The USD is on the move to start the New Year, and that move is lower by 0.41%, heading in the same direction as we ended 2017. At the lows this morning of 91.751, the USD hit the lowest level since September 20th, and is just 75 pips away from hitting the lowest level since December of 2014. The Dollar at that level would require some serious recalculation of the value of physical assets considering that last 3-year shave witnessed a USD at a much higher plateau. The Bloomberg Commodity Index traded to the highest level since March on the last trading day of the year, and should open steady/better today given the gains in energies and metals. Most commodity markets turned in a solid 2017 with the exception of grains, which underperformed the broader index badly. If the USD continues to trade weaker to start the year, grains might finally be able to turn the corner for a more positive 2018.
Blank Midwest radar this morning as frigid temps hang on for one more day before somewhat of a warmup moves in by the weekend. Many areas of the Plains set new records for minimum high temperatures over the weekend with air temps in parts of NW-SD and W-ND hitting -30 to -40 below before wind chill. Some winter kill is expected in KS and MO given the lack of snow cover where temps were cold enough to do damage. Way too early to accurately get an assessment, however. Temps in the western half of the Great Plains will move into the 20’s and even 30/40’s by Saturday, which will be a welcome relief. Colder temps are maintained in the Great Lakes through much of the week. Nothing much for moisture the next week until the weekend in the ECB with 0.25-1.00”being seen Sunday/Monday for IL/IN/OH/KY. Temps cool back off in the 6-10 and 8-14 day to below normal, while the entire contiguous United States is above normal on precip in the 6-15 day. Weather forecasts from the weekend keep most of Argentina dry the next 10-days before relief shows up in the 11-15 day for nearly the entire growing region. That is a ways off to have a ton of confidence, so doubt the market can price that in until later in the week. Some good rains did fall in the heart of the growing region this past weekend. No issues in Brazil.
Old school this morning with no overnight markets and a hard open at 8:30am CST this morning. Given the temps from the weekend in US wheat areas, a dry 10-day forecast for Argentina and the USD index being taken to the woodshed, I believe markets can start off the New Year on solid footing. Would look for opening calls to be 1-3 higher in corn and wheat and 2-4 higher in soybeans. US export sales have improved in recent weeks as futures prices slipped to multi month lows in several contracts. This is encouraging, and should allow the market to have confidence in the lower boundary attracting demand moving into the second half of the marketing year. We have eight trading sessions before the January 12th WASDE report, which probably holds the most implications for wheat, and to a lesser extent corn and soybeans. Traders will be anxious to get a reading on winter wheat acres given the poor conditions most went into dormancy with and also the weather experienced to-date. In addition, Dec 1 stocks for both corn and wheat will be of interest given the rapidly expanding livestock sector, and the record high basis levels being witnessed for HRW.
Starting with data from Friday, export sales were fairly solid all the way around with wheat at 17.6mbu vs. the 12.0mbu needed weekly. This is the third week in a row of sales exceeding the level needed to hit the USDA’s most recent export sales forecast. Total commitments of 711.0mbu compare with 763.0mbu a year ago, a 7% deficit and right on pace to hit the USDA target. By-class sales were led by HRW at 10.3mbu, followed by HRS at 3.2mbu and SRW at 2.2mbu. Outside of 2-week ago, HRS sales have been lackluster, while the other classes have been impressive. HRS has only had one week in the last six which hit the level needed. Corn sales totaled 49.0mbu vs. the 24.2mbu needed weekly. Total export commitments of 1.046bbu are now down 25% from a year ago while the USDA is calling for a 16% decline. Soybean sales of 35.8mbu were better than the 21.2mbu needed, but were probably a bit weaker than expected. Export sales of 1.488bbu are down 15% from a year ago while the USDA is still calling for a y/y increase. A cut to export sales is forthcoming on the Jan WASDE. Meal sales were solid at 288,300MT vs. 128,600MT needed, while soy oil at 44,200MT was well better than the 13,300MT needed.
With each data set released from the USDA, livestock numbers continue to impress, giving a good impression for feed demand in 2018. The USDA’s Quarterly Hog and Pigs report released on December 22nd showed all hogs and pigs at 73.2 million head which was up 2% from a year ago, but down slightly from September 1, 2017. The number is a new record for December by a wide margin. Market hog inventory of 67.1 million head was up 2% but also down a hair from September. Cattle-on-feed as of Dec 1 totaled 11.516 million head which was up 8.1% from a year ago, and would be the largest since 2011. In addition, placements during the month of November were up 13.9% from a year ago to the highest for the month since 2007. On egg sets, 227.5 million egg sets were placed in hatcheries during the week ending December 23rd, up 4% from a year ago and blowing away anything of the last four years for this date. Chick placements of 186 million were also up 4% from a year ago. Layer chicken inventory of 379.9 million during the first week of December was easily the largest since at least 2008. The aforementioned collectively speaks to the profitability currently being experienced across the livestock sector as feedlots take advantage of the abundant supply of cheap feed grains. There shouldn’t be any reason to doubt current USDA feed forecasts, and this should set the table for what could be record feed demand in 2018.
One last tidbit, worth noting 225 SRW registrations were canceled in Maumee, OH Friday night leaving just 220 out of the 2,000 which were originally delivered on First Notice Day. This seems to further underscore the fact The Anderson’s delivered the gargantuan amount of wheat to blow the spread out, even though cash markets were well above delivery equivalence at the time. The cancellations signal someone loading the wheat out to take advantage of cash markets which are still trading +10H in NW-OH, while Toledo is option to -10WH for Jan. Eastern Indiana mills are still trading +30/40H. This should continue to support the WH/WK. Spot Chicago wheat futures have managed to climb back above the 50-day moving average, which we haven’t managed to stay above for any meaningful amount of time since July.
Some buying in corn, some selling in soybeans and very little activity for wheat on the latest Commitments of Traders report. The latest bullish sentiment scores are attached below. Across the grains and oilseeds markets of the CBOT, managed funds are now short a net -480,257 contracts, the largest since June 6th.
Bottom Line: 2017 was a pretty ugly year ago grains as we continue to deal with the highest supplies in decades for most of our commodities. The stage is being set for investment money to come back into our space specifically with higher energies, higher metals and a significantly weaker USD than we’ve had for several years. Having said that, managed funds do seem to have figured out the positive and negative roll yields with corn/wheat, a position they feel comfortable with for the time being.
Good Luck Today.
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