This Week in Grain – AM Commentary 2/9- WASDE DAY

Good morning friends!

Corn (H17)  369’2   -1’4

Soybeans (H17) 1053’2    -5’4

Chi Wheat (H17)  430’2  -2’2

KC Wheat  (H17)  439’4   -2’4

Cotton (H17)  75.47   +.22

USDA will release its Feb WASDE today at 11 am central.  This report is not a major market mover in most years as it is a precursor to the more important acreage numbers and stocks reports that come at the end of Feb and March. That said, the US carryout in corn and beans will probably see some adjustment. In the case of corn, I expect carryout to fall modestly.  Soybeans probably do not see much change in US carryouts.

Other than WASDE, CONAB came out with their Brazillian projections at around 6 am central this morning.  They projected the Brazilian corn crop at 87.4 mmt on approx 11 mil hectares. 28.8 for 1st crop, and 58.5mmt for 2nd crop. You are going to see headlines like this today, BRAZIL CORN CROP UP 30% FROM A YEAR AGO! But dont be fooled, while tthis number comes in just a  above expectations and less than what they produced a few years ago.  Last year was a brutal growing year for Brazil so this is just the rebound.  In soybeans, the number was a little more bearish with the soy crop estimated about 2-3 MMT higher than expectations, coming in at 105.6 MMT.  This makes up for the losses out of Argentina.  Rosario grain exchange estimated Arg bean crop near 54 MMT, down from earlier estimates near 58 MMT. These are large numbers, we are looking at 6MMT more soy produced from Brazil and Arg than a year ago. I assume the USDA follows today, so world numbers may creep higher in soy.

Both CONAB’s soybean and corn production estimates are slightly larger than the average trade guesses, and considered slightly bearish.  China’s soymeal trade remains on fire with solid interest from end users. Dalian corn finished higher overnight with May DCE corn gaining 8 yuan (3 cents/Bu) to settle at 1,608 yuan/MT ($5.93/Bu). Word is spreading China has been really active in the soy markets from SAM.  So active that their offers are now above US port offers.  In Dalian corn, the market has awoken after a substantial sell off over the last two years.  If Chinese corn markets rally, I expect the US to follow (see chart at bottom).

WASDE for wheat is not really that big of a deal today for US production as we are a month away from yield updates, but we could get some world adjustments. Russia news came out that their production for this year will be about 7% less than a year ago as Russian offers are 10$ higher than a year ago.  I think wheat is setting up to make a move but again, it might be a little early.  Delivery periods have brought about price weakness and I have to imagine that happens again.  I plan on buying more July on breaks.  If you sold March I encourage you do the same.  If I sell March KC wheat around 440, then I would try to buy May at that price on a break to try to eliminate storage costs.

Cotton WASDE will be very important given the structure of the trade.  The market is record long and we sit right at summer highs (not taken out for Dec 17 yet).  Tech longs may try to push through it, but without a bullish WASDE I don’t see it. Below is a chart from our boy Payne Sharpley from Texas Tech.  He sent me this last night.  The dates are cut off from the bottom but you can get the drift of the range of stocks to use in cotton over the last decade.

There remains consistency in the weather forecast models for South America. Heavy rain slated to drop across N Brazil while Argentina is dry before another round of heavy rain returns on Friday and the weekend. N Brazilian rainfall estimates range from 3-10.00” while N Argentina could again have to endure rainfall of 4-8.00”. The southern 2/3’s of Argentina look to receive .25-1.75” which would be favorable for row crops. No extreme heat is being seen at this time.

It is really interesting to see the board taking this bearish SAM news is stride. Markets for row crops appear to be very in demand right now. Commercials want to assure needs are met at these prices for the summer and funds appear to be willing investors.  Wheat should benefit from this at some point.  The chart below of Dalian (Chinese) corn is what gets me the most excited.  No, China is not importing much corn right now but according to USDA they sit on almost half of the worlds supply (I call BS) so if prices rally there, we could see a rising tide lift all boats.