10/5/2017 Morning Comments

Good Morning,


Outside Markets as of 6:15am: Dollar Index up 0.110% at 93.5900; Euro down 0.233% at 1.17830; Aussie Dollar down 0.598% at 0.78070; British Pound is down 0.587% at 1.3199; S&P’s are up 0.50 at 2536.75; Dow futures are up 5.00 at 22,612.00; 10-yr futures are up 0.07%; Crude Oil is up $0.07 at $50.05; Heating Oil is up $0.0090 at $1.7829; Paris Milling Wheat is unchanged at €166.00/MT; Paris Rapeseed is up €0.75 at €368.75/MT; Dalian markets are still closed on holiday.

After several losing sessions in a row, crude oil markets are finding support thanks to supporting inventory data as well as solid export data from the EIA.  Weekly crude oil stocks declined by 6.02 million bbls vs. an average estimate of a -0.80 million bbls decline.  Crude oil stockpiles are now at 464.96 million bbls which is below last year’s 469.11 million bbl level, but still above the 3-yr average of 407.92 million bbls.  Part of the large drop in inventories was due to crude oil exports hitting 1.98 million bpd, surpassing the record of 1.5 million bpd set the previous week.  Analysts point to the premium of Brent Crude oil over WTI crude oil as part of the reason for the sustained export demand.  That spread is sitting at $6.03/bbl premium Brent this morning, but is near the strongest levels since July of 2015.

Showers scattered across the southern and central plains as well as a good sized system setting up shop over IL/IN this morning.  Rains this week have been heaviest over E-NE, MN, E-SD, NW-IA, N-KS and most of OK.  Over the last 14-days, the vast majority of the Plains and WCB have been running at 200-600% of normal precip as soil profiles continue to be recharged.  IL.IN/OH/MI/MO, however, have been running severe deficits for the last 15-30 days of 5-50%.  This has promoted quick harvest, but has also delayed SRW planting and emergence.  Rains the rest of the week and early next week will be heaviest in the aforementioned areas: NE-KS/E-NE/IA/N-MO/S-MN/WI.  IL/IN/OH also look set to receive better moisture early next week in the 1.25-3.00” range.  Below normal temps and precip look to develop over the entire Midwest in the 6-10 and 8-14 bringing more of the growing season to a close.


Mixed markets this morning with firmer row crops, weaker winter wheat and better spring wheat.  Doesn’t seem to be a lot of trend in our markets as of late with prices remaining mostly inside recent ranges, awaiting fresh fundamental data by way of harvest reports and the USDA on the 12th.  Farmer frustration with current corn and soybean cash prices are growing in many locations, but the amount of old crop movement still occurring speaks to the carryout levels confirmed by the USDA last week.  While there have been a few more two-sided yield reports surface, by and large the soybean and corn crops look set to get larger on next week’s WASDE report with the vast majority of observations yielding “better than expected” or “as expected.”  In the main corn belt, there hasn’t been a great deal of cash pressure on corn just yet, as producers are attempting to go home with as much corn as possible.  Selling soybeans off the combine will be popular on both ends of the belt, especially the WCB where wheat and corn will be the preferred commodities to store.

While price action has been a bit two-sided, volatility has been a one-way train to pound town.  Chicago SRW ATM volatility for December closed at 16.17% vs. 19.59% a week ago.  Corn December ATM Vol closed at 15.36% vs. 16.90% a week ago, while Nov soybean vol closed at 12.93% vs. 14.66%.  Clearly the market is not anticipating any sharp moves in either direction in the next 30-45 days, and producers should adjust their expectations for futures prices accordingly.  Another way to look at volatility, is the expectations going forward.  The options market and volatility is telling us there is a 68% chance November soybean prices remain between $9.27-9.88 per bushel between now and the end of the month.  For December corn, futures have a 68% chance of remaining between $3.28-3.68 from now until opex at the end of November.  December Chicago wheat is expected to remain between $4.15-4.68 over the next 50 sessions.  When one looks at futures through this prism, expectations for a sharp move in either direction become a bit more tempered.  This exercise can be done over any time frame, and should be used by producers who will be marketing grain before year end to realize what is possible, and what is likely as harvest begins.

Data yesterday included weekly ethanol production which came in at 1.010 million bbls/day, which was up 14,000bbls/day over the previous week.  Ethanol production needs to average a 1.1% increase over year ago levels in order to meet the USDA’s objective, and this past week’s production was up 3.1%.  Ethanol stocks jumped sharply last week by 805,000 bbls to 21.545 million bbls, which pushed them back to the highest level in seven weeks and the second largest stocks in over four months.  Import/Export data for the month of August will be available later this morning, and analysts will be keen to see whether exports finished the summer in strong or weak fashion.  There is also the looming threat of reduced imports by Brazil which took the second largest amount of ethanol in the 16/17 marketing year behind Canada.  The 6-month RBOB/Ethanol strip is trading at 18.96c/gln this morning.

While the focus has been on Minneapolis and US spring wheat heading into the September 29th reports, Canadian production is still up in the air as harvest plods along.  As of September 26th, Alberta had harvested around 60% of all their crops, which was a bit behind the 5-yr average of 67.7%.  Meanwhile Saskatchewan was pegged at 78% harvested vs. the 5-yr average of 74%.  The USDA’s latest estimate of the Canadian all-wheat crop was 26.5MMT in September, but most analysts are in the 29-30MMT area now given better than expected yield reports.  If production does come in at 29MMT, and harvested area is unchanged, the national average yield would come in at 3.22MT/ha, the third largest on record despite huge moisture deficits in the southern prairies much of the summer.  Nonetheless, if demand is unchanged from the USDA, carryout would grow to 7.615MMT which would be the second largest since 2009/10 and up from 6.865MMT last year.  However, protein reports are coming in almost uniformly below average and is being reflected in protein scales at ports.  There is a premium of $1.10 from 12.0% protein to 13.8% protein which would compare with a 55c/ premium in US-HRW spot floor scales and a 15c premium between 13.0-13.5% on the MGEX spot floor.  No quotes for less than 13.0% protein were available.  Looked at another way, Canadian scales are roughly 12c per 1/5th, vs. US-HRW at  7c per 1/5th and Minneapolis around 7-8c per 1/5th as well.  Monitoring Canadian exports in the coming months to see what the bulk of their wheat has for a protein and quality standpoint could be important.

Quickly, we are entering the critical time frame for much of the Australian wheat crop with some already too far gone to rebound.  A survey of industry participants in Australia put the crop at an average of 19.2-19.4MMT with the total range between 17.0-21.5MMT.  The ends of the range would be characterized as the results if rains arrive immediately or if rains don’t show up at all the rest of the growing season.  The USDA put the crop at 22.5MMT in September, while ABARE last pegged the crop at 21.64MMT.  Exports are likely to fall 4-5MMT as the domestic market tries to protect itself, leaving excess bushels available for only those who prefer Australian White wheat over other hard varieties from Canada and the United States.


Bottom Line: Hurry up and wait.  Cash, spreads and yield reports.  Volatility should stabilize ahead of the October WASDE, but the historic levels being witnessed right now don’t spell a lot of excitement between now and year end.  As noted above, producers would do well to adjust futures price expectations through harvest and into year end.  This doesn’t mean one can’t be optimistic, just practical when making marketing decisions.


Good Luck Today.

Tregg Cronin

Market Analyst






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