8/8/2017 Morning Comments

Good Morning,


Outside Markets as of 6:10am: Dollar Index down 0.150% at 93.2880; Euro up 0.152% at 1.18375; Aussie Dollar up 0.316% at 0.79340; S&P’s are down 1.25 at 2476.25; Dow futures are unchanged at 22,062.00; 10-yr futures are down 0.02%; Crude Oil is up $0.15 at $49.54; Heating Oil is down $0.0058 at $1.6340; Paris Milling Wheat is up €0.75 at €162.75/MT; Paris Rapeseed is up €1.25 at €369.75/MT; Dalian corn closed up 0.30%, Dalian soybeans settled up 1.28%, Dalian oil closed up 0.63% and Dalian meal finished up 0.96%.

China released import and export data for the month of July with both slightly missing estimates.  July imports rose 11.0% y/y vs. expectations for a 16.4% gain, while imports rose 7.2% vs. expectations for a 10.5% gain with the trade surplus tipping the scales at $46.74 billion vs. $46.4 billion expected.  Some of the highlights included iron ore imports at 86.25MMT, down 2.4% y/y, crude oil imports of 34.74MMT, up 12% y/y, coal imports of 19.46MMT, down 8.3% y/y.  Most important for our space, Chinese July soybean imports surged 30% vs. a year ago to 10.08MMT which would be the highest single month of imports on record with data going back to 2010.  This helps square the stories of recent Chinese soybean cargo cancellations as port stocks pile up.  Jan-Jul soybean imports have now totaled 54.89MMT which are up 17% y/y and likely means the USDA is still underestimating Chinese import growth.

Wide open Midwest radar this morning ahead of the next round of rain.  The WCB, and specifically South Dakota, will see several rounds of this week beginning tomorrow with scattered showers bringing 0.10-0.25” to most of the Dakotas.  The systems grow and push east, with MN seeing chances Wed/Thur of 0.50-1.05” for much of the state.  The southern plains also sees a steady storm track this week with most of KS/OK/CO/NE/TX looking at accumulated totals of 1.25-5.00” which should recharge soil profiles ahead of winter wheat sowing next month.  The 7-day outlook brings rains to most of the Northern Plains, Central/Southern Plains, Great Lakes and US-SE.  The spot which doesn’t get rain continues to be IA which will raise their growing moisture deficits.  Below normal temps and above normal precip pretty much remains the theme in the 6-14 day outlook.


Better markets overnight as declining corn crop conditions and a lack of rain in IA for soybean development seem to support prices once again this morning.  When looking at the 30-day percent of normal precip map, it is difficult to argue with the picture painted for IA.  The southern ¼ of the state is running 5-50% of normal for the last month while the southwest half of the state is facing similar deficits.  In fact, only the far eastern part of the state is running anywhere close to normal or above for moisture received.  Fortunately for US crop prospects, this is about the only area running such severe deficits, although E-ND, extreme SW-MN and parts of N-MO are also running drier than normal over the last month.  This has led to supportive trade heading into Thursday’s WASDE report which should finally shed some light on US crop production ideas from the only body which matters.  As important to traders and producers in our part of the world will be an updated look at HRS production, although USDA is not expected to adjust harvested acreage until the September 30th Final Small Grains report.  Nonetheless, the trade is looking for a 33mbu reduction in other spring production to 390mbu.

USDA released crop conditions after the close yesterday with the national corn rating declining 1pt to 60% G/E vs. 61% expected and 74% last year.  Biggest eye-catchers were IL declining 5pts to 58% G/E vs. 83% G/E last year, while NE dropped 2pts to 59% G/E.  The rating for NE continues to be the second lowest since 2006.  The national crop condition score when taking into account F/P/VP computes to 356 points this week, which compares with 251 in 2012 and 353 in 2011.  However, as many have discussed this year, it is important to remember crop conditions are subjective in nature and are only as good as the enumerator turning their opinions in.  For example, when crop conditions are plotted against final yields, and the current USDA yield is assumed, the correlation for these two variables is just 14%.  It also implies a final yield for 2017 of something around 135.5bpa.  Crop conditions are just one component the trade looks to for guidance, and are by no means the be-all-end-all.  93% of national crop is silked vs. 94% averaged, while 42% is doughing vs. 23% last week and 44% average.  7% of the crop is dented vs. 11% average for this week of the year.

Soybean conditions improved 1pt to 60% G/E vs. 60% expected and 72% G/E last year.  Conditions were broadly mixed across the belt with the Dakotas improving, IA/NE/IL declining and IN/OH improving.  The condition score for this week totaled 355 points which is the second lowest outside of 2012 since 2007.  Once again, if yields are plotted against simply condition scores, the correlation is a very weak 12.7% with a final yield for 2017 implied at 42.3bpa.  A great example of needing to filter the conditions a bit would be the Dakotas.  Both states saw conditions slip to the lowest or near the lowest on record during the dry July.  Well as most know, August conditions are what make a soybean crop.  The up-turn in rains for much of the two states have arrived at exactly the right time, with crop prospects rising.  Yet, looking at the condition scores, one would be led to believe both crops are still suffering under extreme dryness.  This isn’t meant to dismiss the dry weather for much of June and July which will undoubtedly have an impact, simply to point out the relative number of the crop conditions might not be as important as the trend.  90% of the crop is blooming vs. 88% average while 65% is setting pods vs. 62% average.

Spring wheat conditions improved 1pt to 32% G/E vs. 68% last year thanks solely to a 4pt jump in ND.  With the crop as advanced as it is, the improvement in North Dakota conditions is most likely from better than expected yields as combines roll.  The crop condition score of 274 this week is now the lowest on record thanks to 1988 dropping from the data set due to harvest being completed already that year.  A regression analysis of this week’s condition score vs. final yield is still implying a yield in the high-20’s with 41% correlation.  Unlikely the USDA comes in with a yield this low on this week’s report, or ever for that matter, but strong chance production continue to decline.  Spring wheat harvest pushed to 24% complete vs. 9% last week and 21% average.  Winter wheat harvest is 94% complete vs. 88% last week and 92% average with only the PNW having meaningful progress left to complete.

While this is corn and soybean week for much of the trade, there are plenty of wheat headlines worth following.  The two maps below from USDA’s Crop Explorer program show accumulated precip for the time frame July 11-31st with much of Germany receiving 3-8” in the final weeks heading into harvest.  Germany is the second largest wheat producer in the EU behind France, and is responsible for a large percentage of the high protein/hard wheat which goes for export.  Several outlets are already calling 40% of the crop feed quality which will limit the amount of milling quality wheat available for export.  Private estimates for the EU are slipping to 147-148MMT vs. the USDA’s current 150MMT.  USDA is currently pegging exports at 30.0MMT which realized against private forecasts would put ending stocks and stocks/use ratios at record lows.  The US should be well positioned to fill some of the hard wheat demand left open by Germany and the other Baltic States.  After hitting a high of $31.68/MT, the MATIF/KCBT spread is off this morning to $26.24/MT.


Bottom Line: There is still enough weather uncertainty to support futures until the USDA gives us their take.  With the variability expressed from one corner of the corn belt to the other this year, USDA’s word on Thursday unlikely to be the final say.  US wheat has made itself competitive into the export grids for many destinations, but can’t afford to rally away from current levels or risk pushing that business right back out the door.  Once the Northern Plains harvest has come and gone, which it mostly has, it will be especially difficult to buy hard wheat with current board carries.


Good Luck Today.

Tregg Cronin

Market Analyst






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