Seeking Alpha

Buying Pressure To Increase Amid Freezing Temperatures Over The Western Corn/Soybean Belt, Trade Optimism, And Thursday's WASDE Report

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

Corn net export sales disappoint coming in much less than expected; December corn futures finish down over 3.5%.

USDA slahes yield, production, and harvest in latest WASDE report.

Late maturing corn and soybeans over the west-northwestern belt at risk for freezing temperatures this weekend.

Investment Thesis

Upside potential to increase and a rally is likely after Thursday's WASDE report, heavy snow and record cold threatening late-maturing crops, and optimism on the U.S.-China trade talks.

Grain market trades lower led by corn after USDA's net export sales came in much less than expectations

On Thursday, the U.S. December corn futures finished down 3.58% to $3.7988, with the U.S. November soybean futures down 0.07% to $9.2238 and the U.S. December wheat futures finishing lower 1.82% to $4.9088. For the less-volatile, un-leveraged Teucrium ETF grain products, the Teucrium Corn ETF (CORN) finished down on Thursday 2.48% ($0.38) to $14.97, with the Teucrium Soybean Fund (SOYB) down 0.13% ($0.02) to $15.76, and the Teucrium Wheat Fund (WEAT) lower 1.87% ($0.10) to $5.28. Figure 1 below is a price trend chart of the front-month December futures contract for corn over the past week.

Source: Investing.com

Figure 2 below is a price trend chart of the front-month November futures contract for soybeans over the past week.

Source: Investing.com

Figure 3 below is a price trend chart of the front-month December futures contract for wheat over the past week.

Source: Investing.com

On Thursday, the December Chicago Soft Red Winter Wheat (SRW) futures were seen down 9 cents to $4.912, with December Kansas City Hard Red Winter Wheat (HRW) futures down 11.4 cents to $4.016. MGEX's Hard Red Spring Wheat (HRSW) December contract was down $0.064 to $5.352. Figure 4 below is a price trend chart of the front-month December futures contract for spring wheat.

Source: MGEX

Corn net export sales disappoints after coming in well below trader expectations

The United States Department of Agriculture (USDA) released its weekly net export sales report for the week ending October 3, Thursday morning.

The 2019/20 wheat export sales for the week ending October 3, 2019, came in at 521,900 metric tons. These came within traders' expected range of 200,000-600,000 metric tons. The 521,900 metric tons were up 59% from the prior week and 38% from the four-week average. The main buyers of the 2019/20 wheat crop last week were from China, Taiwan, and South Korea.

The 2019/20 corn export sales for the week ending October 3, 2019, of 284,500 metric tons exported came well below traders' expectation range of 400,000-800,000 metric tons. The main buyers of the 2019/20 corn crop last week were from Columbia and Japan.

The 2019/20 soybeans export sales for the week ending October 3, 2019, of 2,092,500 metric tons exported were well above traders' expected range of 900,000-1,400,000 metric tons. The main buyers of the 2019/20 soybean crop last week were from China, unknown destinations, and Spain.

USDA cuts 2019/20 corn/soybean yield, production, and harvest in latest WASDE report

On Thursday, the World Agricultural Supply and Demand Estimates (WASDE) report showed that the USDA trimmed U.S. 2019/20 corn yield, harvested area, and production. U.S. corn yield decreased from last month's (Sept.) 168.2 bushels per acre to 167.5 bushels per acre. Corn production decreased from 13.799 (last month) to 13.68 billions of bushels this month. The harvested area for corn also decreased from last month's 82.017 millions of acres to 81.649 millions of acres. Corn yield (167.5 bushels per acre), production (13.68 billions of bushels), and harvested area (81.649 millions of acres) all fell within their trading range of 166-168.7 bushels per acre, 13.446-13.83 billions of bushels, and 80.8-82.02 millions of acres, respectively. Corn yield, production, and harvested area were all lower last year's 176.4 bushels per acre, 14.42 billions of bushels, and 81.740 millions of acres, respectively.

As for soybeans, the USDA also slashed its yield, harvested area, and production. U.S. soybean yield decreased from last month's (Sept.) 47.9 bushels per acre to 47.3 bushels per acre. Soybean production decreased from 3.633 (last month) to 3.583 billions of bushels this month. The harvested area for soybean also decreased from last month's 75.866 millions of acres to 75.705 millions of acres. Soybean yield (47.3 bushels per acre), production (3.583 billions of bushels), and harvested area (75.705 millions of acres) all fell within their trading range of 46.8-48.2 bushels per acre, 3.525-3.660 billions of bushels, and 74.8-75.9 millions of acres, respectively. Soybean yield, production, and harvested area were all lower last year's 50.6 bushels per acre, 4.428 billions of bushels, and 87.594 millions of acres, respectively.

World ending stocks for the 2019/20 corn crop of 298,270,000 metric tons came within consensus range of 291,000,000-304,500,000 metric tons but less than USDA's September report of 306,270,000 metric tons.

World ending stocks for the 2019/20 soybean crop of 96,460,000 metric tons came within the consensus range of 95,000,000-99,000,000 metric tons but less than USDA's September report of 99,190,000 metric tons.

World ending stocks for the 2019/20 wheat crop of 285,170,000 metric tons came within the trader's consensus range of 280,500,000-288,730,000 metric tons but less than USDA's September report of 286,510,000 metric tons.

There were month/month declines in the U.S. corn, soybean, and wheat ending stocks for the 2019/20 crop.

U.S. ending stocks for the 2019/20 corn crop of 1.784 billions of bushels were within traders' expectation range of 1.612-1.963 billion of bushels and less than USDA's September report of 2.190 billions of bushels.

U.S. ending stocks for the 2019/20 soybean crop of 0.521 billions of bushels were within traders' expectations range of 0.433-0.582 billions of bushels and less than USDA's September report of 0.640 billion of bushels.

U.S. ending stocks for the 2019/20 wheat crop of 1.015 billions of bushels was within traders' expectation range of 0.980-1.047 billions of bushels and slightly more than USDA's September report of 1.014 billions of bushels.

Here's a link to the full WASDE Report.

Upside potential to increase as freezing temperatures threaten major corn and soybean production areas; temperatures could moderate October 18-23 before the potential for more cool/cold risks

The main weather story continues to be centered on a dynamic storm system that's bringing a wide array of weather hazards to various parts of the country including a powerful, potentially historic winter storm over the northern Plains that will be followed by record-breaking, freezing cold temperatures over the Rockies/Plains that will translate eastward into the mid to upper Mississippi Valley (western corn/soybean belts), and severe thunderstorms in the storm's warm sector across the central and southern Plains. Of importance is the major winter storm over the northern Plains and freezing, potentially record-breaking temperatures over the Rockies/Plains/Midwest that will have major implications on agriculture.

Heavy snow will continue to focus over the Dakotas with blizzard conditions over northeastern North Dakota as a potent low pressure system deepens/strengthens as it moves northeastward towards the Upper Midwest. This strengthening storm system is expected to occlude and become a closed low. This will result in the storm system stalling/slowing and meandering over the northern Plains/Upper Midwest through Saturday. The combination of the storm deepening and slowing will result in a prolonged period of heavy snow over the region (particularly northeastern North Dakota), where potentially historic snowfall amounts of more than 2 feet are expected by Saturday night.

Behind this storm system will be an anomalously cold air mass that will not only bring the coldest air mass of the season to many locales, but widespread freezing cold temperatures from the Rockies to the Plains to the Upper Midwest through early next week. Widespread record-breaking temperatures are expected Friday morning across the northern/central Rockies and Plains. This will pose widespread major risk to the west/northwestern corn and soybean belts as many of these late maturing crops will likely be damaged or killed.

This includes the major production centers of the eastern Dakotas and Nebraska, southern Minnesota, Iowa, portions of Wisconsin, and western Illinois. Freeze Watches have been hoisted as far east as northeast Wisconsin and western-north central Illinois, and as far south as Texas. Meanwhile, freeze warnings are in effect for the central and southern Plains as week as the Southwest U.S. (from Nebraska and Kansas westward to Utah and Arizona). Figure 5 below is an image depicting the areas under freeze watches or warnings, and winter storm/blizzard warnings.

Source: NOAA/NWS

Figure 6 below is an image highlighting the areas of greatest snow amounts and likely impacts.

Source: NOAA/NWS

Figure 7 below is an image from the 18z GFS showing the forecast low temperatures across the north-central U.S. Saturday morning.

Source: WeatherBell

The northern Plains and Upper Midwest will be subject to freezing cold temperatures (especially areas that have snow cover) through early next week as the deep closed upper low slowly moves northeastward into Ontario. Another upper level trough will eject out of Alaska into western Canada and into the northern Plains/Upper Midwest. This will bring another round of cooler than normal temperatures across the northern Plains and Midwest before moving over the East Coast. Figure 8 below is a map from the 18z GFS ensemble depicting the 1-6 day (October 11-16) temperature pattern.

Source: WeatherBell

Temperatures look to warm up across the central U.S. in the October 18-23 time period before another cool/cold shot comes in late October.

Figure 9 below is a map from the 18z GFS ensemble depicting the 7-12 day (October 17-22) temperature pattern.

Source: WeatherBell

Figure 10 below is a map from the 18z GFS ensemble depicting the 11-16 day (October 21-26) temperature pattern.

Source: WeatherBell

Final Trading Thoughts

The winter storm and record cold temperatures in its wake, will impact a great deal of the grain belt (west/northwestern corn and soybean belt) and will likely trigger a rally. This will be backed by the trimming of yield, harvested area, and production of corn and soybeans from Thursday's WASDE report, and optimism on the U.S.-China trade talks.

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.