6/28/2017 Morning Comments

Good Morning,

 

Outside Markets as of 6:45am: Dollar Index down 0.302% at 96.1840; Euro up 0.215% at 1.14220; Canadian Dollar up 0.473% at 0.76500; S&P’s are up 3.00 at 2423.25; Dow futures are up 18.00 at 21,309.00; 10-yr futures are down 0.22%; Crude Oil is down $0.15 at $44.10; Heating Oil is down $0.0014 at $1.4179; Paris Milling wheat is down €1.50 at €169.25/MT; Paris Rapeseed is down €1.50 at €356.50/MT; Dalian corn closed up 0.41%, Dalian soybeans closed up 0.21%, Dalian soy oil finished up 1.27% and Dalian soymeal closed up 0.08%.

The USD is back to its losing ways, trading down to 96.1550 overnight, the lowest trade since the election night plunge on November 8th.  Election night saw a low of 95.8850, which if broken would lead to the lowest levels since October 4th.  The USD is trading well below the 50/100/200 day moving averages, and we just went through the 61.8% Fib retracement of the 91.9190-103.8200 rally at 96.5460.  Part of the recent pressure came after the IMF revised its growth forecast for the United States, lowering expectations for 2017 GDP to 2.1% from 2.3%.  In addition, many of the policies President Trump campaigned on and which the USD rallied on last year and early in 2017 appear unlikely to be passed this calendar year.

Rain showers moving across the Northern Plains in very scattered fashion, with moisture also hitting the ground in IA this morning.  Western and central corn belt is expected to remain active the next 5-7 days with solid rain chances for E-NE/IA/MN/MO/IL/WI/IN on tap.  The heart of the belt in IA could see totals as high as 6.00” over the 7-day span.  It will be important these rains fall as the extended maps continue to point toward much warmer and drier weather for the western and northern reaches of the corn belt.  Above normal precip will still be present for the ECB during the 6-14 day, but anything west of the MS-River will be hot and dry into mid-July.  Many of these crops are much further behind than average, so don’t believe we will quite be pollinating corn but follow up forecasts will be very important to the market.

 

Mostly firmer markets overnight as row crops take a breather from the weakness experienced the last week or so as forecasts begin to turn warmer and drier post 4th of July.  In addition, traders are most likely busy squaring positions ahead of Friday’s high-risk reports from the USDA which will provide and update to planted acreage as well as stocks-in-all-positions as of June 1.  Planted acreage will grab most of the headlines considering we are still working with very comfortable old crop balance sheets, but it isn’t uncommon to see 100mbu swings in corn on the June 1 stocks report.  Volatility is certainly ramping up to the reports as one would expect with August ATM soybean vol at 17.98% vs. 17.38% a week ago, August corn vol at 28.88% vs. 28.30% a week ago but ATM Chicago wheat vol has declined to 26.42% vs. 29.07% a week ago.  Corn, Chicago wheat and soybeans all saw declines in O/I yesterday.

While deliverable stocks reports are usually glanced over 95% of the time, during times of short crops and tight stocks they take on increased importance.  Enter Minneapolis wheat.  Last week, total deliverable stocks saw another healthy draw of 1.103mbu which brought combined Duluth/Minneapolis stocks down to 17.787mbu.  This is the lowest stocks level since September 12th, 2014, and should continue declining until stocks hit their seasonal low ahead of harvest in late July.  The lower deliverable stocks get, the more support they lend to spreads as the supply of last resort gets smaller and smaller.  Given the added importance protein is going to play this year with the low pro HRW crop, 13.0-13.5% protein deliverable stocks could be even more valuable than usual.  While Minneapolis is still declining, the two winter wheat exchanges are watching stocks levels rise as new crop finds its way to the terminals.  Chicago wheat stocks rose to 56.338mbu from 54.663mbu last week and compare with 40.911mbu a year ago.  Still around 4.6mbu of HRW sitting in Chicago warehouses.  KC stocks jumped sharply to 117.743mbu from 105.136mbu last week and 100.424mbu a year ago.  KC deliverable stocks could rise to record levels this year as elevators look for a home on another round of low protein wheat.

Minneapolis wheat turned in another strong performance yesterday as chatter in the trade picks up the hard red spring crop may be closer to 350mbu than 400mbu.  Keep in mind, the USDA is still working with a 493mbu estimate from earlier this month, one which will be cut drastically on next month’s July WASDE report.  We will get an update to planted acreage Friday from the 10.66 million acres of hard red spring we are currently working with.  It is undeniable the harvested acreage percentage will drop sharply this year, especially as the anecdotal reports of large farmers in South Dakota and SW-North Dakota spraying out their entire crop circulate.  Looking at past drought years, the harvested percentage could easily slip to 91.0-92.0% vs. the 5-year average of 97.5%.  If we plug 92.0% in with a 39bpa yield, we get production of 382mbu.  If the USDA cuts acreage by 200,000 acres Friday, production falls to 375mbu.  What gets really interesting is when we use a harvested percentage like 2002 of 85.5%, because national conditions this year at 40% G/E are actually lower than the 55% G/E posted at this time in that year.  If we use an 86% harvested percentage nationally, the crop falls to 351mbu.

The situation gets more tenuous when one considers the fact eastern ND and MN were expected to offset much of the drought area in W-ND, SD, E-MT and parts of the PNW.  This was until forecasts in the 6-10 and 8-14 day time frame turned warm and dry for the entire region.  As of last Monday’s crop report, 33% of the ND crop was headed while 42% of the MN crop had headed.  Both of these are right at average to just a tick behind.  This should mean most of the crop will be headed by next week and possibly be flowering during the warmer temperatures.  More something to monitor than anything, but if the national yield slips much below the current 39bpa we are using, the balance sheet gets untenable quickly.

The Minneapolis spot floor rolled to the September yesterday afternoon.

 

Bottom Line: Minneapolis is on a one-way street to find out how small the crop is and how many bushels are still available for purchase out of the farmer’s bins.  Row crops should muddle along more clarity is available on planted acreage, and also until we get a look at weather forecasts on July 3rd and July 5th.  This outlook should get us out into the pollination window for much of the corn belt, although one needs to remember how far behind much of the crop is in the eastern corn belt and Northern Plains.  The pollination window is likely to be long and drawn out this year.

 

Good Luck Today.

Tregg Cronin

Market Analyst

Tregg.Cronin@halocommodities.com

www.halocommodities.com

@5thWave_tcronin

 

 

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 *