7/6/2017 Morning Comments

Good Morning,

 

Outside Markets as of 5:45am: Dollar Index down 0.130% at 96.0690; Euro up 0.237% at 1.14125; S&P’s are down 9.75 at 2418.50; Dow futures are down 69.00 at 21,353.00; 10-yr futures are down 0.21%; Crude Oil is up $0.69 at $45.82; Heating Oil is up $0.0193 at $1.4978; Paris Milling Wheat is down €3.00 at €177.00/MT; Paris Rapeseed is down €1.50 at €368.00/MT; Dalian corn closed down 0.48%, Dalian soybeans closed down 0.82%, Dalian soy oil closed up 0.85% and Dalian soymeal closed up 0.75%.

Some scattered rains moved through the upper Plains last night while separately some showers fell along the MO/IL border.  Neither system provided substantial coverage, but the areas which received the rains were very fortunate.  This AM has showers in the eastern Dakotas as well as the northern half of MN.  Light showers also moving around the ECB.  Rains will continue to be sporadic the next three days with E-IA seeing a chance at 0.40” by the weekend.  The next chances for substantial rains in the belt come Sun-Tue and again Wed-Thur for SE-MN/E-IA/IL/S-WI/IN/OH/KY where combined totals are seen around 1.25-3.00”.  This is a composite estimate, so localized totals could be heavier while holes will surely exist when the systems are past.  The WCB and Northern Plains will continue to be devoid of any major system the next 7-days which will include NE/SD/ND.  Extended maps keep heat and dryness parked over the Northern Plains during the next 14-days, limiting any relief for that area.  During the 8-14, the below normal precip will include IA/MN/WI/N-IL/MO/KS.

 

Volatility continues to be the name of the game, led by none other than Minneapolis wheat which saw a 94.5c range yesterday and has followed it up with a 64.5c range during the overnight range.  For all the fan-fare, Minneapolis is only 13.50c lower on the day, but is 62c off the inter-day high set yesterday.  The options market continues to show the heightened volatility with MWU closing at 48.74% yesterday vs. 47.08% a week ago.  CU corn vol closed at 28.61% vs. 26.92% a week ago, SU settled at 25.62% vs. 18.47% a week ago and KWU closed at 38.72% vs. 27.56% a week ago.  The increase in volatility is fairly remarkable considering last week’s volatility settlements were headed into one of the major USDA reports of the year last Friday.  Heightened volatility is usually more closely aligned with falling prices while low volatility with rising prices.  Worth noting on the selloff yesterday, Chicago wheat open interest rose 6,248 contracts in futures and 21,778 in options, while corn futures interest rose 7,430 contracts on the up day.  KC open interest declined 1,215 contracts and soybean open interest rose 1,339 contracts.  Minneapolis O/I had been rising, but their data is not available yet this morning.

One anecdotal note before jumping into the data, cash sources report an incredible amount of HRW being sold by the farmer off the combine as harvest wraps up in KS and NE.  Some are pegging it at 50-75% of the bushels coming across the dump scale, which would be a much higher percentage of the total crop than it would be in the Northern Plains where on-farm storage is so much more heavily utilized.  This is encouraging given the counter-seasonal rally during harvest, but also because of the lack of competitiveness for HRW on the export market.  Yesterday saw Egypt’s GASC tender for August 5th-15th delivery, eventually purchasing 410,000MT of Russian and Romanian wheat.  The wheat averaged $200.65/MT FOB and $214.40/MT C&F.  Compare this with TX-Gulf HRW ORDS at $231.30/MT FOB and 11.0% at $246.00/MT, while SRW is valued around $222.30/MT FOB.  While there are genuine concerns for the US-HRS crop, and the HRW crop may end up proving slightly smaller, there is more than enough winter wheat to go around and the job of the market would not appear to be that of rationing all export demand during the harvest season.

The weekly crop progress report was delayed until yesterday afternoon due to the Independence Day holiday in the US.  Corn conditions improved 1pt to 68% G/E vs. 66% expected and 75% G/E last year.  Essentially, the WCB saw declines while the ECB saw improvements which was what the trade was expecting.  The real mover could come next week after a week of 90’s and limited rainfall in the WCB.  The corn condition score nationally is the lowest since 2012, but right at the 5-yr and 10-yr averages.  10% of the crop is silking vs. 13% average.  Most of the states with solid conditions are right around the 5-yr average, although none could be described as superb.  On the other end of the spectrum, IN is rated 47% G/E vs. 73% last year and 58% on the 5-yr average.  ND is 55% G/E vs. 78% last year and 78% average.  ND would be the lowest rated corn crop since 2002.  OH is 56% G/E vs. 70% last year and 61% average.  SD is 42% G/E vs. 68% last year and 70% average.  SD currently has the lowest rated corn crop for week 26 on record.  The USDA will update their national average yield estimate next week which remains at 170.8bpa.

Soybean conditions nationally declined 2pts to 64% G/E vs. 65% expected and 70% last year as the WCB declines with no ECB offset.  18% of the nation’s soybean crop is blooming vs. 17% average.  Several state condition scores worth noting including IN soy at 51% G/E vs. 72% last year and 57% average.  ND soy is rated 48% G/E vs. 75% last year and 76% average.  South Dakota is rated 36% G/E vs. 67% last year and 68% average.  North and South Dakota both have the lowest soybean condition scores on record for week 26.  While it is easy to look at the national rating and these few state scores and start pulling yields back, it is incredibly difficult to assess soybean yield potential the first week of July.  Appearances in early July usually have very little correlation to final yield potential which makes cutting yields premature at this juncture.  Once the national crop has moved over 50-75% blooming, more can be gleaned.

National spring wheat conditions pulled back another 3pts to 37% G/E vs. 48% expected according to newswire services, although I’m not sure who they are surveying as absolutely no one on the ground expected an improvement in conditions.  SD saw her score decline another 1pt to 11% G/E which is the lowest since 1988.  ND improved 2pts to 41% G/E but is also the lowest since 1988.  MN was unchanged at 86% G/E and compares to a 70% G/E 5-yr average.  MT saw conditions decline 14pts to 8% G/E which is the lowest ranking on record.  WA saw conditions flop 25pts to 43% G/E which compares with a 56% G/E on the 5-yr average.  ID saw conditions improve 24pts on the week to 77% G/E, but this appears to be a correction to last week’s score as last week the P/VP score increased 15pts and this week it declined 19pts.  How the crop could change that much in the span of two weeks is a bit of a mystery.  59% of the crop is headed vs. 54% average and should really see heading progress leap after the week of temperatures currently forecast.  We continue to plot national condition scores against spring wheat yields to see what the USDA might be inclined to do on subsequent reports.  This week we plotted the week 26 score against the July USDA forecast as well as the final yield forecast in September.  The July forecast has a bit better r-squared at 39% and is currently implying a yield around 29.0bpa.  Condition scores against the final imply a yield around 29.5bpa with a 33% r-squared.  Still not very strong but improving.

Winter wheat conditions declined 1pt to 48% G/E and compare with 62% G/E last year.  Most HRW states saw an improvement with the exception of MT and CO which were down 9pts and 4pts, respectively.  The PNW was mostly lower as well.  Winter wheat harvest was estimated at 53% G/E vs. 41% last week and 54% average.  KS is 73% harvested vs. 72% average while NE is just getting started at 17% complete vs. 22% average.  HRW harvest should not take long in SD where much of the crop has already been desiccated or put up for hay, although the rally in spring wheat futures has undoubtedly pulled a few more acres out of the abandoned category and back into the harvested category.  This could pull the national average yield down further as lower yielding areas get cut, but at this point, it is all about bushels for a crop in this serious of a balance sheet predicament.

Yesterday also saw the weekly deliverable stocks reports which were delayed one day.  Spring wheat stocks actually increased by 520,000 bushels which was due to Duluth/Superior, and the daily reports suggest we could see another increase next week as the rally draws out bushels.  Total deliverable stocks increased to 18.307mbu which is still down from 21.274mbu a year ago.  In Chicago, weekly stocks increased 3.166mbu to 86.399mbu and is 17.953mbu above a year ago.  Deliverable grades were up 2.951mbu while non-deliverable were up 215,000.  In KC, deliverable grades were up 3.739mbu to 117.565mbu and are up 16.868mbu from a year ago.  Non-deliverable grades rose 452,000 bushels to 4.369mbu but are below a year ago at 4.906mbu.  The non-deliverable line item will be one to watch in coming weeks as we see how much sub-10.5% protein makes its way into commercial hands.  The plentiful nature of wheat stocks in both KC and Chicago should continue to weigh on calendar spreads, and is part of the reason spreads have been so reluctant to rally along with flat price.  Storage will be bidding for wheat just as hard as exports or domestic demand.

 

Bottom Line: The new-month and new quarter brought out buying early, but the money flow has turned much more one-sided as of late.  The winter wheat and corn markets seem to be realizing the large amount of old crop still available as well as the high amount of farm gate selling during harvest for wheat.  Spring wheat and soybeans continue to be supported by their subdued condition scores, and the final chapter is nowhere near written in spring wheat. The focus is quickly shifting to Canada, and the world hard wheat balance sheet cannot afford a major problem there as well.  Forecasts remain uncertain enough for the WCB that it would seem futures won’t be able to sell off too hard.  Weekly ethanol production will be delayed until 10:00 CDT this morning while export sales will be pushed until tomorrow.

 

Good Luck Today.

Tregg Cronin

Market Analyst

Tregg.Cronin@halocommodities.com

www.halocommodities.com

@5thWave_tcronin

 

 

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