9/26/2017 Morning Comments

Good Morning,


Outside Markets as of 6:30am: Dollar Index up 0.359% at 92.9940; Euro down 0.445% at 1.18470; Aussie Dollar down 0.618% at 0.78850; S&P’s are down 1.25 at 2495.75; Dow futures are down 3.00 at 22,273.00; 10-yr futures are unchanged; Crude Oil is down $0.10 at $52.12; Heating Oil Is down $0.0139 at $1.8356; Paris Milling Wheat is up €1.00 at €167.00/MT; Paris Rapeseed is up €2.75 at €373.25/MT; Dalian corn closed up 0.70%, Dalian soybeans finished up 0.13%, Dalian soy oil closed down 0.29% and Dalian meal closed down 0.50%.

While lower this morning, crude oil has been steadily working higher and hit the highest level since April 19th earlier this morning.  Similarly, but even more impressive, Brent Crude futures hit the highest level since July 2015.  Support can be found from a host of issues including Kurdistan, the autonomous region in Iraq, holding a referendum on independence which could potentially disrupt oil exports from the area.  Adding to the momentum was Turkey’s president Recep Tayyip Erdogan saying he opposed the independence referendum and would shut off the export pipeline which runs from Kurdistan to Turkey’s Mediterranean port of Ceyhan.  Also supporting oil has been strong imports from China as they look to rebuild their strategic petroleum reserve.  Hedging is said to be accelerating among US oil producers with oil firmly above $50.00/bbl, a breakeven price for many.

Fair amount of rain on the radar this morning including the southern plains, mid-south and Great Lakes.  Rains in the last 24-hours fell on a line from N-TX to N-IA with most areas receiving 0.50-1.00” and locally up to 3.00” in KS/OK/TX.  Rains will continue to fall in the southern plains for the next 3-days, bringing another 1.00-4.00”, mainly to TX and SW-OK, although this is lighter than the 10.00” amounts being forecast a few days ago.  The next round of moisture for the corn belt will be Sunday/Monday in E-NE/IA/S-MN where another 0.50-0.80” is expected.  Otherwise, most of the Midwest should be fairly dry the next 7-days, allowing harvest to accelerate.  Temps look to remain above normal for the 6-10 and 8-14 for the entire Midwest, while the ECB is below normal on precip and the Northern Plains are above normal during that time frame.


Mixed markets this morning with wheat a bit firmer but soybeans showing more selling pressure after yesterday’s lower close.  While Friday’s COT report showed funds as still being net short as of 9/19 in soybeans, most of that position was probably covered by the weekend.  This certainly fits with the open interest drop in soybeans yesterday of 4,675 contracts.  The selling pressure can be owed to a big harvest weekend in the eastern corn belt where weather was conducive to combining, and was also accompanied by a drop in crush basis at many plants on that end of the belt.  In addition, the yield reports haven’t yet switched from “better than expected” as many assumed they would as harvest advances.  Even in the driest areas of IL, yield reports still point toward field averages of 70-90bpa which is hard to square considering the weather received.  Otherwise, wheat markets are holding to recent gains in the ramp up to the September 29th Small Grains report which should shed light on the hard red spring balance sheet as well as the pace of wheat feeding in Q1.  Wheat cash premiums remain steady/firmer as bushels are locked away and the focus remains on fall harvest.

Yesterday’s crop progress didn’t have a lot of fresh input, but corn conditions were unchanged at 61% G/E vs. 60% expected and 74% last year.  Real mixed bag of states rising vs. falling.  Corn harvest was pegged at 11% complete vs. 7% last week and 17% average.  Only 1% has been harvested in SD/ND/MN with 3% picked in IA.  Still of some concern is the amount of corn rated mature as that figure moved to 51% nationally vs. 34% last week and 64% average.  In the northern states, SD is 32% mature vs. 57% average, ND 30% mature vs. 48% average, MN 33% mature vs. 54% average and WI is 23% mature vs. 44% average.  Another 2-2.5 weeks of frost free weather would be needed to get most of this corn to a safe spot, which fortunately looks like it could be the case based on NOAA’s extended maps yesterday.  National soybean conditions improved 1pt to 60% G/E vs. 59% expected and 73% G/E last year.  Soybean harvest was pegged at 10% complete vs. 4% last week and 12% average.  63% of the soybean crop is dropping leaves vs. 41% last week and 63% average.  Winter wheat planting progress was estimated at 24% complete vs. 13% last week and 28% average.  KS is 14% complete vs. 20% average.

Lots of conjecture about the amount of winter wheat acres which will be seeded this fall with opinions all over the board.  When wheat futures were significantly higher earlier this summer, it seemed a sure thing we would see a meaningful increase in HRW and SRW acres seeded this fall.  However, with KWN8 prices right at $5.00 and WN8 at $4.98 compared with SX8 at $9.87 and CZ8 at $3.96, it is not a slam dunk.  For most operations, the decision to increase, decrease or plant winter wheat at all has already been made, but in the market’s eyes, wheat can still be planted into mid-October.  Regardless, looking at the various scenarios for 18/19 HRW becomes a bit interesting even with normal yields.  HRW acres over the last 3-years have averaged a 7.8% decline, while over the last 5-years they have averaged a 4.1% decline.  If we somewhat split the difference with a 5% decline, HRW acres would be implied at 22.6 million acres with around 16.9 million harvested.  Assuming 5-yr average yields along with steady demand, carryout can get down to or just below 300mbu which would be the smallest since 2014/15 and vs. a 5-yr and 10-yr average of 407mbu and 372mbu, respectively.  Even a 5% increase in acres would see carryout drop from the USDA’s current 17/18 level of 463mbu to around 371mbu.  These are incredibly early projections, but important to keep in mind as we field anecdotal reports about farmers planting less HRW this year.

Other data yesterday included export inspections which remain ho-hum as we await the ramp up in harvest and new crop supplies headed to the ports.  Wheat inspections totaled 18.4mbu which is slightly above the 17.1mbu needed weekly.  Total inspections now measure 339.1mbu which is 2.6% below a year ago vs. the USDA calling for a 7.5% decline.  Corn inspections were light at 29.1mbu vs. the 34.9mbu needed weekly.  Of the first three weeks of the year, none have hit the level needed, but this isn’t unusual for corn until October/November.  Soybean shipments totaled 37.8mbu vs. the 42.6mbu needed weekly.  Here too, soybean shipments have not yet hit the weekly level needed, but probably won’t until meaningful supplies have been harvested and sent toward the Gulf and PNW.  Total soy shipments measure 112.7mbu vs. the 84.5mbu shipped a year ago.

Otherwise, focus for the wheat market will be on Friday’s hard red spring production number from the USDA.  Harvested acres are expected to drop, reducing total production but could raise yields with lesser yielding areas taken out.  According to newswire services, the trade is looking for 384mbu of “other spring” wheat production which compares with 402mbu in August and 534mbu in 2016.  Assuming the USDA leaves the white and hard red spring mix unchanged, this would put HRS production around 350mbu vs. 364mbu a month ago.  As noted, the real rub comes down to higher yielding areas of E-ND and NW-MN having more influence on national yields when the abandoned acres are reduced.  Spring wheat has added about 30c/bu since making lows last week, but it would seem unlikely the USDA would come in with a low ball production estimate considering the futures, cash and spread weakness witnessed since the beginning of spring wheat harvest.


Bottom line: Harvest activity will pick up in a big way the next two weeks as fields dry and farmers fully shift their attention toward combining.  Soybeans look vulnerable if yield reports don’t shift to “as expected” or “worse than expected.”  Cash basis in the WCB is already very poor for both corn and soybeans and likely to get worse if on-farm storage can’t hold the excess.  Regardless of eventual crop size, there will be no shortage of grain in the US for quite some time, and cash and spreads will be doing their best to get farmers to store.


Good Luck Today.

Tregg Cronin

Market Analyst






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