Monday, July 20, 2020 NTG Morning Comments  · 2020-07-20 · 2 Monday, July 20, 2020 NTG Morning Comments Crops From time to time I like to just sit back and take a big picture view

1

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-

2

Monday, July 20, 2020

NTG Morning Comments

www.nesvick.com

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.

0.0%

10.0%

20.0%

30.0%

40.0%

50.0%

60.0%

-

200

400

600

800

1,000

1,200

1,400

99

/00

00

/01

01

/02

02

/03

03

/04

04

/05

05

/06

06

/07

07

/08

08

/09

09

/10

10

/11

11

/12

12

/13

13

/14

14

/15

15

/16

16

/17

17

/18

18

/19

19

/20

20

/21

Sto

cks/

Use

En

din

g S

tock

s (M

il B

u)

US All-Wheat Ending Stocks & Stocks/Use

End Stocks Stocks/Use

0

500

1,000

1,500

2,000

2,500

3,000

Mil

Bu

US Wheat Production vs. Total Use

Production Total Use

3

Monday, July 20, 2020

NTG Morning Comments

www.nesvick.com

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

0%

10%

20%

30%

40%

50%

60%

US Share of Total World Wheat Trade

0.0%

5.0%

10.0%

15.0%

20.0%

25.0%

30.0%

35.0%

40.0%

45.0%

0.0

50.0

100.0

150.0

200.0

250.0

300.0

350.0

Sto

cks/

Use

En

din

g S

tock

s (m

mt)

World Wheat Ending Stocks & Stocks/Use

End Stocks Stocks/Use

4

Monday, July 20, 2020

NTG Morning Comments

www.nesvick.com

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.

20%

25%

30%

35%

40%

45%

50%

55%

70

80

90

100

110

120

130

140

150

160

90

/91

91

/92

92

/93

93

/94

94

/95

95

/96

96

/97

97

/98

98

/99

99

/00

00

/01

01

/02

02

/03

03

/04

04

/05

05

/06

06

/07

07

/08

08

/09

09

/10

10

/11

11

/12

12

/13

13

/14

14

/15

15

/16

16

/17

17

/18

18

/19

19

/20

20

/21

MM

T

World Wheat Stocks Ex-China

World Stocks less China China % of World Stocks

5

Monday, July 20, 2020

NTG Morning Comments

www.nesvick.com

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

($10.00)

($5.00)

$0.00

$5.00

$10.00

$15.00

$20.00

$25.00

$30.00

58 56 54 52 50 48 46 44 42 40 38 36 34 32 30 28 26 24 22 20 18 16 14 12 10 8 6 4 2 0

Weeks To Expiration

August Live Cattle Basis History

2014 2015 2016 2017 2018 2019 2020

-15

-10

-5

0

5

10

15

20

25

30

60 55 50 45 40 35 30 25 20 15 10 5 0

Weeks Until Expiration

October Live Cattle Basis History

2014 2015 2016 2017 2018 2019 2020

6

Monday, July 20, 2020

NTG Morning Comments

www.nesvick.com

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.

0

10

20

30

40

50

60

70

Daily New Cases/100k Population

NY Cases/100k TX Cases/100k TN Cases/100k FL Cases/100k IL Cases/100k

0

1

2

3

4

5

6

Daily New Deaths/100k Population

NY TX TN FL IL

7

Monday, July 20, 2020

NTG Morning Comments

www.nesvick.com

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

[email protected]

901-766-4684

Trillian IM: [email protected]

DISCLAIMER:

This communication is a solicitation for entering into derivatives transactions. It is for clients, affiliates, and

associates of Nesvick Trading Group, LLC only. The information contained herein has been taken from trade and

8

Monday, July 20, 2020

NTG Morning Comments

www.nesvick.com

statistical services and other sources we believe are reliable. Opinions expressed reflect judgments at this date

and are subject to change without notice. These materials represent the opinions and viewpoints of the

author and do not necessarily reflect the opinions or trading strategies of Nesvick Trading Group LLC and its

subsidiaries. Nesvick Trading Group, LLC does not guarantee that such information is accurate or complete and it

should not be relied upon as such.

Officers, employees, and affiliates of Nesvick Trading Group, LLC may or may not, from time to time, have long

or short positions in, and buy or sell, the securities and derivatives (for their own account or others), if any,

referred to in this commentary.

There is risk of loss in trading futures and options and it is not suitable for all investors. PAST RESULTS ARE NOT

NECESSARILY INDICATIVE OF FUTURE RETURNS. Nesvick Trading Group LLC is not responsible for any

redistribution of this material by third parties or any trading decision taken by persons not intended to view this

material.