9/8/2017 Morning Comments

Good Morning,


Outside Markets as of 6:10am: Dollar Index down 0.500% at 91.0790; Euro up 0.495% at 1.20700; Aussie Dollar up 1.009% at 0.81100; British Pound is up 0.879% at 1.3202; Japanese Yen is up 1.168% at 107.3767; S&P’s are down 8.25 at 2458.25; Dow futures are down 81.00 at 21723.00; 10-yr futures are up 0.18%; Crude Oil is down $0.16 at $48.93; Heating Oil is up $0.0082 at $1.7943; Paris Milling Wheat is down €0.75 at €159.50/MT; Paris Rapeseed is down €3.00 at €362.00/MT; Dalian corn settled down 1.22%, Soybeans up 0.21%, Oil down 0.19% and Meal down 0.33%.

The collapse in the USD continues with the benchmark basket trading to fresh lows for the move and the lowest level since January 2nd, 2015.  Financial media this morning is focusing on the ability of the Federal Reserve to raise interest rates once more before the end of 2017, something the market seemed to have already priced in previously.  The Fed may find it difficult to raise rates with inflation indicators remaining stubbornly low.  According to CME Federal Funds Futures, the market sees just a 32% chance of another rate increase before the end of the year  In addition, major hurricanes battering the United States and requiring government assistance could be a precursor to a slowdown in overall growth for the country.  There looks to be little in the way of solid support for the USD until the 89/90 handle.

Another dry radar for the Midwest, and that should be the case for the next 7-days at least.  The Northern Plains will see some scattered chances of rain later in the weekend/early next week, but the heart of the corn belt will be dry.  Precip models are below normal for the 6-10, but flip to above normal for the 8-14 day period over NE/SD/NE/MN/MT.  Temperatures looks to remain normal/above for the entire time period, which should keep frost risk to a minimum.  The Northern Plains row crops are almost uniformly behind schedule, and need every heat unit available to achieve whatever potential is left.


Slightly better markets again this morning as row crop markets attempt to close higher on the week while Chicago wheat is clinging to small losses.  Open interest has been a mixed bag most of the week, and yesterday was no exception.  Chicago wheat open interest was up 725 contracts, corn was up 8,796 contracts, KC wheat was down 283 contracts, soybeans were down 4,452 contracts, meal down 684 contracts and soybean oil was up 3,679 contracts.  While corn futures have been trending higher as of late, export bids have been heading the other direction swiftly, and the rising open interest since futures bottomed at the end of August has the feeling of commercial hedging.  Open interest is up 38,562 contracts since the end of August while spot CIF bids are down 10-14c and into the single digits over the September.  Adding to the bear story is the fact new crop corn export sales commitments for the 17/18 marketing year as of yesterday were the lowest for the end of August since 2005/06.  Soybeans are not much better, but are closing the gap quickly.  There is an abundance of South American corn looking for a home, and that is something we will have to deal with through the end of the calendar year.

Data out yesterday included weekly ethanol production which jumped notably by 18,000bbls/day to 1.060 million bbls/day.  While the increase was definitely encouraging, it doesn’t look like it will be enough to offset what appears to be a looming production cut by the USDA on next week’s WASDE report.  Based on known ethanol grind for July and estimated grind for August, looks as though we could see the USDA cut ethanol production by 15-25mbu depending on their yield assumption for the month of August.  Fortunately, this should be mostly offset by an increase in export demand of the same magnitude which would keep carryout mostly unchanged.  Ethanol stocks declined by 187,000bbls to 21.116 million bbls, but are still up over 2.0% from a year ago and near record levels for this time of the year.  While on the topic of ethanol, the US Census Bureau released July ethanol and DDGs exports while we were out of the office.  Ethanol exports bounced back solidly to see shipments of 116.6 million gallons vs. 92 million gallons last month and 82 million gallons last year.  Ethanol exports for the YTD are up nearly 30% from 2016, an encouraging trend for corn demand into 2018.  DDGs exports came in at 1.003MMT which were up from 889,114MT last month but down slightly from 1.072MMT a year ago.  YTD DDGs exports of 6.541MMT are up from 6.392MMT over the same period a year ago.

Switching to wheat, KCBT domestic basis was firmer again yesterday with 11.0-12.80% up 4-30c while 14.00% pro was up 46c alone.  12.0% protein wheat is now indicated at +131/146Z vs. +110/125Z a week ago, while 13.0% protein is unchanged at +205/220Z and 14.0% is +261/276Z vs. +215/230Z a week ago.  There is no HRW moving except what still needs to find a new home before fall harvest.  Commercial elevators can earn 17c/mo between board carries and cash carries storing wheat out to December, with nearly 11c/mo out to February and 9c/mo out to April.  Commercial elevators can earn a 13% return above and beyond full financial carry (LIBOR+200bp) by sitting on cash wheat until December, which is a decent margin to make on your space.  Without a flat price rally to pull the farmer onto the dance floor, HRW basis should continue higher to pry hedged bushels out of commercial hands.  Spring wheat basis on the spot floor was mostly weaker with 14.0% indicated at +75/80Z and 15.0% seen at +105/115Z.  HRS values should exhibit similar behavior as HRW once US and Canadian harvest is complete and excess bushels are mopped up.

We incorrectly indicated export sales would be released yesterday, but were instead delayed until this morning due to the Labor Day holiday.  Export sales this morning are expected to show 350-550TMT of wheat, 650-1,250TMT of corn, 500-1,400TMT of soybeans, 140-450TMT of meal and 0-25TMT of soy oil.


Bottom Line: There is more to be supportive soybean and wheat than there is corn based on market structure, cash markets and still unknown production variables.  While corn may have seen lows set at the end of August similar to 2016, we would be wary of getting bullish as the new crop export program remains soft and 14bbu of corn are still to be harvested.  The USD weakness needs to translate into some real demand before it can be counted as a bullish input.  $4.00 futures have been a luxury the past several growing seasons, and 2017/18 doesn’t look to be any exception so far.


Good Luck Today.

Tregg Cronin

Market Analyst






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