10/11/2017 Morning Comments

Good Morning,


Fairly clear Midwest radar this morning which should help harvest progress resume in the WCB after a rather wet two weeks.  A large area of E-NE/SE-SD/E-IA/S-MN has received 3-8” of rain over the last 2-weeks, saturating fields and disrupting an otherwise busy first part of soybean harvest.  Things will remain quiet the next 2-3 days until Saturday/Sunday when showers flare up again in IA/IL/WI with another 0.75-2.00” expected by Monday/Tuesday.  The forecast calls for warm, dry weather in the 6-10 followed by above normal precip in the 8-14 for IA/MN/IL/MO/WI.  The Plains should continue to remain below normal on precip.  Temperatures maintain their above normal bias throughout the period.  Much of the Dakotas and N-MN received a killing freeze Tuesday morning which should aid in crop dry down for the immature corn and sunflowers.


Easier markets this morning, adding to losses from yesterday’s session and continuing the overall weaker theme heading into tomorrow’s WASDE report.  There has been a real lack of fresh news the last several sessions, forcing traders to focus on yield reports which seem to be confirming the “better than expected” narrative as well as the USDA’s rising crop production ideas.  History is certainly on the side of the USDA raising production ideas.  The average trade estimate for tomorrow’s numbers put the average corn yield at 169.8bpa vs. 169.9bpa in September, while the trade sees soybeans at 49.9bpa, unchanged from last month.  According to RJ O’ Brien, there have been 13 years since 1990 in which the USDA raised the national average corn yield in September from their August estimate, and in eight of those years, the October yield was also raised.  On soybeans, there have been eight years when the USDA raised yields in September from August, and six of those years saw further yield increases in October.  Possibly even more impressive for bulls looking for large yield deviations still to come, over the last three years, the final corn yield in January has varied from the September estimate by only 0.9bpa with 2016 posting only a 0.2bpa change.  On Soybeans, the January yield has been higher than September each of the last seven years by an average of 1.8bpa with 2016 posting a 1.4bpa increase.  Bottom line is yields haven’t changed much on corn from September on lately, and if they change on soybeans they have been increases to production.  Widespread increases to open interest yesterday on the lower board with SRW wheat up 5,289 contracts, corn up 6,304 contracts, HRW wheat up 499 contracts and soybeans up 7,860 contracts.  Soybean open interest is now the largest since June 22nd.

We finally received this week’s Crop Progress report yesterday afternoon, delayed due to the Columbus Day holiday.  Corn conditions improved 1pt to 64% G/E vs. expectations of 62% and 73% last year.  WCB conditions mainly declined while ECB conditions improved sharply with MI up 9pts.  Corn harvest was estimated at 22% complete vs. 27% expected and 37% average.  WCB states are where the largest gaps with average exist with SD down 23pts from average, ND down 15pts, MN down 22pts, IA down 20pts and NE down 16pts.  Soybean conditions also improved 1pt to 61% vs. estimates for unchanged and compare with 74% G/E last year.  Soybean harvest was estimated at 36% complete vs. estimates for 38% complete and 43% average.  Again, largest difference from average is the WCB with SD 37pts behind average, ND down 20pts, MN down 41pts, IA down 19pts and NE down 23pts.  Winter wheat planting progress continues to lag behind average as well with 48% of expected area seeded vs. 58% average.  The 48% seeded for this week is the slowest national progress since 1999 and the second slowest on record back to 1982.  Individual state progress is also interesting with KS just 27% seeded vs. 58% average, and the slowest progress on record.  For a little perspective, the next slowest planting progress was 42% planted on this date in 1999.  NE is 77% planted vs. 88% average, and has the slowest progress on record.  OK is 42% planted vs. 57% average with the slowest pace since 2001.  CO is 70% seeded vs. 86% average, and the slowest pace on record.  Most SRW states are at or ahead of average, leading some to believe we will see a decline in HRW acres, but stable to slightly higher SRW acres.  Lots of progress left to complete in the ECB as well.

Other data yesterday included export inspections which were below needed levels for everything but soybeans.  Wheat inspections totaled 12.9bpa, down from 26.4mbu last week and below the 17.0mbu needed weekly.  Total shipments measure 378.4mbu vs. 388.6mbu at this point last year.  Corn shipments totaled 20.6mbu vs. the 35.2mbu needed weekly, and were also the lowest of the young marketing year-to-date.  Total shipments are now 138.7mbu which are 49.2% below a year ago, running the risk of the USDA downgrading the marketing year export forecast tomorrow.  Soybean shipments totaled 54.6mbu which was a marketing year high and above the 42.5mbu needed weekly.  However, inspections over the next three weeks a year ago averaged 102mbu, a tall task for loadings this year to keep pace with last year’s record breaking soy export season.  The USDA is of course calling for another 3.6% increase this year above and beyond last year with shipments currently 3.7% ahead of a year ago.

Weekly deliverable stocks showed a build in spring wheat with combined Minneapolis/Duluth supplies up 776,000 bushels to 25.903mbu which compares with 30.420mbu a year ago.  In Chicago, deliverable stocks declined 69,000 bushels w/w, and are now 2.762mbu below a year ago.  Kansas deliverable supplies declined 547,000 bushels w/w, but remain 8.969mbu above year ago levels.

Australia has certainly been in the headlines for their record breaking drought, but rains last week in some of the driest spots have helped futures relax some.  Futures on the ASX exchange, closed yesterday at A$267.80/MT, the lowest print since mid-September and off recent highs at the beginning of the month near A$300.00/MT.  ASX futures rallied as high as A$315.00/MT in mid-July.  The USDA should cut Australian wheat production from 22.5MMT to around 20.0MMT tomorrow, but as important will be how they deal with exports.  Currently, USDA has Australia exporting 18.5MMT, although few in the trade believe exports will be over 14MMT with the domestic market fighting to keep all excess bushels in-country.  Offsetting the Australian cut should be a 1-2MMT increase in Canada, and another 0.5MMT in Russia.  Worth noting, with the futures setback, US-HRW prices are moving back into the mix for major international tenders.  FOB offers last night put 12.50% protein HRW at $193.00/MT vs. Russian at $194.00/MT, German at $199/MT and Baltic at $194.00/MT.  11.0% protein French wheat was seen at $192.00/MT vs. the equivalent US-HRW at $186.00/MT.  Freight still hurting the US into MENA.


Bottom Line:  Open interest rises each and every day as harvest bushels get sold, volatility drops and funds become emboldened in their short positions.  The market is anxious to get tomorrow’s report out of the way, but once it does, it will essentially be the last word on corn and soybean production until January.  As the stats above point out, yields haven’t moved much from the September estimates the last several years, so don’t hinge your marketing plan on big cuts from the USDA moving forward.


Good Luck Today.

Tregg Cronin

Market Analyst






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