7/25/2017 Morning Comments

Good Morning,


Outside Markets as of 6:25am: Dollar Index down 0.088% at 93.9550; Euro up 0.146% at 1.16940; S&P’s are up 4.75 at 2473.25; Dow futures are up 55.00 at 21,554.00; 10-yr futures are down 0.16%; Crude Oil is up $0.75 at $47.10; Heating Oil is up $0.0210 at $1.5433; Paris Milling Wheat is up €0.25 at €169.50/MT; Paris Rapeseed is up €1.25 at €362.50/MT; Dalian corn closed up 0.18%, Dalian soybeans finished up 0.26%, Dalian oil closed up 0.79% and Dalian meal settled up 0.78%.

Some scattered rains across ND and S-MN, otherwise fairly quiet this morning.  Commodity markets old off swiftly on the Sunday night predicated on the rains received over the weekend and late last week.  A closer look at actual, verified totals from NOAA show plenty of holes left behind the last week’s rain.  Most notably, the SW-1/2 of IA, E-NE, C-SD, N-MO, most of KS and the southern-2/3’s of IL.  IA and E-NE have solid chances to fill in these gaps starting tomorrow when the entire state of IA looks to pick up 1.00-2.50” with the same true for E-NE.  The ECB will stay well-watered over the next 7-days, but that has actually been part of the problem as many areas in IN/OH are running 150-400% of normal rainfall over the last 14-days with soybean conditions feeling the effects.  Cooler and drier remain the themes for the 6-10 and 8-14 for the majority of the Midwest.


Higher markets last night on the weaker than expected crop conditions, but those rallies fizzled out at the European open to fill gaps and trade weaker in both corn and wheat.  The soybean conditions were the real surprise, and they are maintaining positive gains on the session, but it is also soybeans which can recover best after a drier stretch.  The weakness in corn seems to be twofold: 1) more analysts are coming to grips with what a 164-165bpa yield means to the 17/18 balance sheet when demand is factored in.  Without a yield closer to 160bpa, it is just tough to erase the largest carryout in 30-years within one marketing year.  2) The cheap FOB offers out of Argentina and Brazil will remain a constant threat throughout 17/18 as global importers rest comfortably in a buyers’ market.  The Wheat Quality Council Tour kicks off the HRS tour today with expectations they will find a better crop than the USDA is currently carrying because the nature of the routes will avoid the worst areas of SD, ND and MT.

The crop progress report released last night showed national corn conditions down another 2pts to 62% G/E vs. 63% expected, 64% last week and 76% last year.  Based on just G/E ratings, and excluding 2012, our current conditions are tied with 2011 and 2007 as the lowest rating since 2006.  When looking at the full crop condition score, we see a value of 359 points which yields a similar result.  In the by-state conditions, the ECB mostly improved with conditions up in IL (+1pt), OH (+2), WI (+4) and MI (+3).  Conditions were mainly lower in the WCB, however, with IA and NE showing 3 and 4pt drops, respectively.  PA and CO were down 9 and 11pts, respectively.  Excluding 2012, NE has the lowest rated corn since 2006 while ND is the outright lowest since 2006 and SD is the lowest outright since 2002.  67% of the crop is silking vs. 40% last week and 69% average.  8% of the crop is doughing vs. 13% average.

Soybean conditions were the real show-stopper, however, with the national ranking down 4pts to 57% G/E vs. 60% expected and 71% last year.  Declines were witnessed from one end of the belt to the other which signifies both drought and excessive moisture are taking their toll on soybeans.  It must also be stressed, however, soybeans are the one crop you can’t count out as long as the calendar doesn’t read September 1.  Their ability to manage stress and still produce bountiful yield is unlike any other.  While the conditions need to be taken seriously, weather the month of August will still mean more for final yields.  The crop condition score nationally of 349 is the lowest since 2012 and the second lowest since 2006.  IN at 47% G/E compares with 54% average, while OH at 47% G/E compares with 52% average and NE is 59% G/E vs. 63% average.  ND at 41% G/E is the lowest rating for that state since 2006, while SD at 25% G/E is the lowest rating since 1993.  IL, IA, MI and MN are all at or slightly above the 5-yr average condition rating with 2012 added to the mix.  69% of the soybean crop is blooming vs. 67% average while 29% of the crop is setting pods vs. 27% average.

Spring wheat conditions declined 1pt nationally to 33% G/E which is what was expected by the trade and compares with 68% last year.  Conditions declined in MT, ID and WA while they were unchanged in the Dakotas and a point higher in MN.  The national spring wheat condition score of 277 points is the lowest since 1988’s 196 points.  The by-state changes were not worth mentioning, but suffices to say most remain the lowest since 1988.  We continue to monitor conditions vs. final yields on spring wheat with the USDA’s current other spring yield of 40.3bpa looking much too high based on history.  With the USDA’s current yield of 40.3, our regression analysis has an r-squared of 33.3%.  If we put 2017 on the trend line with a yield of 28bpa, the regression improves to 45.9%.  There are other variables which go into the yield assessment, and we are not currently forecasting a 28bpa national average yield, but the USDA still looks 4-5bpa too high in our view.  Winter wheat harvest was estimated at 84% complete vs. 75% last week and 80% average with no national spring wheat harvest to report yet.  Big progress will be made in South Dakota on HRS this week with yields incredibly variable but generally high quality.

Egypt’s GASC tendered for wheat overnight with 14 offers coming in from five different origins.  Cheapest offers were from Ukraine at $204.00/MT, Romania at $204.99/MT FOB and Russia at $205.00/MT FOB.  French wheat was offered at $206.75/MT FOB, while US-HRW was offered at $213/MT FOB.  US-HRW has been getting cheaper over the last 2-3 weeks, and some indications have had FOB prices even lower than the aforementioned, but GASC specs could have something to do with the premium.  Other cash sources note US-HRW is getting competitively priced into Algeria once again which wasn’t expected until 2018 given the bounce back in European production.  The tightening in FOB spreads along with US wheat being offered to GASC could be a sign futures have corrected enough to the downside which has amounted to around 61.8% of the entire rally which began in April.

Grain export inspections also released yesterday which included 16.6mbu of wheat vs. the 17.5mbu needed weekly to hit the USDA forecast.  Total shipments now stand at 161.2mbu vs. 135.7mbu needed weekly.  Corn inspections totaled 36.8mbu vs. the 15.8mbu needed weekly.  Total corn shipments are 2.039bbu vs. 1.538bbu a year ago.  Soybean shipments measured 21.9mbu vs. the 11.9mbu needed weekly.  Total soybean shipments measure 1.980bbu vs. 1.695bbu a year ago.

Two private crop tours of the hard red spring crop have pegged North Dakota around 180-185mbu vs. the USDA’s latest at 196.08mbu from earlier in the month and 269.10mbu a year ago.  This is probably a bit larger than the market was trading, and implies a crop closer to 375-380mbu compared with some of the low-ball estimates out there between 300-325mbu.  The moving target will continue to be harvested acreage, which we contend has risen from the where it was a month ago thanks to the futures rally.  Still, the USDA’s 96.3% harvested percentage is much too high and should be closer to 90-92%.  10-20mbu either way isn’t likely to affect the market in the grand scheme of things once farm marketing and logistics take over Q4-2017/Q1-2018.  In addition, Canada is still a moving target.  The fact managed money did almost nothing with their position over the last week according to the latest COT data probably had more to do with yesterday’s selloff than anything.  Commercials are especially well hedged in both winter wheat and spring wheat which we will cover in tomorrow’s comments.  The commercials are betting against higher prices, or at the very least, have locked in the carry and are betting on better basis down the road with all of the spring wheat harvest left to come in.


Bottom Line:  Market giving back overnight gains as corn and wheat longs weigh on the market.  More and more analysts are coming to the realization that the variability of this crop is as high as most have ever seen.  To wit, it may take combines rolling to get a real sense of what this crop has to offer in terms of yield potential.  Market participants will be anxious for both the WQC tour this week and the ProFarmer tour in two weeks.  While spring wheat has an especially bullish balance sheet, we still have to go through harvest and if the HRS farmer is anything like the HRW farmer, he could let it fly off the combine.


Good Luck Today.

Tregg Cronin

Market Analyst






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