9/12/2017 Morning Comments

Good Morning,


Outside Markets as of 5:40am: Dollar Index down 0.055% at 91.8450; Euro down 0.038% at 1.19615; British Pound is up 0.766% at 1.3278; S&P’s are up 4.00 at 2491.50; Dow futures are up 44.00 at 22,097.00; 10-yr futures are down 0.20%; Crude Oil is down $0.19 at $47.89; Heating Oil is down $0.0091 at $1.7336; Paris Milling Wheat is up €0.75 at €159.75/MT; Paris Rapeseed is down €0.25 at €360.75/MT; Dalian corn closed down 0.06%, Dalian soybeans finished up 0.13%, Dalian oil closed up 0.35% and Dalian meal closed up 0.04%.

Nitrogen prices have been on the move as of late with both UREA and UAN swaps at the Gulf appreciating in price as hurricane activity disrupts loading and unloading in both the Gulf and Florida.  Continuous UREA prices closed yesterday at $224.00/MT, which is just off the highs set from the day before at $232.50/MT, but up from the late summer lows set in August at $195.00/MT and up sharply from the June lows around $162.50/MT.  OND UAN swaps have also been trending higher with October settling yesterday at $144.00/MT which compares with $134.50/MT on September 6th and $124.50/MT in the middle of July.  A metric ton of corn priced off the December 2017 contract divided by spot UREA swaps has declined from a high of 97.7% down to 62.3% which shows both the declining price of corn and the rising price of fertilizer.  For reference sake, December ’18 corn divided by December ’18 UREA swaps closed yesterday at 86.6%. although there is no volume in swaps out that far so must treat as an indication.

Hurricane Irma continues to dissipate across the US-SE and Mid-South, bringing soaking rains to areas trying to get fall harvest either wrapped up or started.  Rest of the Midwest is mainly quiet.  The story today and the next couple days across the Plains will be the unseasonably warm temps which will crack the low to mid-90’s in the Dakotas and central plains, exactly what is needed to speed immature crops toward maturity and avoid the pitfalls of early frost.  The warm temps hang on until Friday/Saturday when a cool down hits most of the Northern Plains.  With the cold front will also come rain chances which should see most of the Dakotas, MT and MN receive 0.75-3.00” all together.  Most areas could use a drink ahead of winter wheat planting.  IA could also see rain chances with the weekend system, although would most likely be too little, too late at this point.  Warm and wet bias hangs on through the 8-14.


Quiet ahead of this morning’s WASDE report with most every contract well inside its recent range.  Another surge in corn open interest yesterday, up 9,337 contracts to 1,361,259, and is now up 45,866 contracts over the last seven sessions.  Given the trends on the latest COT data of building large spec net short positions, would assume that has continued and that position is even larger.  Soybean open interest up another 5,221 contracts, but that has been much more two-sided than corn as funds covered last week for the first time in five weeks.  Sharp changes to corn and soybean production are not expected later today given big updates are usually not seen on the September WASDE, but soybean yields are much more up in the air than corn yields it would seem.  14 and 30-day percent of normal precip maps are flat-out not good for areas IA and east, while the Northern Plains witnessed favorable rainfall and temps for much of the last month.  As we’ve been saying for much of the summer, the variability of this crop is going to make it incredibly difficult to estimate and we might not have a firm handle on it until January.

Looking at the average trade estimates quickly, the trade sees 17/18 corn production at 13.992bbu vs. 14.153bbu last month with an average yield of 167.8bpa vs. 169.5bpa previously.  Soybeans are seen at 4.323bbu vs. 4.381bbu last month while yields are pegged at 48.7bpa vs. 49.4bpa.  We should see an increase in 16/17 exports while ethanol demand could be cut slightly and feed/residual could also come down.  These changes are seen putting ending stocks at 2.325bbu vs. 2.370bbu last month.  Soybean exports are also seen rising while crush should be left unchanged to bring carryout down to 366mbu for 16/17 vs. 370mbu last month.  17/18 ending stocks are seen at 2.145bbu vs. 2.273bbu previously and soybeans are seen at 438mbu vs. 475mbu last month.  One chart I would draw your attention to would be the one below showing total corn supplies which consists of beginning stocks plus expected production.  As one will notice below, 17/18 is expected to have total supplies of 16.525bbu which would be the second largest on record and down just 350mbu from last year provided we don’t get a sharp change from the USDA this morning.  The corn market looks as though it is in for another year of oversupplied market conditions in which price attempts to buy bushels as cheaply as possible and keep next year’s production from growing any further.  For the last several seasons, wheat had been the anchor in the grain room, but corn may be taking that torch in 17/18.

On wheat, little is expected in the way of market moving changes as production will be updated at the end of the month on the Small Grains Production report.  17/18 ending stocks are seen at 919mbu vs. 933mbu last month as most assume exports will be raised by 25-30mbu.  Many analysts see unchanged wheat exports from a year ago as importers are forced back to the US in the second half of the year when milling quality supplies are exhausted in Europe and export capacity becomes an issue in Russia.  Updates are also expected for Canadian and Australian production with the former seeing “better than expected” yields as harvest advances while the other is back to seeing production estimates drop due to dry conditions.  One other thing to watch on Australia is the update issued by the Australian Bureau of Statistics to the 2015/16 balance sheet.  The official statistics agency said planted wheat area that year was 1.5 million hectares below ABARES which resulted in production declining by 1.9MMT.  If one carries this through the balance sheet to 2017/18 and combines it with expected lower production, the Australian balance sheet gets untenably tight.  The change to 2015/16 also makes a person wonder if the 2016/17 crop was as massive as originally thought.  USDA usually adopts the official data from ABS, but not sure whether they will do that this month or not.  Stay tuned for this potentially constructive data update.

Elsewhere in wheat, another day, another higher premium structure in HRW.  11.40-12.80% basis was up another 5-10c with 12.0% protein now worth +140/155Z which compares with +111/126Z a week ago.  The basis appreciation continues to be about the inability to buy wheat out of storage from either the farmer or the elevator when the cash carry is still so lucrative.  7-10c/mo to do nothing but sit on wheat is an attractive proposition, and one which should keep basis firm in its plight to pry bushels out of locked bins.  Spring wheat basis hasn’t been quite as quick to respond as HRW, due in part to the change to lower protein supplies as harvest wraps up in ND/MN and advances in Canada.  Protein was incredibly high in the SD and early ND crop with the USW Associates testing showing a crop average of 14.8% so far vs. 14.2% last year, although it was down 0.2% on the week.  This lower protein could keep basis subdued and spreads weak until the expected supply shortfall makes itself known in JFM.  Domestically, mills are well covered for OND, but everyone knows wheat will be tougher to buy after the first of the year, especially when weather becomes a factor.

Data yesterday included export inspections which showed wheat at 16.4mbu vs. the 17.2mbu needed weekly, while corn was reported at 26.1mbu vs. 34.7mbu needed and soybeans were seen at 40.6mbu vs. 41.9mbu needed.  Crop progress was also released which has little value at this stage of the crop year outside of harvest progress.  Corn conditions were unchanged at 61% G/E and compare with 74% G/E last year.  Corn harvest was pegged at 5% complete vs. 6% average.  Only 21% of the crop is rated as mature vs. 31% average and big deficits across the Northern Plains and WCB.  A real need for an extended fall this year to reach remaining potential.  Soybean conditions fell 1pt to 60% G/E which compares with 73% G/E last year.  Soybeans dropping leaves was estimated at 22% vs. 25% average.  Winter wheat planting progress was estimated at 5% complete vs. 6% average with KS seen at 3% complete vs. 3% average.  CO was seen at 11% complete and MT at 13% complete.


Bottom Line: September report is usually not a game changer, but traders will be interested in the direction of change made by the USDA.  Odds are not on the side of bulls who are expecting large yield reductions either this month or by January given where August yield ideas came in.  Wheat and soybeans still have stories to tell while corn is finding it more and more difficult to shake the bearish supply situation which has been created.


Good Luck Today.

Tregg Cronin

Market Analyst






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