1/12/2018 Morning Comments

Good Morning,


Currency moves continue to have our attention this morning with the USD trading down to the lowest level since September 8th, and is just 297 pips away from the lowest levels since December 2014.  The Euro and British Pound are seeing the strongest response to the USD weakness, up 0.728% and 0.693%, respectively.  One other currency benefitting from the USD weakness is the Russian Ruble, which is off -0.114% this morning, but hit the strongest level yesterday since June 7th, 2016.  A great deal of resistance for the Ruble lies at the 56/57-handle area, so moving through that level might be difficult.  The strength in energy markets is underpinning the Ruble, but the strength is also making wheat worth less to Russian farmers, and more expensive to importers.  Russian FOB offers last night were around $194/MT for spot, up $1-2 on the week.

A good deal of moisture on the Midwest radar this morning in the eastern corn belt where a mix of rain/snow/sleet is impacting the area.  Nothing doing moisture wise for anything west of the MS-River.  Bitter cold continues to grip the WCB and Plains, with air temperatures peaking at 0-1* today, and wind chills values 20-30* below zero. A  couple chances of snow for SD and NE this weekend, and then temperatures gradually warm early next week.  Nothing for relief to the southern plains the next 7-days.  Temperatures in the 6-10 and 8-14 look to warm appreciably for the Plains and WCB, while normal/below temps are confined to the Mid-South and SE.  Precip remains above normal, especially the Great Lakes which see sharply above normal precip odds in the 8-14 day.  South America looks to be in good shape with solid rains for Argentina the next 2-3 days with drier weather after.  Brazil remains ideal.


Report day, finally.  Tepid markets overnight with small, nominal gains as we await refreshed balance sheets from the USDA and the “final” word on 2017/18 production.  As important, if not more, will be the December 1 stocks estimates which will give us demand clues about feed use during Q1 for corn, and Q2 for wheat.  These are crucial for gauging full year demand as they are only one of four updates a year on that line item.  The average trade estimates have been in the market for several days now, but it would seem the areas for largest surprises would be soybean production, Dec 1 corn stocks (feed/residual), Dec 1 wheat stocks (feed) and 2018/19 winter wheat acres.  Even with notable production changes for either corn or soybeans, it is going to be difficult to change the overall narrative of plentiful supplies of both, and rising production ideas in South America.  As encouraging as anything, the January reports allow us to finally shake off the dust from 2017/18, and begin to officially start looking at 2018/19.  With rising commodity markets in other spaces, a weak USD and equity/commodity ratios at record levels, maybe 2018 is when we finally see the worm turn.

First with data from yesterday, weekly export sales were rather poor for the second week in a row thanks to the holiday shortened week.  Wheat sales totaled just 2.6mbu vs. the 12.8mbu needed weekly and vs. 14.4mbu on this date a year ago.  Total export sales of 718.0mbu are down 8% from a year ago, which is just a tick behind the pace needed to hit the current USDA mark.  Exports shouldn’t change on today’s WADE.  Corn sales totaled 17.2mbu, below the 25.0mbu needed weekly and below the 23.8mbu from this date a year ago.  Total sales are now 1.067bbu, down 25% from a year ago.  Soybean sales were 22.3mbu vs. the 21.4.mbu needed weekly, and were above the 12.8mbu on this date a year ago.  Total sales measure 1.523bbu which is down 14% from a year ago and should certainly be cut on today’s WASDE report.

Headline data yesterday included CONAB releasing their latest corn and soybean production estimates for Brazil.  They see soy output at 110.4MMT vs. 109.2MMT last month and 114.1MMT a year ago.  The USA is currently at 108.0MMT and should increase that estimate later this morning.  Brazilian soybean planted area is seen at 34.9 million ha, up 3.2% from a year ago.  Just like their US counterparts, Brazilian firms like to race each other up and down on estimates.  Also out yesterday was AgRural with an estimate on soy of 114.0MMT vs. 112.9MMT last month.  Brazilian corn production according to CONAB is seen at 92.3MMT vs. 92.2MMT last month and 97.8MMT a year ago.  Of that total, 25.2MMT is seen as first crop and 67.2MMT as second crop.  The USDA currently sees Brazilian corn production at 95.0MMT vs. 98.5MMT last year.  The Rosario Grain Exchange said Argentine will harvest 52MMT of soybeans vs. USDA at 57MMT and 54.5MMT previously.  Corn production is seen at 39.9MMT vs. 41.5MMT last month and USDA at 42MMT.  Most other analysts have not been as quick to axe Argentine production estimates given the upturn in shower activity as of late.

Not going to go through every pre-report estimate, but instead focus on the few which could grab attention.  Corn quarterly stocks as of Dec 1 are seen at 12.431bbu which would be above last year’s 12.386bbu.  Production and feed demand will drive this number, with the national average yield and production seen basically unchanged from the November report at 175.4bpa and 14.579bbu.  Feed demand should have been above year ago values given the larger pig, poultry and cattle numbers in the US.  Wheat stocks as of Dec 1 are seen at 1.849bbu vs. 2.077bbu a year ago, with particular interest in the HRS stocks given the mixed emotions about the size of the crop and the amount of old crop which moved prior to harvest.  A swift revision in either direction could really move the spring wheat market.  Soybean stocks are seen at 3.181bbu vs. 2.898bbu a year ago, and have upside risk given the poor Q1 export program.  Production is seen mostly unchanged from November, although some analysts are expecting the production number to move lower after doing so in November.  The only commodity expecting to see a noticeable revision to ending stocks would be soybeans with analysts expecting that to jump up to 472mbu vs. 445mbu in December thanks to the struggling export program as of late.

Of particular interest to us is the winter wheat seedings report which is expected to come in at 31.307 million acres vs. 32.696 million in 2017.  This would include 22.327 million HRW acres vs. 23.426 million last year, 5.555 million SRW acres vs. 5.733 million last year and 3.435 million White Winter acres vs. 3.537 million last year.  If HRW acres come in at the average trade estimate, it would reflect a 6.25% drop from the year before, and be the lowest since 1909.  Plugging those acres into our balance sheet with a 40bpa yield (39.4bpa 5-yr average), with a harvested percentage of  78.8% (77.9% 5-yr), it gives us production of 703mbu for total supplies of 1.179bbu.  We have demand unchanged from 17/18 at 875mbu, which gives us a carryout of 304mbu and a stocks/use of 34.71% vs. 470mbu and 53.71% in 17/18, respectively.  Numbers close to the aforementioned should be supportive, and anything under 300mbu should be especially supportive to cash and spreads.


Bottom Line: Not worth analyzing much else until we get the numbers out later this morning.  The data today needs to be kept in context as unless truly earth-shattering numbers are released, it isn’t likely to change the overall narrative.  Corn and soybean calendar spreads are still hitting contract lows, are export sales programs are behind schedule, and US wheat remains overpriced into many major importers.  South American crops are stable to moving higher, but USD weakness and other commodity markets rallying are supportive.  More at 11:00.


Good Luck Today.

Tregg Cronin

Market Analyst






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