11/16/2017 Morning Comments

Good Morning,


Nothing on the radar again this morning.  It seems like I’ve written that a lot lately, but nowhere has it been drier than the southern plains over the last 30-days as the map below shows.  The HRW belt has seen essentially zero moisture since early September, which is causing problems with emergence and establishment before winter.  Fortunately, the month of September was rather wet for the southern plains, and subsoil moisture levels are still solid despite the past month of precip.  Nonetheless, weather groups are putting about 10% of the HRW crop at risk for poor establishment heading into dormancy.  The ECB will see rain chances toward the weekend, otherwise a dry week ahead for the Midwest.  Above normal temperatures and below normal precip encompasses the entire Midwest and Plains region the next 15-days, which won’t provide much relief for the HRW.



Steady to better markets this morning as wheat attempts to stabilize after yesterday’s downdraft.  Almost everyone on social media found themselves looking around during wheat’s selloff yesterday as there didn’t seem to be anything glaring behind the move.  The only “news” anyone could point to was Egypt issuing another wheat tender, but this time had reinstated their “zero ergot” policy.  This will likely mean a complete lack of offers with the exception of Russia, but even they might not want to deal with the theatrics.  Otherwise, Brazil was said to be close to importing Russian wheat, but had not received final approval fromt their Ag Ministry.  In addition, Russian wheat would be subject to the non-Mercosur import tax, which likely keeps the Black Sea wheat out until Argentina has exhausted exportable supplies.  Either way, that Brazilian business would have went to the US during the last marketing year, but the lack of protein in the US is pushing basis levels up to the point where importers are looking elsewhere.  Lastly, and to a lesser extent, the Russian Ruble was a good deal weaker yesterday, trading down to the weakest level since August 4th as crude oil continues its short-term down trend.  Open interest saw another big jump as fresh shorts continue piling into grains, but volume was fairly subdued on the break.  Corn open interest rose 12,268 contracts, soybeans were up 3,292 contracts, SRW wheat was up 3,211 contracts and HRW wheat was up 2,985 contracts.  Corn open interest at 1,714,936 contracts is now the highest since February 18th, 2011, and is just 30,322 contracts from the all-time record set on February 17th, 2011.

As we posited on social media yesterday, the frustrating thing with the wheat market is total lack of confirmation by either basis or spreads.  Both are trading like a market which wants to rally, not selloff.  For example, domestic HRW trades were firmer again yesterday with 12.0-12.2% both up 12c with 12.0% now +197/212Z vs. +195/210Z a week ago.  This follows 11.0-11.20% trading up 10-24c the day before with 11.0% pro now +119/134Z vs. +105/120Z a week before.  Spring wheat spot floor trades were also better with 14.0% pro cars trading up 15-25c to +140/175Z vs. +125/150Z a week ago.  15.0% pro was up 10c to +175/210Z vs. +181/188Z a week ago.  SRW also joined in the fun with Toledo mills pushing bids to +25/30H, NW-OH mills up to +20H, and warehouse bids as high as -5Z with that wheat deliverable at -10Z.  SRW barges didn’t show any change, but if one needed to buy a barge it would be at the offer or better.  Z/W spreads in KC and CGO mostly maintained their uptrends, although it looks as though WZ/WH will run out of time to trigger a VSR segment removal.  The MWZ/MWH has been trading weaker, however, down to -14.50c yesterday and this morning, tying contract lows.

We wrote about the world corn market earlier this week, and the fact that Chinese ending stocks are finally in decline, but the rest of the world is seeing ending stocks rise.  We mentioned the wheat situation is the exact opposite.  The majority of the world’s wheat stocks, around 67.5% to be exact, sits in four countries: China, India, Russia and the United States (CIRU).  As the chart below shows, the share of these four countries as a percentage of total wheat stocks is now the highest since 1999/00.  The share of world wheat excluding these four countries is 32.45%, the lowest share since also since 1999/00.  But it’s not just the share that’s tight, it’s the ending stocks/use ratio which is at 15.32%, the second tightest on record going back to 1982/83.  As we’ve discussed before, China’s wheat stocks are not available to the market, and still require high quality wheat from the US, Canada and Australia to be blended up.  India was an importer last year, and will import wheat this year, so also not a threat to unload stocks on the market.  Russia and the US are two of the three largest exporters and will gladly export up to capacity and quality constraints.  All of the aforementioned puts greater onus on 2018/19 as acres look set to decline in the United States, and Russia could be counted on to an even greater extent.  But as cash markets are showing us, Russia can’t be counted on to supply everything to everyone, and winter’s arrival could really shake up the global wheat trade.

While very old news at this point, Monday’s COT data showed large specs adding to their already ballooning Chicago wheat short.  Funds added 12,810 contracts to their net short to put them at -144,805 contracts.  This position now accounts for 76.4% of the largest net short ever put on by managed funds, and they’ve undoubtedly added to this net short since the last COT data and the selloff yesterday.  On the opposite end of the spectrum, the gross commercial long now owns 166,833 contracts, the second largest position on record.  Same trends are true in KC with funds now short -26,608 contracts, the largest since September 2016 while the gross commercial long is a new all-time record at 110,800 contracts.  The boat is getting very loaded to one-side, but that in and of itself is not enough to turn the tide.  Just plenty of dry power for when it does turn.

Data yesterday included October NOPA crush data which was solid and in-line with expectations.  Monthly crush was 164.242mbu vs. the average trade estimate of 164.5mbu, 136.4mbu last month and 164.6mbu a year ago.  Soybean oil stocks totaled 1.224 billion pounds vs. estimates for 1.410 billion pounds and 1.343 billion a year ago.  The soybean oil yield was 11.54lbs/bu, the first yield to have new crop bushels, which was below last month’s 11.78lb/bu and last year’s 11.61lbs/bu.  Also released yesterday was weekly ethanol production which eased slightly to 1.054 million bbls/day from 1.057 million bbls/day the week before, but is still well better than the level needed weekly to hit the USDA’s estimate.  Weekly ethanol stocks rose by 152,000bbls to 21.497 million bbls.  Stocks remain well above levels posted a year ago.



Bottom line: Export sales later this morning which could help set the early tone, although don’t believe any additional business from the latest selloff would be represented in this week’s numbers.  Our markets are clearly in “go find demand” mode, which will come from lower prices.  It shouldn’t be a surprise we need lower prices to stimulate demand when grain supplies are the largest in 30-years, but it has still caught most off guard.  Soybeans will retain risk premium for South American growing weather for now, but could look to shed some of that if there are no issues into December.


Good Luck Today.

Tregg Cronin

Market Analyst






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