6/27/2017 Morning Comments

Good Morning,


Outside Markets as of 5:50am: Dollar Index down 0.437% at 96.9910; Euro up 0.681% at 1.13080; Russian Ruble is down 0.060% at 60.0060; S&P’s are down 2.00 at 2434.00; Dow futures are down 16.00 at 21,352.00; 10-yr futures are down 0.17%; Crude Oil is up $0.42 at $43.80; Heating Oil is up $0.0185 at $1.4049; Paris Milling wheat is down €0.25 at €171.00/MT; Paris Rapeseed is up €1.00 at €357.00/MT; Dalian corn closed down 0.06%, Dalian soybeans closed down 0.39%, Dalian soy oil finished up 0.17% and Dalian meal settled up 0.38%.

A stray shower here or there on the radar this  morning, otherwise mostly quiet before storms move into the central and northern plains later this evening.  The Northern Plains is expected to see severe weather move through NE/SD this evening with high winds, hail and possible tornadoes to add to the lovely suite of weather already received this growing season.  Rainfall projections are seen around 0.25-0.75” for the Dakotas/NE/MN.  Rains will pick up in the central belt tomorrow with IA looking at 0.50-2.00” for the south eastern half of the state which will also bring good rains to WI.  The belt remains active almost every day through early next week with 7-day forecasted precip maps showing IA/IL/WI/MO/IN/E-NE/OH all picking up 2.00-6.00” over the week, while periphery areas like MN will be looking at 1.50” and most of SD 0.50-1.00”.  Rains have been underwhelming in the WCB and leaving plenty of dry spots, so if the rains fall as forecast they would go a long ways to eliminating drought conditions.  Extended maps slowly pick up the heat with above normal temps forecast by the 8-14 for all of the Midwest and Plains, while above normal precip is confined to the ECB.


Firmer markets overnight led by spring wheat and soybeans as both saw another cut in condition ratings which was not expected in row crops.  While forecasts have been beneficial for many areas of the corn belt during June, actual conditions on the ground have been far less than optimal.  After a water logged start, corn and soybean crops in the ECB are seeing cool temps which are hindering maturation ahead of pollination.  Meanwhile, the Northern Plains continue to suffer under a lack of rainfall for fall crops while time has simply run out for a large swath of spring wheat country.  Add in several counties in both states receiving a killing frost Sunday morning, and unlikely to see conditions spring forward anytime soon.  In addition, opinions vary widely for the June 30th acreage and stocks reports which is sure to keep volatility elevated into the data dump.  Interesting open interest changes yesterday with Chicago wheat seeing a drop of 15,294 contracts despite price being down 8.0c at settlement.  Corn was also down 14,404 contracts with price closing up 1.25c while soybeans O/I was up 1,235 contracts with price up 2.75c.  Funds are still thought to be short corn, wheat and soybeans.

The big news yesterday was obviously the crop progress report which showed corn conditions unchanged at 67% G/E vs. estimates of 68% G/E, 67% last week and 75% last year.  Conditions were split with WCB conditions generally declining while ECB conditions mostly improved.  Conditions are the lowest since 2013, and below both the 5-yr and 10-yr average condition ratings.  Even more impressive is some of the individual state rankings with IL at 62% G/E which is the lowest since 2012, but the second lowest since 2009.  IN at 46% G/E is the lowest since 2012’s 27% G/E, but is the second lowest since 1996.  North Dakota is at 56% G/E is the lowest rated crop since 2002, while South Dakota at 46% G/E is the lowest on record going back to 1986.  With national condition scores where they are, and some of these individual state rankings as low as they are, it makes it especially difficult to be confident with a 170.8bpa national average yield.  We would need an almost perfect July and August to ensure a yield like that, and unlikely conditions will be perfect from ND to OH.  The Pro Farmer Crop Tour will be highly anticipated when it heads to the fields in August.  4% of the crop is silking vs. 5% average.

Soybean conditions came in at 66% G/E vs. 68% expected, 67% last week and 72% last year.  Here again, market participants were expecting improving conditions, not declining ones.  Most states in the heart of the corn belt saw a decline in conditions with the exception of IL and OH which were up while IA was unchanged.  The IN soybean rating at 51% G/E is the lowest since 2012’s 24%, but the second lowest since 2007.  The ND conditions rating of 53% G/E is the lowest since 2002 while SD at 39% G/E is the lowest on record.  It goes without saying that soybean conditions in late June are much less important than conditions in late July or late August, but it should still be cause for concern.  National conditions are right at the 5-yr and 10-yr average.  94% of the crop is emerged vs. 91% average while 9% of the crop is blooming vs. 7% average.

Spring wheat conditions were once again looked to with high anticipation, but they fell once again to 40% G/E vs. 41% last week and 72% last year.  Conditions improved by 3pts in MT to 22% G/E and 1pt in WA to 68% G/E, but fell in all other states.  Conditions in ID were hit the hardest as they fell 9pts to 53% G/E which is now the lowest rated crop going back to 1986.  ID relies on a fair amount of irrigation, and the drought conditions experienced the last couple weeks are clearly not allowing irrigation to keep up.  MN fell 3pts to 86% G/E, but hung on to the top spot in the country and the highest rating for the state since 2003.  Even with the improvement, the MT crop at 22% G/E is the lowest rated for this week 1986.  SD and ND remain the lowest-rated since 1988, while WA and OR are still in decent shape. The 7-day forecast shows very little precip for WA/OR/ID/E-MT and W-ND, so expectations will probably be for another condition decline next week which will continue to support futures.  36% of the crop is heading vs. 35% average with SD leading the way at 86% vs. 58% average and WA at 63% vs. 66% average.  Winter wheat conditions were unchanged at 49% G/E vs. 62% G/E last year nationally.  Winter wheat harvest was pegged at 41% complete vs. 28% last week and 39% average.  KS is now 48% harvested vs. 22% last week and 47% average.  Only two areas in KS left to report protein content, and that would be NW-KS and NC-KS.  Protein has witnessed an improvement, but is still running below last year as a whole across the state.

Still plenty of folks trying to peg the national spring wheat yield, and looking to conditions to provide a framework.  Unfortunately, the relationship between week #25 conditions and final yield is still incredibly low thanks to a select few years which saw late rains benefit the crop greatly.  Nonetheless, the chart below shows final yield on the Y-axis and G/E condition scores for week #25 on the X-axis.  The R-squared for these two variables is 26.6%, so not especially strong, but improving with each week that goes by.  If we use the current condition rating for 2017 of 40% G/E nationally, it would imply a yield of around 30bpa which would be the lowest since 2002’s 27.9bpa.  Very few people would be in that camp just yet, but a yield of 30bpa on current USDA acres would imply a crop of around 396mbu and this is without taking into account higher abandonment which is sure to happen this year.  If abandonment of 92-93% were attached like in similar drought years, production falls to 387mbu assuming USDA does not drop acres Friday.  Most in the trade think spring wheat acres fall another 100-200,000 acres.  Spring wheat is in for a very long 2017..

Sticking with spring wheat for a moment, also worth noting the 200 warehouse receipts canceled out of Minneapolis/St. Paul last night which left 8 outstanding.  In Duluth/Superior, there are still 453 receipts outstanding which amounts to 2.265mbu which users can readily get their hands on.  Expectations are for the DUL/SUP receipts number to continue declining as well, which should keep calendar spreads supported and most likely inverted in Minneapolis.  MW/KW and MW/W inter-market spreads all made new contract highs yesterday, and there is really no reason for them to stop running now.  The last time we had similar balance sheet differentials between winter and spring wheat, MW/W went to +300.00c, and MW/KW went to +240.00c.  The market will need all protein levels of spring wheat this year for blending purposes, so expect scales to remain stout.

One last data item released yesterday were export inspections which showed wheat shipments at 23.1mbu vs. the 18.2mbu needed weekly.  Total shipments of 82.9mbu are up 32.3% from a year ago.  Corn shipments continue to grind along at 38.0mbu vs. the 25.5mbu needed weekly.  Total shipments of 1.873bbu are up 40.6% from a year ago and now account for 84.1% of the entire marketing year forecast.  Soybean shipments totaled 11.6mbu which is ahead of the 8.0mbu needed weekly, and pushed total shipments to 1.918bbu, up 17.5% from a year ago.  Total shipments now account for 93.5% of the entire marketing year forecast with over two full months left.  On the export vein, worth noting new crop soybean export commitments currently stand at 3.4MMT, which is about 3MMT behind last year and 6MMT behind the 5-yr average.  For this date in June, we are currently off to the slowest start for a marketing year since 2006/07.  It would appear China and other importers are taking advantage of the large South American crops and staying hand-to-mouth.  This will be especially important to remember if we do run into any adverse weather during July and August which trims US crop prospects.  If crops develop normally, then the problem becomes a bearish one with carryout levels possibly rising above already hefty projections.


Bottom Line: Firmer markets on lower than expected conditions should keep us firm today.  Pre-report estimates for Friday are in the market with traders likely to be especially sensitive to any meaningful changes given the weather we’ve experienced to-date.  Have seen some supportive June 1 corn stocks estimates floating around thanks to larger than expected Q3 feed demand.  Time will tell.  Forecasts are bringing in more heat for after the July 4th holiday which will be welcomed by some and feared by others.  Have to love weather markets.


Good Luck Today.

Tregg Cronin

Market Analyst






COMMODITY TRADING INVOLVES RISK AND MAY NOT BE SUITABLE FOR ALL RECEIPIENTS OF THIS EMAIL. Neither the information presented, nor any opinions expressed, constitutes a solicitation for the purchase or sale of any commodities. The thoughts expressed in this email and basic data from which they are derived are believed to be reliable, but cannot be guaranteed due to uncertainty about future events and complexities surrounding commodity markets. Those acting on the information are responsible for their own actions.



Leave a Reply

Your email address will not be published. Required fields are marked *