7/7/2017 Morning Comments

Good Morning,

 

Outside Markets as of 5:45am: Dollar Index up 0.176% at 95.9730; Euro down 0.00100 at 1.14545; British Pound is down 0.615% at 1.2921; S&P’s are up 0.75 at 2409.25; Dow futures are down 4.00 at 21,277.00; 10-yr futures are down 0.05%; Crude Oil is down $1.38 at $44.13; Heating Oil is down $0.0422 at $1.4396; Paris Milling Wheat is down €1.25 at €176.50/MT; Paris Rapeseed is down €2.50 at €364.75/MT; Dalian corn closed down 0.30%, Dalian soybeans are down 0.88%, Dalian soy oil closed down 0.10% and Dalian meal finished up 0.50%.

After stringing together eight winning sessions in a row, crude oil looks set to close lower for the third session in a row as losses push over 3.0% this morning.  The spot month contract had retraced 50% of the 52.03-42.05 selloff at 47.05 before backing away with little in the way of support until the June 21st corrective low at $42.05.  Fundamental data out in the last day was mostly supportive in the way of the weekly EIA report which showed US crude oil stocks down 6.30 million bbls vs. the expected draw of 2.30 million bbls.  Despite the larger than expected draw, crude oil stocks at 502.91 million bbls compare to 493.72 million a year ago and 426.99 million on the 3-yr average.  Crude oil stocks should continue declining until mid to late October.

Some scattered showers on the Midwest, but nothing organized which looks to be bringing anything meaningful to US growing areas.  Rainfall this week has been fairly limited in the central and western corn belt with nothing in the way of widespread rains seen for IN/IL/IA/S-MN/NE and most of the Dakotas.  Even areas which received rains still boast plenty of holes where conditions have deteriorated.  Rains will remain limited the next 30-days with the best chance of rain coming for SE-MN/NE-IA/W-WI on Sunday/Monday with forecasts calling for 0.50-1.40”.  This system will then pass into N-IL/N-IN/S-MI/N-OH which looks to bring 0.50-2.00”.  For the 7-day combined precip map, anything west of C-IA looks to be short changed, especially with the heat setting up shop in the west.  Above normal temps remain in place during the 6-14 day outlook, and below normal precip will also be a feature for the Northern Plains and expanding to cover the entire central/WCB in the 8-14 day.  Private forecasters keep touting a NW Flow which is expected to provide relief for the aforementioned areas but that has not been the case as of late.

 

Weaker markets overnight, although compared to the volatility witnessed the previous two overnight sessions, most traders would take the changes this morning.  Despite the volatility, Minneapolis wheat is down just 4.0c on the week, although the range has been an impressive $1.135.  Chicago wheat is up 7.25c on the week, KC wheat is up 10.25c, corn is up 20.50c, and soybeans are up 38.50c.  Open interest changes this week have been interesting as Kansas City wheat has climbed 5,705 contracts, Chicago is up 18,215 contracts, soybeans are up 5,453 contracts and corn is up just 370 contracts.  The increase in open interest the last couple of days in wheat looks like speculative longs coming late to the party which could make them vulnerable to further “get me out” selling if prices set back any further.  A lot of concern about Minneapolis wheat and the setback it has recorded which spans 99.5c at last trade, or 11.5%.  One would be well suited to remember, however, we rallied $3.31 from the corrective low on May 16th, an astounding 61.6%, with only four lower closes along the way.  To say a correction was overdue is a gross understatement and hardly indicative of anything being fixed or changing in MGEX.

Data out yesterday included weekly ethanol production which was down 1,00bbls/day to 1.014 million bbls day.  This was 3.0% above last year’s same week production, which is a little under the needed y/y gain to hit the USDA’s current 5.450 billion bushel marketing year target.  Ethanol production has missed the needed level over the last five weeks, and has put uncertainty on what the USDA might do with that line item on the corn balance sheet for next week’s WASDE report.  Ethanol stocks declined 267,000bbls to 21.571 million bbls, and now sit at the lowest level since January.  Ethanol prices have moved back to a premium over RBOB gasoline futures with the 6-month strip now sitting at -$0.09/gln.  This will hardly help ethanol’s plight in drawing down stocks, especially as we move past the halfway point of driving season.

Segueing to ethanol and DDGs exports, May Census Bureau data was released this week and showed another solid month of ethanol exports at 119.2 million gallons which was up from last month by 36% and up from last year by 74.5%.  2016 calendar year ethanol exports were the largest total since 2011, and through 5-months of 2017, we have exported exactly 50.7% of the entire 2016 calendar year total.  Certainly bodes well for another strong year of product exports.  The larger monthly total was due to Brazil taking 64.3 million gallons, the largest single month total since December of 2011, despite all of the chatter about Brazilian ethanol import duties.  India and China, which have been major importers in the past year and half, took essentially nothing during the month of May.  DDGs exports took a big step backwards during May to 742,043MT, down from last month’s 869,041MT and down from last year’s 1.031MMT.  In fact, these were the smallest monthly exports since February 2016.  China took a paltry 39,376MT, the smallest monthly total for them since November 2014.

While the focus a week ago was largely on the planted acreage report, there was plenty of data to pick through on the SIAP report as well.  Because of the larger implied corn stocks level, thought it worth looking through the state-by-state breakdown to see where the larger supplies were actually sitting. Not surprisingly, states on both ends of the corn belt were guilty of carrying over extra supplies.  On-farm corn stocks in IL totaled 385.0mbu, the largest for June 1 since 1988.  Illinois was really the only ECB state which saw multi-decade highs in on-farm stocks, however.  IA reported 660.0mbu of on-farm stocks which was the largest since 1988 and compares with the 5-yr average of 407.0mbu.  On-farm stocks in IA were also 35% larger than off-farm stocks held in commercial hands.  MN on-farm stocks totaled 490.0mbu which were the largest since 1988 and up from 316.0mbu on the 5-yr average.  On-farm stocks in MN were an incredible 180% larger than the stocks held off-farm.  NE on-farm totaled 305.0mbu, the largest since 1999, with on-farm comparing to off-farm at 271.5mbu.  North Dakota on-farm stocks totaled 145.0mbu, the largest on record by a huge margin.  On-farm stocks were 154% larger than off-farm stocks.  Stocks in South Dakota were actually down 25mbu from last year at 180.0mbu, but still well above the 5-yr average of 140.0mbu.  On-farm stocks were also still up sharply from off-farm at 101.2mbu.  The take-away point from all the numbers mentioned above would be the huge amount of corn which still needs to move from the farm into commercial hands, and just how much corn it takes nationally to carry over 2.300bbu into the next marketing year.  The larger supplies should continue to weigh on basis which will prevent any cash strength barring a major crop issue.  Spreads should also be weighed on which should keep CU/CZ trading weakly and moving toward full carry.

Export sales out later this morning are expected to show wheat at 350-550TMT, corn at 350-700TMT, soybeans at 250-750TMT, meal at 25-200TMT and soy oil at 10-25TMT.

 

Bottom Line: While wheat has grabbed most of the headlines this week, row crops have quietly put together a solid week of price gains with December corn trying to close over $4.00 and November soybeans the vaunted $10.00 handle.  Forecasts do not look good for the Northern Plains, and don’t look amazing for the larger WCB either.  A lot of the extra acres being planted to corn and soybeans on the fringe are located in the Dakotas and it is difficult to make the case those crops will be getting larger over the next two weeks.  While on-farm stocks are sharply higher than a year ago almost everywhere, don’t expect a lot of those bushels to move unless the market makes another move higher or successful pollination is achieved.  Remember, with the delayed crop, pollination will be strung over a much larger time frame than usual this year.

 

Good Luck Today.

Tregg Cronin

Market Analyst

Tregg.Cronin@halocommodities.com

www.halocommodities.com

@5thWave_tcronin

 

 

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