12/1/2017 Morning Comments

Good Morning,

 

Another blank Midwest radar this morning, and should remain dry until Sunday/Monday when light chances of precip show up in the WCB and Great Lakes.  A system will work in early next week and set up shop for 2-3 days over SD/NE/MN with heavier totals to the east in WI/IL/IN/OH/MI.  7-day forecast totals are putting 0.10-0.25” in the WCB while 0.50-1.30” looks likely in the ECB.  Odds are good the moisture in the west will fall as snow, but could be rain in the east.  Temps in the 6-10 and 8-14 day are mostly below normal.  After that system, below normal precip looks to move back in for the entire Midwest through December 14th.  It feels as though we have been writing about dry weather in the Midwest and Plains for a while now, and the 30-day percent of normal precip map would confirm that idea.  Major moisture deficits have developed in the southern plains, northern plains and WCB.  Obviously moisture needs are quite low at this time of year with the exception of recently emerged winter wheat, but the trend is more the concern.

 

A little bit better markets this morning as we open December on a firmer note with much of the trade eager to put November behind us.  That would be true for more than one reason as December is rather strong seasonally for much of the Ag room with this month being the strongest seasonally of the entire calendar year for corn.  According to www.sentimentrader.com, over the last 30-years, corn has posted an annualized return in the month of December of 3.992%.  For Chicago wheat, December is the third strongest month of the year at 1.874%, while soybeans have the weakest seasonal return of +0.124%.  Worth noting, according to the site, soybeans have the strongest month from a seasonal perspective in November at annualized return of 2.083%.  For the month of November, January soybeans closed up 1.0c/bu, but had a total range of 41c.  During the last session of the month, with grains up and soybeans down, additional open interest came off.  SRW wheat saw open interest down 10,468 contracts, corn was down 3,646 contracts, HRW wheat was up 583 contracts and soybeans were up 8,608 contracts as the market closed lower.

You would have been hard pressed to find a bigger talker yesterday than the huge deliveries in Chicago wheat and corn to a lesser extent.  The confusion came from the fact cash SRW wheat is trading above delivery equivalence by quite a margin, implying there should not have been any or very many deliveries at all.  Then word began to spread the wheat Anderson’s delivered (10.0mbu in total) was not milling quality due to low falling number.  That in itself raises its own set of questions as the applicability of it being able to be used in the delivery process.  Nonetheless, the 2,000 fresh registrations and subsequent deliveries blew the spread out from a close of -18.25c on Wednesday to a close of -23.75c yesterday and the WZ/WH trading down to -24.75c this morning.  The real question comes down to depth of demand as the hot SRW barges at the Gulf are probably not more than a few deep.  In addition, the strong Toledo mill bids posting +25H for December delivery could probably be covered up with the amount of wheat delivered.  6.0c on 10.0mbu, however, isn’t a bad day’s work.  There were no additional registrations last night, with 1,520 contracts being redelivered.  The concerning thing is no strong commercial stoppers have yet showed up which means the contracts could continue circulating, keeping pressure on the WZ/WH spread.  Both commercials and managed funds are interested in protecting roll yield in the wheat market, and until that is threatened, upside will be difficult to come by.

The other big surprise was Cargill registering a fresh 880 contracts of corn the night before last along the Illinois River , which also found no strong commercial stoppers.  There were 1,286 deliveries last night, bringing the month-to-date total to 2,490 with registrations expected to circulate for a while with cash below delivery equivalence.  In HRW, it was a fairly quiet FND with only 55 contracts delivered, but last night there were 300 fresh registrations in Wichita which helped total deliveries push to 556 contracts.  HRW is the lone commodity with a strong commercial stopper, however, as Cargill stepped in for 526 of the 556 contracts which should leave very few outstanding after today.  Cash market activity yesterday makes this completely understandable.  MGEX also provided some interest with CHS Hedging delivering 200 contracts on FND which had no strong stoppers.  Then last night, there were an additional 200 contracts registered, and the total delivered went to 398 contracts.  The issuers the last two nights have been CHS and LDC, the two largest commercial players in the spring wheat market with no one of note stepping into stop them.  Usually worth paying attention to when those to make a statement.

As noted above, HRW cash was strong on the spot floor again yesterday with ORD’s to 12.80% up 3-23c with 11.60% up 39c in one day.  11.0% protein wheat is indicated at +115/130H vs. +125/140Z a week ago with the spot floor rolling at -18.00c.  In other words, the bid side would be around 8c stronger than week ago levels.  12.0% pro is now indicated at +205/220H vs. +197/212Z a week ago, and 13.0% pro is called +248/263H vs. +268/283Z a week ago.  With the basis strength we are seeing as we get set to close the calendar year, many are asking what the availability of protein wheat will be like in 2018?  We have 6-months before new crop HRW will be showing up in the southern plains!  The domestic market is doing its job to ration demand, but the high basis levels being paid to get the quality desired and to pull the bushels from hedged inventories are also making our exports difficult to price into major import destinations.  The MGEX spot floor was mixed with 14.0% up 5-20c at +110/150H while 14.5% pro was down 10c to +110H and 15.0% was up 15c to +175/190H.

In other wheat news, cash traders are buzzing about the monster storm about to hit Australia which could threaten an already drought-reduced crop with quality-threatening rains.  The Australian bureau of meteorology said rain in Victoria and NSW could range anywhere from 50-250mm with Victoria expected to see the most rainfall.  There is the potential some spots could see as much as 2.00” an hour with loss estimates anywhere from 1.0MMT to 3-4MMT.  Best estimates figure 50% of the wheat in New South Wales and Victoria is still out in the field, but major progress is being made ahead of the storm to try to minimize losses.  The concern over a loss of quality, when so many major exporters are already facing quality/protein issues, is reflected in the spread between ASX futures and Chicago wheat futures which has blown out to nearly A$80/MT.  The storm begins Friday and continues through Sunday which could make for an interesting evening session.

Data out yesterday included export sales which were disappointing for nearly everything.  Wheat sales were abysmal at 6.8mbu vs. the 14.1mbu needed weekly.  Total commitments continue to slip relative to a year ago with total commitments at 630.7mbu vs. 693.2mbu a year ago, a deficit of 9% vs. a deficit of 5% two weeks ago.  Corn sales totaled 23.6mbu vs. the 26.3mbu needed weekly, the lowest sales total in nine weeks.  Total commitments of 867mbu are now down 27% from a year ago at this time.  Soybean sales totaled 34.6mbu vs. the 25.3mbu needed weekly but were the second lowest total of the marketing year behind last week.  Total commitments of 1.263bbu are down 18% from a year ago as the deficit grows despite the fact we are expected to sell and ship 3% more this year.

 

Bottom Line: A new month, and new opportunities, although the weight of the large deliveries sloshing around will continue to hang over the market.  South American weather will continue to be a focal point as they try to finish the second half of their planting campaign.  US exports continue to sport deficits with the pace expected by the USDA.  This needs to change in order to prevent further negative sentiment creeping into our space.

***I will be off markets Sunday through Wednesday as I make my annual pilgrimage to the DTN Ag Summit in Chicago to talk marketing with producers.  There will be no comments posted Monday-Wednesday.  Any comments or questions can be sent directly to Kevin and the guys at Halo Commodities.***

 

Good Luck Today.

 

Tregg Cronin

Market Analyst

Tregg.Cronin@halocommodities.com

www.halocommodities.com

@5thWave_tcronin

 

 

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