11/22/2017 Morning Comments

Good Morning,

 

Deere & Co. released Q4 earnings this morning, topping estimates and flying in contrast to the down beat ag-economy reports out there.  Earnings per share were announced at $1.57 per share vs. estimates for $1.44 while income rose 79% to $510.3 million and total sales were up 25.5% to $7.09 billion.  Financials said a stronger showing from construction was seen with “the economic fundamentals affecting the construction and forestry industries in North America are cause for continued optimism,” according to Investor’s Business Daily.  In addition, Deere cited improvement in farm equipment sales, singling out South America as “experiencing strong gains.”  Despite them singling out South America, US and Canadian equipment sales rose 23% in the fourth quarter, while sales in other markets jumped 30%.

Snow and rain/snow mix across North Dakota this morning, otherwise the Midwest is devoid of moisture.  A mainly dry stretch for the Midwest the next 5-days with the next shot of precip occurring Monday/Tuesday in the Northern Plains.  Moisture from the storm is expected around 0.10-0.20” in SD, but as much as 0.41” in ND which could be significant snow if it falls in that form.  The corn belt should be mainly dry the next 7-days, which should aid late harvest efforts there.  Temperatures remain well above normal the next 10-14 days across the entire Midwest and Plains, but especially across the southern plains.  Precip remains below normal in the 6-10 day, but the 8-14 sees moisture push to above normal for the WCB and down into the eastern areas of the southern plains.  This would be welcome news, but needs to verify first.  Main focus in South America remains Argentine dryness the next 10-days.

 

Mostly better markets the day before Thanksgiving with another low-volume day expected as we square positions ahead of opex Friday.  Grains continued to see open interest declines, which could be attributed to opex as well as outright liquidation of the December contract ahead of FND.  Corn open interest fell 13,206 contracts, soybeans were up 3,590 contracts, Chicago wheat fell 10,463 contracts and KC wheat was down 3,172 contracts.  After pushing to within 17,000 contracts of an all-time record, corn open interest has now fallen 40,534 contracts over the last three sessions.  Despite that, when one looks at a price chart with open interest overlaid, a person can get a real sense of how much speculative short interest rests below the $3.45 level.  Could make things interesting with option expiration Friday considering the 350 strike has 54,269 contracts of puts and calls open while the 340 strike has 42,938 contracts of puts and calls (35,363 puts) open.  For Chicago wheat, the largest open interest lies at the 430 strike with a combined 16,696 contracts of puts and calls.  The 420 strike is meaningful at 10,147 contracts.  The December soybean serial options have 8,245 contracts open at the 1000 strike.

Yesterday on the Minneapolis spot floor, there were 53 cars including two trains vs. 54 cars a year ago.  Trades saw 14.0% pro down 20c on the low side to +120/160Z which compares with +125/150Z a week earlier.  15.0% pro traded up 25c on the low side to +200/210Z which compares with +175/200Z a week ago.  Much of the focus of late has been on the red hot cash markets related to HRW, but we believe we will see similar strength in spring wheat which may be getting going as we speak.  Bushels were obviously depressed this year due to the Northern Plains drought, but where yields were good in northeast ND and N-MN, protein levels were quite poor.  Average protein levels for the crop don’t look too out of line, but achieving desired protein levels will require blending droughty wheat with low protein wheat from the north.  Adding to the potential protein story is the Canadian crop which has been known to be below normal for a while, but finally has hard evidence to support it from the Canadian Grain Commission.  There were two different reports released, one for No. 1 Canada Prairie Spring Wheat which showed an average protein level for all of the Prairies at 12.3%, while the report containing No. 1 Canada Western Red Spring showed the Western Prairies at 13.5% and the Eastern Prairies at 13.0%.  This compares with 2016 at 13.7% and 13.8%, respectively and 13.8% and 13.7% in 2015, respectively.

Deliverable stocks released yesterday showed a 30,000 bushel build in hard red spring stocks to 23.660 million which compares with 25.526 million a year ago.  In Chicago, total wheat stocks fell to 94.861 million from 95.379 million a week ago and 96.039 million a year ago.  Total non-deliverable grades are slightly higher in Chicago this year at 7.173 million bushels vs. 5.663 million a year ago.  In KC, stocks were down marginally at 118.669 million bushels from 118.914 million a week ago and well above 108.782 million last year.  Non-deliverable grades in KC are up noticeably at 4.069 million vs. 2.675 million a year ago.

One other story worth noting yesterday was the news Russia’s meteorological service said yesterday they had measured pollution of a radioactive isotope nearly 1,000 times the normal levels in the Ural Mountains.  Both Russian and Kazakh state agencies denied anything untoward at any of their facilities, but French regulators at the nuclear safety institute IRSN said a radioactive cloud of pollution over Europe indeed indicated something had taken place.  Some wire services said wheat was catching a bid on the news and the possibility Russian wheat could become contaminated and therefore not wanted by global importers.  Can’t say as there is any truth to that idea, at least not yet, given Russia’s benchmark wheat was $1.00 lower while Paris/EU futures closed up €0.50/MT yesterday and is up the same today.  FOB offers out of Russia should plummet if there were anything to be concerned with.  While something to talk about, believe it will take more than an errant headline to displace Russia as the world’s largest wheat exporter this year.

 

Bottom Line: Focus for most is on South America, and especially the dryness in Argentina.  If the dryness rolls forward, soymeal should be the leader as Argentina is the world’s largest soymeal exporter.  The strike levels of most interest for Friday are identified above with 350 corn probably the most noteworthy.  Otherwise, corn and wheat basis keeps working higher, keeping spreads firm and seeming to give futures little reason to set back materially.  Producers need to be looking ahead to 2018 early and often given the acreage mix ideas already being floated.

 

Good Luck Today and Have a Happy Thanksgiving!

 

Tregg Cronin

Market Analyst

Tregg.Cronin@halocommodities.com

www.halocommodities.com

@5thWave_tcronin

 

 

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