10/3/2017 Morning Comments

Good Morning,


Outside Markets as of 6:20am: Dollar Index down 0.100% at 93.5340; Euro up 0.114% at 1.18055; S&P’s are up 1.50 at 2527.75; Dow futures are up 28.00 at 22,535.00; 10-yr futures are down 0.09%; Crude Oil is down $0.13 at $50.42; Heating Oil is down $0.0121 at $1.7544; Paris Milling Wheat is up €0.50 at €166.00/MT; Paris Rapeseed is unchanged at €366.75/MT; Dalian markets are closed for Holiday.

Showers moving across the upper Midwest this morning, bringing rains to ND/SD/E-NE/NW-IA/MN, adding to totals from the last 24-hours  in some of those same areas.  In the last day, the eastern half of NE has seen a broad 0.50-1.00” with localized amounts over 2.50-3.00”, while much of MN has also seen 1.00-2.50” amounts.  Rains will remain active across the southern plains and WCB the next several days, bringing moderate to heavy rainfall to OK/KS/NE/IA/MO/IL/WI.  Forecast totals for the next 7-days put 2.50-3.50” in many of the aforementioned states.  This will slow harvest efforts in the central and ECB where solid progress has been made over the weekend.  The growing season looks as though it may come to an end next week in the WCB, however, with below normal temps seen in the 6-10 and 8-14 as well as below normal precip chances.


Mostly easier markets this morning, at least for row crops which continue to find pressure following yesterday’s selloff.  After leading gains Friday on the tighter than expected September 1st stocks, soybeans gave back all of the gains on Monday on a big harvest weekend in the ECB, falling crush basis, logistical challenges on the Ohio River, and the perception this crop is not done getting larger.  After an impressive August and September, soybeans have turned weaker technically, trading below the 50/100/200-day moving averages as well as slipping below rising channel support.  On-Balance-Volume has turned negative, indicating more volume on down days than up days over the last 20 sessions, and open interest continues to rise as soybeans are sold off the combine from one end of the corn belt to the other.  Worth noting, large open interest increases were seen across the board yesterday with funds likely adding to net short positions in corn and wheat.  SRW wheat was up 4,211 contracts, corn was up 10,544 contracts, KC wheat was up 2,513 contracts and soybeans were up 8,121 contracts.

Starting with the river challenges, low river levels and back-ups at several lock and dams are pushing the cost of barge freight to levels not seen in many years.  Barge freight trades according to cash sources put Memphis-Cairo at 1100% of tariff, St. Louis around 850% and some chatter about prompt freight south of Memphis trading 1300%.  Mid-Miss freight was said to trade 775% over the weekend.  These are levels not seen since 2014 when demand for barges by frac sand and other industrial products pushed freight to record levels.  Expensive freight usually has the effect of lifting destination premiums, allowing elevators who are able to take advantage, but with harvest bushels taxing the entire system, soy premiums are falling off in slabs in the ECB.  Rather than buy the expensive spot freight, elevators are storing beans for the near-term until the situation corrects itself.  With no competition from the river, crush plants are being overrun with soybeans.  This will spillover to corn once that harvest gets rolling in another couple weeks.  Not having your main transportation channel to export elevators running at 100 during harvest is a terrible situation.

While old news today, Friday’s Stocks-In-All-Positions report yielding many interesting data points which have set the table for the next 3-months’ worth of trading in the wheat markets.  To summarize in a word, the spring wheat crop proved 20mbu larger than last month, much to the dismay of the market, wheat feed/residual demand was much smaller in Q1 than previously thought, and both corn and soybean stocks were a bit smaller than originally expected.  The spring wheat market sold off hard Friday and followed through yesterday on the more comfortable supply, although the spring wheat market is still historically tight and shouldn’t relinquish much more premium.  Ending stocks of HRS will likely move up to around 167mbu from 146mbu previously, which would be the smallest since 2012/13 as opposed to the tightest since 2007/08.  This of course unless the USDA decides to change demand on October 12th.  Still, when looking at 2018/19, even with a 15% increase in acreage and 5-yr average yields, ending stocks actually decline 6mbu next year.  With a 20% increase in acreage, ending stocks would bump to 190mbu from 167mbu, but still relatively snug.  It could be argued the selloff in futures prices is not promoting more acres across the Northern Plains, just as the selloff in winter wheat price is probably not promoting more HRW acreage in the Southern Plains during their sowing campaign.

Another impressive statistic to come out of the reports was the amount of wheat in the Northern Plains and on-farms across the United States.  Stocks of wheat in MN/SD/ND/MT as of September 1 totaled 538.134mbu, which was the smallest on record going back to at least 1986/87.  This is due in large part to the drought obviously, but also to the amount of old crop wheat which moved on the rally in May/June.  Hitting this point home further is the amount of wheat on-farm across the entire United States which totaled 488.8mbu, the smallest amount on-farm for Sept 1 since 1963.  A larger portion of wheat is being held at the commercial level than usual, which could limit future price reaction, but should also promote spread and basis strength as we get deeper into the marketing year.  In addition, the dichotomy of this year’s HRS crop will make for cash market opportunities for farmers with high protein and test weight.  The big yields in E-ND/N-MN yielded a low protein crop as did the bushels in Manitoba.  There isn’t a great deal of demand for 12.5-13.5% protein spring wheat, as mills are finding it cheaper to blend 14.0-15.0% spring wheat and 11.5% HRW to make their grist.  Pay attention to protein scales.

Data yesterday included the weekly crop progress report which saw corn conditions rise 2pts to 63% G/E vs. 61% expected and 73% last year.  Conditions jumped in the Dakotas, IA, MO, IL and CO.  Conditions increases at this stage are usually better than expected yields by crop being harvested, or anecdotal reports of silage yields, etc.  Corn harvest was pegged at 17% complete, up from 11% last week and 26% average.  Little to no progress has been made across the Northern Plains with ND/SD/MN at 2-3% complete vs. 11-19% average.  68% of the crop is mature vs. 64% average, but most states in the Northern Plains are lagging averages which will be interesting if frost/freeze chances pick up next week.  Soybean conditions were unchanged at 60% vs. 74% last year.  Soybean harvest was estimated at 22% complete vs. 10% last week and 26% average.  ND/SD/NE/IA/MN/WI have all not passed 20% complete.  US winter wheat planting progress was estimated at 36% complete vs. 24% last week and 43% average.  Most southern plains states are behind average due to reported dry conditions.  Emergence was pegged at 12% vs. 16% average.

Export inspections yesterday were solid for wheat, but still lacking for corn and soybeans.  Wheat shipments totaled 25.4mbu, the largest since the third week of the marketing year in June.  Cumulative shipments now total 364.5mbu, down 2.2% from a year ago.  Also worth noting, there were 4.24mbu of HRS shipped to China last week, which is the kind of extra-ordinary demand which will keep the spring wheat market tight in the 17/18 crop year.  Corn shipments totaled 30.8mbu vs. the 35.0mbu needed weekly.  Total shipments now measure 115.3mbu, which is down 49.3% from a year ago.  Some export forecasts by privates are slipping from 1.850bbu from the USDA to 1.750bbu.  Soybean shipments totaled 32.9mbu vs. the 42.8mbu needed weekly.  Total soy shipments measure 145.9mbu vs. 125.3mbu last year.


Bottom Line:  Soft basis, steady/weak spreads and expanding harvest is usually not a recipe for a futures rally.  Yield reports seem to confirm USDA yield ideas, and the way USDA estimates have a way of trending, would seem to promote larger production on next week’s WASDE report.  Wheat markets have the supply side of the equation locked in for the US, so it is all about demand moving forward.  The high-volatility period of the summer has come and gone, and producers need to acknowledge the trading ranges which are likely setting up.


Good Luck Today.

Tregg Cronin

Market Analyst






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