10/30/2017 Morning Comments

Good Morning,

 

After taking a brief hiatus, global currencies have been on the move as of late with several having major impacts on our grain trade.  On Friday, the US Dollar rallied to the highest level since July 20th on growing speculation the Fed has enough data to indeed raise interest rates again this year.  The USD has now pulled back above its 50 and 100-day moving averages with the 200-day just overhead at 96.8794.  The Brazilian Real has also made moves, weakening to the lowest level since July 7th before reversing Friday.  Despite the softening soybean board, Brazilian farmers haven’t watched their cash prices drop as much due to the depreciation in the Real.  Likewise, the Aussie Dollar hit the lowest level since July 11th, and the Canadian Dollar the weakest since July 12th making wheat offerings from both a bit more palatable for global importers.

Snow flurries scattered across the Dakotas and Minnesota this morning with rain showing up along the KS/NE border as well as the IA/MO border.  The Northern Plains and WCB will be faced with another gusty day today as sustained winds blow 25-35mph and gust over 40mph.  There will be on-again/off-again snow and rain chances this week for the WCB and Northern Plains which will likely keep farmers dodging systems to keep harvesting.  Best shot looks like Thursday/Frida for the Dakotas and W-MN with 0.10-0.20” of moisture falling as rain/snow mix.  ECB will see their own moisture chances throughout the week with 0.50-1.20” currently being forecast for IN/OH/MI from Wed-Sat.  Extended maps keep below normal temps for the Dakotas, MN and MT while the rest of the Midwest should be normal/above.  Plains are mostly dry while the central/eastern corn belt are above normal on precip.

 

Mixed to better markets this morning led by soybeans which are attempting to bounce from their lower trend channel.  Several encouraging technical factors from Friday to support follow through buying in the soy complex including the aforementioned rising trend channel support, but also a spike in volume to the second highest since June of 2016 and the ability to hold the 200-day moving average twice last week.  Open interest did decline 43,929 contracts Friday, which is due in large part to November option expiration.  There is probably also a realization that harvest will be approaching 85% on tonight’s crop progress report and soybeans will a little more difficult to come by moving forward if they haven’t already been sold or aren’t sitting on some form of delayed pricing program at the elevator.  Corn and wheat saw large open interest increases Friday as futures closed lower, implying funds continued to add to their already large net short positions.  Corn open interest rose 9,215 contracts, SRW wheat rose 15,735 contracts and HRW wheat rose 3,950 contracts.

Lots of interesting data points in Friday’s COT data which continues to set the table for support in grains in my opinion.  In corn, large speculators added 10,659 contracts to their net short position which is now -213,806 contracts, the largest since 5/30/17.  Conversely, the commercial net position of -126,505 contracts is the smallest net short for the group since 5/30/17 as well.  The gross commercial long position jumped to 556,576 contracts, the largest since April 25th.  In soybeans, funds dumped 28,389 contracts from their net long to leave their position at just +2,065 contracts.  More importantly, the gross commercial long shot to 350,178 contracts, the largest since June 27th.  The gross commercial long position in soybeans as a percentage of total open interest is the largest for this time of year on record and is trending higher.

Several noteworthy points in wheat as well including the gross commercial long position in HRW rising to an all-time record by a wide margin.  That position of +99,394 contracts bested the previous record by 11.0%.  The large spec net short position in HRW of -16,221 contracts is the largest since April, and total open interest is now an all-time record as well.  Also interesting to note on the chart below that the gross commercial short position in HRW as a percentage of open interest is now the smallest since June among the lowest positions of the last several years.     Large spec net short in Chicago wheat of -101,110 contracts is the largest since June 13th, and gross commercial long of +129,722 contracts is the largest since April.  In Minneapolis wheat, the managed money net long of 2,627 contracts is the smallest since 4/25/17.  Rolling them all together, the aggregate fund short across the three wheat exchanges is the largest since June 6th, and the aggregate gross commercial long is the largest since April 19th, and the third largest on record.  Across the entire grain and oilseed complex, funds are net short -270,306 contracts, the largest since June 27th.

Other noteworthy news from last week was the story China was planning to cut the minimum purchase price for wheat in 2018 to help draw down excess inventories in state-owned warehouses.  This would be the first cut to the purchase price in over a decade, and while the minimum price would still be well above global prices, would certainly be a step in the right direction.  China plans to cut the minimum purchase price by 2.5% to 2,300 yuan/MT, or $346/MT ($9.41/bu).  JC Intelligence estimates there are 74MMT of wheat in state reserves, with the USDA forecasting ending stocks for 17/18 at 127.2MMT.  The current stocks/use ratio is expected to end the year at 108.95%, meaning China wouldn’t need to raise a crop next year to technically meet their wheat needs in 2018/19.  That obviously isn’t the case given China still imports high quality wheat from the US, Canada and Australia to blend with sub-par wheat in state reserves.  Nonetheless, it is the hope of many China will put in place reforms for the wheat market as they’ve done with corn as that market looks to come into relative balance over the next couple of years.

The market will be looking for corn harvest around 55% tonight vs. 38% last week and 75% average.  Soy harvest as noted above is expected around 85% vs. 70% last week and 85% average.  Winter wheat planting is expected to rise another 10% to 85% complete vs. 86% last year.  Bigger focus will be how much progress KS and OK made given more insurance plant dates to be hit today and tomorrow in KS.  Corn harvest will continue to string out, limiting harvest pressure and supporting basis further.  Likewise, soybean harvest is all but over, which will help shed light on how much coverage end users and exporters have gained over the last 30-45 days.

 

Bottom Line: Technical support helping soybeans bounce, while wheat and corn stabilize around recent lows.  COT data confirmed large short positions across the grains and larger oilseed complex with funds probably net short soybeans by now.  Difficult to want to press futures to the downside given the large short positions and harvest on the downhill slide.  Forecasts in Brazil taking on greater importance, so expect volatility to ramp up with each model change much like we saw in the US this summer.

 

Good Luck Today.

Tregg Cronin

Market Analyst

Tregg.Cronin@halocommodities.com

www.halocommodities.com

@5thWave_tcronin

 

 

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