7/11/2017 Morning Comments

Good Morning,


Outside Markets as of 5:50am: Dollar Index up 0.079% at 96.1390; Euro down 0.083% at 1.14350; Russian Ruble is down 0.833% at 61.7283; S&P’s are down 1.50 at 2423.00; Dow futures are down 7.00 at 21,352.00; 10-yr futures are down 0.10%; Crude Oil is down $0.37 at $44.03; Heating Oil is down $0.0121 at $1.4415; Paris Milling Wheat is down €1.00 at €180.25/MT; Paris Rapeseed is down €2.50 at €375.00/MT; Dalian corn closed down 0.53%, Dalian soybeans closed up 0.72%, Dalian soy oil finished up 1.12% and Dalian meal settled up 1.25%.

Rains moving across E-ND, S-IA and the IL/IN border this morning, although none of the systems look especially concentrated.  Rains the next 3-days will be best in MN as well as S-IA and N-MO.  Totals look to be in the 0.50-1.30” range in total for all three areas, but the ECB will also see good chances for rain.  The northern half of IL, IN, OH, MI could also see 0.50-1.25” over the coming 72-hours.  The rest of the 7-day outlook doesn’t appear to add much to any area of the Midwest.  The Northern Plains look to get next to nothing the next 3-days with the exception of N-MN.  The extended maps from the Climate Prediction Center don’t look good for anyone with above to much above normal temps in the Northern Plains, but above normal elsewhere.  More important is the below normal precip the entire Midwest sees during the 6-15 day.  This will be prime pollination for much of the corn belt.


Reversals in the overnight session for most Ag markets as initial gains at the open have given way to modest losses.  Soybeans and corn are both posting 1.0-1.30% losses, with the former seeing 6-7 gains but are now down 10.50c on the day.  The reversal is obviously a bit surprising considering the weaker than expected crop condition ratings from NASS yesterday afternoon in addition to the latest forecasts which look far less than ideal for the key developmental weather of July.  Yet, it seems traders are quick to forget the June 30th reports on which we learned we have 514mbu of additional corn in storage than a year ago, 91mbu more soybeans and 208mbu of wheat.  Further, the USDA is unlikely to make substantial changes to their national corn and soybean yield forecasts on Wednesday’s WASDE report as most of the crop will not have been through pollination or pod-set.  In addition, while the USDA is likely to cut the national spring wheat yield, the harvested acreage component might not reflect the true level of abandonment across the Northern Plains given this report focuses on yield.  Regardless, it will be difficult for markets to slip too far with crop prospects flat to declining.

The national corn condition rating fell 3pts this week to 65% G/E vs. 67% expected and 76% last year.  The only states in the corn belt which saw an improvement in conditions were MO and IN, otherwise all other major corn producers were flat to lower with SD down 5pts and NE down 7pts.  The national crop rating is now the second lowest since 2008 with 10% of the crop rated poor/very poor.  While IN saw an improvement, only 48% of the crop is in G/E categories vs. the 5-yr average of 58%.  ND’s crop rating of 52% G/E is the lowest since 2002, while SD’s 37% G/E is the lowest on record.  19% of the crop is silking vs. 10% last week and 27% average.  62% of the national soybean crop was rated good/excellent vs. 63% expected, 64% last week and 71% last year.  MN saw a 1pt improvement while all other corn belt states saw a decline.  Like corn, the national soybean rating is now the second lowest since 2008.  IN has 50% of the crop in G/E categories vs. 55% on the 5-yr average.  47% of the ND soybean crop is G/E which is the lowest they have going back to 2000.  SD’s 34% G/E is the lowest rating since 1993.  It is important to point out, most other states have ratings right at the 5-yr average when 2012 is included.  34% of the national crop is blooming vs. 21% average while 7% of the crop is setting pods vs. 5% average.

Spring wheat conditions fell another 2pts to 35% G/E which was what was expected by the trade and would compare with 70% G/E last year.  Largest declines were noted in ID which saw a 6pt drop to 71% G/E while ND saw another 5pt drop to 36% G/E.  ND now has 36% of its spring wheat crop rated G/E and 35% rated P/VP.  Both are the worst ratings for the respective categories since 1988.  While MT saw a 3pt increase in its G/E rating to 11pts G/E, their 62% P/VP remains the highest since 1988.  The MN crop remains very highly rated at 85% G/E which is the highest since 1990 and compares with a 65% G/E rating on the 5-yr average.  WA saw unchanged conditions at 43% G/E which compares with the 5-yr average of 54% G/E.  Continue to look at G/E ratings relative to prior years’ yield estimates for a clue about what the USDA might do Wednesday and down the road.  Based on just the G/E ratings, this week’s conditions are implying a yield on Wednesday of 29.3bpa with an r-squared of 39%.  All three time frames show a yield of 28.0-29.5bpa, but we are not expecting the USDA to deliver a yield that low Wednesday.  Even a yield of 35bpa delivers a HRS crop of just 335mbu based on 92% harvested. Substantial rationing of exports and a massive jump in imports from last year will be required to keep carryout above 100mbu.  Much more will be known in 2-weeks when South Dakota starts harvested spring wheat.  79% of the crop is headed vs. 74% average.  Winter wheat harvest was pegged at 67% complete nationally vs. 53% last week and 65% average.  KS is essentially done at 93% complete vs. 89% average while NE is 52% complete vs. 38% average and SD is just getting going at 14% complete vs. 14% average.  SD should take a massive jump this week given the little amount of HRW not abandoned.

While not fresh news today, the latest COT data which reflects positions as of 7/4 showed funds still short -83,319 contracts with price up around 10c before the overnight reversal.  Odds are good they have covered most of these positions, with open interest declining until yesterday.  In soybeans, funds were short -104,187 contracts as of 7/4 with price up around 40c before turning lower last night.  In soybeans, however, open interest is up around 10,000 contracts over the last week which doesn’t signify exclusively short-covering.  As we’ve written about in this space recently, while funds were building a record net short position in soybeans, the gross commercial long (end user) had quietly amassed the largest position as a percentage of total open interest on record.  That position did decline last week as he sold positions into the fund short-covering.  Still, the commercial position is large and definitely foretold of a bottoming in price.  Both the corn and soybean fund short should be close to even by now which begs the question of whether they want to put on a substantial long as we head into pollination weather?  In KC wheat, funds bought 11,378 contracts to put their net long at 57,912 contracts which is the largest since 2010 but short of the record at 67,176 contracts.  The gross commercial short (farmer/elevator/hedger) now sits at 165,999 contracts which is the largest on record and fits with the huge amount of farmer selling we’ve been seeing off the combine.  Funds were still short 38,557 contracts of CGO wheat which has likely been covered since.  The 52-week average fund position is -127,565 contracts while the 3-yr average is -94,156 contracts which shows how rare it is for funds to hold a net long in this market.  Net selling took place in MGEX by the managed funds last week but they remain net long by 14,017 contracts.

Export inspections were also released yesterday which included 19.6mbu of wheat vs. the 18.1mbu needed weekly to hit the USDA mark.  YTD shipments now stand at 122.7mbu which is up 25.7% from a year ago.  Corn shipments totaled 39.8mbu vs. the 22.0mbu needed weekly.  Total shipments are now 1.958bbu which is up 36.6% from a year ago and account for 88% of the USDA’s marketing year objective.  Soybean shipments were much stronger than expected at 17.5mbu vs. the 6.8mbu needed weekly.  Total shipments of 1.947bbu are up 17.7% from a year ago and now account for 94.9% of the entire marketing year objective.

Anecdotal reports of increased cash movement for both corn and wheat as of late, and calendar spreads certainly support that idea.  The CU/CZ traded higher overnight, but hit a new contract low of -13.00c yesterday which accounts for 67.1% of full financial carry.  Similarly, the WU/WZ hit a new contract low yesterday of -24.25c, which actually only accounts for 61.9% of full financial carry given the large storage rates being applied at current.  Yesterday and overnight the KWU/KWZ traded down to -26.25c which is the lowest print since April 25th.  HRW cash markets remain firm on the lack of protein available to the market, but SRW cash is steady/weaker as quality in the ECB is good and mills don’t need to pay up for whatever class they are seeking.  CIF barge bids are off around 1c on the week.


Bottom Line:  Probably due for a bit of profit-taking on this Turnaround Tuesday, but doubtful markets are going anywhere fast given the forecast and ahead of the USDA reports tomorrow.  We have a solid old crop buffer against any yield adversity, but the unknown is going to keep markets firm.  Conditions and forecasts for the Northern Plains couldn’t look worse, and we plant a lot more row crop there than we did 5-years ago.  Seasonals are working against corn and soybean prices, but those are only as good as the particular year you happen to be in.


Good Luck Today.

Tregg Cronin

Market Analyst






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