9/28/2017 Morning Comments

Good Morning,


Outside Markets as of 6:25am: Dollar Index down 0.222% at 93.2460; Euro up 0.165% at 1.18305; Aussie Dollar down 0.433% at 0.78180; S&P’s are down 2.00 at 2502.50; Dow futures are down 18.00 at 22,280.00; 10-yr futures are down 0.11%; Crude Oil is up $0.55 at $52.69; Heating Oil is down $0.0025 at $1.8365; Paris Milling Wheat is up €0.25 at €167.00/MT; Paris Rapeseed is down €1.50 at €370.00/MT; Dalian corn closed down 0.82%, Dalian soybeans closed up 0.03%, Dalian soy oil closed down 1.46% and Dalian meal closed down 0.11%.

As recently as last week, we discussed the weakness in the US Dollar Index as it plumbed the lowest levels in over 2-years.  Over the last several sessions, however, the USD has moved back above the 50-day average and touched the highest level in a month.  The USD is certainly primed for a correction higher given the enormous level of pessimism toward the contract.  Earlier in the month, sentiment toward the USD dropped to the lowest level since 2011, but that has already turned and begun moving higher. Part of the strength could be the renewed idea we will still see another interest rate hike at the December FOMC meeting which was the belief for most of 2017 before inflation statistics began to sour at the end of the summer.

Showers in the Southern Plains again this morning, adding to impressive totals over the last 3-4 days.  Over the last 14-days, W-KS, the Panhandle of OK, N-TX and E-CO have large areas which are running 200-600% of normal rainfall.  Couldn’t ask for much more on acres which have recently been sown to wheat or will be in the next couple of weeks.  SRW acres on the other hand have been running quite dry with IL/IN/OH/MO/AR all running 0-50% of average rainfall over the last two weeks.  Rains will keep falling in the south over the next 5-days, adding to totals there.  Rains will also flare up in E-NE/IA over the weekend and into early next week with NW-IA and E-NE looking at the potential for 1.00-2.50”.  The Northern Plains also see a pick-up in rainfall next week which could hinder soybean harvest.  Full speed ahead in the ECB, however, with little to no rainfall the next 7-days.


Weaker markets this morning, led by soybeans as we give back another 5-7c.  Soybeans have given back around 25-30c since hitting highs for the move on 9/22.  Soybeans are technically still in an uptrend, but would do well not to test corrective lows from the 12th and 13th around $9.37-9.46.  Soybeans continue to find themselves under pressure as harvest expands, farmers appear to be willing sellers, cash markets continue weaker and the market looks for homes for what will be the largest crop ever produced by 125mbu, and the largest supply of soybeans (carryout+production) by 273mbu.  While we wrote just yesterday about the seemingly endless demand from China, the US will be putting that to the test this year with the largest excess supply in over a decade.  Otherwise, traders are keeping their eye on the descending triangle patter in corn which is usually a bearish formation, although continued coiling will promote a breakout at the very least.  On-Balance-Volume is trending higher and has pushed into positive territory, which is a solid sign that bulls are in control of participation.  Wheat patiently waiting on tomorrow’s updated data tables.

Data released yesterday included weekly ethanol production which declined a surprisingly large 37,000bbls/day to 996,000bbls/day.  This went against ideas for a continuation in the solid run rates due to impressive margin structure, but like exports, could be attributable at least in part to a lull before new crop harvest hits.  There is plenty of old crop to keep everyone running at capacity, but last minute maintenance can happen during the month of September.  Nonetheless, last week’s production was the lowest in over 3-months and second lowest in over 5-months.  Still, the 996,000bbls/day is close to the level needed throughout the 17/18 marketing year to hit the USDA’s mark.  Stocks declined by 398,000bbls to 20.740 million bbls, which are the lowest since January.  The 6-month RBOB/Ethanol strip is running around 13-14c/gal, with RBOB maintaining a premium over ethanol since mid-August.  Ethanol futures, however, have shaved off around 10c/gal over the last 10-days and are heading back to the lower end of the trading band in place since August of 2016.

Another day, another new contract low in corn spreads.  CZ/CH traded back down to -13.0c, tying contract lows while CZ/CK, CZ/CN, CZ/CU and CZ/CZ all hit fresh contract lows or tied previous ones from recent days.  The back end of the curve is just as weak, however, as both the CH/CK and CK/CN hit fresh contract lows with the market paying in excess of 70% of full financial carry throughout the curve at the lows yesterday.  The bottom line is spreads at contract lows, and both ends of the futures curve being this weak, are not bullish futures.  When combined with a potential descending triangle pattern and gutslot harvest still 2-3 weeks away, it definitely should be throwing up warning signals to traders and producers of all shapes and sizes.  Funds are likely still carrying a large net short position which as of the 19th was -157,317 contracts, the largest since June 6th, which could add a bit of support.

As noted earlier this week, tomorrow’s reports are most important for hard red spring wheat as the stocks as of Sept 1 and the final production number from the USDA will have major ramifications for the 17/18 marketing year.  During the height of the euphoria in May and June, hard red spring wheat traded almost straight up as production ideas dropped to the low 300mbu area with some even slipping below that.  We hit a high of $8.6850/bu, but have since taken off $2.54/bu before recovering slightly.  During that selloff, cash basis weakened and calendar spreads blew out as farmers rushed to sell multiple years of old crop stocks at the same time yield prospects continued to rise in E-ND/N-MN.  This has presented a showdown tomorrow of harvested acres vs. impressive yields in the east and north.  The market is looking for a crop of around 350mbu vs. the 364mbu from last month.  Odds are decent as harvested acres drop, the US average yield will improve, but it is a matter of where those two finally intersect.  Regardless of where the number falls, the market must not lose sight of the need to encourage acres next spring in meaningful fashion.  Even with an acre increase of 15-20%, carryout for the 18/19 marketing year doesn’t grow by much more than 20-30mbu.  The risk tomorrow would seem to be a much larger crop as more producers harvested acres they had previously decided not to combine.  Odds of a low-ball production number under 330-340mbu seem low.


Bottom Line:   Seems like Groundhog’s Day as full blown harvest gets a day closer, more old crop tries to move before elevators go full and yield reports from fields which have been harvested remain strong.  After the bizarre growing season that was 2017, it is still difficult for many in the trade to accept the kind of yields we appear to looking at.  Nonetheless, the data provided by the USDA is what the market will trade until proven otherwise.  Marketing plans exist to deal with scenarios of all kinds, and are crucial in environments like these.


Good Luck Today.

Tregg Cronin

Market Analyst






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