12/29/2017 Morning Comments

Good Morning,


Crude oil has nudged back over the $60.00/bbl mark for WTI this morning, bolstered by a continued tightening in the US market.  Weekly energy inventories from yesterday showed a 4.61 million bbl draw in stocks, slightly more than the 4.00 million bbl estimate.  What’s more, not only are crude supplies of 431.88 million bbls well below last year’s 486.06 million bbl level, they are also below the 3-yr average of 432.03 million bbls.  In fact, crude supplies at the 431.88 million bbl level are just above the middle of the 5-yr average as well.  Brent crude oil is trading at $66.38/bbl this morning, and the Brent/WTI spread has come in $0.07/bbl to $6.25/bbl premium Brent.  The spread had a spike high of $7.27/bbl on December 12th, with a recent low of $4.90/bbl in late November.

Moderate to heavy snow is falling across the Dakotas, MT and SW-MN this morning, helping to fill in any remaining gaps without snow cover.  Most of the area currently receiving snow should see anywhere from 1-5” throughout today with another chance at lighter amounts tomorrow.  This is welcome news for any upper Plains winter wheat which hadn’t yet received protective snow cover amid the coldest temperatures of the season.  Over the next week, a band from SE-MT to C-IL will continue to see light snow chances, adding to recent moisture.  Temperatures will remain below normal until Tuesday at which time most areas claw back toward “normal.”  Extended maps keep temps normal/below, while precip moves from below normal in the 6-10 to above normal for the Midwest in the 8-14.  Forecasts for Argentina continue to provide moisture in the heart of their belt the next 7-days.


Quiet overnight markets with lightly mixed trade as we get set for another 3-day weekend.  Desks haven’t been fully staffed this entire week, so no one should be expecting earth-shattering trade on either the futures or cash side today.  The big story yesterday was the second reversal in soybeans in as many days as more anxiety over US soybean shipments to China began to surface.  A Reuters article hit the wire yesterday morning stating that according to their analysis, half of US soybean shipments would be held up or rejected based on the new quality requirements from China.  The new quality rules issued by China state shipments from the US with greater than 1% foreign material could be held for additional screening and inspection.  This would require #1 YSB to meet this new rule when most soybean shipments leaving the US are #2 YSB.  In order to hit the new specs, it would likely cost elevators and exporters more money, requiring a premium for the soybeans, and potentially taking the US out of the grids vs. South America.  This is especially troubling considering Brazil is not subject to these same stringent rules, despite their cargoes on average containing higher FM than their US counterparts.  The true motive behind the move from China isn’t 100% clear, but it is fair to say it has traders on edge considering we are already staring at the highest carryout levels in over a decade before we start cutting exports.  Another day of liquidation in soybeans as Jan beans get closed out without opening new positions in March or deferreds.  Soybean open interest was down 26,459 contracts, meal was down 8,998 contracts, soy oil down 2,170 contacts, corn was up 5,597 contracts, SRW wheat was up 1,240 contracts and HRW wheat was up 813 contracts.

Plenty of other balls in the air with regards to the soybeans and oilseed markets worth keeping track of.  Paris Rapeseed hit fresh contract lows this morning at €346.00/MT, which was also the lowest spot trade since March 3rd, 2016.  The pressure in CBOT soybeans undoubtedly had a pressuring affect, but canola futures have also been under pressure with spot prices there hitting the lowest level since September 13th.  In addition, the Argentine peso fell another 4.03% yesterday to 19.18:1 against the USD.  Since the beginning of December, the currency is down 11.3%, which would be the equivalent of the USD trading around 82.00 vs. the current spot level of 92.2940.  A currency that weak encourages producer selling as they get paid more pesos for every bushel of corn, wheat or soybeans they sell.  With a fair amount of grain at Argentine elevators needing to be priced before 2018, the currency weakness has probably exacerbated the selling pressure from the farmer there.

Data yesterday included weekly ethanol production which came in at 1.090 million bbls/day, up 13,000 bbls on the week, and was the second highest level on record.  Production at that level remains nearly 5.0% higher than the level needed to hit the USDA’s ethanol production forecast, and could argue for a further bump in their estimate on the January WASDE.  Each of the last nine weeks have run better than the level needed, with the last four hitting 4.0-5.0% better than the level needed.  In addition, the last 11-weeks have all been weekly records for their respective weeks on the calendar.  Weekly stocks saw a sizable draw at 289,000 bbls to 22.031 million bbls.  Despite the draw, ethanol stocks remain at record seasonal levels with every week of the marketing year hitting a weekly record for the respective week.  Ethanol prices have recovered around $0.09/gln from the lows in mid-December, but remain just 7% off all-time record low prices.

Canadian grain export data for the month of November was released yesterday with wheat exports coming in at 1.464MMT vs. 1.233MMT in October and 1.289MMT in November 2016.  MYTD exports now total 5.350MMT vs. 4.956MMT the previous year.  Canada sent China 60,400MT last month, bringing the marketing year total to 262,500MT vs. 141,800MT a year ago.  China also sent Brazil a panamax of wheat last month, bringing the MYTD total to 90,100MT vs. 72,500MT.  Canada should be trying to capture this business the entire marketing year given their lower protein profile of the 2017 crop vs. normal.  The bulk of Canadian wheat exports (63%) have been No. 2 CWRS, with 14% being sent as No. 1 CWRS.  Other tidbits worth noting, barley exports have also been much stronger than a year ago at 206,500MT for November vs. 154,700MT last month and 105,100MT in November 2016.  MYTD barley exports stand at 618,800MT vs. 273,400MT in 2016.  China is responsible for 95.8% of these barley exports.  Canola exports are steady y/y, pea and lentil exports are down sharply, and oat exports are up 20%.

Lastly, PNW corn premiums continue to hold firm, a sign of continued interest as South America moves its focus to soybeans.  Spot shuttle premiums are indicated around +91H vs. offers at +96H which compares with +88H/+92H a week ago.  This compares with bids/offers of +80/85H at the beginning of December, with BNSF equipment still at +/- $100/car vs. tariff at the beginning of the month.  Basis levels paid in the country should be improving, and producers should take a long look at corn either already in the elevator or making offers on grain to move.  Social media has also been abuzz with elevators beginning to offer free delayed pricing programs to get grain to move either before year end or shortly after the first of the year.  Producers taking advantage of the room at country locations need to be aware of the basis strength and what the prospects are for additional strength by the time they might decide to price this grain.  The programs are being offered because of the basis strength, not the other way around.


Bottom line: Export sales later this morning shouldn’t be anything too special given the holiday shortened week.  The soybean market needs a weather issue in Argentina to prevent additional losses, because the US market simply has too much supply without the needed export demand to mop up the excess.  Acreage discussions for 2018 are already taking place, and it looks likely corn acreage could be up 1-2 million from 2017.  With that in mind, producers need to be looking hard at New crop corn prices $3.90 and above when they present themselves.


Good Luck Today and Have a Happy New Year!



Tregg Cronin

Market Analyst






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