Morning Commentary

July corn down 1 ¼ at $3.52

July beans down 2 ¾ at $8.10

The DOW is down

USD is weaker

Crude oil up $.0. at $61.73

Good morning,

Corn prices are steady as traders brace for the latest USDA supply and demand update, numbers will be released today at 11:00 CST. Prices in the JUL19 contract are down roughly -10% in the past 90-days and down close to -20% in the past 52-weeks. The new-crop DEC19 contract is down roughly -11% in the past 52-weeks. Bears continue to point towards the obvious: SAM producing +30 MMTs more corn; U.S. ending stocks extremely burdensome at +2.0 billion bushels; U.S. demand growth in question perhaps lower exports, feed and residual and ethanol estimates; Chinese trade uncertainty; U.S. drought concerns non-existent. On the flip side, bulls are betting on the wild-cards that are now in play: U.S. weather extremes causing major delays in planting, perhaps major acreage reduction and yield drag; Ongoing trade negotiations and perhaps a Chinese trade deal in the near future that brings larger U.S. corn purchases. The trend is negative.  A failure to hold 343.5 implies a probe below the 2018 low at 329.75.  Stable action over 366-69.5 is needed to provide fresh upside targets. 

Soybean bulls, despite Chinese trade headlines, will continue to battle the bearish balance sheet. Prices in the JUL19 contract are down roughly -14% in the past 90-days and down just over -20% in the past 52-weeks. The new-crop NOV19 contract is down roughly -15% in the past 52-weeks. Bears will continue to point towards massive ending stocks, only twice in the past five-decades have they been higher. Most inside the trade are currently using a new-crop yield estimates just over 49 bushels per acre. The range for most pre-planting yield estimates are calling for between 47.5 and 50.5 bushels per acre. At the same time, traders are starting to have bigger questions about growth in U.S. demand. China has been more aggressively buying soybean cargoes from Brazil as of late and U.S. export business seems to have fallen out of favor. Bears continue to believe it could take an extended period of time for U.S ending stocks to move to more manageable levels and seem content shorting most extended rallies. The trend is negative.  Sustained action below 800 (spot) signals a drop to 762.75.  Stable action over 847 is the minimum needed to provide upside targets. 

Coming in at just $111 million in March, the US ag trade balance registered its lowest number since May of 2017, when it hit a negative $46 million. I’m told March numbers were $818 million down from February this year. All in, the numbers show that ag exports climbed nearly $1.2 billion from February to $12.1 million in March, but ag imports climbed an even greater $2.0 billion to $11.9 billion.

World Food prices rose some 1.5% in April, with a jump in dairy and meat prices offsetting falling cereal prices. FAO’s food price index, which measures monthly changes for a basket of cereals, oilseeds, dairy products, meat and sugar, averaged 170.1 points last month against an upwardly revised 167.5 points in March. (Source: FAO)

Owned by Chinese interests, but based in the US, Smithfield is the world’s largest pork processor that is now working to reconfigure some plants to ship pork carcasses to China. From what I understand, the company will reportedly close its Virginia plant next week to allow some conversions to take place to better handle part carcass shipments to China. According to various reports, its unclear as to whether the company is gearing up for whole or partial carcass shipments at this point.

The protein industry is just beginning to understand the impact of the loss of 200 million-plus pigs in China on the worldwide protein markets. One company, Phibro Animal Health Corporation announced disappointing financial results for its third quarter ended March 31, 2019, on a call Monday, including a $5 million decrease in net income and a $3 million decrease in net sales. Jack Bendheim, Phibro’s chairman, president and chief executive officer, has made multiple trips to China over the last few months to better understand African swine fever (ASF) and its impact on the world’s largest hog producer. According to Bendheim, we are entering a period without precedent in the global production of protein, as his sources in China, estimate that losses are at 50% of China’s 700-million-head herd, which happens to be the equivalent to all of the pigs the rest of the world raises. In the meantime, he expects the production of swine, poultry and other proteins to increase in the United States, Brazil and other markets to offset the lost animals in China and meet the global demand for pork and other proteins, but he is unsure of the timing and how that will play out.


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