11/21/2017 Morning Comments

Good Morning,


The big energy news this morning is the controversial Keystone XL pipeline clearing another hurdle on its way to being built.  The Nebraska Public Service Commission voted 3-2 in favor of allowing the pipeline to pass through the state but insisted on an alternative route to the one proposed by TransCanada.  TransCanada first filed for government approval of the pipeline back in 2008, but it has faced numerous protests, presidential rejection by President Obama, etc.  The Nebraska decision was the last major obstacle needing to be cleared for the pipeline to move forward, but there are still legal challenges which promise to keep the pipeline on ice for a while longer.  Crude oil is up 0.23% this morning, but still well inside the $55.00-58.00 range since the beginning of the month.

A few snow flurries in NE and MN while a rain shower or two are working across IA.  The rest of the Midwest is quiet.  Mostly dry weather through the balance of the week with a shot at moisture Friday for much of the Northern Plains.  Should be warm enough to fall as rain, but totals should be less than 0.10”.  Temperatures look to remain above normal the next 14-days for the entire Midwest while the 6-10 keeps moisture below normal as well.  The 8-14 sees a major shift in moisture chances, however, with the Midwest and Great Plains flipping to above normal precip for the period.  This would be welcome news for the southern plains which are running major moisture deficits over the last 30-45 days, hurting emergence and early development for the HRW crop.  Argentina is trending drier and is becoming a watch point for many private forecasters.  Brazil remains in good shape.


Mostly weaker markets this morning in follow through selling from yesterday for the wheat and soybean market, while corn attempts to give back all that is gained yesterday.  A real mixed bag on open interest yesterday, making it difficult to get a read on managed fund changes.  Corn open interest fell 9,843 contracts with prices slightly higher which was probably managed funds lightening up after seeing the size of the net short from the COT data Friday.  Soybean open interest rose 1,088 contracts, SRW wheat was down 3,482 contracts and HRW wheat was up 1,879 contracts.  Volumes were on the lighter end of things and should continue to decline as desks get vacated closer to the Thanksgiving Holiday.  Markets will still be open Friday which is the day Dec options expire.  Lots of interesting technical chart points worth discussing, but the bottom line is downtrends remain in place for both corn and wheat.

Data yesterday included the weekly crop progress report which put corn harvest at 90% complete vs. 83% last week, and 95% average.  Largest deficits exist in WI at 69% complete vs. 85% average, MN at 90% complete vs. 97% average, CO at 86% complete vs. 94% average, IN at 87% complete vs. 95% average and OH at 79% complete vs. 91% average.  As the chart below shows, there are around 2.478bbu left to harvest according to NASS which would be the most since 2014, but well below the levels from 2008 and 2009.  Incredible to think that this week in 2009 still had 8.232bbu out in the field.  Other data on the progress report included soybean harvest at 96% complete vs. 97% expected, 93% last week and 97% average.  A jag left in WI, MI and IN.  Winter wheat conditions declined another 2pts this week to 52% G/E vs. 54% expected and 58% last year.  Declines were witnessed across the board and are actually surprising the declines weren’t worse.  WA fell 11pts G/E, NE was down 7pts, OK down 4pts, TX down 5pts, MO down 2pts, OH down 2pts and MI down 7pts.  Advances were seen in SD up 5pts, ID up 3pts, IL up 7pts, CO up 3pts and IN up 2pts.  This is the lowest weekly conditions score since 2012, and would put 2017 below both the 5 and 10-yr averages.  Obviously needs to be pointed out there is very low correlation between fall conditions and final yields.  Emergence was pegged at 88% vs. 84% last week and 88% average.

The other big data from the weekend was of course the COT data with most looking to see just how large the managed fund short had grown.  Last week, funds old another 27,350 contracts to bump their net short to -264,349 contracts.  This would be just a hair below the previous record short of -265,394 contracts set in March of 2016.  Another view we wanted to look at was the size of the manage fund short relative to the size of each year’s corn crop.  That produced a value of -9.07%, meaning funds are net short just over nine percent of the crop which is also below the -9.67% set in March 2016.  The reason we took a look at this is to compare the size of the managed fund short position vs. the farmer long position.  To get a sense of the amount of hedged bushels by the farmer/elevator we took the gross commercial short position as a percentage of the crop which yielded 25.11%.  There is nothing impressive about the 25.11% figure as can be seen in the chart below.  Relative to history going back to 2007, we are a hair above three years, well above 2013, and below every other year with 2006, 2007, 2010 and 2011 posting figures much higher than this year.  Would have to characterize the farmer/elevator position as “under-hedged” relative to history, but not all that out of line with the last two years.  Bottom line is the farmer long is much larger than the fund short, which was the main point of the exercise.

Funds flipped back to a net short position of 11,411 contracts last week, but that could have easily been covered with the fund buying Friday.  Commercials continue to hold healthy ownership in futures in soybeans relative to history for this date.  Funds bought wheat last week with a total of 10,480 contracts of HRW to take their net short down to -16,128 contracts.  Commercials sold 13,055 contracts combined, but the gross commercial long remains just a touch off the record level from the week before.  In Chicago wheat, funds bought 12,855 contracts which was nearly identical to the amount they sold the week before.  Their net short remains healthy at -131,950 contracts.  Managed funds spent the week buying in Minneapolis as they added 2,351 contracts to put their net long at 6,664 contracts, the largest since September 12th.  Across the entire Grain and Oilseed complex, funds are net short -364,145 contracts, the largest net short since June 6th.

Otherwise, the basis train continues to roll higher on corn and wheat, with the latter’s cash market dubbed “on fire” by most.  Of the locations tracked, 16 which had firmer corn basis w/w, three were weaker and four were unchanged.  The other interesting phenomenon is the fact WCB corn basis has firmed quite a bit more than their ECB counterparts, and in a lot of cases are firmer than levels at this time a year ago.  ECB locations, whether rail or processor, are almost uniformly weaker than a year ago.  Wheat basis is sharply better than a year ago, especially in the southern plains which is seeing the effects of back-to-back low protein crops.  Colby, KS is called -85Z vs. -115Z a year ago, Hutchinson, KS is called -45Z vs. -100Z a year ago, and Kansas City is indicated at -40Z vs. -75Z a year ago.  There is a lot of consternation by the farmer on what to do with these basis levels considering the rally they’ve been on, but the fact there are still decent carries out to next spring and summer?  Here-in lies the problem.  Normally, basis rallies which eventually rallies the spread, followed by higher futures to inject hedged or farmer length into the market to cool cash.  That’s not happening this year because the delivery warehouses, mainly in Kansas, are full of sub-11.0% protein wheat, a grade not wanted by domestic mills.  In other words, end users can’t just buy the spread, or the board, and take delivery because it isn’t the class of wheat they desire.  This is causing somewhat of a breakdown in our normally efficient futures/delivery mechanism.  The other side effect is the fact exporters are now buying back sales and turning them into the domestic market which is paying more.  This will further push us out of the export grids for major importers, and could pinch export commitments moving forward.

Speaking of exports, inspections were uninspiring once again this week with wheat at 9.5mbu vs. the 19.3mbu needed weekly.  Total inspections measure 440.8mbu vs. 472.9mbu a year ago, a deficit of 6.8%.  Corn shipments totaled 24.9mbu vs. the 39.3mbu needed weekly.  Total shipments measure 259.2mbu vs. 462.1mbu a year ago, a deficit of 43.9%.  Soybean shipments were solid but not compared to a year ago.  Shipments this week were 78.3mbu vs. the 36.3mbu needed, but were 98.3mbu a year ago.  Total shipments now stand at 704.9mbu, down 12.5% from a year ago.


Bottom Line: Not expecting a lot of fresh news or big cash market moves to really impact futures given the abbreviated week.  Option expiration will probably be a negative influence on grains, if it is anything.  The wheat market is experiencing the dichotomy of tons of bushels with the wrong quality characteristics, both here in the US and abroad.  We likely haven’t seen the last of wheat’s fireworks considering it is only November 21st, and the next new crop bushels won’t be available in the Northern Hemisphere until May.


Good Luck Today.

Tregg Cronin

Market Analyst






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