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Saturated soils supporting markets, trade aid announcement sows confusion

Wheat

The wheat market shot higher early week on five-day forecasts showing a large storm system that will dump heavy rains from northern Texas through southwest Iowa. The heart of the hard red wheat belt including Kansas and Oklahoma looks to accumulate over 4 to 8 inches of rain, which is viewed as unfavorable for crop development.

Weekly crop progress showed the winter wheat crop is 66% good to excellent, up 2% from last week. Winter wheat headed is 54% compared to 66% for the five-year average. Spring wheat plantings are 70% versus expectations of 65% and the five-year average of 80%. Emergence is 26% compared to the five-year average of 51%.

There is much talk of a 1993 event that led to lower wheat quality. Although whether the summer of 2019 turns out similar to 1993 is still yet to be determined. I do think that there is a high likelihood that protein will be rewarded and severely discounted this fall. It does appear that the excessive rainfall of this past week will hurt the hard red winter crop. It's also true that the eastern half of the northern spring wheat belt is wet and we will see nitrogen leaching which will also lead to lower protein.

I did some digging and looked at monthly continuation charts from 1993. Minneapolis had a low in June 1993 of $2.87 to a high in December 1993/January 1994 of $4.25, or roughly a 67% increase. Times were much different back then and Russia was not a grain producer of any sort. I just found it interesting comparing. Similar price action to 1993 would take the recent $5 low to $7.50. I don't see that happening with higher supplies estimated in Russia and the European Union this year. But it does make the point that crazy things can happen, and so far the corn market looks firm which should support wheat overall. Weather in Australia continues dry from last year and a private forecaster estimated a 10% decline in yield this week.

Current support for July Minneapolis is $5.15 with resistance at $5.354; $5.4525 would be considered heavier resistance.

For the week ending May 23, July contracts for Minneapolis wheat were up 6.5 cents at $5.3425, up 5.25 cents at $4.7025 for Chicago wheat, and up 5 cents at $4.2525 for Kansas City wheat.

Corn

The corn market crept higher on good technical action as contracts retreated 6 and 7 cents two days this week and were met with buying to keep the overall trend higher. It feels firm as dips in prices are met with renewed buying interest. Bull markets need to remain fed, and so far, so good. Weather models turned wetter midweek but showed an easing of excessive moisture in May 23 runs. Eastern Kansas through the Great Lakes area is expected to experience rains through at least Tuesday of next week.

Corn planting progress is 49% compared to the five-year average of 80%. Corn emerged is at 19% versus the five-year average of 49%. The eastern Corn Belt remains well behind planting pace versus five-year averages. Illinois 24% versus 89%, Indiana 14% versus 73%, Ohio 9% versus 62%. With the moisture this week, it's not a stretch to think the U.S. Corn Belt could be under 60% planted in the next weekly report.

Prevented planting acres are mounting. One estimate has 10% lost acres to prevented planting (9 million acres) and 30 bushels per acre lost due to late planting, but most estimates are in the 5 million to 6 million acre range with a 5% to 10% reduction in trend line yields. It is shaping up to be a 1993-type summer with cooler and wetter conditions. A farmer told me that this feels like 1993, which was one of his worst years for farming. He stated that what's different this year versus 1993 is that the corn was in the ground that spring unlike the late planting scenario we are experiencing.

For historical purposes, I looked at some monthly continuation charts of 1993, and it appears the market steadily rose from July 1993 through January 1994. World ending stocks-to-use ratio that year on corn declined from roughly 32% to around 25%, a 7% drop. Final U.S. yield to trend for 1993 was 17% below trend or 22 bushels per acre less. The market that year went from a low of $2.115 in June to a high of $3.1175 in January 1994, a 67% increase.

The other thing occurring is a widening of the spread between July and December contracts. This makes perfect sense in a weather scare as we are sitting on plentiful amounts of old crop, but the size of new crop is yet to be determined. Elevators are starting to widen out the basis, so if you are delivering summer corn it may be wise to lock basis on those bushels.

Current support for July is $3.86 with $4 resistance. December stalled out at $4.1375 which was last reached on Aug. 8. After that, resistance would be $4.2375 from late May 2018.

Weekly exports of 442,000 metric tons (17.4 million bushels) were in line with market expectations. Weekly sales need to average roughly 23 million bushels through the end of August to meet the U.S. Department of Agriculture's 2.3 billion bushel estimate.

Soybeans

Soybean futures started the week on a high note as planted soybean acres for the year are well behind average. U.S. soybeans planted for the week ending May 20 was 19% complete versus 53% last year and 47% for the five-year average. The trade was expecting 28%-30% planted. Minnesota was 22% planted versus 57% for the five-year average. Illinois was 9% versus 51% average, Indiana was 6% versus 43% average, Iowa was 27% versus 55% average, North Dakota was 24% versus 39% average, and South Dakota is 4% versus 39% average, all well behind schedule. There was still only one state (North Carolina) out of the 18 states the USDA surveys that is ahead of the five-year pace.

Most of the Midwest has also received significant rainfall the past week with a forecast that does not show much relief. The futures retreated midweek as details of the promised Market Facilitation Program farmer aid package were being discussed. There is no better rally killer than having the U.S. government open its wallet to encourage planting more acres late in the season. It seems like they didn't even talk to ag producers to see what would actually help the farmer and not just give farmers a band aid. Future prices softened at the first mention of direct payments based off of planted acres after both the $2 per bushel payment rumors on May 21 and the actual USDA MFP release on May 23.

The USDA's press release on the program caused more confusion than gave answers and still seems to encourage farmers to mud in acres in order to get a payment. The USDA is just basically saying it doesn't care what crop you mud in, because the payment will be the same. One problem is that the USDA is not releasing payment rates per county yet and nobody knows when they will release this information. The USDA press release doesn't give the farmers enough information to make planting decisions based on what is in this report. As of now, any future aid payments does not look like it includes prevented planting acres.

This plan is better than the original rumor that planted soybean acres were going to get $2 a bushel, but this aid payment does not help futures prices as it seems to be discouraging prevented planting acres. The USDA stressed that the program is being designed to avoid skewing planting decisions.

The contract low of $8.155 set on May 13 recovery is support. The front month contract July low of $7.91 set on May 13 is the lowest futures price since $7.76 that was set in December 2008. This is now major support.

November soybeans hit the 20-day moving average of $8.66 on May 23 before backing off. Major resistance is looking like $9.3125 on the weekly charts and also happens to be close to the 100-day moving average. On the daily charts, resistance is $9.34 and then the 10-month high of $9.71 for new crop soybeans that was set on Dec. 12. November soybeans were up 1 cent for the week ending May 23.

Canola

For the week ending May 23, July canola futures were down $1.20 to $441.80 Canadian per metric ton. The April Canadian dollar was at 0.7423. This brings the U.S. price to $14.88 per hundredweight.

• Velva, N.D., $14.96 per hundredweight, June at $14.70.

• Enderlin, N.D., $15.03 per hundredweight, June at $15.03.

• Hallock, Minn., $15.07 per hundredweight, June at $14.73.

• Fargo, N.D., no bid, July at $15.05.

Barley

Cash feed barley bids in Minneapolis were at $3.25, while malting barley received no quote. Berthold, N.D., bid is $2.75 and CHS Southwest New Salem bid is $3.

Durum

Cash bids for milling quality durum are $4.50 in Berthold and at $4.55 in Dickinson, N.D.

Sunflower

Cash sunflower bids in Fargo were at $17.30, with October bids at $16.55.

For the week ending May 23, soybean oil was down 44 cents at $26.75 on the July contract.

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