Good morning friends
US row crop markets are higher across the board as I walk to work with 2 inches of snow on the ground here in Chicago, two weeks into the month of April. Corn and soybean prices have erased all of the selling that had taken place starting at 3 am on Wednesday morning as the Chinese were releasing their list of new import taxes. Corn is trading at 415 December, up about two cents from Friday’s close. November soybeans are trading 1044, up a dime from the weekend break. May futures are now trading 7 cents over November, counter to where we were late last week when May and July futures were under November. KC wheat is up 6 cents to 531, down from last nights high near 537. Cotton markets are not being left behind either as May trade above 83 cents and December futures trading back above 78.
Markets have shrugged off longer term demand input and instead are focusing on short term weather threats and the idea that data from tomorrows WASDE in the case of corn and soybeans, will support a story of a global shortfall from a lack of South American production while in cotton we will see increased demand factored into the balance sheet. Wheat will need to wait a month before we get estimates on yield, but will get another round of crop progress numbers this week after zero rain through almost all of last week in the parched KC wheat regions. WASDE will be the price driving theme through mid week before FOMC news and other central bankers comments will take the center stage as we get into the back end of the week. It will be interesting to see how far traders push bullish fundamental supply news given the idea China will likely strike back from the 100 bil of tariffs put on China by the US late last week.
Friday’s commitment of traders showed funds short 73,000 contracts of Chi wheat (down 5,000), long 140,000 corn (up 23,000), long 181,000 beans (down 3,000) and long 73 k of cotton (down 4 k). The markets remain set up with significant length built into the market, especially in the case of cotton and soybeans as they have both been approaching record length in the last few weeks. Corn markets are substantially longer than they have been in recent years but are not close to where they were two summers ago. Wheat markets remain the only net short in the row crop complex. The ability for the market to liquidate like it did last week on negative news is a risk. Producers should be working with puts on in the least given the recent news flow.
Soybean markets are trading just off the highs from a few weeks back. To add another leg to the move higher, we probably need to see tomorrows report disappoint due to lower production from Argentina and Brazil. Private forecasters have been in the 115-118 MMT area for Brazil over the last week, up from the last report when the USDA was at 113 mmt. In Argentina forecasters are lowering numbers to the 37-39 MMT area, now almost 10 MMT under where the USDA was back in March when they projected 47 MMT (they started at 52 MMT). CONAB will be out tomorrow morning early to set the tone. Dalian (Chinese) soybean prices are on the move higher this morning. US soymeal export sales are starting to grow weekly and should continue to do so as we begin to see the problems from Argentina’s poor crop come into the lexicon after the initial harvest wave is over. I do not look for new crop beans to make much of a push above those highs this week, it is still too early to get worried about US planting weather. We have entered a seasonally bullish period for old crop beans between now and the end of April.
Corn markets are making a run at last week’s highs this morning. The last few weeks, we have seen weekly highs scored on Sunday night, only to fall apart as the market gets liquid into the week. Corn did not make a new high last night, but it got close. Corn fundamentals in the near/medium are supportive and feature delayed seeding in the Midwest, a worsening Plains drought, competitive Gulf offers (and thus the need for USDA to raise exports), and higher minor feed prices like oats and barley. Brazil is starting to trend drier as almost half of Brazil’s second crop corn corn looks to be much drier than normal over the next two weeks. The sandy soils of south central Brazil are sandy and can get dry quickly, whether the dry season has arrived early in Mato Grosso do Sul & Parana demands close watching. To get the market to trade on a run to 450 and beyond will requires a problematic US weather story, I do not look at planting delays as a major story yet. But I think we will see a 420-430 range (last summers highs) as corn tries to get acreage. The 88 million acres will underpin support all year. I expect tomorrow’s WASDE to bullish due to global factors, while the US old crop stocks picture will see its highest number of the summer. Use breaks to buy calls. I find little reason to be aggressively hedged right now in old or new crop corn.
Wheat markets will remain on bid as long as weather out west stays dry. We will not get new crop production numbers of any importance in tomorrows report. A few showers hit the drought stricken western plains on the weekend with totals ranging from traces to .50”. The rain fell well short of amounts needed. Bitter cold produced acute stress on wheat Saturday morning and crop conditions are expected to decline slightly this afternoon. The forecast offers limited rainfall chances for the S Plains over the next 10-14 days. Cold/snows across the Dakotas/Upper Midwest will persist with any warming to be brief and confined to late this week. Additional chill is expected in the 8-14 day period as April looks to be in the top 5 coldest since 1895. Wheat is in a seasonal bear period through April, but I doubt that matters much right now. Yield uncertainty and relatively low prices to cost of production in wheat is having some folks in Kansas I work with think twice about top dressing. The market for HRW will remain strong until we get some sort of yield certainty. If that yield is decent, then we probably fall back into the high 480’s for July KC. Until then the market may feel a need to run back to recent highs at 560. I would be a seller of new crop JULY 19 KC wheat if prices would get into the 600-620 range. Producers should get hedges ready. July 19 puts are very thin right now. Look at March 19 of next year if you want to get something started.
Cotton markets remain on fire when it comes to exports. The media doesn’t seem to be pushing the cotton fear story as much as soybeans, maybe that says something about the cotton lobby. 25% of exports for this marketing year will go to China. The market remains unfazed to it. New crop cotton futures are going to have a hard time getting out of this range until it either rains in West Texas or they begin to plant in the drought. Right now there is little yield concern to get the new crop moving higher. The demand is solid, but we should see increased Southern hemisphere production this year along with more US production due to higher acreage. Tomorrows WASDE should be supportive given the idea the USDA is going to need to increase old crop demand higher by at least 750 K bales, if not much more. Right now every additional old crop bale of cotton sold adds to the export numbers as we are now 105% sold for the year with a whole quarter left to play.
There is hope this morning China could announce market access reforms on Tuesday. Chinese President Xi Jinping is expected to give a speech that could help the US and China mend its trade frictions. The question is how specific Xi will be on market reforms and whether he offers a tangible way forward on intellectual property theft. This appears to be the issue right now. After a week of watching this trade war play out, it feels to me in my attempt to be unbiased that the US has the upper hand. Think of it this way, on which side of taxation would you rather be. The side that produces much of the global food supply or the side insistent on continuing to produce fake Nikes. It doesn’t feel like a tenable position for China to continue to push the envelope in this fashion. They need the US consumer much more than the media and commodity trade groups are letting on. Still, this is a long term game of chess. The media is covering it like checkers, don’t let the short term winds blow you around.
Guide to USDA Grain Reports
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