12/28/2017 Morning Comments

Good Morning,


Commodities as an asset class have been one of the worst performing sectors of 2017, but one commodity is bucking that trend as we bring the calendar year to a close.  Copper prices rallied earlier today, hitting their best level in nearly four years, and helping notch the best year-to-date for metal since 2010.  Provided no massive selloff today and tomorrow, copper should finish the year up nearly 30% thanks in large part to solid demand from China as well as forecasts by some of the largest mining companies that deficits of the metal will occur by the end of the decade.  In addition, the surge in electric vehicles to-date, but especially the expected growth in the next ten years for charging networks will require an ever increasing supply of the red metal.  Last night saw China release import/export data for the month of November with scrap copper imports totaling 271,045MT which is down 17% from a year ago, but the Jan-Nov total of 3.292MMT is up 9.09% on 2016.  Copper concentrate imports totaled 1.776MMT in November, up 1% y/y while Jan-Nov imports of 15.698MMT are up 2.65% y/y.  Refined copper imports totaled 329,168MT, up 18.95% y/y with Jan-Nov imports of 2.915MMT down 10.83% y/y.

Scattered snow showers across the upper-Midwest this morning, with additional snow fall expected through the weekend.  The 7-day forecast shows solid snowfall potential over the western half of South Dakota, with IA also looking at 0.10-0.20” of water-equivalent moisture.  The real story in the Midwest, however, is the frigid cold which is expected to persist through New Year’s Day at least.  Highs in the single digits are seen today across the Dakotas, with 20’s in NE and 30’s to 40’s in KS.  Temperatures Saturday/Sunday are the ones to watch with high temps in the Dakotas anywhere from -3* F to -17* F across North Dakota.  South Dakota could be looking at its longest sustained temperature below zero since 2004.  Temps in NE this weekend are seen down to the single digits for highs with KS sporting highs of 13-20* this weekend  Little snow cover exists in the Plains outside of NE.  In South America, the focus remains on Argentina with dry weather occurring over most of growing areas yesterday.  Dry weather is expected the next 5-days in Argy, with light amounts currently being shown in the 6-10 day period.  Totals are seen at 0.50” or less over 65% by the end of the next week.  While weather of late has sounded quite dire in Argentina, the 15-day precip anomaly map shown below paints a bit different picture at least over the last two weeks.  The heart of the Argentine production belt has been normal to above normal, but that picture could change by the end of next week.  Brazil remains in good shape.


Weaker markets this morning as the soy complex shows follow through weakness after yesterday’s ugly reversal.  As is commonly seen in the US during June/July, our markets are reacting to each weather model change for South America, as well as trying to square steady/lower production estimates from Argentina with rising estimates in Brazil.  Technically, soybeans remain in tough shape with just two higher closes over the last nine sessions and three higher closes over the last fifteen sessions.  Spot month prices remains below all major moving averages, and on-balance volume is just off the lowest level since April, highlighting which camp remains firmly in control.  Liquidations was mainly seen ahead of year-end and as Jan futures move into delivery.  Corn open interest fell 6,484 contracts with price closing up 1c.  Soybean open interest fell 13,741 contracts, SRW wheat fell 1237 contracts, and KC -165.  Grain trade remains quiet with Russian FOB values, winter temps across the Plains and the pace of US corn exports over the coming weeks being some of the largest inputs.  Wheat has its sights set squarely on the January 12th winter wheat seedings and Dec 1 stocks report.

Very little for data published yesterday with ethanol production and stocks delayed until today and export sales delayed until Friday due to the Christmas holiday.  Weekly deliverable stocks reports rose just 4,000 bushels in Duluth/Minneapolis, with essentially unchanged stocks during the month of December.  Combined stocks of 21.9mbu compare with 21.675mbu a year ago and 28.714mbu two years ago.  The spring wheat spot market remains dead with just 5 cars available.  15.0% protein cars did trade up 20c on the bid side to +170/200H.  The cold weather this week and next should impact logistics across the Dakotas, MN and MT which could begin to see pipelines whittled down.  In Chicago, SRW stocks fell another 1.564mbu to 87.092mbu which continues to draw down relative to a year ago at 91.326mbu.  HRW stocks fell 116,000 bushel to 113.219mbu vs. 107.722mbu a year ago.  The KCBT spot floor was unchanged, while SRW barge bids began the week on a firm note.

Other wheat news this morning included a story from Bloomberg saying one of Russia’s largest grain ports added a third shift to deal with the incredible pace of exports to-date.  Novorossyisk port is now running 24-hours a day, and has shipped around 50% more than regular capacity in recent months.  This should not come as a complete surprise given the almost exclusive nature of Russian wheat in GASC tenders, as well as Russian wheat working into new destinations for the first time ever.  Russian FOB prices have seemingly been stuck at $190/MT for the better part of a month, and having any chance of a continued wheat rally will probably mean those offers working higher.  GASC receive six Russian offers in yesterday’s tender ranging from $192.35-200.35/MT FOB with one Romanian at $200.90/MT.  GASC bought 180,000MTof Russian wheat with a landed price of $207.05-209.60/MT C&F.  The delivery slot was February 1-10th with the cumulative total for the marketing year at 4.615MMT, of which 80.7% is Russian.

A couple quick notes from the latest COT data, covering positions through December 19th.  Funds hit the soybean market with near record selling last week, selling a net 48,254 contracts, the second largest single week of selling on record.  The reporting week ended three days ahead of option expiration for January futures, so some of the selling was undoubtedly related to that.  Still, an impressive week of selling, and makes the price drop more understandable.  Funds are now net short -56,838 contracts, the largest net short in soybeans since August 29th.  Funds finally sold some meal as well, dropping their net long from 67,716 contracts last week to 48,469 contracts.  This position still seems large considering the trashy meal basis in the US, and the ambiguous weather in Argentina at the moment.  The combined grain and oilseed net positions for managed funds ballooned to -456,325 contracts last week, the largest net short since June 6th, and getting into rarified air for net short positions.


Bottom Line: Wheat futures bounced yesterday on some of the cold air forecasts for Northern Hemisphere producers, but assessing winterkill damage before spring is usually a waste of time.  The 18/19 balance sheet is going to be much more constructive than the 17/18 balance sheet, and the January 12th reports should help to refocus toward next year.  Funds are sitting on large net short positions across the Ag room, and some additional short-covering into year-end is possible.  Corn probably needs to move toward $3.60 to give wheat a chance at hanging on above $4.30.


Good Luck Today.

Tregg Cronin

Market Analyst






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