11/8/2017 Morning Comments

Good Morning,


Last night saw the release of October import/export data from the General Administration of Customs in China.  Mostly solid import data once again this month with crude oil imports at 31.03MMT, which was up 7.8% y/y, but was the smallest total in 12-months.  Jan-Oct crude oil imports totaled 349.09MMT, up 12% on the year.  Coal imports measured 21.28MMT, down 1.4% y/y while Jan-Oct coal imports of 226.12MMT are still up 12% on the year.  Soybean imports totaled 5.86MMT, up 12% on the year with Jan-Oct imports at 77.31MM%, up 15% on the year.  Iron Ore imports totaled 79.49MMT, down 1.60% on the year, but Jan-Oct imports of 896.23MMT are up 6.3% on the year.

Rain in the southern plains, but otherwise a wide open Midwest radar.  Things should remain mostly dry the next several days until rains move into the corn belt Saturday/Sunday which looks to bring 0.10-0.30” of rain to every state from South Dakota to Ohio.  Temperatures remain well below normal until the weekend at which time the Midwest finally warms up.  Above normal temps are seen in the 6-10 and 8-14 day with below normal precip as well.  Harvest forecast looks about as good as one can hope for, if the grain is dry or if farmers are willing to pay drying costs.  Once into November, grain is not drying in the field any longer, so what you have is what you have.  Nothing to report in South America as benign conditions roll forward.


Mixed markets this morning as wheat adds to losses from yesterday while soybeans trade firmer for the third session in a row.  Soybeans really have the feeling they would trade appreciably higher if it weren’t for the anchors of corn and wheat.  Open interest changes were broadly mixed yesterday and a bit difficult to read into.  Corn open interest was up 729 contracts with price down 0.50c, soybeans were up 618 contracts with price up 2.0c, Chicago wheat was down 7,547 contracts with price down 3.50c and KC wheat open interest fell 6,231 contracts with price down 3.50c.  Funds are large net shorts in corn and wheat, making the drop in open interest in the wheat boards a bit peculiar.  Volume is trending up in corn, SRW and HRW wheat, but on-balance-volume remains negative for all three as bears remain in control so far.  OBV in soybeans has pushed into positive territory and is the highest since 9/14/17.

The USDA Attache to South Korea released his monthly report on feed grains yesterday, delivering a bit of disappointing news, although not exactly surprising.  In his monthly report, corn imports for 17/18 were revised down to 9.7MMT from 10.2MMT previously as the Korean government plans to release 750,000MT of brown rice for animal feed in 2018 to reduce government stocks.  The disappointing point was the expected drop in the US share of Korean corn imports.  Given the South American drought in 2016/17, US corn accounted for 65% of all corn imports last year, the highest import share since 2010/11.  That share is expected to drop back down to 41% this coming year, however, as South America bounces back with solid harvests in both Brazil and Argentina.  This would drop total imports from the US to 4.0MMT from 5.961MMT a year ago.  The drop in export share is not exclusive to South Korea, and is exactly why both commitments and shipments are off to such a terrible start to the marketing year.

The basis train marched higher yesterday in HRW with the entire spot floor from Ord’s to 14.00% protein up 5-45c.  Largest gains were for 12.40% protein, up 45c to +230/245Z vs. +185/200Z a week ago.  12.0% protein wheat was seen at +195/210Z vs. +165/180Z a week ago.  13.0% pro was pegged at +255/270Z vs. +240/255Z a week ago.  To be clear, volumes were not incredibly deep, with values being pushed up by only a few cars.  Still, the week/week and month/month changes on the spot floor are difficult to ignore as producers hold tight to on-farm ownership and commercials as of yet have no interest in parting with hedged inventories.  Add in some export business like Iraq, and the table is more or less set.  The firming basis is finally lending a hand to calendar spreads with KWZ/KWH hitting the highest levels this week since 9/12/17, while the KWH/KWK traded to the highest since 9/27 and the KWK/KWN is at the highest since mid-September.  Grain Marketing 101 manual says futures should be next if either the basis or spread rally isn’t extinguished shortly.

Deliverable stocks were released yesterday with HRS stocks declining by 1.447mbu to 24.057mbu which compares with 27.749mbu a year ago.  Duluth supplies are up 3.2mbu vs. a year ago, but Minneapolis supplies are down roughly 7.0mbu from this time a year ago.  In KC, deliverable stocks fell a combined 1.522mbu to 119.794mbu which compares with 110.545mbu a year ago.  While down from the marketing year peak in August/September, HRW stocks in deliverable position are at record highs for this time of the year.  Chicago deliverable supplies fell 332,000 bushels to 88.582mbu which compares with 91.390mbu a year ago.  Deliverable supplies in Chicago for this time of year are below last year, but the second highest on record.

Quickly, PNW corn bids appear to finally be lifting a shoulder off the mat with LH-Nov bids at +58Z vs. +55Z yesterday and +50Z two weeks ago.  FH-Dec bids called +75Z, unchanged from yesterday but up from +72Z two weeks ago.  Rail cars have firmed a bit from -$300/car 2-weeks ago to -$125/car last night.  Lastly, interesting to note the volatility in some of the major exporter currencies this week and last.  The Russian Ruble is chief with regard to volatility, trading to the weakest level since 8/24.  The Brazilian Real hit the weakest level since July 5th last week before retreating this week.  As long as crude oil remains volatile, so too will the Ruble, and with elections in 2018, the Brazilian Real should also retain its volatility.


Bottom Line: More ho-hum trade as we await refreshed balance sheets from the USDA Thursday.  Soybeans are clinging to gains as the trade expects the USDA to cut total soybean production from last month while corn production is expected to rise.  Difficult to buy into wheat weakness given firming basis, firming spreads and erratic open interest changes.


Good Luck Today.


Tregg Cronin

Market Analyst






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