9/27/2017 Morning Comments

Good Morning,


Outside Markets as of 6:30am: Dollar Index up 0.462% at 93.4370; Euro down 0.477% at 1.17965; Japanese Yen is down 0.659% at 112.4669; S&P’s are up 4.75 at 2500.00; Dow futures are up 22.00 at 22,281.00; 10-yr futures are down 0.37%; Crude Oil is up $0.07 at $51.95; Heating Oil is down $0.0023 at $1.8407; Paris Milling Wheat is down €0.50 at €166.00/MT; Paris Rapeseed is down €2.25 at €371.00/MT; Dalian corn closed down 0.46%, Dalian soybeans finished up 0.10%, Dalian oil closed down 0.23% and Dalian meal closed down 0.43%.

More rain across the southern plains this morning, adding to solid totals from the past few days across KS and the panhandle of OK.  Over the last 48-hours, nearly the entire state of KS has received 1.00-2.50”, and the same for the western 1/3 of OK.  Rains will continue falling in the south on and off for the next 4-5 days with 5-day totals for TX-HRW areas in the 0.50-1.50” area, while totals less than 1.00” will be seen across the other areas.  Rains will also flare up in IA/E-NE toward the weekend and early next week with totals in the 0.50-1.50” in total.  S-MN will see similar totals.  Warm and wet will be the trend in the 6-10 and 8-14 day outlooks, especially for the Northern Plains on the moisture side.  This could stall soybean harvest efforts, but corn harvest is still some ways off given the delayed maturity of much of the crop which the above normal temps should help.


Easier markets this morning in a little bit of follow through selling from yesterday.  Volatility is mostly lower from week ago values as we gear up for another important USDA report this Friday.  November soy vol settled at 14.21% vs. 14.47% a week ago, while December Chicago wheat vol settled at 19.44% vs. 20.22% last week and December corn settled at 16.41% vs. 16.82% a week ago.  As noted yesterday, Friday’s numbers will shed light on the “final” spring wheat production situation, and give clarity to the number of bushels the market will be working with for the next 6-months.  In addition, there is growing fear amongst the trade we could be in for a bearish surprise on corn, and possibly soybeans, with the amount of old crop we are carrying into 17/18.  The anecdotal reports of corn being piled from one end of the belt to the other combined with softening basis and contract lows in calendar spreads  do not imply futures have an immediate upside function to perform.  Soybeans will likely carry some risk premium into harvest as we await more information on the early growing weather in South America.

As we head into gutslot harvest for both corn and soybeans, cash markets are weak and trending weaker.  At the Gulf, soybeans are converting to roughly 60-70c a bushel less than gross delivery equivalence, while corn is converting 25-35c less depending on delivery zone.  If we were closer to delivery for either commodity, deliveries should be huge as the delivery market is currently the best sale with river access.  This is understandably putting pressure on calendar spreads with CZ/CK, CZ/CN, CZ7/CZ8, CK/CN, CN/CU and CN/CZ all hitting contract lows among many others.  In addition, SX/SF hit a new contract low and SF/SH tied contract lows during yesterday’s session.  The market is clearly telling farmers to store corn and soybeans at the moment, but whether the market will earn its carry remains to be seen.  The PNW shouldn’t be looked to as a demand savior as basis there is softer w/w for both corn and soybeans as well.  Rail freight is around $1,000/car cheaper than a year ago at this time, with premiums off around 25-30c as well.  FOB basis for many shuttle loaders across the Northern Plains is already over -100X and -100Z, and likely to get worse as harvest really opens up in 1-2 weeks.

With softening cash prices, there is usually a benefactor, and value added margins certainly seem to be expanding.  According to RJ ‘O Brien, gross ethanol margins improved to $0.92/gln from $0.92/gln last week and $0.92/gln a year ago.  Ethanol margins would appear to be near the best levels of 2017.  Broiler crush margins did decline last week to 71.84c/lb from 72.75c/lb last week but better than the 59.33c/lb a year ago.  Margins have been steadily declining since early summer, but still remain historically strong as the industry continues to expand.  Hog crush declined to $53.10/hd from $62.69/hd last week but above the $49.39/hd a year ago as hog futures continue to slide.  Cattle crush margins improved to $137.70/hd from $122.37/hd last week and $161.05/hd a year ago.  Soy crush margins improved to $1.29/bu from $1.13/bu last week but down from $1.59/bu a year ago.

Despite weak basis and a seemingly endless supply of soy from both hemispheres, demand from China remains robust and continue to underpin this market.  Import data from the country for the month of August showed total soy imports of 8.4MMT which was down from 10.1MMT in July, but above the 7.7MMT taken in August of 2016.  Year-to-date imports now total 63.3MMT which are up sharply from last year’s 54.0MMT.  According to their data, of the 8.4MMT imported, 6.1MMT came from Brazil and 1.4MMT from Argentina with the balance likely coming from the US.  Corn import data was also released with August imports totaling 378,000MT vs. 914,000MT in July and just 27,000MT a year ago.  YTD corn imports total 2.03MMT vs. 2.96MMT during the same period in 2016.


Bottom Line: Appears to be another ho-hum session as we await Friday’s updated data sheets.  We are probably seven days away from wide-open soybean harvest in the WCB as we continue to dry out, while corn harvest will be a spread out affair from mid-October into mid-November.  It is important to continue monitoring cash markets and spreads as at the moment, neither is suggesting a futures rally is imminent.  Producers need to acknowledge what the larger risk is, 20-30c of additional downside, or being protected on a 20-30c rally?


Good Luck Today.

Tregg Cronin

Market Analyst






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