1/24/2018 Morning Comments

Good Morning,


The USD Index has broken the 90.00-handle for the first time since Christmas Eve 2014 this morning with little in the way of support until the 88-handle area.  If one looks to various technical tools to try and derive support levels, the most obvious support candidate would be the 50% retracement of the 78.9060 through 100.3900 rally at 89.6480 which we’ve already technically traded through.  Otherwise, the 61.8% retracement comes in at 87.1129.  The most fool-hearty thing one could do with this market is to look at some measure of momentum and dub the USD “oversold.”    If going by those standards, then the USD has been oversold since December 26th, or at least January 10th, which would have landed a person long from the 92-handle area.  It could be argued the USD is accelerating to the downside, and only trade back above an established risk-parameter like the 91.0040 corrective high from January 18th will stem this tide enough to move from a bearish stance.  Lots of currencies are making new highs on the USD move, not the least of which is the British Pound, which is up over 1.0% this morning to a new post-Brexit high.

Not a lot of change to models overnight with Argentina still leaning dry in 80% of its growing regions over the next 10-days.  The northern 20% will continue to see moderate to heavy rainfall, which will keep wet risks around, but the more salient feature is undoubtedly the dryness in the heart of the corn and soybean belt.  Fortunately, temperatures will remain normal to below for the next 10-days, which should limit full stress conditions.  Brazil continues to see normal, tropical rainfall over most of her growing regions, and should continue to see production ideas rising.


Firmer grain markets overnight while the oilseed complex mostly sets back with the exception of soybean oil.  If soybeans close near current levels, it would be the first lower close in the last eight sessions, a run which is seeing some of the best cash prices paid since harvest.  Most cash basis levels in the country have enjoyed a solid pop since the first of the year as exports remain steady and crush margins remain outstanding.  Front-month soybean crush margins hit $1.20 on the board overnight, the highest trade since December 6th and the highest close yesterday since June 7th, 2016.  This will promote a strong crush pace as was the case in December, but doubts remain whether this will be enough to offset what is likely to be another 25mbu cut in exports sometime during the next couple months.  Encouragingly, the SN/SX has rallied along with flat price, up 9.00c from the lows, which might be keeping carryout ideas from rising at the moment.  Regardless, money continues to flow into the CBOT on both up and down days.  Corn open interest was up another 25,762 contracts, and is now the highest since November 22nd.  Soybean open interest rose 2,573 contracts, meal was up 7,867 contracts, SRW wheat up 8,244 contracts, and KC wheat was up 8,719 contracts.  The sharp rise in wheat open interest on a somewhat heavy close is noteworthy.

Yesterday’s session was noteworthy for a lot of calendar spreads, and we’d like to highlight a few.  Minneapolis wheat has been trading rather heavy since the January 12th reports, closing lower in six of the last eight sessions.  Calendar spreads have been along for the ride with MWH/MWK and MWK/MWN both notching new contract lows yesterday.  The MWU/MWZ hit the lowest level since mid-December and MW/W hit the lowest level yesterday since October 26th.  After some brief strength after the first of the year, the spring wheat spot floor has been steady to slightly weaker since, with mills remaining hand-to-mouth and relatively mild winter weather keeping logistics fluid.  Add in the large amount of low protein Canadian wheat trying to find a home in the US and abroad, and one has a good sense of why deliverable stocks have leveled off and calendar spreads remain under pressure.  Unfortunately, pressure on the spring wheat market is occurring at the same time Minneapolis needs to maintain premium relative to corn and soybeans to bid for acres in February.  Producers in the Northern Plains will be watching the spread between November soybeans and September wheat, which closed yesterday at $3.80 premium soybeans.  At this time a year ago, that spread closed at $4.69/bu, but traded all the way down to $3.35 by June 1st and $1.65 by July 3rd.  Would say any upward movement toward $4.00 would be a tipping point for Northern Plains producers who are trying to decide between the two.

Another set of calendar spreads catching our eye yesterday were oat spreads which saw the OH/OK trade at +11.0c before closing at +7.75c, a new contract high by a mile.  Strength carried over to the OK/ON which traded to a high of -1.25c, the highest level since mid-November.  Deliverable stocks did decline last week in Minneapolis, bringing total deliverable supplies down 536,000 bushels to 22.387mbu, but are still 2.141mbu above a year ago.  More important to that market could be the Canadian Dollar trading back over 81c to the USD, making imports of Canadian oats more expensive in the US market.  Oat futures traded to the highest level since mid-November yesterday which is also probably realizing the acre pressure being felt by spring wheat and specialty crops across the Northern Plains.

In Chicago wheat, calendar spreads remain in a downtrend on the new crop portion of the curve, especially the WN/WU.  This trend has been in place since the turn of the calendar, and has accelerated after the January 12th reports, which surprised the market with more SRW acres.  Additional December 1 stocks also did the market no favors, and at the moment, the market would seem to agree with the USDA.  Kansas City new crop spreads have been weak, but nothing to the degree of Chicago, which could be a bit more anxiety about the drought conditions currently being felt.  Chicago deliverable stocks fell 493,000 bushels last week to 84.643mbu which compares with 87.745mbu a year ago.  KC deliverable stocks fell 1.121mbu to 111.026mbu, but remains well above the 105.098mbu a year ago, and would still be the largest since 2012/13 for this week on the calendar.  Supportive to wheat markets have been steady/better Russian FOB offers the last couple weeks with offers for Feb/Mar at $196/197/MT last night vs. $195/196/MT a week ago.  US-HRW 11.0% offers were $205/MT FOB last night vs. $201/202/MT FOB a week ago.

Weekly ethanol production will be released later this morning with another strong week of production expected.  Interesting to note, RBOB/Ethanol spreads remain between 55-68c/gln, with spot spreads at the highest level since June 15th, 2015.  This should be encouraging maximum discretionary blending by both merchants and consumers.


Bottom Line: Money continues to flow into grains and oilseeds, with improved grain movement being noted from the farmer.  Volatility continues to suggest upside will remain limited, and the amount of grain on-farm would seem to confirm that.  Producers need to remain realistic with marketing targets, and also not lose sight of new crop prices which are above $10.00 on soybeans and close to $3.90 for corn.  Spring wheat doesn’t seem as though it can give up too much ground from current levels, or risk not securing the needed acres to build back supplies from the 2017 drought.


Good Luck Today.

Tregg Cronin

Market Analyst






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