8/1/2017 Morning Comments

Good Morning,


Outside Markets as of 6:00am: Dollar Index up 0.144% at 92.9820; Euro down 0.131% at 1.18445; S&P’s are up 5.25 at 2473.50; Dow futures are up 102.00 at 21,944.00; 10-yr futures are down 0.02%; Crude oil is down $0.12 at $50.06; Heating Oil is down $0.0039 at $1.6635; Paris Milling Wheat is down €0.75 at €167.50/MT; Paris Rapeseed is down €3.25 at €368.50/MT; Dalian corn closed unchanged, Dalian soybeans settled up 0.05%, Dalian oil closed up 0.65% and Dalian meal settled up 0.04%.

The USD and crude oil continue to be the largest headlines in the financial sector as the former hit the lowest level since May 3rd, 2016 yesterday while the latter hit the highest mark since May 25th earlier this morning.  No doubt the USD weakness has helped crude oil strength, with many analysts continuing to sight dim prospects for the Trump Administration’s agenda as the source of the selling pressure.  If the May 2016 lows are breached, the USD would be staring at the lowest levels since January 2015, erasing the entire consolidation pattern and rally to the high 103’s following last fall’s election.  Meanwhile, crude oil has clawed back above its 50/100/200-day moving averages, and has the next real resistance at the 5/25 corrective highs around $52.00.  Energy inventories appear to have hit their seasonal peaks earlier than normal this year, helping to ease the burdensome stocks present for much of 2017.

Scattered showers across the Dakotas and the far southern plains this morning, otherwise the Midwest is mainly quiet.  Weather watchers are focused on rains beginning today and continuing tomorrow in the WCB and Northern Plains which are expected to bring 0.50-2.35” to SD/ND/MN/NW-IA, which are still the driest areas of the corn belt.  NW-IA has been one of the fastest developing drought areas in the corn belt, and missed meaningful rains last week which supported the market.  More rain is around Friday/Saturdau for the Plains and WCB, especially KS/OK which could see totals of 0.75-2.50”.  The 7-day forecasted precip map shows a lot of moisture around the major growing areas of the US which would be hugely beneficial if verified, especially when combined with the cool down in temperatures the next 15-days.  The Northern Plains slips back drier during the 6-10 and 8-14.


Easier markets overnight, led lower by soybeans as the forecasted precip and cooler temperatures could be just what the doctor ordered for Midwest soybeans trying to set and fill pods.  November soybeans had been clinging to the $10.00 handle, but the surprise increase in crop conditions last night, combined with what should be another increase next week if weather verifies should have analysts stabilizing yield ideas or even increasing them a bit.  Difficult to believe either corn or soybeans are ready to run away to the downside given the uncertainty posed by lower than average crop conditions, solid old crop export demand for soybeans, declining exports from Brazil and the August WASDE just around the corner.  The first of several private crop tours have hit Midwest fields this week with plenty of pictures and yield estimates hitting social media yesterday.

National corn conditions declined one point to 61% G/E vs. 62% expected and 76% last year.  A real mixed bag with ND declining (-5), SD improving (+1), IA (-3), IN (+2), KS (-4) and OH (+1).  The combined national corn condition score slipped to 357 from 359 last week, which would be the lowest since 2012 and the second lowest since 2007.  WCB states remain the largest focus with IA at 65% G/E vs. 83% last year and 63.4% on the 5-yr average which includes 2012.  NE at 61% G/E vs. 77% last year and 64.6% average is also worth noting, while ND is the lowest rated corn crop since 2006 and SD at 29% G/E is the lowest rated crop since 2012 and the second lowest since 2006.  85% of the corn crop is silking vs. 85% average while 23% of the crop is doughing vs. 25% average.  Soybean conditions improved 2pts to 59% G/E vs. 57% expected and 72% last year.  The national condition score improved from 349 to 352 this week which is the lowest since 2012’s 280 but the second lowest since 2006.  48% of the national soybean crop is setting pods vs. 29% last week and 45% average.  Over half of the corn belt will be setting pods this week amid cooler temperatures and multiple rounds of moisture.

Spring wheat conditions declined another 2pts to 31% G/E vs. 33% expected and 68% last year.  Conditions were lower in ND, MT and ID while they improved in WA and MN which is probably a sign of better than expected yields given the maturity of the crop.  The national condition score felt to 271 points this week which is the lowest since 1988’s 200.  As we’ve continued to do the last several weeks, we plotted the national condition score of the spring wheat crop against final HRS wheat yields to get a feel for yield ideas this year.  If we plot current conditions against the USDA’s current yield idea, the 2017 plot point sits about 11bpa above the trend line with an r-squared of 37%.  If we adjust the 2017 yield to fit the trend line, we get a yield of 25.7bpa with an r-squared of 49.5%.  Obviously we don’t expect the USDA to post a national average spring wheat yield of 27bpa given their latest and the WQC tour yield of close to 38.0bpa.  However, depending on how the USDA adjusts harvested acreage, yield could go one direction while production goes the other.  Spring wheat harvest is estimated at 9% complete nationally vs. 9% average with SD leading the way at 46% complete vs. 31% average.  Huge progress should be made in SD this week until the rain tomorrow with harvest essentially wrapped up by next week’s report.  Winter wheat harvest is pegged at 88% complete vs. 84% last week and 86% average.  Only MT and the PNW have meaningful progress remaining with MT wrapping up by next week.

Other data released yesterday included export inspections which continue to suggest good things for both 16/17 exports and 17/18 exports.  Wheat inspections totaled 21.3mbu vs. the 17.4mbu needed weekly to hit the USDA export forecast.  At 184.4mbu, shipments are now 15.0% ahead of last year’s 160.3mbu, a surprisingly solid start considering exports are expected to decline roughly 60mbu this year.  Corn inspections continue to plug along as well with 38.9mbu inspected for export vs. the 10.8mbu needed weekly to hit the USDA forecast.  Total shipments are up 31.4% from a year ago at 2.080bbu with 5-weeks left in the marketing year.  Soybean shipments were 17.5mbu last week vs. the 10.5mbu needed weekly.  Total shipments are now 1.999bbu which are up 16% from a year ago, and official Census exports suggest both corn and soybean exports could prove 40-60mbu larger than current inspection data.  The USDA’s corn export number appears to be on target given the slowdown in sales, but the soybean export number could be 30-40mbu larger than current USDA estimates.

Still lots of focus on Canada and their finishing weather for their spring wheat crop.  Most of southern Alberta and Saskatchewan have gone at least 20-30 days without recording more than 0.5mm of rainfall, while scaled back even further some areas of S-AB and S-SK have gone 40-48 days without more than 0.5mm of rainfall.  Northern stretches of both provinces have been much more fortunate with rainfall, but it remains difficult to see how anything close to a 5-yr average yield can be achieved with rainfall returns being posted like that.  Second map below shows the 60-day time frame.  The 5-yr average for Canadian wheat yield is 3.20MT/ha, while we are currently using 3.00MT/ha which is still above 2015/16’s 2.88MT/ha.  With USDA harvested acres and demand assumptions, this provides us with a carryout of 3.813MMT and a stocks/use ratio of 12.38%.  Both would be the tightest on record.


Bottom Line: Difficult to argue with the forecast even if no one is sure what damage has already been done and how much we can still recover?  The decline in futures and weak basis levels have pushed US wheat back into the export grids for major importers, undercutting European wheat by a noticeable margin.  Now we just have to connect on said business, but the point is US wheat doesn’t need to get cheaper at the moment.  Funds still hold large long positions in the hard wheat contracts and a small short in soft wheat which could limit rallies, however.


Good Luck Today.

Tregg Cronin

Market Analyst






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