Outside Markets as of 6:00am: Dollar Index up 0.224% at 93.7050; Euro down 0.259% at 1.17465; S&P’s are down 10.50 at 2462.50; Dow futures are down 55.00 at 21,963.00; 10-yr futures are up 0.04%; Crude Oil is up $0.30 at $49.86; Heating Oil is up $0.0099 at $1.6632; Paris Milling Wheat is up €2.25 at €163.75/MT; Paris Rapeseed is up €1.00 at €373.50/MT; Dalian corn closed up 0.82%, Dalian soybeans settled up 0.43%, Dalian oil closed down 0.10% and Dalian meal settled up 0.14%.
Crude oil is holding gains built from yesterday’s supportive weekly energy report from the EIA. Weekly stocks of crude oil fell 6.45 million bbls vs. the 2.70 million draw expected by the trade to put supplies at 475.44 million bbls. This marks the third straight week in which crude oil stocks in the United States have been below year ago levels, although remain well above the 3-yr average at 416.37 million bbls. Crude oil has recovered 61.8% of the selloff from the 55.28 high back in January down to the 42.06 low in June with next serious overhead resistance present at the May 25th corrective highs at $52.00. Currently trading above the 50/100/200-day moving averages, and momentum not yet showing any sign of bearish divergence.
Scattered showers all over the Midwest this morning, although the only real concentrated system would be around the Great Lakes. Rains so far this week have been confined to the Dakotas, Southern Plains states of CO/KS/OK/TX as well as parts of MO/AR. IA/MN/WI/IL/IN/OH/MI have very little to show for the last four days, and that doesn’t look to change much over the next 7-days with the exception of OH. The Dakotas will turn active again this week, especially this weekend and again midweek. 7-day totals for ND/SD look to provide excellent coverage of 0.75-2.50” with the heavier amounts in E-SD. The southern plains will also be very active with multiple storms bringing heavy rains to the entire HRW belt. OK should see the best rains with up to 6-8” by the end of the period. Cool temps and above normal precip for pretty much the entire Midwest during the 6-14 day.
Mixed markets this morning on the dawn before the USDA report with soybeans a tad firmer, corn softer and the wheat exchanges mixed. Yesterday was another day of declining open interest across the grain room which most likely signaled short-covering ahead of today’s data. Corn open interest fell 11,064 contracts, KC wheat was down 4,520 contracts, soybeans were off 3,049 contracts, meal was off 2,962 while Chicago wheat was up 1,626 contracts. Over the last week, corn open interest has declined 81,115 contracts while price is up around 9c/bu. The yield estimates from the USDA will be the most important pieces of information today, but several things to keep in mind while the algos are beating each other up. 1) The soybean yield is still a major wild card, despite what the USDA tells us later this morning. Many areas which had poor crop conditions earlier in the season have recovered nicely with recent rainfall and cooler temps. Iowa on the other hand has been dry and will remain so for the next 7-days, so how do we square better conditions elsewhere and declining conditions in our largest producer? For corn, regardless of yield, we still have a 2.400bbu carryout to chew through with evidence of this massive carryout being felt from one end of the belt to the other. In addition, US Gulf corn prices are carrying a $3-11/MT premium to Argentine and Brazilian FOB prices through the end of the year. 17/18 export demand looks in serious peril. Lastly, Northern Plains corn crops are behind schedule and will require a wide open fall with a late frost date in order to reach whatever potential is still left.
Data yesterday included weekly ethanol production which up-ticked by 10,000bbls/day to 1.012 million bbls/day, which was still below the same week a year ago at 1.018 million bbls/day. This was the third week out of the last four in which weekly production slipped below the same week a year ago, raising more doubts about the current 16/17 marketing year estimate for corn. Based on weekly data for much of Q4, it looks as though USDA’s 5.450bbu estimate will need to be trimmed by 15-25mbu. Ethanol stocks jumped by 495,000 bbls to 21.347 million bbls which are just off the lows dating back to early 2017. Monthly export data for the month of June was released late last week, and shower exports for the month at 92.7 million gallons vs. 119.2 million last month and 54.2 million gallons a year ago. Exports to Brazil dropped sharply to 20.9 million gallons from last month’s record 64.3 million gallons amid the continued talk over ethanol import duties being imposed on US ethanol. India bounced back to a solid 13.6 million gallons.
After a brief correction, Minneapolis has moved back to a contract high premium over both KC and Chicago in the last few days. MWZ/WZ traded to +267.00c last night, while MWZ/KWZ pushed to +261.75c. This is the highest premium for MW/KW since 2008, while the MW/W premium is the strongest since 2011. Depending on what we get from the USDA later this morning, Minneapolis ending stocks this year should be at the tightest level relative to the other two classes on record, and also be the tightest percentage of all wheat stocks on record. The premiums are certainly warranted, and should probably get stronger as we get deeper into the marketing year and more intense rationing is needed after the current glut of old crop is worked through. The shape of the forward curve in Minneapolis tells the entire tale of when the spring wheat issue will really come home to roost. MWU/MWZ is trading at -12.00c, MWZ/MWH is sitting at +1.75c and MWH/MWK settled yesterday at +15.00c. December is the highest priced futures contract at $7.48/bu. New crop MWU18 settled yesterday at $6.45.
While probably the last thing on any farmer’s mind right now, fertilizer prices have slowly been working their way higher over the last couple of weeks as we get closer to winter wheat planting and fall N application. FOB UREA prices at the Gulf closed up $4-6/MT for spot through March 2018 yesterday with the spot contract at $196.75/MT and carry out to September of $206/MT but flat through next spring. The $196.75/MT spot price compares with a summer low of $162.50/MT on June 28th, while the September swap traded as low as $162.00/MT on the same day but closed yesterday at $206.00/MT. Looked at another way, A metric ton of corn divided by a metric ton of UREA closed yesterday at 77.2%, which was down from a peak of 97.7% on July 10th. In other words, a metric ton of corn was almost the same price as a metric ton of UREA at the Gulf for the first time in at least four years.
Bottom Line: Let’s get the data out in a couple of hours and see what the USDA is going to give us to chew on until the private tours hit the fields. The first paragraph outlined some of the risks with today’s numbers, which skipped over wheat. USDA will issue an updated HRS production number, but it won’t be the last word until the September 30th report. If the USDA cuts more than 30mbu from HRS production, we are likely headed back to $8.00 very quickly.
Good Luck Today.
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