12/22/2017 Morning Comments

Good Morning


Rains fell across 45% of the Argentine growing region yesterday to the tune of 0.25-0.45”, but once those rains finish up tonight, dry weather will take hold through most of the next week.  The next shot at rain for the heart of the Argentine growing region will be the tail end of next week.  To be clear, the rains which have fallen during the last 5-7 days were very beneficial, and should allow planting pace to surge in the coming days.  No extreme heat is seen either, so conditions can’t really be called dire as their crops work on emergence.  Rain will fall across southern Brazil through much of the weekend and early next week.  Northern Brazil too remains in good shape, with very little for concern anywhere in the Brazilian Ag belt.  Temps will be running close to average for most of the next 7-10 days.


Mixed markets this morning in quiet overnight trade.  It feels repetitive to keep mentioning the losing streak taking place in soybeans right now, but one can’t deny the impressive downward trend.  Soybeans closed lower for the sixth straight session yesterday as well as the eleventh lower close out of the last twelve sessions.  For people who like to use momentum indicators to claim a market is “overbought” or “oversold,” soybeans would have given you an “oversold” signal eight sessions ago.  Momentum indicators do not indicate “overbought” or “oversold,” but instead the strength of the current uptrend or downtrend, and right now momentum indicators aren’t even hinting at a divergence which would be the first signal we might be nearing a bottom.  Not helping the soybean plight were Dalian soybeans, which closed down 1.29% overnight, pushing the May contract to fresh contract lows.  On a front-month continuation basis, Dalian soybeans are at the lowest levels since February 2016.  As mentioned earlier this week, the front-month SF/SH spread has been firmer on the selloff, but the SH/SK, SK/SN and SN/SQ all hit or tied fresh contract lows, indicating the front-month spread is probably related to liquidation ahead of FND.  The SN/SX spread, which is usually a decent indicator of final carryout, hit a fresh contract low overnight of +8.50c.  Soybeans are looking high and low, but nothing supportive is coming to the surface.

Data yesterday included weekly export sales which were supportive all the way around.  Wheat sales were especially strong at 29.3mbu vs. the 12.2mbu needed weekly, although 120,000MT of HRW to Algeria and 130,000MT of SRW to unknown was previously known through the daily reporting system.  Nonetheless, total export sales made up ground on last year, pushing to 693.4mbu, down just 7% from a year ago.  Sales were led by 12.2mbu of HRW which is well more than the 5.0mbu per week needed.  Second place went to white wheat with 7.2mbu, followed by SRW at 7.0mbu and a disappointing 2.8mbu worth of HRS.  Corn sales were also strong at 61.3mbu vs. the 24.9mbu needed weekly.  Total commitments now stand at 997.0mbu vs. 1.352bbu a year ago.  There is good reason to believe this deficit will continue to shrink as we’ll discuss next.  Soybean sales were also solid at 64.0mbu vs. the 21.5mbu needed weekly.  Total commitments continue to run 16% behind a year ago at 1.452bbu which should prompt another cut to the export forecast by the USDA on the January WASDE.  Soy product sales were decent.

Corn exports should continue to make up ground with 16/17 as US FOB corn is now the lowest priced corn from major exporters, and should be on a landed base as well.  Going home last night, US-Gulf ex was quoted for Jan at $157.96/MT FOB and $158.36/MT FOB for Feb.  This would compare with the PNW at $173.71/MT FOB for both slots, and Argentina at $163.87/MT FOB for February.  Brazil is not even listing FOB offers as the program has turned exclusively toward soybeans.  Brazil will likely be out of the export market until April/May sometime, and by then we will have a much better handle on the size of their corn crop and how many excess bushels they will be trying to ship out of the country.  While corn is the focus, US Gulf ex soybeans are also running cheaper than Brazilian soybeans at the moment.  FOB quotes for Feb from the US went home last night at $367.80/MT vs. $376.64/MT FOB for Brazil.  Whether the premium/discount has anything to do with the recently announced FM discounts for US soybeans isn’t clear, but cash markets always sort out quality issues.

Sticking with the export theme, SovEcon raised their estimate of Russian wheat exports yesterday, bumping the full year estimate to 35.5MMT, up 500,000MT from their last estimate.  This would compare with USDA at 33.5MMT.  According to their figures, December wheat exports should end up around 3.7MMT, and things actually need to slow JFM to only ship 35.5MMT this marketing year.  It is pretty incredible a few months ago analysts thought Russian export capacity for wheat would be around 32-33MMT, when their current pace is pointing to something closer to 38-40MMT.  Add on the fact media outlets are reporting Russia plans to ramp up infrastructure spending in 2018 to increase export capacity, and the sky feels like the limit for Russian grain exports.  A lot can change with a cold blast, but barring their own version of a Polar Vortex, Russian wheat exports are arguably one of the most important facets to the global wheat market.

Switching back to Argentina, the Buenos Aires Grain Exchange reported weekly crop progress yesterday.  Corn planting progress was estimated at 61% complete vs. 45% last week and 63% last year.  Soybean planting was seen at 70.9%, up from 63.5% last week, but still behind 2016’s pace by around 5%.  Crop ratings for the soybean crop which is out of the ground were put at 58% good, 34% fair and 8% poor.  BAGE put the country’s wheat harvest at 72.5% complete, up 14% on the week.  They said 11.56MMT have been harvested to-date.  If yields were left unchanged through the rest of harvest, the crop would be implied below 16MMT vs. BAGE’s estimate at 17MMT, the Ag Minister at 18MMT and USDA at 17.5MMT.  Yields should improve slightly in the higher yielding areas of the south, but looks likely their wheat crop is being overestimated, just like Australia’s, which will further tighten the southern hemisphere exporter supply situation.


Bottom Line: Jan option expiration at noon today, which is also when futures markets close for the long holiday.  Futures will remain closed from noon today until 8:30am Tuesday December 26th.  Next week’s volume and participation is likely to be light as many continue an extended vacation.  South American weather, especially for Argentina, will be the big driver when markets reopen Tuesday.  From everyone at Halo Commodities, Have a very Merry Christmas and Happy New Year!


Good Luck Today.


Tregg Cronin

Market Analyst






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