat, although not to the same degree as corn.  Demand should see reductions in feed/residual by 40-45mbu while exports are still likely overstated by 25-40mbu as well.  We aren’t sure if they will make a cut to export sales this report or wait until May, but without a pickup in actual shipments, a cut looks inevitable.  If they take steps to reduce both feed and exports this month, ending stocks would rise to 1.095-1.150bbu vs. 1.055bbu a month ago.  This would mark the third year in a row of ending stocks at or above 1.1bbu, which are the largest carryout levels since the 1980’s.  Even with the lower than expected wheat acreage, trend line yields should keep 2019/20 ending stocks over 1.00bbu next year without an unforeseen bump in export demand.  All signs point toward the Black Sea and Europe clawing back lost demand to the U.S. in 2019/20, even if the U.S. has a nice start to the year in Q1-2019/20 as those countries rebuild stocks.

Bottom Line: Grains trading in the direction of proposed changes to USDA balance sheets tomorrow.  More important to many will be the incoming winter weather which will raise stress levels for calving cattle and farmers unable to get into the fields.  Unlikely we will see farmers selling much of anything until planting conditions improve.  Unfavorable weather is likely to keep logistics snarled which should keep exports slow and difficulty in reaching current USDA export forecasts high.

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.

4/5/2019 Morning Comments

Good Morning,

Favorable comments emerging from the U.S.-China trade talks on Thursday with Bloomberg reporting Vice Chairman Liu said a “new consensus” had emerged.  President Trump said there were prospects for a “monumental” agreement.  President Trump also said it may take four weeks to put together a framework for the deal and two more weeks to put the details on paper.  There were details being thrown about suggesting China may have until 2025 to meet commitments put forth in a trade deal.  As a colleague pointed out, if China agrees to buy 20MMT of U.S. corn, but they have until 2025 to do it, then this amounts to roughly 3MMT of corn purchases.  120 million bushels of corn exports per year is nothing to scoff at but it is far different than 20MMT having to be executed in the span of 12-months.

Morning GFS models are putting more moisture in the forecast for the central plains and western corn belt next week.  As of this morning, the models are suggesting 0.75-2.50” could fall in South Dakota, Nebraska, S-Minnesota and Iowa.  This will add to flooding concerns and prevent any meaningful dry down from occurring.  As if the 7-day weren’t enough fun, the 6-10 and 8-14 day maps from NOAA keep below normal temps and above normal precip in place through April 19.  If drying and firming doesn’t really start to happen until then, actual planting might not take place until May. The situation is still very much fluid, but this forecast is far more problematic sitting on April 4th than it is March 4th and on top of the already saturated soils across the Midwest.

Weaker markets across the board this morning with nominal losses being led by soybeans and KC wheat.  Lots of cross-currents at the moment, with the omnipresent trade talks at the forefront but also another spring snowstorm/rain event set to sweep through the Plains and Western Corn Belt next week.  Up to this point, there has been little concern about planting pace and progress and for good reason.  Last year, several rounds of snow moved through the Plains and WCB in April, delaying the start of planting but farmers recovered and went on to produce big crops.  This year, the flooding has been worse already, and with river systems still dealing with a large amount of run off and what appears to be more on the way, some of these acres just don’t seem likely to dry out in time.  As we’ve discussed before, prevent plant acreage in 2018 hit the lowest level since 2012 at 1.8 million acres.  That number should be sharply higher this year, but most of our balance sheets absolutely require less acres to prevent burdensome supplies getting even larger.  What will matter most at the end of the day is how many acres we lose from our starting point and whether the ample soil moisture reserves will offset the loss of a couple million acres in terms of yield potential.  Open interest changes yesterday saw corn down 19,793 contracts, soybeans up 3,901, meal up 605, oil down 4,934, SRW down 6,782 contracts and HRW down 4,168 contracts.

Export sales were a mixed bag yesterday with wheat and soybean sales solid while corn sales faltered.  Wheat export sales totaled 25.9mbu vs. the 4.6mbu needed weekly to hit the USDA forecast.  Total commitments of 893.4mbu are 6% ahead of a year ago while the USDA is looking for a 7% increase.  The issue for us is not sales, but rather shipments with only 10 weeks left in the marketing year.  We need to ship 29.5mbu per week through the end of the marketing year to hit the current USDA forecast which would be the largest since 2011.  It is unlikely these sales will be executed in 2018/19, but should still sail in Q1-2019/20.  With that in mind, it is likely USDA will cut exports on next week’s WASDE, raising carryout toward 1.0bbu.  Soybean sales were solid at 72.4mbu vs. the 12.8mbu needed weekly to hit the USDA forecast.  That level of sales were the largest for this date on the calendar on record.  Total commitments of 1.603bbu are down 15% from a year ago while the USDA is looking for an 11% decline.  Like wheat, soybean shipments are the problem, not necessarily the sales.  We have only shipped 58.7% of the USDA’s forecast, the lowest percentage for the end of March on record.  We need to ship 35.1mbu each week through the end of the marketing year which would be the largest on record by nearly 8mbu.  Corn export sales were soft at 21.2mbu vs. the 26.5mbu needed weekly to hit the USDA forecast.  Total commitments of 1.700bbu are now down 9% from a year ago while the USDA is only calling for a 2% reduction.  Unlike wheat and soybeans, we don’t need a record shipment pace but this year does need to be the second largest shipment program on record.  Essentially, we need record wheat, soybean and corn export programs through the end of their respective marketing years in a season with awful logistics or the USDA will be forced to cut their forecasts and raise carryout.

Minneapolis continues to lead downside losses, closing lower for the sixth consecutive session on Thursday, the longest losing streak since June 2018.  Comments from canola exporters suggest Canadian producers will switch away from canola in 2019/20 if the trade dispute with China is not resolved soon.  The most obvious candidate for many of these producers looking to reduce acreage by 10-15% would be spring wheat. Canada has already been undercutting U.S. hard wheat exports for months, and this would look to continue into 2019/20 if additional supplies are produced.  As we’ve written about over the last several weeks, the HRS balance sheet for both 2018/19 and 2019/20 is bearish as it stands today. With the incoming weather next week, acres could fall further given the poor profitability of HRS and the lack of nitrogen availability across the Northern Plains.  Still, by our calculation, acres would need to fall another 500,000 acres to see carryout unchanged on the year which is still the largest since the late 80’s.  Asking for a one million acre drop from last year when trade tensions are still simmering, and soybean basis remains historically poor might be a tall ask.  Pure economics favor soybeans over HRS, but economics alone rarely make the decision for a producer.

Continue to watch the variable storage rate calculation period as the WK/WN is so far averaging 36.8% of full financial carry while the KWK/KWN is averaging 39.8%.  Chicago is already at exchange minimums for daily storage at 0.00165c/day (5c/mo), while KC is at 0.00265c/day (8c/mo).  Kansas City looks likely to see storage rates drop once the calculation period is over which would put the KWN/KWU at 77.10% of full financial carry and the KWU/KWZ at 101.1% of full financial carry.  One would think commercials will be bullspreading those sort of levels in large volumes considering the spread at that level represents a risk free trade, especially if commercials are borrowing money in-house at below market interest rates.  Corn moving to variable storage rates for the CZ9/CH0 spread period is also getting more attention as that spread sits at 69.02% of full financial carry.  The spread would need to move to  -15.50c or wider which represents 80% of full financial carry in order to move storage rates out to 8c/mo.  As we get closer to that calculation period in November, expect a growing chorus about corn exports set to be ruined like wheat exports.  Corn differs from wheat in the sense that U.S. wheat has major transportation disadvantages against competitors, relegating us to the supplier of last resort.  In corn, the U.S. is still easily the largest corn exporter in the world, although this doesn’t mean commercials storing more corn to pick up storage revenue can’t hurt annual prospects.  In addition, the other major corn exporters in South America have similar transportation costs to the U.S. once corn hits port.

Bottom Line: Sloppy finish to what had been a supportive week of price action.  We will be watching next week’s storm track closely as a lot of the rain/snow looks to fall in areas which can scarcely afford any more.  Larger prevent plant acreage probably makes USDA’s total acreage pie being lower than a year ago look more believable.  Continue to watch trade talks, but extensions to when China has to buy the agreed upon tonnages will make them less impactful to our burgeoning balance sheets.

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.

4/3/2019 Morning Comments

Good Morning,

Multiple media outlets are reporting U.S. and Chinese officials have resolved most of the outstanding issues in the long-running trade dispute, but it is the enforcement of a deal which remains a sticking point.  Without enforcement, the deal is essentially worthless as few think China will uphold a deal which isn’t seen in her best interests.  Also worth paying attention to today are EU Ambassadors meeting in Brussels today to decide whether to grant EU Trade Commissioner Malstrom the mandate she needs to begin formal US/EU trade talks which were agreed to last July.  Washington is tiring over the delay to these talks, raising the prospect of the Trump Administration unleashing tariffs on auto-imports which would surely result in retaliation by the EU.  In addition, the EU hasn’t agreed to bring agriculture into the trade talks which the US has demanded.  European Union farmers are some of the most subsidized in the entire world on top of the member countries being some of the most averse to GMO technology.  Cracking the European Union nut on ag imports from the U.S. would be a monumental accomplishment but one we are not holding our breath over.

Still looking at rain chances in the central/eastern corn belt as well as the Delta/Midsouth the next several days.  The entire eastern half of the contiguous United States will see varying degrees of rainfall between 0.50-5.00”.  This should keep high-water and flooding concerns alive and well along the nation’s waterways.  The MS-River in St. Paul crested yesterday with those waters working their way down the next several weeks.  The Red River in Fargo is expected to crest sometime Monday/Tuesday next week around 34.8’ which is 6’ below the all-time record of 40.8’.   Extended maps keep precip above normal during the 6-14 day outlook while temps are seen normal to below normal by the 8-14 day.  Not exactly the forecast the Northern Plains was looking for.

Firmer markets across the board this morning, led by Chicago wheat which finds itself up over 1.0% as we head toward 7:00am CDT.  Monday afternoon, the USDA confirmed the poor conditions of the SRW crop which had been bantered about most of the winter.  Uneven emergence, drowned out spots and an overall decline in acres from a year ago were all concerns.  It would appear those concerns were well-founded, and when combined with tightening old crop stocks, raises the risk premium needed for the 2019/20 growing season.  As of today, SRW is the one class of wheat which could see a fairly tight balance sheet next growing season.  Corn and soybeans are also higher as we continue to claw back from Friday’s dismal report.  Still plenty of concerns about flooded acres, higher prevent plant and the ability to obtain nitrogen ahead of seeding which didn’t get applied last fall.  Economics still argue for farmers trying to plant as much corn as possible, but mother nature and logistics can and will have a say in the final number. Open interest changes yesterday saw corn up 7,122 contracts, soybeans up 3,147 contracts, meal up 1,037, oil up 2,456, SRW up 2,704 contracts and HRW up 3,836.

Deliverable stocks in Chicago fell another 1.5mbu last week to 47.813mbu which compares with 69.722mbu a year ago.  Total wheat stocks of 55.078mbu are down 2.002mbu on the week and down 18.24mbu from a year ago.  Wheat stocks in Toledo are at their lowest level since 2013/14 while wheat stocks in Chicago proper are at their lowest level since 2007/08.  An improvement in SRW export competitiveness has helped draw those stocks down and reduce variable storage rates.  HRW wheat stocks fell 490,000 bushel last week to 100.591mbu which is 4.559mbu below a year ago.  MGEX stocks fell 144,000 bushels in both Duluth/MPLS last week to 15.741mbu which compares with 22.521mbu a year ago.  The K/N averaging period for the next VSR calculation period is underway with 11 of the 29 settlements in the books.  KWK/KWN is averaging 41.2% of full financial carry while the WK/WN is averaging 39.1%.  Chicago wheat is already at the minimum allowable storage rate of 0.165c per day and cannot be reduced even if the average ends up below 50% of financial carry.  KC on the other hand can reduce storage rates by another 3c/mo from 8c/mo to 5c/mo and be even to Chicago.  It would appear this is going to happen.

The deliverable stocks discussion leads into the 2019/20 SRW balance sheet discussion which will face growing scrutiny in coming weeks/months.  As things stand today, we see 2019/20 ending stocks of SRW around 152mbu vs. 163mbu for the current marketing year and would be the lowest since 2013/14.  We are currently using a 65bpa national average yield which is essentially the 5-yr average.  If we bend this back to a 63bpa yield as we had last year, our ending stocks fall to 142mbu.  For demand, we are assuming domestic demand is unchanged next year while exports fall 20mbu to 110mbu.  Both demand line items could be reduced it can be argued, which we have no problem with.  One of the real questions is whether planted acres or harvested acres fall further?  We are currently using an 81% harvested percentage which is the 5-yr average.  However, each of the last two years, harvested percentage fell below 75% with arguably better early season conditions than we are facing this year.  If we see harvested percentage fall to 75% or less, ending stocks begin closing in on the lowest level since 2007/08.  Lots of conjecture in this paragraph, but it feels like these are the questions the market is beginning to ask.

USDA Ag Attache to China released his initial thoughts on the 2019/20 balance sheet for soybeans yesterday, pegging imports for 2019/20 at 91.5MMT vs. 88.0MMT this year.  The growth is encouraging as the current year’s reduction in imports is the first in close to 15 years.  However, we remain a bit skeptical of returning to import growth considering we don’t know how bad the African Swine Fever situation actually is.  If culling ends up being in the 30-50% range like some are positing, then finished meat imports might surge while grain protein suffers.  So many unknowns to this story, but the one universal theme seems to be even China doesn’t know how bad it is yet.

Bottom Line: Lots of trade talk this week with negotiators meeting in Washington while European Union discussions could get restarted soon.  In addition, tariffs continue to be cut for TPP-members into Japan while they remain in place for the United States.  We are fighting trade battles on multiple fronts, and it could be argued, aren’t winning any of them at the moment.  Let’s not forget, the USMC still hasn’t been ratified by Congress and President Trump is threatening to shutdown the border with Mexico.  Lots of balls in the air.  Let’s hope this administration is good at juggling.

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.

4/1/2019 Morning Comments

Good Morning,

More encouraging comments from the weekend trade talks in Beijing, although we didn’t see anything with substance as the talks shift back to Washington D.C.  Still plenty of subterfuge from both sides as one suggests a deal is close while the other side is said to be preparing for many months of ongoing discussions.  We’ve made our feelings on the issue quite well-known with a deal likely to involve significant Ag purchases of goods China was already going to buy anyway.  In return, the U.S. will drop or cut some tariffs while keeping others in place in exchange for a bit better access into Chinese markets.  At the end of the day, the relationship between the two countries will probably look little different than before the trade row began.  The trade war and the border wall are the pivotal pieces of the Trump Administrations tenure and losses on both cannot be afforded heading into 2020.

Weather maps from the weekend look quite favorable for the Midwest as this morning’s GFS shows moderate to heavy rainfall across the eastern plains, midsouth and eastern corn belt.  Totals will be heaviest in the Delta with up to 3-5” amounts expected.  Temperatures will also continue their warmup with weekend models suggesting above normal temps are far as the eye can see, especially in the 8-14 day with sharply above normal temps.  This kind of heat is exactly what is needed to warm soils and allow farmers to prep seed beds.  Precip also looks to keep moving through which is encouraging even if many areas don’t need it.  Above normal precip is expected for the majority of the Midwest in the 6-10, 8-14 and week 3&4 outlooks.

Markets are higher this morning across the board with the exception of Minneapolis wheat as our markets try to bounce from Friday’s selloff.  The USDA reports were universally bearish with maybe the exception of soybean and wheat acres, although we are taking almost everything on the acreage report with a grain of salt at this juncture.  The important data was the stocks report, and that was overwhelmingly bearish, especially for corn.  The stocks number was so big it has many questioning whether the December 1 stocks report had issues with it thanks to the government shutdown.  Another possible explanation was the amount of corn harvested after December 1 was larger than usual and didn’t get counted as “stocks” on the last report.  As we will point out below, the implications from Friday’s report are large and should change the fundamental landscape of the corn market for the next several months.  Friday’s corn volume was the largest on record at 1,127,803 contracts changing hands based on preliminary data.  Open interest changes on report day saw corn up 21,911 contracts, soybeans up 12,860, meal up 120, oil up 4,755 contracts, HRW 2,538 and SRW up 245.

Looking at the stocks report, March 1 corn stocks came in at 8.605bbu, up from the average trade estimate of 8.335bbu and just below last year’s record 8.892bbu.  The upside miss was the second largest on record for the March report since 1989, and implied Q2 feed/residual at 1.174bbu which was down from last year’s 1.503bbu and the second lowest on record.  This is the piece which had the market scratching its head as the last five years have seen Q2 feed/residual use in a very consistent grouping.  The curve ball definitely came from somewhere, but we may not know what the culprit was for several more months.  With herd sizes larger than a year ago, and feeding margins mostly favorable during the quarter, it just doesn’t make sense to see the second lowest feed/residual demand in 30-years.  The accounting of the SIAP report always leaves the door open for wild swings.  Another way to view this “surprise” 270 million bushels we didn’t know we had is that this corn supply is the equivalent of “adding” 1.5 million planted acres of corn at a 91% harvested rate.  This means one could look at the 92.792 million acres the USDA says we are going to plant could either be 94.192 million acres or would allow actual acres to drop to 91.392 million without changing the current supply outlook.  It is a heck of a beginning buffer against any yield adversity this summer.  The revised supply estimates has 2019/20 balance sheets pointing toward 2.0-2.4 billion bushels of ending stocks next year which would argue for less than $4.00 new crop corn futures.

Stocks of soybeans and wheat also came in above average trade estimates by 33mbu and 36mbu, respectively.  This will probably lead to USDA cutting wheat feed/residual use further on the April WASDE, which could come in addition to another export revision.  Wheat ending stocks should end up close to 1.1bbu for the third straight year.  USDA most likely leaves soybean demand estimates unchanged this month, especially if Census Crush data out later this afternoon does not surprise.  The soybean balance sheet has a bit of breathing room, but ending stocks will still be dependent on actual exports which are running behind the pace needed to meet current estimates.  At the end of the day, there is nothing fundamentally supportive about a 2.0bbu carryout in corn, a nearly 1.0bbu carryout in soybeans and 1.1bbu carryout in wheat.  We are back to counting on yield adversity this summer to support prices and clear excess supplies.  This is not a comfortable position to be in already with spring planting just about to begin in the southern tier of the Midwest.

One can’t pick and choose which data points they like and don’t like from Friday, but we did like to see the drop in ‘other’ spring wheat acres to 12.830 million vs. 13.419 million expected and 13.20 million a year ago.  This should result in 12.35 million acres of hard red spring using past relationships, and with an average yield of 46.0bpa would give us production of 551mbu vs. 587mbu a year ago.  Total supplies would grow, however, to 900mbu on the nose vs. 850mbu last year.  We are still using domestic demand of 290mbu which would be up 15mbu from a year ago.  Export demand is called 290mbu vs. 275mbu a year ago, although we don’t feel particularly good about either of those demand figures on April 1.  Economics say the only way we increase demand from a year ago is with lower prices.  Our current ending stocks would be implied at 314mbu vs. 289mbu a year ago with a stocks/use ratio of 53.65% vs. 51.57% a year ago.  Both carryout and stocks/use would be the largest since 1987/88 and 1991/92, respectively.  Suffices to say the HRS balance sheet could stand to “lose” a few more acres to late planting or crop rotation.

The other takeaway from Friday which has everyone talking is the shrinking acreage pie.  Principle crop acreage is expected to decline to 315.352 million acres, down another 4.226 million from last year and the lowest since 2011.  Our question is where these acres are going?  CRP enrollment is expected to increase, while several other “set-aside” type programs will take additional acres as well.  In addition, Prevent Plant acreage last year of 1.8 million acres was half the 5-yr average and the lowest since the 2012 drought.  With this year’s flooding, it is quite likely acres in that category will rise.  Still, we remain a bit apprehensive the total acreage pie could be larger with acres available to multiple crops.  To be clear, total crop acreage needs to decline in order to help clear excess supply we are currently lugging around in corn, soybeans and wheat.  However, producers always count on their neighbor to take acreage out of production and to do the “right thing” while they are free to try and outproduce their way out negative margins.  Something to keep an eye on as we move into spring.

Bottom Line:  Markets want to bounce following contract lows on Friday in futures and spreads which is probably reasonable.  The hangover from the stocks report will be with us for quite some time and will cast a negative light on our markets heading into spring planting.  We can’t trade acreage numbers before a single wheel has turned so don’t kid yourself about what our markets are paying attention to.  While the pictures of ripped open grain bins and flooded acreage are devastating to look at, they usually represent a much smaller percentage than what they appear.  How have your marketing targets changed since Friday or have they at all?  Seasonality still says we will get a chance at higher new crop prices this season.


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.

3/20/2019 Morning Comments

Good Morning,

Financial markets waiting for some details from the latest round of U.S.-China trade talks taking place in Beijing.  Secretary Mnuchin said the two sides enjoyed a “productive working dinner” on Thursday evening, but earlier in the day, President Trump’s top economic advisor, Larry Kudlow, said talks could continue for months.  This type of back-and-forth between top advisors to the President is what has traders’ patience wearing thin.  One minute a deal is close at hand while the next we are being told to prepare for months of continued talks.  We were told earlier in the week that today’s meetings in Beijing and next week’s in Washington would be pivotal to a deal being struck.  If the can is kicked down the road once again, which it appears it may, put the “out to lunch” sign on the door and pay attention to something else for a while.  The fear in our opinion is that a deal will be struck, it will include large purchases of farm commodities which China needs to buy anyway, and little will be done in the way of the more serious economic reforms this trade war was started over in the first place.  A grand, 12-month circus which lands us right back where we started.

Some moisture in the southern plains and eastern corn belt this morning which will keep the wet conditions and flooding in place.  Snow continues to melt across the upper-Midwest with 36.4% of the land area covered by snow vs. 98.3% last month and 57.2% last year.  Average depth still present in the upper-Midwest is called 2.4” vs. 4.2” a year ago, and 2018 saw heavy snow fall which by mid-month.  Still expecting heavy rain in MO/IL/E-KS the next 24-36 hours which moves out by the end of the weekend.  The Plains stay mainly dry the next week while the eastern corn belt will see a couple rounds of precip by midweek.  Extended maps from NOAA show temps mainly normal to slightly above while precip remains normal/above during the 6-15 day period.

Mixed markets this morning with the soy complex holding small gains and grains trading softer ahead of the next round of USDA reports.  Worth noting, canola futures are setting highs for the session as we close in on the seven ‘o clock hour.  We haven’t seen any updates to the China-Canadian trade row which resulted in China essentially banning all canola and canola product imports.  No fresh news from the trade talks in Beijing to speak of, although Reuters did report China buying 1.5 MMT of U.S. soybeans for July/August shipment yesterday, citing cash sources.  The purchase would be encouraging provided China begins to actually take some of the beans they’ve purchased.  The export sales report yesterday showed dismal soybean sales, so some large-scale purchases to China would be greatly appreciated.  We’ve been fearful over a bearish stocks report for all major commodities on today’s report given the awful logistics present in February.  The data is as of March 1, so the even worse logistics in March would not have affected stocks levels.  Acreage estimates should be largely cast aside as the data will have limited value after the flooding and economic differences vs. March 1.  Open interest changes yesterday saw corn up 5,646 contracts, soybeans up 1,650, meal down 612 contracts, oil down 3,677 contracts, SRW down 738 and HRW up 898 contracts.

Data yesterday included export sales which were a mixed bag.  Wheat sales were solid at 17.5mbu vs. the 6.7mbu needed weekly to hit the USDA forecast.  Total commitments of 867.8mbu are up 4% from a year ago while the USDA is calling for a 7.1% increase y/y.  However, as inspection data has been pointed out, actual export shipments of 654mbu are down 3.5% from a year ago, a 10% swing from where the USDA expects exports to finish.  There are only 10 weeks left in the marketing year, so another cut to the USDA’s export forecast appears likely.  Corn sales totaled 35.6mbu vs. the 26.3mbu needed weekly with total commitments of 1.679bbu down 8% from a year ago. The USDA is only calling for a 2% decline in export sales from a year ago which could prompt a cut to their forecast next month.  Soybean export sales were awful at 6.7mbu vs. the 15.4mbu needed weekly.  Total commitments of 1.531bbu are down 17% from a year ago while the USDA is calling for an 11.9% decline from last year.  Here again, every reason to think USDA could cut their export forecast on a future report and domestic demand isn’t strong enough in corn, wheat or soybeans to offset the cuts.

USDA also reported on the hog herd yesterday, calling the March 1 hog and pig level up 102.1% from a year ago vs. the average trade estimate of 102.0%.  The 74.296 million hogs and pigs as of March 1 is an all-time record and is over 10 million hogs larger than 5-years ago.  Lean hog futures continue to soar even with the larger inventories as all signs point toward China needing to make large scale purchases of finished pork from the U.S. as their African Swine Fever situation gets worse.  Whether a rising tide lifts all boats remains to be seen, but this level of protein shortfall in China should be supportive to the entire protein complex and eventually feed demand.  Swine kept for breeding came in at 102.2% vs. 101.9% expected while kept for marketing totaled 102.1% vs. 102.0% expected.  The Dec-Feb pig crop was 102.8% of a year ago, pigs/litter was 101.1% of a year ago and Dec-Feb farrowings were 101.6% of a year ago.  Mar-May farrowing intentions were 100.6% while Jun-Aug intentions were 99.7% of a year ago.  If the data can be taken at its word, the herd size should continue growing this quarter but slow this summer, although continued gains in price could change intention ideas quickly.

We said above the acreage ideas will have limited value given the weather over the last 30-days.  That said, it is still fun to play around with balance sheets to see what different scenarios look like for 2019/20.  The average trade guess for “other” spring wheat acres is 13.419 million acres vs. 13.20 million a year ago.  Using average relationships between “other” spring wheat and hard red spring wheat acres, this should give us around 12.90 million HRS acres vs. 12.709 million last year.  If we use an average yield of 46.0bpa, production would be around 575mbu vs. 587mbu a year ago with total supplies surging to 924mbu vs. 850mbu a year ago.  Total supplies at that level would be the largest since 1987/88.  While USDA tends to increase demand in years of large supply increases, it is difficult to move demand up too much higher than 2018/19.  Nonetheless, we bumped domestic demand by 10mbu and increased export demand by 15mbu, even though Canadian export competition should remain stiff in 2019/20.  Doing all of that, carryout comes in at a bulging 339mbu, the largest since 1987/88, and only the second time stocks/use has been over 50% since the early 90’s.  At our yield of 46.0bpa, acres need to drop by 900,000 acres from a year ago to see carryout unchanged.  If acres do come in at 12.90 million, yield would need to fall 5bpa from last year to the second lowest since 2011/12 to have carryout unchanged.  As one can see, the HRS market has its work cut out in 2019/20.

Bottom Line: Let’s get the data from the USDA out at 11:00 and go from there.  Lots of time until planters roll in the Midwest, but no reason to sound alarm bells just yet.  If stocks come in above expectations as of March 1, and carryout ideas are increased, one needs to remember this is the equivalent of planting more acres.  Logistics are improving but still slow.  Remains to be seen if we can make up the lost demand from the month of March.

Good Luck Today.

Tregg Cronin

Market Analyst

Tregg.Cronin@halocommodities.com

www.halocommodities.com

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