Grain Markets Close Sharply Lower On Thursday As Tariffs On China Near; USDA Export Sales Disappoint

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Includes: CORN, SOYB, WEAT
by: Andrei Evbuoma
Summary

Agricultural markets closed sharply lower amid U.S.-China trade dispute; corn futures finished down more than 3%.

Wheat, corn, and soybean USDA net export sales all reach a marketing year low.

Weather pattern turns favorable over the next week across much of the corn, soybean, and spring wheat belts with drier and warmer conditions.

Investment Thesis

Expect risk to the downside to continue for the agricultural market as U.S.-China trade dispute escalates. Planting season will have a chance to pick up over the next week as weather turns more favorable for farmers and producers.

The U.S. July corn futures finished Thursday's trading session down 3.13% to $3.5262, with the U.S. July soybean futures down 1.80% to $8.1112 and the U.S. wheat futures lower 2.03% to $4.2912. For the less-volatile, unleveraged Teucrium ETF grain products, the Teucrium Corn ETF (CORN) finished down 2.39% ($0.36) to $14.70, the Teucrium Soybean Fund (SOYB) finished lower 1.43% ($0.21) to $14.46 and the Teucrium Wheat Fund (WEAT) also finished down 1.69% ($0.09) to $4.93. 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 down 10 cents to $4.290, with July Kansas City Hard Red Winter Wheat (HRW) futures down 5.6 cents to $3.976, resulting in a bearish 32-cent premium of CBOT wheat to KCBT wheat. MGEX's Hard Red Spring Wheat (HRSW) July contract was down $0.32 to $5.172. Figure 4 below is a price trend chart of the front-month July futures contract for spring wheat.

Source: Barchart.com

USDA old crop corn and soybeans net export sales markedly down; new crop results mixed though corn down significantly

The United States Department of Agriculture (USDA) released its weekly net export sales report for the week ending May 2 Thursday morning. For the 2018/19 old crops, wheat fell in line with trader expectations, but recorded a marketing year low for export sales. Corn and soybeans 2018/19 old crop export expectations fell well below trader expectations and recorded a marketing year low for export sales.

The 2018/19 wheat export sales for the week ending May 2, 2019, of 90,600 metric tons exported came in line with traders' expectation range of 75,000-250,000 metric tons. Despite meeting trader expectations, this marked a marketing year low, down 26% from the prior week and down 68% from the prior 4-week average. For the 2019/20 new wheat crop, net export sales for the week ending May 2, 2019, of 412,300 metric tons beat traders' range of 100,000-350,000 metric tons. Main buyers of the new wheat crop last week were South Korea, unknown destinations, and Nigeria.

The 2018/19 corn export sales for the week ending May 2, 2019, of 287,600 metric tons exported fell well below traders' expectation range of 500,000-800,000 metric tons. Additionally, this marked a marketing year low, down 51% from the prior week and down 60% from the prior 4-week average. For the 2019/20 new corn crop, net export sales for the week ending May 2, 2019, of 7,000 metric tons also fell well below traders' range of 50,000-200,000 metric tons. The main buyer of the new corn crop last week was Jamaica.

The 2018/19 soybeans export sales for the week ending May 2, 2019, of 149,000 metric tons exported fell well below traders' expectation range of 300,000-650,000 metric tons. Additionally, this marked a marketing year low, and was noticeably lower from the prior week and from the prior 4-week average. For the 2019/20 new soybean crop, net export sales for the week ending May 2, 2019 of 295,600 metric tons fell in line with traders' range of 50,000-450,000 metric tons. The main buyer of the new soybean crop last week was Mexico.

Weather pattern favors Midwest/Plains farmers in the near term; stormy weather could return longer term

On the weather front, we are currently sitting in a split-flow pattern highlighted by an anomalously strong ridge over the East Pacific or just off the west coast of Canada and the Northwest U.S. This is bringing very warm temperatures on the order of 10-20F above average and high temperatures in the 80s with isolated 90s to the Pacific Northwest over the next 5 days. Record-breaking temperatures are possible during this time frame. Underneath this strong ridge is an upper level trough or large scale cyclonic flow. The position of these two features is resulting in a spilt of the jet stream with a northern branch traveling around the upper level ridge northward into Canada and then southward near the U.S.-Canada border. Meanwhile, the southern branch is traveling around the upper level trough across the southern U.S. This will allow for a large section of the central U.S., including the major crop production centers that have been plagued with storm after storm, to dry out some. The drier-than-normal pattern will allow for farmers more days to work the field. Figure 5 is a map showing the 7-day accumulated precipitation forecast across the Lower 48.

Source: NOAA

Figure 6 is a map from the 12z GFS ensemble depicting a drier-than-normal (in yellow) precipitation pattern over much of the corn, wheat, and soybean production centers in the 1-7 day time frame (May 9-16).

Source: Tropical Tidbits

Figure 6 is a map from the 12z GFS ensemble depicting a normal to wetter-than-normal (in green) precipitation pattern developing over the spring wheat, western corn and soybean belts, with normal to drier than normal precipitation across the eastern corn/soybean belt in the 8-14 day time frame (May 16-23).

Source: Tropical Tidbits

Cooler-than-normal temperatures will continue to be the theme across the central U.S. In fact, Freeze Warnings and Advisories have been issued for southwestern Minnesota, southeastern South Dakota, much of Nebraska, western half of Kansas, and eastern half of Colorado for tonight through Friday morning. Figure 7 below is a screenshot image of areas under Freeze Warnings and Advisories tonight through Friday morning.

Source: NOAA

Temperatures over the next week will average cooler than normal across the central U.S. Temperatures are expected to moderate/warm across the western corn/soybean belts in the 6-10 timeframe with troughing establishing itself over the western U.S. and ridging across the central U.S. As temperatures begin to warm slightly across the Corn Belt in the 6-10 day period, the weather pattern will begin to turn wetter as well, specifically over the western corn/soybean belts and spring wheat belt. Figure 8 is a 0-5 day (May 9-14) temperature anomaly map from the 12z ECMWF ensemble depicting warmer-than-normal temperatures over the Pacific Northwest and the Southeast U.S., and cooler than normal temperatures across the central U.S.

Source: WeatherBell

Figure 9 is a 5-10 day (May 14-19) temperature anomaly map from the 12z ECMWF ensemble depicting warmer than normal temperatures over the central Rockies and Plains, and cooler than normal temperatures across the eastern and western U.S.

Source: Tropical Tidbits

On a global scale, we are in a wavenumber 6 pattern which could potentially mean that this weather pattern that we've been in recently (cooler than normal and stormy across the central U.S.) will continue. That said, expect the possibility for cooler-than-normal temperatures and stormy conditions to continue. Temperatures, though cooler than normal, would be warmer in the days and weeks ahead than they are now due to climatology. Figure 10 is a global/hemispheric view of the upper level/jet stream pattern from the 12z ECMWF ensemble for Day 0-5 or May 9-14 highlighting the wavenumber 6 pattern (6 distinct troughs and ridges).

Source: WeatherBell

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.