1/4/2017 Morning Comments

Good Morning,

 

Crude oil is pushing to new highs for the move this morning, and also the highest levels since mid-2015.  While most of the focus has been on the higher trending energy markets due to higher global demand, there are noteworthy supply highlights to keep track, especially out of Russia.  Reported yesterday by multiple outlets, Russian crude oil production pushed to a new 30-yr high of 10.98 million bbls/day, although the pace of growth slowed slightly from 2016 due to their involvement with the OPEC production pact.  Russian natural gas production totaled 63.5 billion cubic meters in December, up from 60.6 billion cubic meters in November.  In addition, Russian natural gas exports to Europe rose 8.1% in 2017 to a new record level of 193.9 billion cubic meters.  This amount accounted for close to 30% of Europe’s gas demand, and comes despite efforts to block a new pipeline into Germany which would double supplies from Russia to the EU’s largest economy.  In 2019, the $55 billion “Power of Siberia” pipeline will also start carrying natural gas to China which some analysts estimate at close to $400 billion over the 30-yr pact.

Dry weather in Argentina yesterday, with mainly dry weather in Brazil as well.  Not much change to the forecast from yesterday with only light rains in Argentine growing areas the next 5-days.  Models are mixed in the 6-10 for Argentina with the European calling for soaking rains while the GFS remains in a dry pattern.  A continued tropical rainfall pattern is seen for Brazil most of the next 5-days with average rains seen in the 6-10.  No excessive heat is seen in either country the next 10-days.  Dryness concerns will begin to develop in Argentina by the weekend if the forecasts do not side with the European model.

 

The first day of weaker trade in wheat and soybeans, while corn follows through on the light bit of weakness posted yesterday.  Technical patterns for both wheat and soybeans look encouraging with bottoming action, and trendy/impulsive behavior to the upside.  Corn on the other hand seems to be presenting slowing momentum, and volume studies still suggest more participation on down days than up days.  Open interest in the corn market has been mainly flat, which doesn’t indicate heavy flows in either direction as traders are most likely trying to square things ahead of the January 12th reports.  Worth noting, however, corn and wheat are both above their 50 and 100-day moving averages with the 200-day resting around 11c above for both.  Soybeans remain below all major moving averages, helping to put into perspective the 13c rally off of the December lows.  The encouraging thing for both corn and soybeans are the firming basis bids at export hubs despite the rallies.  Front-month spreads in both markets have not yet caught a bid, however, while the WH/WK is still in a longer-term uptrend with domestic cash markets remaining firm.

Deliverable stocks reports released yesterday showed a continued draw in Chicago with total wheat stocks down 666,000 bushels w/w to 86.426mbu which is 4.148mbu below a year ago.  114,000 bushels of HRS were added in STL, taking total deliverable HRS supplies to 1.350mbu vs. 723,000 bushels a year ago.  SRW cash remains firm on the river with icy conditions on the OH-River.  KCBT stocks declined 1.392mbu to 111.827mbu, but remain 4.742mbu above a year ago.  Light trade on the KCBT spot floor with 12.0% indicated up 2c on the bid and offer to +192/207H which compares with +190/205H a week ago.  Wheat stocks in Minneapolis/Duluth rose 126,000 bushels w/w to 22.026mbu which compares with 21.839mbu a year ago.  There were 35 cars, including 1 train, on the spot floor yesterday which saw 15.0% up 10c on the bid and down 15c on the offer to +185H.  This compares with +175/200H a week ago.  Brokers remark mill pipelines are well supplied with only a handful of cars needed here or there to keep things stocked.  A continuation of weather witnessed at the end of 2017 would likely start to draw those pipelines down and put a bid under HRS cash.

Otherwise, export bids for corn and soybeans remain firm with PNW shuttle bids going home last night bid +94H for spot against offers of +105H which compares with +90/95H a week ago.  PNW bids are actually inverted by 1c for Jan vs. Feb trains while April trains are bid +82K vs. +79K for May placement.  BNSF equipment prices have picked up, which can partially explain the bids firmness, as spot was called +$400/$600/car last night vs. tariff to +$150/car a week ago.  CIF barge bids for corn were called up 1-3c for Jan-Apr with spot boats called +45/48H vs. +38H a week ago.  CIF bean bids were up 8c in the spot and 1-6c higher Feb-April with Jan called +43/48H vs. +42/44H a week ago.  Front end Brazilian FOB basis was down 1-3c yesterday, but is mostly unchanged on the week.

A lot of the focus this week has been on the winterkill threat across the southern plains amid already poor conditions thanks to thin stands and generally dry soils as we went into dormancy.  As we have stressed, little to nothing will be known about potential winterkill damage for another 45-60 days, so the 50-70mbu of production loss already flying around is really not pertinent to the discussion.  Flying under the radar, however, has been the strength in exporter currency.  The Australian dollar traded to 0.7856 this morning, the highest trade since October 20th.  Earlier this week, the Canadian dollar pushed over 80c, the first time since October 20th as well.  The Euro traded to the highest level since December 2014, while the Russian Ruble is the strongest since September 6th.  The incredibly firm export basis levels out of the United States for 12.0% HRW will limit the ability of US wheat to come splashing back onto the export scene, but the currency strength from these exporters is undoubtedly helping the cause.  It is also worth noting while on the topic that Russian wheat export forecasts continue to rise thanks to the relatively warm and open winter to-date.  Normally, Russia is faced with cold temps and ice conditions, which slow and sometimes limit loading altogether.  Pictures from social media yesterday showed lots of Russian acres without any snow cover and still green wheat.  This is allowing exports to continue unfettered, with some now calling for 36.5MMT of exports to as much as 40.0MMT!  This compares with the USDA at 33.5MMT and early season estimates assuming Russian export capacity would be limited at 32-33MMT.

 

Bottom Line: A little back and fill trade today as we take a breather from the early weak gains.  The supportive outside market influences we’ve had to start 2018 are still alive and well, and should be friendly toward the Ag space.  As long as the equity bull keeps surging, however, the demand for physical assets could remain limited.  Producers should be looking to take advantage of further strength in the run up to the January reports given this month is the second weakest from a seasonal perspective in Chicago wheat, shows no bias of strength or weakness in soybeans, and has traditionally posted slight to modest gains for corn on the 30-yr average.

Good Luck Today.

Tregg Cronin

Market Analyst

Tregg.Cronin@halocommodities.com

www.halocommodities.com

@5thWave_tcronin

 

 

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