8/18/2017 Morning Comments

Good Morning,


Outside Markets as of 6:30am: Dollar Index down 0.175% at 93.5060; Euro up 0.009% at 1.17600; S&P’s are down 1.25 at 2428.25; Dow futures are down 14.00 at 21719.00; 10-yr futures are up 0.05%; Crude Oil is up $0.11 at $47.20; Heating Oil is up $0.0019 at $1.5839; Paris Milling Wheat is down €1.00 at €155.50/MT; Paris Rapeseed is down €0.25 at €367.25/MT; Dalian corn closed up 0.18%, Dalian soybeans finished up 0.08%, Dalian oil closed up 0.48% and Dalian meal settled up 0.29%.

More rain across the Plains and WCB this morning, adding to what has been an active week in these areas.  In the last 24-hours, rains have fallen in the Dakotas, NE, KS, the OK panhandle and E-TX while IN and OH have also seen rains.  Rains for the week have been best in NE where localized flooding has occurred, both Dakotas and MN with widespread 1.00”+ totals.  While the W-1/2 of IA saw rains earlier this week, the E-1/2 of IA, IL and W-IN have been relatively dry this week.  14-day percent of normal precip shows meaningful deficits across IA/IL/IN/OH/MI and NE-MO.  IA does have rain chances on and off over the next 7-days, as does N-IL but many of the best chances on radar have fizzled out once they hit the drier air mass over IA.  The Great Plains remain active the next week which will continue to build moisture profiles ahead of fall planting.  Cool and wet in the 6-10 and 8-14 day according to NOAA.


Very quiet markets overnight with corn sitting in a 2c range, soybeans in a 6c range and Chicago wheat a 4.5c range.  All three markets feel as though they are waiting for more fundamental input which could come in the form of FJ Tour data this next week.  The selloff in wheat futures has brought about improved US export sales, with next week’s sales likely being even better.  As we’ve discussed in this space frequently over the last several weeks, US-HRW is competitive into many major importers and the 17/18 marketing year sales objective is on the rise.  Most analysts are carrying 1.0bbu+, and if US demand remains solid in the first half of the year then the second half will take care of itself.  HRW basis on the spot floor was firmer yesterday as grower selling is non-existent.  North Dakota is trying to harvest spring wheat around the rain showers which are now said to be impacting quality slightly in the way of test weight and color.  The spring wheat farmer is going home with all of the wheat he possibly can as he is not impressed with the price and has the ability to sit.

Weekly export sales yesterday morning were solid with wheat at 23.3mbu vs. the 13.9mbu needed weekly to hit the USDA export forecast.  Total export commitments are now even with a year ago, while the USDA is calling for an 80mbu decline y/y.  By-class sales were just as impressive with commitments being led by HRW at 11.7mbu vs. the 6.0mbu needed weekly.  In HRS, sales measured 8.0mbu vs. the 4.1mbu needed weekly to hit the USDA forecast.  Total HRS commitments are 110.1mbu vs. 128.9mbu a year ago.  If we see another solid HRS sales week next week, it should probably be a sign HRS prices need to move back toward $7.00 as meaningful rationing of exports needs to occur this season.  Corn sales were 2.5mbu of old crop, pushing total commitments to 2.223bbu.  Census exports are indicating much stronger corn exports so it looks as though we should meet the USDA’s 2.225bbu objective.  26.4mbu of new crop corn sales pushed that total to 225.9mbu vs. 398.1mbu a year ago.  Soybean sales totaled 16.7mbu of old crop bringing that total to 2.248bbu vs. the USDA objective at 2.150bbu.  New crop sales measured 33.0mbu bringing the new crop total to 291.4mbu vs. 563.8mbu a year ago.

Open interest changes during yesterday’s session reflects a continuation of money flow into the Ag space, and based on price action would imply managed funds are building net short positions.  SRW open interest rose another 5,516 contracts, corn was up 15,524 contracts, KC wheat was up 4,984 contracts, soybeans were up 5,661 contracts while meal was up 5,611 contracts and oil was down 2,186 contracts.  This price action and market structure change is incredibly important as funds look to build short positions while price appears to be stabilizing around support levels.  If funds continue to pile into the short side, but the market reasons the bearish news has already been discounted, then the last positions added become vulnerable to covering.  Of the three major Ag contracts, Chicago wheat looks to be the most vulnerable to a short-covering air pocket as momentum has diverged, price has found relative support around the 200-day moving average and On-Balance-Volume is trending higher which means more volume is occurring on higher days than on lower over the last 20-days.  This afternoon’s COT data will be important to see how much fund size has been thrown to the short-side.

While most of the reaction and focus has been on corn and soybeans since the August WASDE, data from last week on minor feed grains continues to paint a picture of supportive price moving forward.  The world barley balance sheet tightened further with ending stocks now projected at 18.171MMT, the smallest since 1983/84 with the stocks/use ratio of 10.71% the smallest since the same year.  The world oat balance sheet shows ending stocks of 2.185MMT and a stocks/use ratio of 8.56%, both of which would be the smallest on record going back to at least 1960/61.  In the United States, ending stocks of 496TMT will be the smallest since 2013/14’s 359TMT and the second smallest on record.  The US relies on about half its oat supply coming from Canada via exports with the current Canadian balance sheet showing 504TMT, the fourth smallest ending stocks since the early 60’s.  Both of these markets will be worth tracking as we move into fall and winter when logistics regularly become snarled due to adverse weather.

Other tidbits include Saudi Arabia tendering for 480,000MT of hard wheat for Oct-Dec delivery.  The US should be well positioned to capture some of this business if the price levels are attractive enough to get hedged inventory to actually participate.  Also, the 2018 winter wheat insurance pricing period has also started this week (8/15) and will continue through September 14th.  Pricing for the nation’s largest wheat producer KS is based off the KWN18 futures contract, and has a running average this week of $4.97/bu.  Earlier, when winter wheat prices were at or above $6.00, it was a no-brainer we would see 10-15% higher HRW plantings this fall.  With futures now below $5.00 for next year, that calculation is much more difficult, especially when a 70-90c basis is applied in many areas of W-KS.  At current levels, most believe HRW acres will be flat to down slightly.  With a stocks/use ratio still close to 50%, the market probably needs another year of tightening stocks to clear supply and bolster prices.  Soil moisture will be much improved this fall compared to recent history, however.


Bottom Line: Should be a fairly uneventful close to another lower week in the Ag room.  We are watching a familiar story play out in row crops with USDA saying one thing while private tours and anecdotal reports say another.  Crop Tour should shed some light on the situation, but the Tour would have to show a yield 4-5bpa below USDA to get markets excited in our opinion.  We have to get 17/18 carryout below 2.0bbu or there is no story in corn.  Wheat continues to act like it is building a base of support.  Watch for tender results this weekend from Saudi Arabia.


Good Luck Today.

Tregg Cronin

Market Analyst






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