Agriculture Markets: Upside Potential Increases Amid June 2019 WASDE Report And Wetter Weather Coming


Investment Thesis

Market sentiment shifts more bullish after 2019/20 corn output slashed. With wetter weather in the mix likely impacting late planting efforts over the eastern corn/soybean belts, expect for prices to continue to climb.

Grain markets finish higher for a second consecutive day on momentum buying after WASDE report and wetter weather for central U.S.

The U.S. July corn futures finished Monday’s trading session up 0.61% to $4.2962, with the U.S. July soybean futures up 2.42% to $8.7875 and the U.S. wheat futures finishing higher 1.81% to $5.2638. For the less-volatile, un-leveraged Teucrium ETF grain products, the Teucrium Corn ETF (CORN) finished up 0.30% ($0.05) to $16.80, the Teucrium Soybean Fund (SOYB) finished up 2.11% ($0.32) to $15.49 and the Teucrium Wheat Fund (WEAT) also finished up 1.75% ($0.10) to $5.82. Figure 1 below is a price trend chart of the front-month July futures contract for corn over the past 24 hours.

Source: Investing.com

Figure 2 below is a price trend chart of the front-month July futures contract for wheat over the past 24 hours.

Source: Investing.com

Figure 3 below is a price trend chart of the front-month July futures contract for soybeans over the past 24 hours.

Source: Investing.com

July Chicago Soft Red Winter Wheat (SRW) futures were seen up 8.4 cents to $5.264, with July Kansas City Hard Red Winter Wheat (HRW) futures up 5.4 cents to $4.630, resulting in a bearish 63-cent premium of CBOT wheat to KCBT wheat. MGEX’s Hard Red Spring Wheat (HRSW) July contract was down $0.01 to $5.694. Figure 4 below is a price trend chart of the front-month July futures contract for spring wheat.

Source: Barchart

On Tuesday, the World Agricultural Supply and Demand Estimates (WASDE) report showed that the USDA slashed U.S. corn production and yield from 15.03 to 13.68 bushels per acre and from 176 to 166 billions of bushels, respectively. Corn’s numbers fell below trade expectations and below the 2018/19 final of 14.42 bushels per acre and 176.4 billions of bushels. Soybeans production and yield remained the same at 4.125 bushels per acre and 49.5 billions of bushels. Soybean’s numbers came in more than trader estimates, but less than the 2018/19 final of 4.544 bushels per acre and 51.6 billions of bushels.

World ending stocks for the 2018/19 corn crop of 325,380,000 metric tons fell in line with trader expectations’ 325,440,000 metric tons and USDA’s May report of 325,940,000 metric tons. World ending stocks for the 2019/20 corn crop of 290,520,000 metric tons fell well below trader expectations’ 304,960,000 metric tons and USDA’s May report of 314,710,000 metric tons.

World ending stocks for the 2018/19 soybeans crop of 112,800,000 metric tons fell in line but slightly lighter than trader expectations’ 113,330,000 metric tons and USDA’s May report of 113,180,000 metric tons. World ending stocks for the 2019/20 soybeans crop of 112,660,000 metric tons fell in line but slightly below trader expectations’ 112,990,000 metric tons and USDA’s May report of 113,090,000 metric tons.

World ending stocks for the 2018/19 wheat crop of 267,570,000 metric tons was larger than trader expectations’ 274,700,000 metric tons and USDA’s May report of 274,980,000 metric tons. World ending stocks for the 2019/20 wheat crop of 294,340,000 metric tons was larger than trader expectations’ 290,000,000 metric tons and USDA’s May report of 291,010,000 metric tons.

USDA slashed U.S. corn ending stocks for 2019/20, but raises them for 2018/19. U.S. ending stocks for the 2018/19 corn crop of 2.195 billion bushels was more than trader expectations’ 2.123 billion bushels and USDA’s May report of 2.095 billion bushels. U.S. ending stocks for the 2019/20 corn crop of 1.675 billion bushels fell well below trader expectations’ 1.917 billion bushels and USDA’s May report of 2,485 billion bushels.

U.S. ending stocks for the 2018/19 soybean crop of 1.070 billion bushels was more than trader expectations’ 1.004 billion bushels and USDA’s May report of 0.995 billion bushels. U.S. ending stocks for the 2019/20 soybean crop of 1.045 billion bushels was more than trader expectations’ 0.983 billion bushels and USDA’s May report of 0.970 billion bushels.

USDA also trimmed U.S. wheat ending stocks for 2018/19 and 2019/20 U.S. ending stocks for the 2018/19 wheat crop of 1.102 billion bushels was less than trader expectations’ 1.121 billion bushels and USDA’s May report of 1.127 billion bushels. U.S. ending stocks for the 2019/20 wheat crop of 1.072 billion bushels fell below trader expectations’ 1.118 billion bushels and USDA’s May report of 1.141 billion bushels.

Western U.S. cools down as upper ridging/heat shifts into East Pacific; Meanwhile, central and eastern U.S. turns warmer and stormier

Over the next 5 days, the weather pattern will undergo a change from a amplified look to a more flat, zonal/semi-zonal look. Excessive heat courtesy of strong upper ridging over the western U.S. will retrograde westward over the eastern Pacific (off the West Coast). This will result in the heat fading across the western U.S. and returning to closer to normal levels. The central and eastern U.S. will also see temperatures return to closer to normal levels with strong upper troughing that’s causing much below normal temperatures to fade. Figure 5 below is a map from the 12z ECMWF ensemble depicting the 0-5 day (June 12-17) upper-level/jet stream pattern (map to the left) and its temperature display (map to the right).

Source: WeatherBell

In the 6-11 day timeframe, upper level troughing re-develops over the interior western U.S. into the Plains thanks to strong ridging upstream over the eastern Pacific. This will result in cooler than average temperatures over the Northwest and north-central U.S. Elsewhere, temperatures will range normal to warmer than normal, but nothing extreme. Figure 6 below is a map from the 18z GFS ensemble depicting the 6-11 day (June 18-23) upper-level/jet stream pattern.

Source: WeatherBell

Figure 7 below is a 6-10 day temperature map depicting a westward shift in the core of the cool weather from the Plains into the interior West U.S. (Rockies), while a warmer bias is placed over the southern and eastern U.S.

Source: NOAA

Additional retrograding of the large scale pattern takes place in the 11-15 day timeframe with upper ridging shifting into the Gulf of Alaska region and downstream troughing shifting over the western U.S. Meanwhile, upper level ridging begins building over the southern U.S. with temperatures moderating across the central and eastern U.S. Overall, this has the look of a cool West U.S. vs. warm central/eastern U.S. with heat risk developing over the southern U.S. late June. Figure 8 below is a 8-14 day temperature map depicting a cool bias West U.S. with the core of the cool air over the interior West U.S. (Rockies), while a warmer bias is placed over the southern and eastern U.S.

Source: NOAA

From a precipitation standpoint, the weather pattern turns wetter/active again beginning this weekend through next week across much of the central U.S. (corn, soybean, wheat belts) with several bouts of showers and thunderstorms. The axis of heaviest precipitation looks to be from Kansas/Oklahoma into the eastern half of the corn/soybean belts. While wet weather is favorable for acres already planted, it’s not favorable for acres not planted particularly across the eastern belt where late planting efforts are ongoing. Figure 9 is a map showing the 7-day accumulated precipitation forecast across the Lower 48.

Source: NOAA

Figure 10 is a 6-10 day precipitation outlook depicting a wetter than normal bias from the Rockies to the Tennessee/Ohio Valley regions.

Source: NOAA

Figure 11 is a 8-14 day precipitation outlook depicting a continuation of a wetter than normal bias centered over the Rockies and the eastern half of the Corn Belt.

Source: NOAA

Final Trading Thoughts

The latest WASDE report was bullish for the grain markets especially with the USDA cutting the 2019/20 corn output (production/yield). This helped to catapult prices over the past couple of sessions. With a wetter weather pattern in play, I expect for prices to be rangebound, but with upside potential outweighing downside risk.

Stay Tuned For More Updates!

Disclosure: I/we have no positions in any stocks mentioned, and no plans to initiate any positions within the next 72 hours. I wrote this article myself, and it expresses my own opinions. I am not receiving compensation for it (other than from Seeking Alpha). I have no business relationship with any company whose stock is mentioned in this article.





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