10/31/2017 Morning Comments

Good Morning,


Yesterday we focused on the currency markets and the move they’ve been on recently, but equally as impressive has been the strength in crude oil futures.  WTI futures made new highs for the move yesterday at $54.46/bbl, the highest print since February 27th, while Brent Crude futures hit $60.70/bbl, the highest trade since July of 2015.  Helping support crude prices is a general belief by the market the OPEC-led production cuts will be renewed well into 2018 and possibly through next year.  Also seeming to support price is the recognition of crude oil companies globally, but more specifically in the US, shifting their focus from mass production to max profitability.  Underscoring the aforementioned is the IEA affirming its demand estimate of 1.6 million bbls/day this year, which is almost double the growth rate from 2011 to 2014 when oil was above $100/bbl.

Snow showers are moving across the southern plains this morning, but otherwise the Midwest is fairly quiet.  Later this week and into the weekend will see more winter weather hit the Northern Plains with MT/Dakotas/MN all expected to see wintery mix Friday/Saturday.  The ECB will be no different with multiple rounds of moisture from Wednesday through the weekend.  By the end of the weekend, IL/WI/MI/IN/OH could see moisture accumulation of 0.50-1.50”.  Southern Plains will be mainly dry.  Same trend moving forward with below normal temps for the Northern Plains, but above normal temps for everyone else.  Precip remains mostly above normal in the 6-10 and 8-14, but turns below normal for SD/NE and Rockies by the 8-14.  This would be welcome to help finish harvest efforts before Thanksgiving.  Soaking rains still on tap for Northern Brazil in the 6-10 which would be welcome.


Lightly mixed markets this morning with grains looking as though another low-volume, tight ranged trade will take place again today.  Yesterday’s volume in corn was the lowest since September 25th, but that didn’t stop open interest from getting back to its upward trend and adding another 8,303 contracts.  Corn open interest is now the largest since April 26th, 2011.  Soybean futures dropped swiftly, down 20,123 contracts, which is likely still the effects of option expiration Friday and those trades being exercised or closed out.  With wheat futures down, SRW open interest rose 9,245 contracts while HRW added 1,452 contracts which likely means funds have continued to pile into the short side.  Wheat contracts are sitting at recent lows while corn is within 4-5c of recent lows, areas which have acted as solid support for months.  With harvest over half way, and the likelihood the remaining bushels will string out over the next several weeks, it doesn’t feel as though we will see a concerted harvest pressure push on the second half.

The weekly crop progress report was released yesterday afternoon and showed corn harvest at 54% complete vs. 38% last week, 53% expected and 72% average.  Severe deficits are evident across the Northern Plains and WCB as we’ve been discussing for a while now.  Those deficits are not likely to be made up this week given the high winds and wintry weather forecast.  Every major corn producing state except Michigan is behind average as evidenced by the chart below.  The largest deficits belong to MN at -35%, SD at -31% and IA at -26%.  While this is not the slowest harvest pace for these states or the US, it is larger than just looking compared to average given the size of the corn crops we are raising now.  In the second chart, I looked at bushels remaining to be harvested based on the pace of harvest according to NASS.  Based on that metric, we have 6.568bbu left to harvest, which would be the fourth most on record for week #43.  2008, 2009 and 2014 still rank above 2017, but our deficit isn’t going to be cleaned up this week either.  Soybean harvest was estimated at 83% complete vs. 70% last week and 84% average.  Nothing really to dissect with soybean harvest as the few states running behind average are only off by a point or two.  Buying soybeans, aside from bushels sitting at the elevator on Delayed Price, could prove difficult without a serious basis or flat price rally.

Also released in the report was winter wheat planting progress and conditions.  Planting progress came in at 84% complete vs. 75% last week and 87% average.  The nationwide average obviously skews the laggards which continue to be KS at 84% planted vs. 92% average, and OK at 83% planted vs. 89% average.  Like the corn harvest chart, I posted a planting progress relative to average for some of the major winter wheat producers below.  The obvious concern is the turn to colder weather and the lack of time to get the crop established before dormancy.  This was evident in the first crop condition score which came in at 52% G/E vs. 58% G/E last year.  Worst conditions were present in SD at 17% G/E, MT at 22% G/E and OK at 47% G/E.  Nationally, 52% of the crop was rated G/E which compares to the 5-yr average of 53% G/E which doesn’t look quite as bad.  However, the condition report was accompanied by a report from Kansas State University on poor stands for HRW planted prior to late-September 2017.  Many of these fields have poor emergence due to excessive rainfall in the first half of October which led to crusting and lack of aeration.  They offer tips on how to determine if reseeding is appropriate.

Weekly export inspections were also released yesterday, and were pretty dismal for corn and wheat but solid for soybeans.  Wheat inspections came in at 11.6mbu vs. the 17.6mbu needed weekly to hit the USDA export forecast.  Total inspections of 408.4mbu are down just 4.5% from a year ago vs. the USDA calling for a 19% drop.  Corn inspections totaled 20.4mbu which were much smaller than the 36.3mbu needed weekly.  Cumulative exports total 199.4mbu which are down an astonishing 45.2% from a year ago.  The corn export pace is a serious concern, but fears should probably be allayed during the next few weeks as the focus is almost exclusively on soybeans.  Soybean shipments totaled 92.1mbu, well better than the 39.7mbu needed weekly.  Cumulative exports total 453.5mbu which are down 9.5% from a year ago, even though the USDA is counting on a y/y increase.


Bottom Line: Difficult to see what is on the horizon which will push us out of our current ranges.  As long as wheat and corn continue to hold recent lows, it will be a technical victory and be a good sign going into the winter doldrums.  Helping that sentiment is the fact wheat and corn open interest keep rising, almost relentlessly, near the lows which is a good bet managed funds keep piling into shorts.  Commercials have been buyers, and the natural seller is soon to be out of the market in soybeans.  Plan accordingly.


Good Luck Today.


Tregg Cronin

Market Analyst






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