monday, july 20, 2020 ntg morning comments · 2020-07-20 · 2 monday, july 20, 2020 ntg morning...
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Monday, July 20, 2020
NTG Morning Comments
www.nesvick.com
Weather
No huge changes to the forecast over the weekend.
The bottom line is that Corn Belt rainfall should
average mostly near normal, though coverage of that
rainfall won’t be 100%. Southwestern areas might be
short-changed, while areas in the Northern Plains
could see above normal totals. We should have
almost daily chances for rain over the next five days.
The ridge of high pressure will expand at the
beginning of the 6-10 day period which will limit
rainfall chances for a few days through the middle of
the country, and you can see that influence on the
map at the right. However, it doesn’t look like the
ridge will be set up for long and rainfall chances
should improve again during the 11-15 day period.
Note there is a lot of rain shown in the Gulf of Mexico
on the map and that could be from a tropical system
moving through the area. The NHC is giving low odds
of it developing into a named storm, however.
Temps should mostly average above normal over the
next two weeks, but nothing extreme.
14-day percent of normal precipitation-
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Monday, July 20, 2020
NTG Morning Comments
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Crops
From time to time I like to just sit back and take a big picture view of the global supply and demand landscape as
pictured by WASDE. Its been a few months since we’ve done that so I think we should take a few days and just
quickly look through some numbers that WASDE is giving us. Today we’ll start with wheat. Starting with a view
of the US supply and demand numbers, I knew that 20/21 would mark another year of tightening wheat stocks
but until looking at this over the weekend I didn’t realize that WASDE is showing the smallest all-wheat ending
stocks since 15/16. This is now the fourth consecutive year of shrinking ending stocks. I guess that’s what
happens when you see declining planted area so consistently. Note the in second chart that demand has been
fairly stead over the past several years and the decline in ending stocks is all on account of lower production.
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Monday, July 20, 2020
NTG Morning Comments
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Wheat, perhaps more than any other ag commodity, is truly a global market. On that front the US has
performed poorly for a long time, losing market share over the years. It does seem, however, that US market
share of global wheat trade has stabilized at current levels.
While US wheat ending stocks have been declining, world all-wheat ending stocks have been constantly growing.
WASDE is projecting another record level of world wheat supplies at the end of 20/21. World wheat ending
stocks have increased in 7 of the past 8 years.
Yes, admittedly China accounts for a big portion of the growth in world wheat ending stocks. WASDE shows
Chinese ending stocks in 17/18 of 131.2 mmt. At the end of 20/21 WASDE is projecting ending stocks of 162.2
mmt. That is certainly a big part of the growth in world wheat supplies. However, it isn’t all China. In fact,
China’s percentage of total wheat world stocks has been relatively flat over the past few years…hovering right
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World Wheat Ending Stocks & Stocks/Use
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Monday, July 20, 2020
NTG Morning Comments
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around 50%. Note on the chart below that world wheat stocks ex-China are expected to tie for record large at
the end of 20/21.
Bottom line this morning? US wheat supplies have contracted in the past few years but that is not the same as
saying they’re “tight”. We have certainly worked off a lot of excess. However, wheat is a global product and the
world still appears awash in wheat. Yes, 50% of ending stocks are cut-off from the world as they reside in China
but even when accounting for that world wheat supplies appear ample for now. I would think that all of this
should keep a lid on rallies in US wheat futures.
Livestock
On the next page I’ve put together some charts on basis, but what they show should come as no surprise to
anyone reading this. We’ve gone from unusually strong basis to record weak basis in a very short period of
time. Those bearish the board will be quick to jump on this as a reason the board is inflated and due for a
correction as it is too high vs. cash. I would counter that by simply asking….does basis as calculated below really
matter for anything? Yes, ideally we should see convergence between the two but go back and look at the chart
of basis on the April contract. I won’t picture it here due to lack of space, but cash was more than $10 over the
LCJ contract at expiration. There is no rule that says these things can’t get out of line from time to time.
That being said, from what I’ve read and thought about over the weekend it seems like early ideas for this
week’s cash trade are higher vs. last week. Depending on what the board does here we could start to narrow
that gap quickly.
Thoughts appreciated.
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World Wheat Stocks Ex-China
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Monday, July 20, 2020
NTG Morning Comments
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Financials
Not much new information to pass along this morning. The key mover in the FX world overnight is the euro.
Wires are reporting that EU government officials are getting closer to an agreement on an Euro-wide stimulus
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August Live Cattle Basis History
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October Live Cattle Basis History
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Monday, July 20, 2020
NTG Morning Comments
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package. There have been 4 countries holding up an agreement…remember all EU negotiations have to end
with a unanimous decision. This morning the reports suggest these four countries have made a concession and
this might be enough to move the package forward. Equity markets have been mixed overnight, but US futures
are trading lower at the time of writing. Working against equities of course are all the headlines suggesting
worsening virus cases. I’ve pulled a few states aside in the chart below. Obviously I couldn’t fit all 50 states here
but just wanted to show a few. In the first chart you can see that daily new case levels in TX and FL are right
around the same levels seen in NY state during the peak of their issues. However, note the second chart
showing that deaths, while they have upticked, remains well under NY levels from the peak.
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Monday, July 20, 2020
NTG Morning Comments
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There is no major economic data due today and I don’t see any major market-moving earnings releases either.
Today’s price action in equities will likely be dominated by virus-related headlines. There is also starting to be
some momentum behind the next US stimulus package so keep an eye out for those headlines as well.
Energy
Perhaps I wasn’t paying enough attention, but I was a little surprised when I looked at the COT numbers for WTI
futures this morning. The MM net position in WTI, as shown below, is showing one of the bigger net long
positions we’ve seen over the past several years. This is a quick reversal from the low levels seen earlier in the
year. It makes sense, of course, considering the sharp price rally we’ve seen. However, considering we’re still
bumping up against key technical resistance…maybe we need to clean this out a little before making the next
push higher? Just thinking outloud….
Today’s Calendar (all times Central)
• Export Inspections – 10:00am
• Crop Progress – 3:00pm
Thanks for reading.
David Zelinski
901-766-4684
Trillian IM: [email protected]
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Monday, July 20, 2020
NTG Morning Comments
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