Good morning everyone. This being a much ballyhooed USDA report day, I thought I would share my Morning Commentary/Report Preview. Those of you new to my analysis will quickly see I have little use for USDA's nonsense, preferring instead to focus on real fundamentals (cash price, basis, futures spreads, forward curves, etc.). Yet here we are, with the bulk of the industry wetting itself in anticipation of the release of the latest set of imaginary numbers. Given that, let's look at what we know about reality.
Morning Summary: Well, we’ve reached the annual landmark day when USDA releases its fourth first look[i]at 2024 planted area and production guesses. Of course it isn’t hyped that way by folks in the industry, for if it was how would they get people to trade the numbers? After all, one of the main functions of these reports is to generate trade volume. Another fact few want to talk about. Anyway, by the time we reach Friday’s closing bell the grain markets will be focused on extended weather forecasts. Overnight trade saw the Grains sector higher across the board, similar to Thursday, with winter wheat once again leading the way. It seems headlines surrounding Russian production losses have more of an effect on overnight algorithms before interests fades with the dawn of a new day. Naturally, I see the connection between Vlad the Impaler (Dracula) and Vlad the Invader (Putin). The key to this morning’s market action is to keep in mind it tells us nothing about where markets might close today. Also, with Friday being a report day, two market functions come into play: The Wilhelmi Element (The only price that matters is the close) and the Goldilocks Principle (Daily charts are too hot, monthly charts are too cold, but weekly charts are just right).
Corn: Similar to yesterday morning, the corn market was sitting quietly higher after posting an overnight rally. July gained as much as 4.0 cents, on trade volume of less than 16,000 contracts, and was up 2.75 cents at this writing. Am I looking for old-crop corn to change fundamentally from Thursday’s close to today’s settlement? No. In fact, we can go back to the end of April and see what real supply and demand was at the time: The National Corn Index (ICY00) came in at $4.24 putting available stocks-to-use at 12.5%, slightly tighter than the end of March $4.18 and 12.6%. Thursday evening saw the NCI at $4.33 with as/u of 12.3%. We also know export demand had firmed during April with the projected export pace (based on weekly shipments) increasing from 2.008 bb to 2.076 bb. Given this, there isn’t much need for USDA to increase its export demand guess of 2.1 bb. As for futures spreads, the end of April had old-crop July-September at a carry of 9.0 cents and covering 40% calculated full commercial carry (cfcc) as compared to Thursday’s close of 10.5 cents and 46%. Looking at new-crop, the December March futures spread covered 42.5% at the close of April and 39% Thursday evening.
Soybeans: Also similar to 24 hours ago, the soybean market was showing a modest gain on moderate-to-light trade volume. July (ZSN24) rallied as much as 5.0 cents overnight while registering 18,300 contracts changing hands and was sitting 4.5 cents higher at this writing. As always, there is a chance the US was making some export sales to Eastern Hemisphere buyers overnight, though we have seen many daily announcements or much accumulation on weekly updates, other than an uptick in interest from unknown destinations[ii]. What am I looking for today? Most of the attention and angst will be centered on South American production estimate changes and what those might mean for US demand. At the end of March, the US was on pace to ship 1.71 bb of soybeans this marketing year, with that number slipping to 1.7 bb by the end of April. It could be noted the 1.7 bb was also what USDA projected in its April round of supply and demand guesses. As for new-crop, the November-January futures spread closed last month covering 38% cfcc while Thursday’s close at a carry of 11.5 cents covered 37%. In other words, not much has changed.
Wheat: Closing out the Grains trifecta of being similar to Thursday morning, we have the trifecta of the wheat sub-sector itself. All three markets were posting solid double-digit gains, again, after struggling to close higher yesterday. July Chicago (SRW) rallied as much as 22.5 cents overnight on solid trade volume of 19,600 contracts[iii] and was sitting 17.25 cents higher at this writing. July Kansas City (HRW) added as much as 21.75 cents overnight and was still up 19.25 cents, while July Minneapolis (HRS) was showing a gain of 17.25 cents to start the day. Do I think wheat fundamentals have changed dramatically? Yes I do. They have gotten more bearish over time. At the end of April, the Chicago July-September futures spread covered 77% cfcc (based on post-Variable Storage Rate numbers) while the same spread in Kansas City covered 68%. Fast forward to Thursday’s close and we see the Chicago edition covering 81% while Kansas City covered 69%. That being said, I still find it interesting that from a technical point of view, SRW wheat has actually grown more bullish with both the National SRW Wheat Index (IWY00) and Teucrium WEAT (WEAT) fund posting new 4-month highs already during May
[i] As always, by the time we get to the May USDA report day we have already seen: 1) USDA’s baseline numbers 2) USDA’s Annual Ag Forum slideshows and 3) USDA’s Prospective Plantings silliness.
[ii] This group added 168,800 mt (6.2 mb) of soybeans for the week ending Thursday, May 2.
[iii] It’s not often we see Chicago wheat with more trade volume than either corn or soybeans.
On the date of publication, Darin Newsom did not have (either directly or indirectly) positions in any of the securities mentioned in this article. All information and data in this article is solely for informational purposes. For more information please view the Barchart Disclosure Policy here.
