10/26/2017 Morning Comments


Good Morning,


Most eyes in the upper Midwest will be on the winter weather and high winds moving into the Dakotas and MN later today.  2-3” of snow is being forecast along the SD/MN border with 30-40mph sustained winds and gusts up to 50mph which are expected to create blizzard-like conditions.  Difficult to believe Monday, today and tomorrow will qualify as “days suitable for fieldwork” in the USDA’s weekly crop progress report.  Once the precip moves out Sat/Sun, the Midwest will be devoid of moisture through mid-week next week and through the 6-10 day.  The 8-14 day turns above normal for nearly the entire Midwest which will be interesting considering the below normal temperature bias for nearly the whole corn belt.  Coldest temps will be over MT, ND and N-SD.  Same story with Brazil: major moisture deficits, but forecasts calling for better chances as the calendar flips to November.  Stay tuned.


Mixed markets this morning with most of our markets settling into 2c ranges overnight.  Mixed open interest changes yesterday on the reversal, making fund position a little difficult to read.  Corn open interest fell 2,534 contracts, soybeans were up 5,479 contracts, SRW was up 231 contracts and HRW was up 3,568 contracts.  That is the first open interest drop in corn in eight sessions.  Fortunately, the last several sessions have witnessed option volatility begin to climb which at least gives the faint hope we might move out of our ranges someday.  December corn vol settled yesterday at 14.37% vs. 12.86% last week, December SRW vol is essentially unchanged at 16.89% and December soybean vol is actually less than last week at 11.36% vs. 11.60%.  The soon to expire (tomorrow) November soy options settled last night at 13.01%.  Harvest continues to advance in the upper Midwest, but traders and merchants alike need to be prepared for a long, draw out affair as the temperatures drop and air drying days come to a close.

Data yesterday included weekly ethanol production which came in at 1.039 million bbls/day, up a surprising 20,000bbls/day from the week before.  This week’s production was up 4.8% from the same week a year ago, vs. the 1.5% weekly gain average needed to hit the USDA marketing year ethanol estimate.  The jump is a bit surprising considering ethanol margins have been slipping for over 2-weeks now amid stabilizing to slightly higher corn prices while ethanol prices have continued their slide.  Ethanol stocks declined sharply, down 446,000bbls to 21.034 million bbls, which is still well above year ago levels.  Weekly gasoline demand has been above the same week a year ago for the last three consecutive weeks and four out the last five.  RBOB continues to trade a healthy premium to ethanol with the 6-month strip sitting at 28.9c/gln premium RBOB this morning.  The most actively traded RBOB/Ethanol spread at 28.0c/gln is the largest premium for the spread since July 2015.

When markets are slow and quiet, it never hurts to begin looking ahead to 2018 given some of the attractive pricing still currently available.  As of this morning, CZ18 is trading at $3.96 ¼, SX18 is trading $9.97 ¾ and MWU18 settled last night at $6.37 ½.  This compares with $3.90 ¾, $10.03 ¾ and $5.51 ½, respectively on this same date a year ago for our current new crop contracts.  From this point forward a year ago, CZ17 was mainly range bound between $3.75 on the downside and $4.04 on the topside until briefly this past June and July when we poked above that $4.04 level for a couple of sessions.  With that sort of price currently available, and talking to producers in the country, it is my belief we will see more corn acres next year which begs the question of why we will go sharply above prices seen this past year if the supply/demand situation will be roughly the same.  We need to carry weather premium to be certain, but outside of a major drought in the US, or a major stumble in South America after the first of the year, one has to take a long look at CZ18 near $4.00.  In soybeans, we traded a much wider range with a low of $9.07 and a high of $10.44 ¾, both within a couple weeks of each other in June/July actually.  The midpoint of the summer range was $9.75, which is almost the exact midpoint of the current $9.23-10.28 range in SX18.  Current SX18 prices would be a full 20c higher, and here again, acres are expected to be steady to higher on soybeans given the favorable production attained and the relative ease with raising soybeans compared to wheat or corn.  Spring wheat is obviously a bit different as prices sat in a $5.32-5.77 range from October 2016 until June 2017 when we exploded on our Northern Plains drought.  Almost all believe HRS acres will be up next year, but the size of the increase has wavered considerably once MWU18 fell below $7.00 and especially below $6.50.  Nonetheless, even with an increase in acres, the HRS balance sheet does not explode and could conceivably tighten even with average yields and status quo demand.  Unlikely MWU18 will be able to relinquish much premium until next spring or risk not buying the necessary acres.  One could make the argument that current price spreads to corn and soybeans are not doing enough outside of areas which are predisposed to plant more wheat.  The point with this entire paragraph is to encourage producers to be thinking about new crop early and often, especially as price nears the psychologically important levels of $4.00 and $10.00, two price points we fail to remain above for any extended period of time.  First sales can be the most difficult, but history has shown us these are profitable levels long-term.

In the FWIW category, Tuesday was the USDA Data Users Meeting in Kansas City, a bi-annual gathering of stakeholders in USDA’s various data offerings.  The meetings are a chance for industry participants to gather and provide feedback to the USDA about current reports, reporting methods, ask questions about methodology, etc.  This year’s meeting drew a lot of criticism toward the weekly crop conditions report which seemed to miss the mark so badly relative to what the USDA was doing with national average corn and soybean yields.  A quick straw poll in the crowd found 10-20% of the respondents wanted to do away with crop conditions, 10-20% wanted to keep, and the rest were indifferent.  NASS said the weekly crop condition reports should not be expected to equate to monthly crop production estimates, raising the obvious question of what they are expected to correlate to?  NASS said crop conditions have 2500 weekly respondents, but monthly production reports are based on 25,000 respondents.  NASS also said crop conditions are one of their most popular reports, suggesting they aren’t going anywhere and aren’t likely to see any changes.  Market participants will simply have to take them for what they are: 2500 people spread out across the entire Midwest, giving a one a week-windshield hunch.  NASS also indicated they will be moving to an average farm price point instead of providing a monthly range of expected on-farm prices.  Doesn’t move the needle here.  Also, NASS has suggested they will begin to incorporate and collaborate more with RMA and FSA on acreage to provide a more accurate look, earlier in the marketing year.  Lastly, NASS said 2017 crops were a real anomaly, as they didn’t look that good “from the road” but were much better when measured.

KCBT spot floor trades were firmer again yesterday for 12.0-12.40%, up 8c from the previous day which were 2-7c higher than the day before that.  12.0% pro is now indicated at +165/180Z vs. +135/150Z a week ago.  TX-Gulf bids were also firmer by 10c for OND, now indicated at +198/208Z.  MGEX spot floor was also a tick firmer, up 5-25c for 13.5-14.0% protein.  14.0% pro indicated at +135/150Z vs. +115/160Z a week earlier.

Export sales out later this morning are expected to show 300-500TMT of wheat, 800-1,400TMT of corn, 1,200-1,800TMT of soybeans, 150-250TMT of meal and 10-30TMT of soy oil.


Bottom Line: Still doesn’t look like we are headed anywhere fast, and weather forecasts look to keep the last 25% of soybean harvest and the last 50%of corn harvest a slow affair.  This could limit any concentrated harvest pressure, depending on what the farmer does with the crop still in the field.  Dalian soybeans continue to trade lower, and until they bottom it is difficult to believe soybeans can trade markedly higher.  We are tied to China’s hip, plain and simple.


Good Luck Today.

Tregg Cronin

Market Analyst






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