6/29/2017 Morning Comments

Good Morning,


Outside Markets as of 5:55am: Dollar Index down 0.188% at 95.8620; Euro up 0.175% at 1.14495; S&P’s are up 2.00 at 2440.50; Dow futures are up 12.00 at 21,416.00; 10-yr futures are down 0.17%; Crude Oil is up $0.36 at $45.11; Heating Oil is up $0.0136 at $1.4526; Paris Milling Wheat is up €1.00 at €170.75/MT; Paris Rapeseed is up €0.75 at €359.75/MT; Dalian corn closed down 0.65%, Dalian soybeans closed up 0.23%, Dalian soy oil finished up 1.09% and Dalian soy meal closed unchanged.

Very quietly, crude oil has managed to string together five winning sessions in a row, and will be working on its sixth higher close today.  While a long way from the 50-day moving average at $47.26/bbl, spot price crude at $45.07 is closing in on the 38.2% retracement of the $52.00-42.05 selloff at $45.87.  The weekly EIA energy inventory report didn’t offer much for direction with stocks building 120,000bbls to 509.21 million bbls.  This compares to 495.94 million bbls last year and the 3-yr average of 428.62 million bbls.  Crude should continue its steady seasonal decline until early October.  Interestingly, crude oil calendar spreads have barely budged on the short little reversal the last several sessions.  Crude oil calendars are still mired in the middle of their 3-4 month range dating back to March.

Some scattered rain in NW-SD as well as a system moving along the NE/KS border and into MO this morning.  Some highly anticipated rains are expected to fall over the course of the next 5-days in the central and southern corn belt which should help alleviate dryness concerns.  Off today’s models, areas of E-KS/E-NE/IA/MO/IL/IN should be looking at 2-5” from tomorrow until mid-week next week.  The important thing will be what kind of holes the rains leave as some areas are running healthy deficits over the last 30-days.  Little relief seen for the Northern Plains or the PNW the next 7-days which should increase stress for crops there.  Extended maps keep the furnace on during the 6-15 day outlook, especially for the Northern Plains.  The entire Midwest will see above normal temps, but the highest concentration will be over the Dakotas.  Northern Plains remain in below normal precip while the ECB remains above normal on moisture.  The WCB could be in tough shape by the middle of July.


Firmer to sharply higher markets overnight once again as Minneapolis wheat continues its surge in search of fair value.  Minneapolis wheat will be working on its 6th higher close in a row, and is already up 64.0c on the week before we even get to the USDA reports tomorrow.  Many in the trade have expressed skepticism over spring wheat’s relentless rally and how “overdone” the move is.  However, Minneapolis has only closed lower five days during the month of June, not allowing anyone to buy a dip or enter the market on a correction.  What better sign of a bull market than one who won’t let anyone in?  The forecasts don’t look good for the Northern Plains as a whole, and there will now be concerns about the E-ND/MN crop which should be flowering and filling heads during the dry/hot stretch ahead.  If this crop does come in closer to 350mbu than 400mbu, then the rationing job in the HRS market is far from over.  Winter wheat is also getting on board this morning with Chicago wheat trading at its highest level since June 16th, 2016.  While the real story is in HRS, the need to buy back a few winter wheat acres for this fall is readily apparent and winter wheat harvest is already halfway complete.

Data yesterday included weekly ethanol production which came in 25,000bbls/day above the week prior at 1.015 million bbls/day.  While a big bounce back from the week before, and the highest production in four weeks, this was still not enough to hit the level needed to reach the USDA’s marketing year target.  The USDA will not update demand estimates Friday, but will instead wait for the July WASDE, allowing for several more weeks of production to be calculated.  Weekly stocks declined sharply by 442,000 bbls to 21.838 million bbls/  Stocks at that level are the lowest since early 2017, but still remain plentiful on a seasonal basis.  Ethanol prices continue to run in a rather narrow range between $1.45/gln on the low side and $1.70 on the high side, but more broadly, $1.35-1.75.  Ethanol is between a 1.3c premium and a 2.2c discount to RBOB gasoline futures, providing little incentive for a ton of discretionary blending.  Analysts will be anxious to get  May import/export data out next week to gauge the continued demand for ethanol abroad.

The rally in spring wheat futures, which has now spanned $2.00 since late April, is certainly drawing out some more cash wheat from producers and country elevators.  On Wednesday there were 208 cars including four trains on the spot floor vs. 67 cars and one train a week ago.  This is solid volume, and did cause the spot floor to trade lower by 5-15c for 14.0-15.0% protein.  13.5% was up 5c on the bid side.  The rally hasn’t produced a lot of cash weakness, however, as 14.0% pro is indicated at +100/135U vs. +120/145N a week ago with the spot floor rolling at 5c.  15.0% protein is indicated at +185/190U vs. +175/185N a week ago.  Inter-market spreads between Minneapolis and Chicago/KC continue to hit new contract highs on a daily basis, not allowing participants a chance to buy a dip.  On a spot month basis, MW/W is trading at +261.50, the highest since mid-December 2011, while MW/KW is at +258.25c, also the highest since December 2011 and only ticks away from the highest print since June 2008.  With the perceived tightness in spring wheat not coming until Q4-2017 or Q1-2018, still plenty of opportunity in the back month inter-market spreads based on where the front end is trading.

Despite the rally in wheat futures, winter wheat calendar spreads have remained fairly stagnant which would indicate a reluctance for flat price to trade higher.  This is in-keeping with rising deliverable stocks which we commented on yesterday.  Kansas City wheat elevators saw stocks up 12mbu w/w and are now 17mbu larger than a year ago.  This includes a jump of 1.9mbu of non-deliverable wheat in Salina, which is most likely wheat which didn’t make the 10.5% protein minimum spec per anecdotal reports on the ground.  Chicago wheat warehouses saw stocks increase 14mbu w/w and are 20mbu higher than a year ago.  Both of these supply situations should continue to grow until well after harvest has completed, which will keep pressure on calendar spreads.  The opposite is of course Minneapolis which continues to see calendar spreads rally as deliverable stocks drop on a weekly basis.  Deliverable supplies are known as the “supply of last resort,” and when you have a market as tight as spring wheat watching its deliverable stocks drop, traders need to price in how valuable that wheat is and how little you should be paid to store it.  Deliverable stocks should continue to drop until late July.

Later this morning, StatsCan will provide their latest update to Canadian planted acreage with market participants expecting all wheat acreage of 22.70 million acres vs. 23.18 million in April and 23.21 million in 2016.  Non-durum acreage is seen at 17.70 million vs. 18.04 million in April and 17.02 million in 2016.  Canola acreage is pegged at 22.20 million acres vs. 22.39 million in April and 20.37 million in 2016 which would be a new record for Canola acreage.  Oat acres are seen at 3.40 million vs. 3.42 million in April and 2.83 million last year.  Peas, barley, lentils and soybeans are all expected to move very little from the April intentions.  Back to all-wheat, the USDA is currently using roughly 23.648 million planted acres which the market is expecting to fall to 22.70 million.  If we use an average harvested percentage on the StatsCan estimate with a 3.30MT/ha average yield we produce total wheat production of 28.628MMT vs. the USDA’s current 28.350MMT.  Unfortunately, it doesn’t feel like the market is still comfortable with this sort of yield and production figure based on the dryness in southern Canada and the continued rally in Minneapolis.  If yield falls to 3.00MT/ha, which is right in line with the 10-yr average, production drops to 26.025MMT and ending stocks based on USDA demand fall to 2.838MMT.  Some in the trade think Canada could be closer to 23-24MMT.  Minneapolis wheat could very well be the indicator on Canadian weather moving forward.


Bottom Line: Always difficult to get married to a position the week of major USDA reports, but the mood in the market place feels to be shifting.  WCB conditions are not ideal, and rain forecasts the next 15-days don’t look to improve anything west of IA.  Spring wheat production prospects are still falling, and now Canada is a much more serious concern.  If we shave bushels off of Canada, where will the importer of high protein wheat turn?  The Minneapolis Grain Exchange increased margins last night, so please be aware of any open positions.


Good Luck Today.

Tregg Cronin

Market Analyst






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