6/7/19

Morning Commentary - 06/07/2019

Markets Slightly Weak Overnight; Consolidation Expected Ahead of Key Crop Progress Report Monday

AgResource Farm Marketing Advice for Friday: 1/ Corn Producers: Sell 20% of the estimated 2020 corn crop at $4.23. This would price 60% of the anticipated 2020 corn crop.                       

2/ Corn Producers: Sell 20% of the 2021 corn crop at $4.24 and 20% at $4.29 basis Dec 2021 corn futures.

6:30 AM CDT CBOT Futures: July soybeans are down 3.25 cents at $8.655, July corn is down 2.0 cents at $4.185 & July Chi wheat is down 6.25 cents at $5.0375.

Good Morning! Ag markets are a bit lower this morning ahead of the weekend, which should feature widespread planting progress across the Plains and Western Midwest. The GFS model is in much better alignment with its EU counter-part. A mix of rain, sun and variable temps is due in the next two weeks, but there’s agreement that the next round of meaningful precip will be delayed until next Wed/Thurs. Normal/above normal temps persist through the weekend.

The major data point ahead include today’s commitment of traders report, and then NASS planting progress as of Sunday. Weekly crop progress reports have evolved into major market evening – similar to WASDE reports – and with the return of rainfall probable in late June, Monday’s number is critical. Corn seeding estimates range from 80-85% complete, with soy seeding pegged at 55-60% complete.

Recall the season’s first corn crop rating will also be released next Monday. GD/EX will be well below recent years, but the trade is aware that ratings in June correlate poorly with final yield. But ARC’s is that the Monday’s crop progress will hold more market importance than the June WASDE, which will be released the following day.

Trade estimates of USDA US supply and demand are wide ranging. ARC cautions against expecting an overly bullish report. WASDE will be rather measured in accounting for historically adverse spring weather. And based on crop ratings in early June, a modest hike to US HRW production is anticipated. Of course the trade will largely dismiss new crop USDA production estimates and shift focus quickly back to planting progress and weather.

Managed funds as of this Tuesday are estimated to be long a net 33,000 contracts of corn, vs. a net short position of 21,000 the prior week. Managed money on Tuesday was also estimated to be net short 30,000 contracts of Chicago wheat, up 6,000 on the prior week, and net short 90,000 contracts of soybeans, down 40,000 on the week.

US tariffs on Mexican goods are due to take effect on Monday. There remains talk that implementation could be delayed or blocked by Senate Republicans. Political headwinds will be intact, however. US-Chinese relationship improvement remains isolated to a potential meeting at the G20 summit in June.

Volatility is the only certainty. But amid April’s US ag trade deficit, rapid harvesting in South America and uncertainty over trade barriers, ARC’s advice is to use near term rallies to add to sales. Major yield will linger in the background, but this won’t be a market focus until July.

AgResource Daily Cattle Analysis: CME cattle futures closed a bit weaker on Thursday and are called steady this morning. The market is in the process of forming a seasonal bottom, and lite fund liquidation this week has pulled future to ARC’s initial target

ARC estimates that funds since last Tuesday have sold a net 10,000 contracts in Chicago. Selling through the period has pared funds’ net length down to 50,000 contracts. Length acquired during adverse winter/early spring weather has been liquidated. ARC also mentions the forward cash market is right in line fundamentals, and so a bearish outlook is not advised at current prices. Concern over world trade will keep major rallies absent, but patience is advised with respect to adding to hedges. Beef prices on Thursday were very little changed.

North American Weather Pattern Discussion: The EU & GFS models are in much better agreement over the next 10 days. EU model output is consistent with prior runs. Confidence in the details of the forecast is rising.

Overall the coming weather pattern is mixed. A solid 6-7 days of dryness and near normal temps lie ahead. Even NOAA’s QPF keeps heavy rain into next Thursday confined to the Southeast and far Eastern Midwest. Substantial net drying occurs elsewhere, particularly across the Central Plains, MO and IA. Central US temps this weekend will be at/above normal. Highs will reach into the 70s & 80s.

The models are also in agreement that a moderate frontal system works across the W Midwest and Great Lakes June 13-14. Heavy accumulation is possible in IA & WI. Planting progress into the middle of next week is critical. EU model 6-10 day precip is attached.

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