1/8/2018 Morning Comments

Good Morning,


A particularly nasty band of weather stretching from Mississippi to Pennsylvania this morning which includes rain to the south, snow to the north and a mixture of both in between.  The rest of the Midwest is quiet this morning.  Temps will be above normal the next 3-4 days in the Midwest, which will continue melting the recent snow cover before temps dip back down to normal or below by Thursday.  Along with the cold front, moisture will move into the Plains in the form of snow with KS to MN getting 0.50-1.00” of water-equivalent moisture.  Temps will also swing from 70* Wednesday to lows in the teens for W-KS/E-CO by Saturday.  NE and SD are seeing their snow pack dissipate and this should continue until the next round of snow Wednesday.  Weekend weather models for South America show expanding rainfall coverage in the 6-15 day outlook, which should aid S-Brazil and Argentina.  The driest areas in northern and southwest Argentina will remain concern area, but account for less than 20% of corn and soybean production.  Argentina will see 90’s before the next round of rain comes, placing added importance on the forecast.


Lower markets out of the gate last night, and following through this morning, led by wheat which is down 0.80-0.90% in KC and Chicago.  The rally in wheat which began after New Year’s was predicated on the winter kill threat across the southern plains, which hasn’t disappeared, but is just impossible to quantify on this date in January.  All too often, these bouts of short-covering while the winter wheat crop is still dormant give way to selling pressure when the trade realizes no damage can be assessed until March.  Add in the fact US wheat found itself way overpriced into Algeria last week, along with dismal holiday export sales, and the combination was enough to hold prices in check ahead of the important January WASDE report this Friday.  March corn hasn’t been able to move away from the $3.50 magnet price which held December in check for so long.  Encouragingly, however, both corn and soybeans saw export premiums finish the week on a stronger note without being bumped higher by freight costs.  Both corn and soybeans are in desperate need for an improvement to exports in 2018 to hold the USDA in check on the export estimates.

Export sales were abysmal Friday, although partially expected due to the holiday shortened week.  The dates aside, these were still bad, especially considering some of the cancellations within the details of the report.  Wheat export sales totaled just 4.8mbu vs. the 12.3mbu needed weekly and were the lowest of the marketing year.  For reference sake, on this date a year ago, export sales totaled 6.7mbu.  In the cancellations section, Morocco axed 90,000MT of HRW, something which caught most off-guard.  Throw in the fact US HRW was around $15/MT more expensive than the next cheapest offer into Algeria last week, and nearly $30/MT more expensive than Argentine replacement, and one gets a sense of where US wheat is in the export grids.  Corn export sales were 4.0mbu vs. the 24.8mbu needed weekly and 16.9mbu on this date a year ago.  Total commitments are now 1.050bbu which is down 25% from a year ago.  Soybean sales totaled 20.4mbu vs. the 21.2mbu needed weekly and 3.2mbu a year ago.  Total commitments of 1.508bbu are down 14% from a year ago, but have shaved 2% off that deficit vs. 2-weeks ago.

The other data set we took a look at Friday was the amount of grain under loan at the USDA-FSA office, which continues to soar for both corn and soybeans.  Total corn loans outstanding as of Friday totaled 840.8mbu, which is easily the largest total since at least 2008, the earliest date for which data is available online.  Typically, the amount of grain under loan begins to peak and be redeemed sometime during January.  The loan term is a maximum of 9-months at which time the loan needs to be either paid back or the grain forfeited.  With cash prices above the loan rate, all the loans should be redeemed.  The point of tracking this data set, however, is to give us a sense of how much grain is still in the country which needs to be moved and priced.  If the amount of grain under loan doesn’t peak during January as it typically does, it could give us a clue about cash basis during the second half of the year.  The amount of soybeans under loan totaled 126.5mbu, the largest total since 2008.  Wheat under loan totaled 33.5mbu, which seems to have already hit its seasonal peak and begun declining.

As noted above, cash markets were firm for corn and soybeans going home Friday.  CIF corn premiums were unchanged Friday at +43/46H for spot, but was up 1c on the week for both bids and offers.  PNW corn shuttles went home bid +98H for January trains vs. no offers, and that would compare with +91H for bids and +97H for offers a week previous.  BNSF equipment went home at tariff bids vs. offers at $400/500 per car.  Bid/offers on BNSF cars a week earlier were tariff bid as well against $250/car offers.  So not much transportation influence on the firmer corn bids which is encouraging.  CIF soybean trades Friday were up 3-10c for Jan, down 1c for Feb and mixed March beyond.  Spot barges were called +49/60H vs. +36/42H a week earlier.  Brazilian FOB offers were also sharply better Friday, up 2-6c through April, with spot called +75/78H vs. +70/72H at the start of the week.  Planting got off to a bit of a slow start in Brazil last fall, but beans should still be available for export by the end of the month.  From a FOB standpoint, February offers out of the US look like $377.27/MT vs. $385.37/MT out of Brazil.

The only other data set out Friday included the Commitment of Traders Data which didn’t have a lot of feature.  Funds sold 10,670 contracts of corn to put their net short position at -232,089 contracts.  Commercial activity was quiet.  Funds sold 23,829 contracts of soybeans to push their net shot over 100k to -105,030 contracts.  This is the largest net short position by this group since July 4th.  Funds bought a jag of KC wheat, and bought 12,965 contracts of Chicago wheat to leave their net short at -146,325 contracts.  Funds maintained a small net long in Minneapolis of +1,822 contracts.  Funds continued to dump meal, taking their net long down to +18,685 contracts, the smallest in 6-weeks.  The combined grain and oilseed net fund position is now -490,059 contracts, the largest net short since June 6th, and not far off record territory.  Bullish sentiment (percent of fund longs to total positions) for corn, soybeans and Chicago wheat are now all right at or just below 30%, which is a rare feat.  This level of pessimism to begin a calendar year isn’t very common, and should be remembered in the grand scheme as we move toward the January WASDE.



Bottom Line: Probably in for a quiet week as we square positions ahead of Friday.  Pre-trade estimates should be out today or tomorrow, and would imagine it will be difficult to see any kind of bullish surprise out of the data.  The trade is predisposed to lower winter wheat acres, a cut to soybean exports and probably a bump in corn production.  With that in mind, producers need to consider where the most risk lies heading into the reports.  With the amount of grain we have in the United States, and the amount the producer has left to sell, any bullish surprise should be met with copious amounts of selling.


Good Luck Today.

Tregg Cronin

Market Analyst






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