Outside Markets as of 6:20am: Dollar Index down 0.087% at 93.0490; Euro up 0.190% at 1.18635; British Pound is down 0.408% at 1.3422; S&P’s are down 1.00 at 2506.75; Dow futures are down 11.00 at 22,309.00; 10-yr futures are down 0.04%; Crude Oil is down $0.06 at $51.50; Heating Oil is down $0.0073 at $1.8170; Paris Milling Wheat is down €0.50 at €166.00/MT; Paris Rapeseed is down €0.75 at €367.75/MT; Dalian corn closed down 1.40%. Dalian soybeans closed down 0.08%, Dalian soy oil closed down 1.62% and Dalian meal closed 0.83% lower.
Dalian Ag markets have been under a fair amount of pressure as of late, especially soy products which look to be compressing crush margins as US soybean exports are ramping up. Yesterday, Dalian soy oil traded down to the lowest level since June 29th, while Dalian Palm Oil slipped to the lowest level since August 31st. Dalian meal closed at the lowest level in over a week, while Dalian corn closed at 2-week lows. Despite weak products, Dalian soybeans have been more or less range bound. It hasn’t been just Ag commodities trading softly, however, as Dalian Coking Coal prices dropped to the lowest level since mid-July while Iron Ore prices hit the lowest since late June. The Yuan hit the weakest level since mid-September this morning, but a weakening currency is usually associated with strengthening commodity prices.
Another day, another shower in the southern plains. Looking at the week-to-date totals for the southern plains, almost all of the HRW growing areas in CO/KS/OK/TX have received 1.00” of moisture this week, with many spots in the 2.0-3.0” range, and SW-OK and NE-TX even seeing some totals closer to 4.0-5.0”. S-TX which isn’t really a major production area has received close to 10.00”. The Midwest is quiet this morning, but showers will fire up tomorrow and through the weekend, bringing moderate to heavy rainfall totals with it. Looking at 5 and 7-day projections this morning, NE/NW-IA/S-MN/SE-SD could see totals between 3.0-5.0” when all is said and done. Large chunks of those states should see 1.0-1.5”. No measureable rainfall expected for IL/IN/OH the next 7-days which should allow harvest to speed ahead. Warm and wet for the Midwest in the 6-10 and 8-14.
Follow through selling as we get set to end the week, the month and the quarter with a USDA report on tap later this morning. Markets have been very quiet this week in terms of news flow, so market participants of all shapes and sizes will be anxious to get something fresh to crunch. Open interest changes yesterday were in-line with recent trends as soybeans increased 6,201 contracts, KC Wheat was down 1,633 contracts, corn was up 3,068 contracts and Chicago wheat was down just 116 contracts. Of the three major commodities, soybeans look at most risk for breaking their current up-trend, having broken below rising channel support as well as slipping below both the 50 and 100-day moving averages in recent days. Would seem the risk today is if the 2016/17 soybean crop is revised higher, resulting in larger September 1 soy stocks than originally anticipated. Otherwise today will be about the wheat production and stocks report so we can finally have a definitive number on the size of the HRS crop 30-days after harvest has been completed.
Russia has quickly become the most important wheat producer in the world, having taken the top export spot for the second year in a row. As such, their fall sowing campaign becomes even more important than is used to be. According to SovEcon, Russian wheat production could be set for another bumper wheat crop in 2018 thanks to a swift pace of sowings to date and cut-throat cost of production. To-date, Russian farmers have sown 11.2 million hectares of wheat which compares with 10.8 million hectares on the same date a year ago. The official target for sowings is 17.5 million hectares, but the pace implies this number could be low. Despite increased acres and production, planting wheat for Russian producers is still profitable. According to Societe Generale, the cost of production for Russian farmers is about $100/MT, or $2.72/bu due to the Ruble depreciation and lower costs for labor, fertilizer and equipment. SovEcon charges that in some regions, the cost of production is even lower, down around $80-90/MT, or $2.17-2.44/bu. With those sort of economics in place, and barring a major weather disaster, Russia looks poised to retain the wheat crown for the foreseeable future.
Data out yesterday included export sales which were fairly solid for everything except corn. All wheat sales totaled 16.0mbu vs. the 13.6mbu needed weekly. Total wheat commitments now stand at 496.7mbu which is down 4% from a year ago. HRW commitments are down 15%, SRW commitments are up 9%, HRS sales are down 14% and SWW sales are up 36%. Corn sales totaled a dismal 12.6mbu vs. the 28.5mbu needed weekly to hit the USDA mark. Total commitments now measure 446.8mbu which are down 39% from a year ago vs. the USDA calling for a 19% decline. Larger corn crops in Argentina and Brazil are being felt in a big way. 12.6mbu for the third week of the marketing year were the second lowest of at least the last 10 years behind only the drought year of 2012/13. Soybean sales on the other hand were huge at 109.6mbu vs. the 29.7mbu needed weekly. Total commitments now stand at 819.9mbu vs. the 959.5mbu a year ago. This was the sixth largest weekly sales total on record for those keeping score at home.
Also out yesterday was the September 1 Hogs and Pigs report which came about as in-line with pre-report estimates as possible. All hogs and pigs as of Sept 1 totaled 73.549 million head, or 102.5% of a year ago which was exactly the pre-trade estimate. Kept for breeding totaled 6.087 million head, or 101.2% which was spot on the pre-trade estimate. Kept for Marketing totaled 67.462 million head, or 102.6% which up slightly from the pre-trade estimate of 102.5%. The June-Aug pig crop was 102.2% vs. 101.9% expected, while Sep-Nov intentions were 100.8% vs. estimates for 100.5%. Dec-Feb farrowing intentions were seen at 101.3% vs. estimates for 100.0%, which imply the hog herd expansion is set to continue into 2018. The all hogs and pigs at 73.549 million head is the largest number of hogs and pigs for this date on record.
The big keys in the wheat report to watch today will obviously be the harvested percentage of spring wheat acres, but also any revision to planted acres for both spring wheat and soft red wheat as FSA data has been implying some changes could be afoot. In addition, wheat feed/residual demand for the first quarter of the year usually holds implications for the entire marketing year. In addition, depending on what the USDA does with harvested acres, how will this change the national average yield for spring wheat? If more acres of lower yielding areas are removed due to abandonment, do the massive yields in E-ND/N-MN offset the total production? With the way the cash market, spreads and futures in spring wheat have behaved since July, it seems difficult to believe the USDA is going to low-ball the market with a HRS production number sharply below 350mbu, which is the average trade estimate. Most are expecting fireworks in one direction or the either, but worth noting December option volatility at the MGEX settled yesterday at 23.93% vs. 15.42% a week earlier, which isn’t a great deal higher than the CBOT or KCBT around 20%.
Bottom Line: For the month of September, soybeans are up 11.25c, corn is down 5.25c, and Chicago wheat is up 20.25c. End of the month and quarter money flows could direct trade until the USDA reports are released, which traders will only have two hours with before the weekend. Feels like the surprise for the market could be larger supplies of corn, wheat and soybeans, but it wouldn’t be the first time the trade has been caught off-guard. The trend in USDA reports the last couple of years has been larger crops, and larger supplies than the market thinks. Does that change today?
Good Luck Today.
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