11/6/2017 Morning Comments

Good Morning,


Crude oil continues on its upward trajectory this morning, with both WTI and Brent making new highs for the move.  WTI is currently working on filling a gap which dates back to July 2015 from $55.34-56.50/bbl.  Adding to the support were the weekend events in Saudi Arabia in which members of the Saudi Royal Family were indicted on corruption charges, essentially concentrating power in one branch of the Royal Family.  In the past, policy has been made by committee, but it looks as though one family, and more specifically, two people, could be in charge moving forward.  Few know whether this is a good thing or a bad thing just yet, but it is definitely a different thing.  Managed funds in crude oil pushed their net long to +281,244 contracts, up 46,355 contracts on the week, and now accounting for 8.5% of total open interest.  Worth noting, producer/merchants also bought oil and have drastically reduced their position since March as their net short accounts for just 1.8% of total open interest.  The major short position belongs to the Swap Dealer who is net short -475,455 contracts, or 14.4% of total open interest.

Scattered snow showers in the Plains this morning while rain showers finish up in the ECB.  More snow will fall in the Dakotas this morning before giving way to a dry week.  Much of the Midwest will enjoy a dry week after the current moisture moves through, which should help harvest efforts advance.  Cold temperatures will hang around, however, with highs in the 30’s most of this week for the WCB and Northern plains.  Things do try to warm to above normal temps by the 8-14 day, and precip stays almost universally below normal for the entire Midwest.  Solid rainfall occurred over most Brazilian growing regions over the weekend while temps were more or less normal.  The 10-day forecast sees decent planting weather for Argentina and more welcome rains in Northern Brazil.  Doesn’t appear to be any concerns at the moment.


Mixed markets this morning with firmer grain markets and an easier soy complex.  Wheat markets are trying to keep short-term trends up on the back of red hot cash markets, large net short positions by the large spec and a general concern about the potential drop in winter wheat acres again this year.  The most-active continuous chart of Chicago wheat shows a downtrend channel dating back to the highs on September 28th, and it would likely take trade above $4.33-4.35 to break out.  Corn remains magnetized to the $3.50 mark basis December futures, and momentum indicators show absolutely no sign of leaving that price anytime soon.  Soybeans turned in an especially weak session Friday, dropping prices back down to rising channel support.  Part of the pressure was the Brazilian Real trading 2% weaker to the lowest level since July 5th.  With elections coming up next year, expect an especially volatile cross-currency trade with Brazil.  At any rate, a sharply weaker currency undoubtedly encouraging soybean pricing for both old and new crop.  Aforementioned weather in Brazil also adding to pressure as their planting campaign continues with no major threats.

Friday’s COT data had plenty of features, all of which point toward rising net short positions across the Grain and Oilseed complex.  In corn, funds sold 19,710 contracts to put their net short position at -233,516 contracts, the largest net short since March 8th, 2016.  In addition, funds have now sold corn for 16 weeks in a row, for a combined -282,897 contracts of net selling.  Their bullish sentiment score (long positions as a percent of total positions) in corn is now 32.95%, the lowest since May 9th and really taking away the explosive downside potential for this group.  The Gross Commercial Long used this opportunity to push his position to +600,063 contracts, the second largest on record.  In soybeans, funds bought a token amount of beans to put their net position at +7,308 contracts.  Option expiration saw 171,973 contracts of open interest come off, so some large moves in various positions are expected.  The gross commercial long position fell swiftly by 73,388 contracts.

Wheat is where many of the interesting changes occurred as funds sold 9,391 contracts in KC wheat to put their net position at -25,612 contracts, the largest net short since September 13th, 2016.  Similar to corn, funds have sold HRW for 12-weeks in a row for a combined 82,194 contracts of net selling.  More impressively, the gross commercial long position continues to surge, jumping by 10,000 contracts to a new record +109,516 contracts.  Commercials in HRW are the least short since December 13th, 2016.  In SRW, funds sold 30,885 contracts to put their net short at -131,995 contracts, the largest net short since September 6th.  Their current positon accounts for 69.6% of their largest net short on record, so definitely more room to press if they feel the need.  Importantly, however, the gross commercial long in SRW also shot higher to +152,805 contracts, the largest since 11/22/16 and the fifth largest on record.  The combined wheat fund short of -154,278 contracts is the largest since April, while the combined commercial long from the three wheat exchanges of +302,649 contracts is a new record.  In addition, KC wheat open interest hit a new record high this week while CGO wheat is the largest since 2011 and the largest seasonally on record.  Record participants, record commercial ownership and heavy non-commercial selling.  We’ve seen this story before.  The combined grain and oilseed managed fund position surged by 60,000 contracts last week to -330,979 contracts, the largest since June 27th.

Other data released Friday included import/export data for the month of September which saw another solid month of ethanol exports.  Exports totaled 86.4 million gallons which was below last month’s 103.0 million gallons and last year’s 98.4 million gallons, but is still a solid month from a historical perspective.  Ethanol exports year-to-date have been on a tear, totaling 992.9 million gallons which compares with 808.1 million gallons on this date a year ago.  India and Brazil both showed up last month with solid imports at 20.3 million and 19.0 million gallons, respectively.  DDGs exports had a bounce back month at 903,290MT which was above last month’s 761,467MT, but below last year’s 992,326MT.  YTD exports total 8.206MMT which is slightly below a year ago at 8.520MMT.  China continues to take next to nothing, a far cry from their 400-900TMT totals in 2013-2015.

Tonight’s crop progress report is expected to show corn harvest in the 73-75% area vs. 54% last week and 85% average.  Soy harvest is expected at 93% complete vs. 83% last week and 91% average.  Also expectations for winter wheat conditions to edge higher, but more important will be the amount of acres left to plant given final insurance plant dates have already been hit in many counties.  Expectations for corn production to rise 53mbu on Thursday’s crop report, while soybeans are expected to decline by 23mbu.  A deeper dive will be conducted later this week.


Bottom Line:  Corn has shown no interest in moving away from $3.50, soybeans are looking vulnerable technically and wheat appears to be at levels it has not paid to sell over the last couple years.  The structure of our markets are short and getting shorter by the week.  Considering corn and HRW have been sold 12-16 weeks in a row speaks volumes.  Another 50mbu of production added to corn doesn’t feel like it is going to drive us sharply lower than where we currently are.  Basis is firming, spreads are off the lows and end user margins are expanding.


Good Luck Today.

Tregg Cronin

Market Analyst






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