7/21/2017 Morning Comments

Good Morning,


Outside Markets as of 6:30am: Dollar Index down 0.132% at 94.1150; Euro up 0.167% at 1.16780; S&P’s are down 1.00 at 2470.25; Dow futures are down 23.00 at 21,557.00; 10-yr futures are up 0.12%; Crude Oil is down $0.44 at $46.49; Heating Oil is down $0.0146 at $1.5336; Paris Milling Wheat is up €0.25 at €170.50/MT; Paris Rapeseed is unchanged at €367.00/MT; Dalian corn closed down 0.30%, Dalian soybeans finished closed down 0.34%, Dalian soy oil finished up 0.46%, Dalian meal finished up 0.81%.

Scattered rain on the radar this morning in SD, S-MN, IA, IL and IN this morning.  The hot air mass and NW Flow continue to produce scattered, yet severe storms in the WCB with huge cells on the radar behaving erratically and rewarding some farms and not others.  In the last 24-hours, rains fell in NC and NW-SD to the tune of 1.00”, while rains also fell over a central strip through IA where it has been drier over the last 2-weeks.  The 5-day rainfall totals show impressive amounts in spots, but barely any rain in other spots.  Today will see rains in SE-MN and most of WI, but otherwise the WCB will be mainly dry until Monday/Wednesday when SD, MN and E-ND see chances at rain.  IA’s next best chance at rain comes Thursday/Friday next week with coverage at 0.50-1.20” for most of the state.  IA needs rain and soon.  Above normal temps and below normal precip for the WCB and Northern Plains continues on the extended maps.


Firmer markets yesterday and early last night gave way to lower prices this morning as traders wake up to radar returns and observed rainfall maps for parts of IA.  As mentioned in the weather section, it is important to really look at the moisture being received and where, as radar has sported some impressive colors the last 48-hours but the rainfall received have been anything but impressive for many areas.  Looking back at the last week of rainfall on Sunday will be important in our opinion considering the high temperatures and heavy water needs corn and soybean plants require at this stage of development.  The majority of the nation’s corn plant has either already pollinated or will be doing so in the next 10-days, so Sunday night forecasts will still be important for corn and especially so for soybeans.  The erratic nature of price change around weather model releases has also been a big talker in the trade as of late with many noting the lack of volume around those time periods also.  Producers are encouraged to manage risk appropriately in this environment where computer based algorithms are trading weather maps right alongside humans.

Export sales released yesterday were solid for all three major grain commodities, and especially so for wheat relative to expectations.  Wheat sales totaled 24.6mbu vs. the 13.9mbu needed weekly to hit the USDA export forecast.  Total commitments so far this marketing year measure 346.1mbu, up 2% from a year ago.  Big sales to the Philippines were the highlight, including 57,900MT of hard red spring as the inelastic demand of that class shows its teeth.  Corn sales were also better than expected at 18.4mbu vs. the 14.5mbu needed weekly to hit the USDA forecast.  Total commitments now stand at 2.213bbu which are up 17% from a year ago and almost clear of the USDA’s marketing year total of 2.225bbu.  There are 271.5mbu of outstanding sales vs. 407.1mbu at this time a year ago.  Soybean sales totaled 15.1mbu, which were the largest in 7-weeks and adding to the commitments which have already exceeded the USDA’s marketing year forecast.  Total commitments stand at 2.218bbu which are up 19% from a year ago and past the 2.100bbu forecast by the USDA.  New crop sales are taking on added importance as well given our proximity to the new marketing year.  The real story is how woefully behind corn and soybeans are to last year at this time with corn at 138.3mbu vs. 263.0mbu a year ago, and soybeans at 201.8mbu vs. 336.1mbu a year ago.  Way too early to affect USDA demand assumptions but the weight of the South American crop is not lost on importers.

Informa Economics released their latest update of US corn and spring wheat production mid-session yesterday.  They chose to cut 287mbu off national corn production which is now forecast at 13.9 billion bushels with a national average yield of 166.2bpa.  If we plug this number into our grain balance sheets with USDA carry-in we see a carryout for 17/18 at 1.872bbu with a stocks/use ratio of 13.05%.  This would be the second highest stocks/use ratio since 2008/09, and the second highest carryout since 2005/06.  As noted yesterday, there would appear to be room to cut demand in some spots should production prove to be around that level although the spotty nature of rains lately would seem to be keeping yield forecasts on a downward trajectory.  Informa cut 23mbu off their other spring wheat production from the USDA’s latest guess, pegging the crop at 400mbu.  The HRS portion of the USDA’s other spring crop amounted to 386mbu or 91.2%.  If we use the same ratio on Informa’s number that would imply a HRS crop of 364.8mbu.  That would be a yield of around 38bpa, which is much higher than crop conditions would imply.  It would also appear they have not adjusted for lower harvested acreage, so not sure what value this production estimate has any more than USDA’s from two weeks ago.

The USDA Attache to Australia updated his production forecast for their wheat crop yesterday, putting it at 22MMT due to drought conditions across much of the island.  This would be well below the 35MMT from last year and solidly below the USDA’s latest estimate of 23.5MMT.  The average yield is seen at 1.8MT/ha vs. 2.70MT/ha last year.  According to the report, in some areas, around 10% of the crop area appears unlikely to be harvested as less than 20% of normal rainfall had occurred as of July.  We would go one step further and say planted acreage could be down 10-20% from last year given producers’ decision to forego planting into dry dirt according to our sources on the ground.  Without rainfall in the immediate future, wheat production could be staring at less than 20MMT even though the critical water usage stages doesn’t really kick in until LH-Aug, FH-Sep.  To be clear, there are significant carryover stocks from last year both on-farm and in commercial hands to help buffer the shortfall.  Post is estimating wheat exports for the marketing year at 18MMT vs. the USDA at 19MMT and 22MMT this past season.


Bottom Line: Erratic trade isn’t going anywhere, especially with this NW Flow creating so many winners and losers with the rainfall it is generating.  By Sunday we will be able to assess the haves and have nots more clearly, and see how big the problem areas remaining are.  Difficult to believe the good areas are good enough to offset the poor areas this year.  Even in supply-led rallies there is rarely a good time to sit back and hit the pause button on marketing.  Take advantage of what has been a strong July as opposed to the big weakness which is normally seen.


Good Luck Today.

Tregg Cronin

Market Analyst






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