7/27/2017 Morning Comments

Good Morning,


Outside Markets as of 6:30am: Dollar Index up 0.2090 at 93.6020; Euro down 0.009% at 1.17355; Swiss Franc is down 0.722% at 1.04520; S&P’s are up 4.50 at 2477.75; Dow futures are up 27.00 at 21,673.00; 10-yr futures are down 0.07%; Crude Oil is down $0.30 at $48.46; Heating Oil is down $0.0034 at $1.5961; Paris Milling Wheat is up €0.50 at €168.50/MT; Paris Rapeseed is up €1.00 at €366.25/MT; Dalian corn closed down 0.18%, Dalian soybeans finished up 0.40%, Dalian oil closed up 0.03% and Dalian meal settled down 0.64%.

Some showers in ND and separately some moisture in the Southern Plains and stretching up into S-IL.  The weather story yesterday was the bust on rains in IA which had potential for 1.00-2.50” across the entire state, but once the dust had literally settled, the state got far less than that.  NW-IA which has been the driest spot saw trace to 1.00” amounts on spotty coverage, while W-IA saw 10-15% coverage of 0.50-1.00”.  Most of the eastern half of IA saw negligible amounts.  Rain also fell in IL, MO, KS and SE-NE.  The WCB will be mainly dry the next 7-days, especially IA which sees next to nothing for rain as does E-NE, S-MN and N-IL.  Temperatures do moderate with mainly low to mid-80’s in the central and ECB while upper-80’s to low-90’s are seen in the Plains.  Northern Plains are dry and normal to slightly above on temps while the central and ECB are dry and cool.  As the map below shows, still meaningful deficits in moisture across parts of IL, IA, MO, ND and N-MN over the last 14-days.


A bit firmer overnight as the rain chances for IA which the market was so sure of fizzled out to provide little to no relief.  After hanging a lot of weight on that rain, the market will now have to watch a mainly dry week ahead for much of the WCB although temperatures will moderate.  The vast majority of the corn belt has already silked, and therefore gone through the most important week of pollination weather.  Soybeans, however, were still 69% blooming and only 29% setting pods as of this past Monday.  The current week and next week of weather will be incredibly important, which should be aided in the cool down.  Rain will still be needed in August to reach trend line yields, and if there is one balance sheet which can’t handle a sub-trend yield it is definitely soybeans.  Wheat markets are also finding a bit of support as US-FOB offers get closer to being competitive and as the much poorer yields from W-ND show up on the WQC tour from yesterday.  The tour will finish up today in Fargo with their results expected after the close today.

Starting with the wheat tour, scouts made 225 stops yesterday which is up from 197 last year, finding an average yield of 35.7bpa compared with 46.5bpa last year.  The two-day average now stands at 37.2bpa vs. 44.8bpa a year ago.  Media outlets made note of the difficulty in estimating some of these fields which had a calculated yield of less than 10bpa.  The reality is there is very little chance these fields get harvested, which will increase abandonment.  The amount of HRS put into a bale was also readily apparent with scouts estimating abandonment at 10-40% on certain legs.  WQC head Dave Green said the tour has not estimated harvested and unharvested acreage in the past, but will do so this year and present it for the trade to do with it what they will.  For reference sake, the USDA is currently estimating the North Dakota spring wheat yield at 38bpa vs. 46bpa a year ago and the 5-yr average of 46.6bpa.  2011 was North Dakota’s most recent low yielding year with a final spring wheat yield of 30.5bpa and yields in the drought years of 2006 and 2002 of 31bpa and 28bpa, respectively.

Other data released yesterday included weekly ethanol production which slipped 14,000bbls/day to 1.012 million bbls/day, but was 1.4% above same-week production from 2016.  With the end of the marketing year in sight, we can get a better sense of just how close we are to meeting the USDA’s 5.450bbu corn for ethanol demand estimate.  Based on the last 6-8 weeks, it looks as though we may come up just short of that target, and be in jeopardy of missing the USDA’s number by 10-15mbu.  The 16/17 corn balance sheet does not need any help growing at this point, and with just over a month left there isn’t really anytime to make it up.  Ethanol stocks dropped sharply by 608,000bbls to 21.529 million bbls.  Despite the drop, ethanol stocks remain sharply above year ago levels and historically high for this point in July.  Ethanol export data will be available next week.

Cash wheat markets continue to trade softer as the last HRW bushels attempt to get marketed while HRS growers with old crop are trying to take advantage of protein premiums before they evaporate.  In addition, cash markets seem to be waking up to the lack of demand for hard or soft wheat at the moment, and also the realization we don’t need to ration any HRW demand.  The KCBT spot floor was down another 5-26c yesterday for 11.40-14.0% with 12.0% protein indicated at +70/80U vs. +95/105U a week ago and +168/178U a month ago.  HRW wasn’t alone, however, as HRS basis for 14.0% on the spot floor traded down 5-10c with those indicated at +55/115U vs. +80/115U a week ago and +120/140U a month ago.  Encouragingly, Algeria tendered for and bought 500,000MT of milling wheat yesterday with prices said to be around $214-216/MT C&F.  This is optional origin business, but was thought to be conducted with France and Baltic States.  When offers are looked at a bit closer, US-HRW should have been within $1.00/MT of competing with French, although chatter suggests it didn’t take place.  Still, US wheat might not be that far off from connecting on some high-profile international business.  On the spring wheat side, despite crop issues of their own, CWRS continues to be offered $13-14/MT cheaper than US-HRW ex. PNW.  They are obviously still focused on moving wheat in the near-term even if rationing needs to take place on the back end.

Export sales out later this morning are expected to show wheat at 350-550TMT, corn at 350-800TMT, soybeans at 300-900TMT, meal at 50-175TMT and oil 5-20TMT.


Bottom Line: Doesn’t feel like row crops are going down any further in the near-term until more weather can be assessed.  If row crops stop plummeting, should take some weight off wheat, especially as HRW is getting closer to being competitive in the export grids.  Markets will be watching for the wheat tour results this afternoon, but most assuming they find similar production to what is already being traded.  The wild card is harvested vs. unharvested which won’t be addressed until the September 30th Final Small Grains report.


Good Luck Today.

Tregg Cronin

Market Analyst






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