Morning Commentary

May corn down 2 ¾ at $3.44

May beans up ½ at $8.5575

The DOW is down

USD is stronger

Crude oil up $.19 at $66.08

Good morning,

Corn bulls continue to point towards significant planting delays in many key growing regions, unfortunately the trade remains non-responsive! Funds continue to keep their bearish stranglehold on the market, pointing to a greatly improved South American crop compared to last year, weakening demand for the U.S., and recharged soil moisture. Argentine production last year was 32 MMTs compared to estimates this year for 47 to 48 MMTs. Brazil’s corn production last year was 82 MMTs compared to estimates this year for between 96 and 98 MMTs. In other words, Argentina and Brazil combined could produce an additional +30 MMTs of corn. Keep in mind, the entire nation of Ukraine only produced 24.1 MMTs of corn last year. Here at home, there’s continued talk that the USDA might have to trim their export estimate further as well as feed and residual. In huge volume, preliminary open interest rose another 9,000 lots.  Open interest is now at new calendar year highs.  The trade count had the fund selling 22,000 corn.  They’re now thought to be record short via the CIT report at 399,000 lots on a futures and options basis.  The trend is negative.  An inability to recover over 351.25 on the weekly chart should lead to a test of the 343.5.  Stable action over 370.75 is needed to provide fresh upside targets.  

Soybean price are up a bit this morning, but have fallen about -25 cents this week. The JUL19 old-crop contract is closing in on fresh new contract lows. Bears seem content pressuring prices lower and bulls have little in the way of fresh or new headlines to keep them at bay. Most all reports out of South America show a stable crop with little in the way of wide-spread weather risk. It sounds like the Brazilian harvest is getting close to being finished, while the Argentine harvest is closing in on 40% complete. Headlines involving China continue to talk about African Swine Fever and the impacts on meal demand. At the same time there seems to be continued delays and negotiations with the Chinese in trying to work out the best trade deal. In above average volume, preliminary open interest rose 7,300 lots.  Open interest is now at the highest level since late October.  The trade count had the fund selling 10,000 beans.  They’re now thought to be short 151,500 lots on a futures and options basis which, if correct, would be a new record.  The trend is negative.  Our intermediate target at 856.5 was achieved Wednesday.  An inability to bounce from 856.5 on the weekly chart implies a drop to 840.5.  Stable action over 890 is needed to provide fresh upside targets

China’s biggest pig and poultry producer, Wen’s Foodstuff Group, said on Wednesday it recorded a loss of 460.5 million yuan ($68.6 million) for the first three months of the year as weak hog prices eroded earnings and it spent more on protecting its herds from disease. The firm, which produced 22 million pigs in 2018, reported a profit of 1.4 billion yuan in the same quarter a year earlier. Also on Wednesday, Shandong Yisheng Livestock & Poultry Breeding, Asia’s largest breeder of white-feathered broiler chickens, said its first-quarter profit rose to 36 times the year-earlier figure at 381.9 million yuan as prices for breeding birds surged. The diverging fortunes highlight the dramatic shift taking place in China’s farm sector, triggered by an outbreak of the worst swine malady ever to reach the country. (Source: Reuters)

Walmart is entering the U.S. beef industry by creating an end-to-end supply chain of Angus beef, as it looks to offer higher quality meat to customers in an intensely competitive grocery industry. The world’s largest retailer said they have contracted with several farmers to supply it with a selection of Angus beef cuts such as steaks and roasts to be sold in 500 Walmart stores across a number of states in Southeast. (Source: Reuters)

The cost of severe flooding in the Midwest continues to rise as Missouri Gov. Mike Parson is expected to request a federal disaster declaration for flooded areas of northwestern Missouri, just downstream from parts of Nebraska and Iowa inundated by floods. (Source: KCUR) Iowa and Nebraska last month reported a combined $3 billion in damage to farms, businesses and infrastructure, and unofficial damage estimates have risen since then.

No doubt there will be some long lasting effects for China’s feed and grain sectors once we get the current bout of ASF behind us. But in a recent report from the USDA Foreign Agricultural Service (FAS), it was determined that prices for feed stock stand to be affected more by political risks than from the impact from ASF. According to the report the impacts of ASF on China’s feed sector are forecast to stabilize in late-2019, weakening feed demand in MY2018/19 and recovering in MY2019/20. I suspect that the emergence of African Swine Fever will prompt further consolidation of China’s hog sector to meet the soon to be heightened government biosecurity requirements. Keep in mind that China’s central government has already been using environmental policy measures to re-direct hog production. For instance, since 2015, officials have been moving operations into grain production areas in North East China, keeping operations further away from major population centers. Looking to South China, feed mills will shift from manufacturing hog feed formulations for small hog production operations to producing aquaculture and poultry feed, thus increasing the efficiency of feed use in the hog sector. Looking ahead, experts tell us that under normal circumstances, swine industry restructuring and adoption of new genetics takes about 30 months. However, China’s ASF situation is unprecedented in complexity, scale, and scope, meaning there is no telling how long before things return to “normal”. I’m told Rabobank estimates that ASF has affected 150 million to 200 million pigs, which is nearly 30% larger than annual U.S. pork production and equivalent to Europe’s annual pork supply. The firm believes this will result in a net supply gap of almost 10 million metric tons in the total 2019 animal protein supply, which could be a leading driver of recent pork import announcements. Remember, it was just under two months ago that China made its biggest purchases of U.S. pork in nearly two years, despite import tariffs of 62% imposed by China on U.S. pork as a consequence of the trade war between the two countries. Hopefully for U.S. producers, more orders will flow our direction. (Source: USDA GAIN)


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