6/23/2017 Morning Comments

Good Morning,


Outside Markets as of 6:15am: Dollar Index down 0.125% at 97.4130; Euro up 0.183% at 1.12190; British Pound is up 0.504% at 1.2767; S&P’s are up 0.25 at 2432.00; Dow futures are down 38.00 at 21,310.00; 10-yr futures are down 0.02%; Crude Oil is up $0.09 at $42.84; Heating Oil is down $0.0014 at $1.3771; Paris Milling Wheat is up €0.25 at €174.25/MT; Paris Rapeseed is down €1.50 at €355.50/MT; Dalian corn closed up 0.30%, Dalian soybeans finished down 0.39%, Dalian soybean oil closed down 0.31% and Dalian meal closed off 1.05%.

Fairly active Midwest radar this morning with rains over NE, but lots of shower activity east of the MS-River from LA all the way up to OH and MI.  Rain in the last 24-hours was best in the southern half of WI, NE-IA, SE-MN, and N-MI.  Totals were mainly 0.50-1.00” with decent coverage.  Rains will work east and south today, leaving the WCB and Northern Plains to be mostly dry until Tuesday/Wednesday.  Then the area will see a follow up system Wednesday-Friday which puts 1.00-2.50” across the entire state of IA as well as NE-KS, most of WI, N-IL and the eastern half of MN.  If those rains verify, corn won’t be going anywhere.  Will be very few dry spots left in the major production areas after the 7-day period if all the rains fall as forecast.  Temperatures look normal/below for the 6-15 while precip will turn to above normal, especially for IA/N-MO/IL/WI/S-MN.  Not the forecast bulls want to see.


Firmer markets overnight led by soybeans as we bounce back from yesterday’s selloff which hit row crops the hardest before wheat staged a late session comeback.  For the week, corn is down 20.75c, soybeans are down 31.0c, Chicago wheat is down 1.75c, KC wheat is down 6.25c and Minneapolis wheat is up 14.50c.  For those keeping score at home, Minneapolis wheat is looking for its sixth higher weekly close in a row, and over that time has added $1.24 in value.  While Minneapolis has had its share of headlines this week, the poor performance in the row crops has been the narrative.  Many analysts are actually confounded with the fact reports of reduced acreage, uneven stands, slow development and top-end yield potential being gone doing nothing for the corn market.  One must also factor in the largest carryout in decades, the largest South American corn crops on record and real uncertainty over what the starting point for corn planted acreage was.  Was it 89.966 million as the USDA suggested on its March planting intentions report, or was it closer to 90.5 million or even 91.0 million?  Losing 500,000-1,000,000 acres of intended corn acres really depends on where the starting point was.

Lots of questions and calls regarding the spring wheat balance sheet lately, so we have decided to piece meal the supply and demand situation of the spring wheat market out each day.  Today we decided it would be good to look at harvested acreage, especially compared to other years of extreme drought in the Northern Plains.  The USDA said US farmers planted 11.308 million acres of other spring wheat this year which most think is a bit high, but will suffice for this discussion.  The 10-yr average for harvested percentage on other spring is 97.4% which produces harvested acres of 11.013 million.  This is not a typical year, however, as the pictures of farmers spraying out or baling spring wheat acres have hit social media websites this week.  Taking a look at the last four times harvested acres have taken a notable hit due to drought, we see 2011, 2008, 2006 and 2002.  The worst harvested acreage percentage was 85.5% in 2002 while the best was 97.4% in 2011.  If we average all four, we come up with 92.8% for a harvested percentage.  It is so difficult to compare years, although abandonment has already occurred in SD and will continue into ND, but the price rally of the last 6-weeks has also probably pulled some acres back into the harvested category which might have went unharvested.  If we use the average, harvested acreage comes out at 10.501 million.  Using the usual hard red spring/white mix, this would mean 9.660 million harvested acres of hard red spring.  Many yield estimates are already 40bpa or below, which would automatically push production below 400mbu and put us in extreme rationing mode.  As we’ve written about in this space recently, the job of rationing the domestic demand for 13.0-15.0% pro spring wheat to be blended with low pro HRW will be huge this year.

The Northern Plains have been garnering the lion’s share of the attention related to spring wheat as of late, but the PNW has been quietly drying out over the last 14-days, especially WA and OR.  Washington comprises 5% of total spring wheat production, while OR just 1% and ID around 8%.  Much of the ID spring wheat is irrigated, but dry conditions can still affect irrigated wheat when heat and drought are combined.  The PNW came out of winter with solid soil moisture which has carried them quite a ways into their growing season.    Conditions had begun slipping the last two weeks in the PNW, part of the reason the market was looking for an uptick in conditions on Monday but the national rating fell another 4pts.  Conditions in the Northern Plains may have stabilized, but if the PNW continues to slip, it could put downward pressure on national ratings and keep support under price.  Limited chances for rain in the next 7-days for those areas of ID/WA/OR.

StatsCan will release their update to planted acreage on June 29th with newswire services publishing estimates yesterday afternoon.  The trade sees planted acreage at 22.70 million acres which would be down from the April report of 23.18 million and down from last year’s 23.21 million.  Lots of uncertainty over what got planted in Alberta where areas continue to be inundated with water.  Some acres were thought to still not have last year’s crop harvested.  Non-durum acres are seen at 17.70 million vs. 18.04 million in April and 15.4 million last year.  Durum wheat is seen at 5.0 million vs. 5.15 million in April and 6.19 million last year. Canola acreage is pegged at 22.20 million vs. 22.39 million in April and 20.37 million last year.  Oat acreage is seen at 3.40 million vs. 3.42 million in April and 2.83 million last year.  Barley was pegged at 6.00 million acres vs. 5.88 million in April and 6.39 million a year ago.  Not much change at all expected for pea, flax, lentil and soybean acreage from the April estimate.

Egypt’s GASC bought wheat yesterday which included 120,000MT of Romanian wheat at an average FOB price of $193.96/MT and 60,000MT of Ukrainian wheat at $190.13/MT FOB.  The prices were about $2/MT higher than the last tender Egypt conducted, and there was no Russian wheat purchased for the first time in several tenders.  Egypt has already purchased over 1.0MMT of wheat for the 2017 crop year which is more than double the total purchased for any of the last four years.  In fact, the total purchased for July delivery would be the second largest month of procurement for any month dating back to July of 2013.  Whether that is a sign of things to come or not will be worth monitoring, but anytime the world’s largest wheat importer jumps out to that kind of start to a marketing year it is worth noting.  Still believe low pro HRW could be well positioned to compete with GASC later this marketing year.


Bottom Line: Market act as though they want to bounce to close the week, but the damage to row crops is done.  Wheat is trying its best to divorce itself from the row crop situation, which will be no problem for the spring wheat market but much more difficult for the winter wheat contracts.  Weather looks non-threatening as we head into the largest report of the summer next week.  Lower acreage would indeed be supportive to corn, but South American FOB offers are undercutting exports in a big way right into new crop.  There’s no Brazilian drought this year to make the US the only game in town.


Good Luck Today.

Tregg Cronin

Market Analyst






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