7/30/2017 Morning Comments

Good Morning,


Outside Markets as of 6:30am: Dollar Index up 0.511% at 96.1170; Euro down 0.445% at 1.14165; British Pound is down 0.483% at 1.2982; S&P’s are up 7.75 at 2428.75; Dow futures are up 77.00 at 21,377.00; 10-yr futures are down 0.11%; Crude Oil is up $0.16 at $46.20; Heating Oil is up $0.0054 at $1.4881; Paris Milling Wheat is up €3.00 at €179.50/MT; Paris Rapeseed is up €5.25 at €367.25/MT; Dalian corn closed down 0.06%, Dalian soybeans finished up 0.96%, Dalian soy oil closed up 1.15% and Dalian meal settled up 3.19%.

Some light showers in the southern plains and Delta, but a mostly clear Midwest this morning.  Rain over the last 3-days has been confined mainly to OK/AR, parts of NC-KS and separately decent showers in IN/OH.  Very little precip in the WCB the past 72-hours.  The next couple days will see chances for rain in the WCB, predominantly SE-SD, S-MN, IA, WI, IL, although totals call for a general 0.50-0.75” with isolated areas heavier up to 1.50”.  The totals are made up of several smaller chances which could leave open the chance for disappointment.  The ECB and Mid-South will stay well-watered the next week, and temps will also remain cooler in the ECB.  Heat moves back in after the 4th of July holiday for the WCB and Northern Plains which will compound moisture stress.  Little to no relief seen for the Northern Plains in the next 15-days.


Sharply higher out of the gate last night, following through on the solid gains made on Friday as forecasts remain threatening for the Northern Plains and less than ideal for the WCB.  After our travels over the weekend from C-SD to the Twin Cities of MN, MN definitely looks like their 73% G/E rating on corn vs. SD’s 46% G/E.  The crop holds much better color and more uniform height when one crosses the board while the SD crop is uneven and still trying to fully crack the extra nitrogen it might have to grow into.  One thing which did stick out about the row crops along that route is their lack of maturity for the 4th of July.  While the old saying is “knee high by the 4th of July,” many times on that route we have seen knee high corn by the middle of June.  Very few fields were taller than knee high or certainly not to the waist yet which leads one to believe pollination for much of the corn from C-SD to C-MN will be pollinating toward the end of the July or even into the first half of August.  This lengthens out the need for beneficial weather during the critical pollination phase, and unless Growing Degree Units are picked up quickly will keep lingering doubts about the ability to finish this fall.  Lots of potential, but the Northern Plans and WCB will need better luck for the second half of the growing season than they’ve received during the first half.

Spring wheat continues to be the headline grabber, rallying another 25-30c overnight to add to its 32.25c gains from Friday.  The USDA surprised the trade by putting ‘other spring’ wheat acreage at 10.899 million acres vs. the average estimate of 11.206 million, the March 31st report number of 11.308 million and 11.605 million a year ago.  Using a 95% hard red spring ratio for ‘other spring,’ this gives us 10.352 million planted acres of HRS.  The real question is harvested acreage, however, and everyone in the trade immediately recognized the fact USDA’s 96.3% harvested percentage had no basis in reality.  Averaging other drought years together, we are using a conservative 92% harvested percentage, but this could very easily fall below 90% with the forecasted weather.  With a national average HRS yield of 37.5bpa, we arrive at a crop of 357mbu which would be the smallest since 2002/03.  Due to necessity, we increased marketing year imports to 75mbu which would be just two million bushels below the record imports of 2013/14.  With our current demand estimates, we have a carryout of 122mbu and a stocks/use ratio of 23.21%.

Obviously a lot of interest in Friday’s Commitments of Traders report, even though it didn’t capture some of the gains made late in the week including report day.  Nonetheless, in Minneapolis wheat, funds bought another 2,627 contracts to put their net long position at 15,347 contracts.  This is still the January level of 16,717 contracts and the record net long of 18,610 contracts in 2010.  Probably even more important is the fact because Minneapolis has been so popular lately, and open interest has risen to record levels, the managed fund share of open interest at 17.7% is well below the record levels over 31%.  In Chicago wheat, funds bought 11,963 contracts to put their net short at -63,485 contracts.  With the limit up close Friday, most believe this short is close to being covered.  More impressive in Chicago wheat was the selling by the gross commercial long as they clearly have no interest in being long at these levels.  That group dropped 24,000 contracts to put their position at the smallest since 5/20/14.  In KC, funds added 6,174 contracts to put their net long at 46,534 contracts which is still well below the record levels over 60,000.  The commercial selling was the real story in KC, however, as the gross commercial short rose to the highest levels since 2011 while the gross commercial long dropped to the lowest level since February.  Anecdotal reports certainly confirm the huge selling by the farmer in the southern plains as they reward a rally during gutslot harvest.

Also worth noting the fund position in soybeans jumped by 30,964 contracts to a now record -146,696 contracts.  Funds are also record short soymeal to boot.  Completely opposite of wheat, commercials are buying soybeans in droves, driving the gross commercial long position to a record as a percentage of total open interest as shown on the chart below.  Certainly more understandable the rally Friday and the follow through today in the oilseed as we remain 30-45 days away from the key reproductive weather for soybeans.  Heavy selling in corn pre-report to the tune of 55,227 contracts, pushing their net short right back out to -150,516 contracts.  Commercial activity was light.


Bottom Line: New month, new quarter and new buying as conditions remain tough in the WCB and Northern Plains as we cross the half way mark of the growing season.  Important to remember, however, that corn didn’t receive anything fundamentally constructive from Friday’s data.  There is more corn on-farm and off-farm and there are more acres planted than originally thought.  But the market is focused on weather, and things could be better.  Northern Plains are offered no relief in the next two weeks, and drought conditions are taking hold in the Canadian Prairies.  Balance sheets for global hard wheat exporters are tightening quickly.


Good Luck Today and have a Happy Independence Day!

Tregg Cronin

Market Analyst






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