8/9/2017 Morning Comments

Good Morning,


Outside Markets as of 6:00am: Dollar Index down 0.048% at 93.5620; Euro down 0.153% at 1.17590; S&P’s are down 8.00 at 2464.75; Dow futures are down 24.00 at 22,006.00; 10-yr futures are up 0.21%; Crude Oil is up $0.27 at $49.44; Heating Oil is up $0.0043 at $1.6339; Paris Milling Wheat is down €0.50 at €161.25/MT; Paris Rapeseed is up €0.25 at €371.75/MT; Dalian corn closed up 0.84%, Dalian soybeans finished up 0.45%, Dalian oil closed up 0.99% and Dalian meal settled up 0.42%.

Dalian corn and soybeans were quite firm again overnight with the former rallying by the equivalent of 5c/bu, the fifth straight day of gains for the contract.  Continuous corn prices in China are still just below the mid-July highs, which were the highest prices since November 2016.  Soybean prices were also quite firm, closing higher for the third day in a row and pushing to the highest level since March.  The price rallies come despite news reports of plugged ports and crushers canceling cargoes which always underscores the point that few know the true extent of commodity flows inside the world’s most populous country.  Soy products were also firm, with oil near the highest levels since March while meal is well inside the last 6-week range.

Showers across the Dakotas this morning which have brought a scattered 0.10-0.50” in various parts of the two states and N-NE.  The corn belt has been mainly dry since the start of the week.  Showers will spread into MN later today, bringing solid coverage to the entire state of 0.50-1.80” with the heaviest totals by Duluth/Superior.  KS and OK will also see showers on and off for the next 5-7 days which look to bring 1.25-7.00” to the region by this time next week.  Almost 100% of the HRW belt looks to see solid shower potential over the next week.  Dakotas stay active as does NE, but IA/N-IL/N-IN/NW-OH will be mainly dry over the next week.  Extended maps keep us below normal on temps the next 15-days, while precip stays above normal in the Plains during the 6-10 day before slowly moving east to cover most of the corn belt.  Iowa will need water in the next 7-10 days to avert yield loss in soybeans.


Position squaring yesterday ahead of the report pushed markets lower while traders heading to the sidelines have things mostly quiet this morning.  Open interest changes yesterday certainly in-keeping with traders exiting positions ahead of the all-important WASDE tomorrow.  Corn open interest dropped 21,858 contracts, Chicago wheat was down 3,248 contracts, KC wheat fell 4,063 contracts and soybeans were up just 681 contracts.  The open interest changes in soybeans have been a bit peculiar, with total open interest staying within 5,000 contracts of 620,000 since July 26th.  Over that timeframe, price has dropped a net 25c/bu, but has rallied as high as $10.07 and as low as $9.45.  With the managed fund position as of 8/1 at -7,434 contracts, it would appear the group keeps jumping from net long to net short trying to figure out the next solid trend.  Corn open interest has fallen a combined 66,997 contracts since 8/3 while price is up a net 7c/bu.  Drop seems attributable to funds covering their short position into tomorrow’s report, and pretty easy to leave it at that.  Wheat open interest changes have also been small, and at decent support levels with basing/reversal behavior being noted.

With the selloff in wheat futures as of late, always important to confirm with basis and spreads to see the impetus for the pullback.  At all three exchanges, spreads have taken a beating with the KWU/KWZ hitting new contract lows of -28.25c two days ago, the WU/WZ hit a new contract low of -28.00c a day before that and the MWU/MWZ hit new contract lows of -13.50c multiple times last week.  Cash basis also traded weakly compared to levels witnessed in June and July as farmers rewarded the rally with both old and new crop sales.  At the time most of the selling was taking place, export demand was difficult to come by because of the US’s premium to most origins into key import destinations.  Fast-forward to August and the US has put itself in a competitive spot against France and the Black Sea into key homes.  With the KWU/KWZ sitting at 88-90% of full financial carry nearby, and WU/WZ sitting at 74%, one needs to take a hard look at moving hedges further out the curve to await the basis appreciation as farm gate selling slows and export sales need to be covered.  The market says take hedges to December and wait to gauge market direction although the nominal carries to spring look attractive.

Protein continues to be the hot-topic in wheat land with US-HRW starting out especially low in early harvest before climbing as harvest pushed into NE, SD and MT.  The latest US Wheat Associates report posted last week showed 424 samples of HRW having been tested this year vs. 483 in total for 2016.  Average protein has pushed above last year with the average for 2017 at 11.4% vs. 11.2%, while other quality characteristics like falling number are a bit lower at 371 seconds vs. 392 last year and test weight is 60.4lb/bu vs. 60.7lb/bu a year ago.  This is especially important as we watch high protein supplies either cut production forecasts or downgrade the bushels they do have due to rain/adverse growing conditions. We discussed Germany’s rain woes yesterday, and have discussed Canada and Australia plenty over the last month, but now Russia appears to have protein issues of its own.  Consultancy IKAR reported yesterday Russian protein spreads are pushing to record highs with 11.5% protein trading at a $15/MT discount to 12.5%.  This is the equivalent of 40c per point, or 8c per fifth which is in-keeping with spreads witnessed in the US.  Currently, however, KCBT protein spreads from 11.5-12.5% are around 3c per fifth.  While most in the market place are counting on Russia to export around 30MMT to fill gaps here, there and everywhere, it could be difficult to find 30MMT+ of export demand is meeting quality standards becomes an issue in the second half of the year.

Tomorrow’s WASDE is expected to show corn production at 13.855bbu vs. 14.255bbu in July with a national average yield of 166.2bpa vs. 170.7bpa last month.  Would seem as though the market is trading a yield a bit lower based on crop conditions and private surveys.  The soybean crop is expected to be 4.212bbu vs. 4.260bbu last month while the yield is seen at 47.5bpa vs. 48.0bpa.  The USDA does not have an enviable job in estimating the soybean crop at this stage given the upturn in rains for many places in the WCB, while IA has gone dry.  So much potential is gained or lost with August rains and looking at the number of pods can only tell a person so much.  All wheat production is seen at 1.711bbu vs. 1.760bbu last month as HRW drops 2mbu but ‘other spring’ falls from 423mbu to 393mbu.  With the USDA pegging HRS last month at 385mbu, this would imply a HRS number this month of 355mbu which would be in-line with average trade estimates and solidify the rationing job in front of this market.  The USDA will not adjust harvested acreage this month, but instead try to account for the abandonment with yield which could be like trying to fit a square peg in a round hole.  Stay tuned.

Ending stocks are seen at 2.386bbu for 16/17 corn vs. 2.370bbu last month, while 17/18 is seen at 2.003bbu vs. 2.325bbu last month.  Bottom line is anything over 2.0bbu is bearish and the market needs to see something sub-1.9bbu to push back toward $4.00 CZ in our opinion.  The large carryout stocks have been a big part of the reason corn hasn’t been able to sustain $4.00 futures and until carryout drops decidedly below 2.00bbu it will remain that way.  Soybean carryout is expected at 401mbu for old crop vs. 410mbu last month while new crop is seen at 424mbu vs. 460mbu last month.  Stronger exports could pull old crop carryout below 400mbu which would be a bullish development, especially as opinions are being formulated about new crop demand.  Wheat ending stocks for 17/18 are seen at 907mbu vs. 938mbu last month, but don’t sleep on new crop wheat exports as those could push close to 1.00bbu.


Bottom Line: Should be a fairly quiet session as risk is taken off the table and we await for updated balance sheets.  Barring USDA estimates which are way outside of trade estimates, range bound trade could continue until the last push of old crop gets moved or harvest starts making its way north.  With the variability of this crop, this will be anything but a fast harvest with a concentrated slug of harvest pressure.  Corn in the Northern Plains will be late and wet barring a switch to warm weather in September.


Good Luck Today.

Tregg Cronin

Market Analyst






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