11/9/2017 Morning Comments

Good Morning,


The huge reversal in crude oil prices yesterday caught the attention of many, leaving a blemish on charts which will have bears yelling top.  Spot month crude prices hit a new high for the move yesterday at $57.92/bbl before reversing course and closing at $56.81/bbl.  Fortunately, we remain sharply above all major moving averages with the 50/100/200-day all between $49.16-51.45/bbl.  Adding to pressure yesterday was a bearish weekly inventory report which showed crude stocks building by 2.24 million bbls vs. the expectation for a 2.90 million bbl draw.  Total crude stocks of 457.14 million bbls are well below the 485.01 million bbls last year but still well above the 429.63 million bbls on the 3-yr average.  Gasoline stocks fell by 3.31 million bbls to 209.54 million, below last year’s 220.96 million and below the 3-yr average at 211.99 million.  Distillate stocks are also well below last year and the 3-yr average.

A few flurries in NE-SD and S-MN, otherwise the Midwest radar is quiet this morning.  There are a couple chances at moisture for the balance of the week, but best odds will be east of the MS-River.  Looking at the next 5-7 days, IA/IL/MO/IN/OH could see between 0.25-0.70” of rain/snow mix, depending on temperatures.   Fortunately, temperatures are on the rise for the weekend extended forecast with above normal temps seen throughout the Midwest.  This should alleviate late harvest concerns with precip remaining below normal as well.  Over the last 2-weeks, the southern plains have been well below normal for precip while the OH-River Valley has been well above.  No major changes to report in South America, although a lack of precip in Southern Brazil will need to be monitored to see if it rolls forward this weekend.


A little firmer markets out of the gate this morning as we await refreshed data tables from the USDA later this morning.  Based on pre-report estimates, the market is clearly looking for a gain in corn production of around 50mbu, while soybean production is seen dropping roughly 20mbu.  The real risk in my opinion is either the USDA not cutting production as much as expected, or completely offsetting the production cut with a demand cut given the slow start to the export season.  In corn, it seems as though it could be difficult to get a major bearish reaction out of the USDA data, unless all-time record yields are achieved as the harvest push is over, basis is firming, spreads have bottomed out, the fund short position is closing in on a record and we still haven’t been able to move away from $3.50.  Open interest gains yesterday in row crops while wheat saw huge drops with corn up 3,492 contracts, soybeans up 8,003 contracts, SRW wheat down 11,056 contracts and HRW wheat down 7,782 contracts.  Worth noting, volume yesterday in KC wheat was the highest since June 20th, while volume in Chicago wheat Tuesday was the highest since mid-August.  Some of this can be attributed to the second day of the index roll.  Despite this, Minneapolis was the strongest leg yesterday, hitting the highest price since September 8th.  Z/H spreads at all three exchanges are headed higher, complementing the basis appreciation seen last week and earlier this week.

We’ve discussed firming cash corn, and obviously firm cash wheat markets of late, but soybeans are also getting in on the act as harvest is complete and beans are becoming harder to buy.  CIF soybean bids were up another 2-6c for NDJF yesterday with spot barges called +32/34F and Dec +36/39F vs. +23/26F and +33/35F a week ago, respectively.  Crush basis is also firmer, with board crush margins maintaining 88-96c margins throughout the curve to August.  A word of caution on the CIF bean strength, however, the firming basis appears tied to a lack of producer selling as opposed to runaway export demand.  Vessel lineups for soybeans at both major ports are dwindling, setting up a light November export program.  Given the USDA is counting on record export demand to help alleviate soybean supplies, it looks as though the only way that happens is a major weather issue in South America.  HRW basis remained firm yesterday with 11.00% up 5c to +105/120Z, while other proteins were unchanged.  MGEX spot floor saw 15.0% pro up 26c on the low side to +181Z while the high side fell 12c to +188Z.  SRW wheat remains well above delivery equivalence at all locations.

Data yesterday included weekly ethanol production which ticked higher by 1,000bbls/day to 1.057 million bbls/day.  This is just off record highs, and is well above the needed level to hit the USDA ethanol production forecast.  This week’s production was 5.5% above last year’s same week production, a good deal better than the average 3.3% gain to hit the USDA estimate.  Ethanol stocks declined by 129,000 bbls to 21.345 million bbls, but remain at record highs seasonally.  In fact, ethanol stocks last week were up 11.0% from a year ago as ethanol stocks drew down to historic lows in November and December last year.  Fortunately, gasoline demand has been record breaking seasonally, which should continue to promote ethanol blending.  RBOB holds a 36-50c premium over Ethanol over the next 6-months, with the most active RBOB and Ethanol contracts showing the largest RBOB premium since July 20th, 2015.  Ethanol prices themselves remain range bound between $1.37-1.55.  Analysts still believe Brazil will import a large amount of US ethanol in 2018, despite the government imposing a 20% duty on ethanol imports, however.  Continued ethanol demand growth via exports will be crucial to seeing corn demand for ethanol not plateau or even decline.

While South American and Australia will be the focus on the global production side of the WASDE today, one other area of focus should be the declining corn production estimates in Russia, Ukraine and Europe.  Poor yields and adverse harvest weather has caused private estimates as well as Attache estimates to be cut in recent weeks, which could increase imports for Europe from outside origins.  At the moment, Brazil is the cheapest priced corn into the EU, which will compete directly with the United States, but that demand could help sop up excess bushels from South America sooner, allowing the United States to enjoy its more traditional export window.  When USDA data sets are updated, we will take a closer look at major exporter balance sheets and projected ending supplies.

One last wheat note, worth mentioning another 49 HRW receipts canceled out of Salina, KS last night which follows 139 contracts canceled last week.  With HRW cash markets screaming higher, end users are finding the cheapest source of wheat to be delivery supplies, provided one can get the spec they want.


Bottom Line: Grains are slipping negative as we pass the 7:00 hour, but beans look to maintain strength this morning.  November reports are not usually game changers, but let’s get the numbers past us before focusing on the tail end of harvest, cash markets, and the large amount of contracts which need to be rolled further out the curve in November.  Corn market really looks as though the deferreds will come down to replace the front-month, meaning the $3.60 March will eventually be $3.50 March.  Producers need to look at locking in carry while it is available.


Good Luck Today.



Tregg Cronin

Market Analyst






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