Outside Markets as of 6:30am: Dollar Index down 0.020% at 95.7390; Euro down 0.187% at 1.14965; S&P’s are up 4.50 at 2429.00; Dow futures are up 38.00 at 21,405.00; 10-yr futures are up 0.12%; Crude Oil is up $1.55 at $45.74; Heating Oil is up $0.0126 at $1.4889; Paris Milling Wheat is down €1.75 at €180.00/MT; Paris Rapeseed is down €2.75 at €373.25/MT; Dalian corn settled up 0.48%, Dalian soybeans closed up 0.33%, Dalian oil closed up 0.13% and Dalian meal closed down 0.17%.
Lots of positive demand news for US crude oil this morning as private energy analyst PIRA Energy said US crude exports could reach 2.25m barrels per day by 2020 compared with 520,000 b/d last year. If that level were reached, it would put it in company with countries like Kuwait at 2.1m b/d and Nigeria at 1.7m b/d. Separately, the Energy Information Administration said US crude oil production is likely to hit 9.3m b/d by the end of this year, up from 8.9m b/d in 2016 and will rise to 9.9m b/d by 2018. The US will be one of the top five producers and top ten exporters, but isn’t subject to production constraints like members of OPEC can be. To be clear, the US still imports oil, having brought in 7.9m b/d in 2016 due in large part to domestic refiners not having demand for the light, sweet crude coming from North Dakota and Texas.
Scattered showers across the upper-Midwest this morning including light showers in SD/NE as well as the Great Lakes. Rain in the last 24-hours has been limited to a cross section in C-MN, localized activity in E-SD and W-SD as well as a bit of rain in S-NE. Western and southern WI also saw totals of 1.0-2.0” along the borders. Best chances for rain in the next 7-days will be in C-IA during the next 24-hours in which 0.75-2.00” is expected on about 50-60% coverage. The ECB will also combine several smaller chances of rain over the next 5-6 days, but relief for the Northern Plains and much of the WCB will remain limited. Still plenty of dry pockets, and the heat continues through the 6-10 before moderating in the 8-14 day outlook. Extended precip maps are dry for most of the central belt during the next 14-days, although the worm might be starting to turn in the Northern Plains, but a bit far out for confidence.
Weaker markets overnight as some of the rainfall returns lead to sell pressure, although a closer analysis doesn’t leave one especially confidence about performance through the heat blast. Also some rewarding the rally taking place by farmers ahead of the USDA’s WASDE report later this morning as evidenced by spreads and basis. Open interest changes on yesterday’s early rally and late weakness were mostly increases with Chicago wheat O/I up 5,776 contracts, while corn was up 23,947 contracts, KC wheat was up 3,232 contracts and soybeans were up 6,808 contracts. Difficult to know what the size of the managed fund positions are and whether they are net long or net short for the individual commodities which makes discerning the open interest change difficult. If the funds have moved to net longs, then the open interest increases yesterday are likely late-coming longs which are probably underwater and subject to liquidation. If the funds are still short and added to those positions near the highs, it puts even more emphasis on the initial reaction following today’s numbers. Corn ATM vol is above week ago levels while SRW and soybeans are slightly below.
The big focus of today’s reports will be the yield estimates for corn and hard red spring wheat, although expectations for huge changes to corn need to be tempered. The USDA rarely makes big changes to their yield estimate in July as objective field data is not available until the August WASDE. While the USDA may make small tweaks, farmers in the WCB hoping for a 5bpa cut shouldn’t be holding their breath. Average estimates look for a national average yield of 169.6bpa vs. 170.7bpa last month with production at 14.126bbu vs. 14.065bbu last month as the higher acreage from the June 30th report is applied. Soybean production is seen at 47.9bpa vs. 48.0bpa last month with production seen at 4.243bbu vs. 4.255bbu as slightly smaller acreage is plugged in. For wheat production, all wheat is seen at 1.748bbu vs. 1.824bbu last month with HRW flat at 745mbu vs. 743mbu last month and SRW mostly unchanged at 303mbu vs. 298mbu last month. Other Spring wheat is seen at 416mbu although the range of estimates goes from 470mbu to 305mbu. Most private analysts are probably in the 350-375mbu area of HRW with a downward bias.
While production forecasts will take center stage, the bearish stocks report from June 30th should take on as much importance. As one will remember, June 1 corn stocks in all positions came in around 102mbu larger than the average trade estimate which will almost certainly be taken directly away from feed/residual use. 16/17 ending stocks are therefore seen rising to 2.321bbu from 2.295bbu last month with 17/18 ending stocks pegged at 2.181bbu vs. 2.110bbu. It will also be interesting to see what the USDA does with 17/18 exports given the still growing South American production and the large discounts to US FOB offers. Wheat stocks for 17/18 are seen declining from 924mbu last month to 876mbu this morning due completely to the drop HRS production.
Deliverable stocks reports out yesterday saw a draw in HRS supplies with Duluth/Minneapolis down a combined 227,000 bushels to 18.080mbu. This is slightly above the low set two weeks ago of 17.787mbu which is the lowest since September of 2014. Daily activity suggests another draw coming for this week’s business. Deliverable stocks kept rising last week in KCBT and CBOT with the latter jumping 4.768mbu on the week to 91.167mbu which compares with 75.075mbu a year ago. No real change to HRW or HRS stocks in Chicago. Kansas City stocks also kept rising as new crop bushels continue to flow in. Total stocks rose 1.346mbu to 123.2mbu which compares with 107.344mbu a year ago.
CONAB released their latest Brazilian production figures yesterday which included an increase to corn production at 96MMT vs. 93.8MMT in June and 66.5MMT last year. Brazil’s lineup is big and growing for corn exports which should keep pressure on the US. Data show June corn exports at 1MMT, a new record with another 3.2MMT in the lineup. They put out a soybean production figure of 113.9MMT vs. 114MMT from the USDA last month.
Bottom Line: Weaker markets as we head into the USDA reports with the trade likely to be disappointed by the lack of corn production cut, while the trade might be as interested in the spring wheat production numbers as anything. Important to remember the USDA will probably not pick up the full extent of abandoned spring wheat acreage across the Northern Plains. Forecasts will probably continue to cut spring wheat production with greater emphasis on Canadian weather over the next 30-45 days.
Good Luck Today.
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