Weekly market review
The Midwest has seen many road closures and blockages as the massive amounts of water fill rivers and tributaries from excess rains and snowmelt. Comparing this spring and 1993, when floods disabled much of the Midwest, the main difference was the timeframe in which the floods occurred. This year, issues occurred months earlier leaving many concerned of the damage to come from remaining snowmelt and normal spring rainfall. According to information from T-Storm Weather, the wettest conditions seen in the last 125 years in a 13-month timeframe are June-June of 1926-1927, and June to June of 2010-2011. Both of which led to massive flooding of the Mississippi River.
Their data states that the last 10 months, rainfall departures for the period of June 2018 to March 2019 will exceed the entire 13-month timeframe seen in 1926-1927 and 2010-2011. With the current conditions, flooding will become considerably worse unless we see a drier than normal April, May, and June. Hundreds of miles of levee systems were compromised and will need to be repaired in order to prevent flooding from happening again if we see above average rainfall this spring and summer in those areas affected.
Logistics will remain a large problem in Nebraska and parts of Iowa and South Dakota. River systems continue to swell as you move North, which could potentially cause more issues as the Dakotas had large amounts of snow last week. Railroads are also having a difficult time as flooding has been washing out stretches of tracks, and forcing them to shut down service without a definitive idea of when they will be available again. Ethanol margins saw a pop as the damage became more and more apparent when most of the ethanol plants in eastern half of Nebraska cannot rail anything in or out. The Union Pacific and the BNSF are the two major railroads that have received most of the damage.
Stagnate trade continues to describe the corn market. So far this year, the new crop December corn contract has traded in just a 19 -cent trade range. According to INTL FC Stone, the previous 5-year high to low trade range from January forward has averaged $1.19. When looking at the 10-year data, taking the highest range of 2012 and the lowest range of 2017 out, the average trade range has been $1.72.
The corn market continues to see the fund/spec trader holding a large short position. The commitment of traders report on Friday March 15th showed the speculative crowd a record short 258,000 contracts of corn. It also showed the commercial traders short 18,000 contracts, the smallest short position for the past year. This would indicate as improving basis levels have that the pipeline is getting very thin. Producer selling has been minimal with low prices and logistical challenges from snowstorms, cold temperatures, and now flooding and muddy roads have hampered grain movement during the past month. It is unusual for the speculative crowd to be this short going into the upcoming planting season. When the short traders exit those positions is anyone’s guess but they generally do not hold that large of a position for great lengths of time. This could add fuel to a rally if the futures market were to rally.
Export sales for the week ending March 14th for corn were near the high end of trades expectations and the weekly needed amount at 33.7 million bushels. Soybean sales were light of trade’s expectations at 14.7 million bushels. Wheat sales fell in the middle of the range of expectations at 7.2 million bushels. Export Inspections for the week ending March 14th were down for both corn and soybeans but still considered supportive. Corn inspections came in at 31.1 million bushels down from last week’s 56.7 million bushels. Overall, it is supportive since the pace remains above expectations, with Japan and Mexico being the top destinations. Soybeans were at 31 million bushels, with the pace still below USDA expectations but still higher than this time last year. The top destinations for soybeans were China and Egypt.
Uncertainty still surrounds the trade talks between the U.S and China, however chatter about trade talks with China continue. USDA Trade Undersecretary Ted McKinney stated progress is being made in the trade talks between the U.S. and China even though a deal will not be announced this month. The trade deal will include enforcement language to hold China accountable. Ag Secretary Sonny Perdue stated China has put some very attractive numbers regarding Ag purchases on the table but is waiting for a deal to be reached first.
The African swine fever issue in China appears to be far from under control. Many in the trade believe is has reduced Chinese hog feeding by up to 30 percent. The void in pork supply will likely be filled by imports from other countries, possibly the U.S. If realized, would be a boost for corn and soybean meal demand in the U.S. Last week, U.S. Customs and Boarder Protection Agency seized an illegal shipment of about one million pounds of pork that was coming from China. The smuggled pork was found in shipment containers at a New Jersey port. Officials feared the meat could possibly contain the African swine fever virus, which has been spreading throughout several countries. The pork is being tested before it is disposed of correctly. Several countries have been using dogs to sniff out the illegal pork, to help prevent the highly contagious disease from spreading into uninfected areas and countries.
The USDA will issue the planting intentions report on March 29th. Private forecasts are starting to surface with FC Stone at the smallest corn acreage estimate of 90.4 million acres, up only 1.3 million acres from last year. Forecasts for potential big corn acres are not surfacing as the trade expected early this winter. If that is the case, yields will need to be 5 to 6 bushels higher than trend line to keep the corn balance sheet from shrinking even with decreased demand.
As for soybeans, more and more thoughts of higher acres are coming from economics of corn on corn and flooding along both the Mississippi and Missouri rivers are pushing thoughts of a later spring. FC Stone’s acreage estimate at 87.7 million acres was the highest yet by privates in the trade. Assuming trend line yields that large of an acreage number does little to get ending stocks significantly under 1 billion bushels barring exports return to the level before the trade war began with China.
For more information, you may contact Adam Suntken at (712)-454-1061, or e-mail at firstname.lastname@example.org. The opinions and views expressed in this commentary are solely those of Adam Suntken. Data used in writing this commentary obtained from various sources believed to be accurate. This commentary is intended for informational purposes only and is not intended for developing specific commodity trading strategies. Any and all risk involved with commodity trading should be determined before establishing a futures position. Please visit our Risk Disclosure Page for more information on commodity trading.
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