2/27/2018 Morning Comments

Good Morning,


Abbreviated comments this morning.  One quick outside note of interest, the International Energy Agency released a not earlier this morning stating the United States will overtake Russia as the world’s largest oil producer by 2019 at the latest.  U.S. crude oil output rose above 10 million barrels per day late in 2017, the first time since the 1970’s and overtaking top crude oil exporter Saudi Arabia in the process.  By later this year, US crude oil output is expected to top 11 million barrels per day.  The US is also becoming less reliant on crude imports, with the number falling by 1.6 million bpd last week to 4.98 million bpd, the lowest level since records on the statistic began in 2001.


Firmer markets overnight led once again by KC wheat which is up over 1.50% as of this writing.  The rally yesterday was tied to an expectation winter wheat conditions would see a further decline on yesterday afternoon’s state reports, and while drastic cuts weren’t seen, the ratings were low enough to support things overnight.  March KC wheat overnight has tied the high for the move from 2/20 at $4.8550, but has failed to put in new highs.  It would appear this is a foregone conclusion, but we might have to wait until the day session begins.  Otherwise the soy complex remains firm, led by meal overnight, which is up another 1.1%.  Spot month soybeans put in a new high for the move yesterday at $10.4775, but closed sharply lower and off 2.0c on the day.  This left a particularly ugly candle on daily charts, although not all that different from the move on 2/16 in which an outside reversal lower was posted only to be bested the next session.  The soy complex is caught in a major tug-of-war between declining Argentine production prospects, rising Brazilian prospects and what is sure to be the largest soybean acreage in US history if price relationships hold into the spring.  May corn put in a new high for the move yesterday at $3.7875, the highest price for the contract since September 19th.  Open interest continues to fall after March option expiration.  Tickets go to the exchanges after the close today for First Notice Day.

Several of the key winter wheat states released updated conditions yesterday afternoon with Kansas coming in at 12% G/E vs. 14% at the end of January and 43% a year ago.  OK was unchanged at 4% G/E which compares with 4% at the end of January and 43% a year ago.  OK did see one percent move from the P/VP category up to Fair from the end of January.  CO was rated 31% G/E vs. 36% in January and 40% a year ago.  NE was 43% G/E vs. 48% in January and 44% a year ago.  SD was rated 19% G/E vs. 24% G/E at the end of January, and IL was 45% G/E vs. 38% in January and 72% a year ago.  To be honest, I would have guessed we would have saw some stabilization or even some improvement in ratings from a month ago considering some of the precip seen in eastern portions of the HRW belt during February.  Either the moisture didn’t fall far enough west, or enough time hadn’t passed for the moisture to show a meaningful impact.  Late February conditions still have poor predictive power on final yields, but it is clear we need several inches in the heart of the HRW belt to turn things around.  The 7-day outlook and the 6-10/8-14 do not show a major change for precip chances in the southern plains.

Other data yesterday included weekly export inspections which were pretty solid with the exception of wheat.  Wheat inspections totaled 10.3mbu vs. the 18.9mbu needed weekly.  Total inspections measured 655.1mbu vs. the 695.6mbu a year ago, a 5.8% deficit.  Corn inspections totaled 51.4mbu vs. the 46.0mbu needed, and were easily the best of the marketing year.  Total inspections measured 706.7mbu vs. 1.020bbu a year ago, a 30.7% deficit but making up ground.  Soybean inspections totaled 28.0mbu vs. the 23.7mbu needed weekly.  Cumulative inspections are now seen at 1.388bbu vs. the 1.595bbu a year ago, a 13.0% deficit.  Performance vs. a year ago has leveled off around a 13.0% deficit.  If this were to hold through the rest of the marketing year, cumulative exports would be implied around 1.891bbu vs. 2.174bbu in 2016/17.  All things equal, which they aren’t, that would push 2017/18 ending stocks up to 730mbu vs. 530mbu currently.  We’ve still got a big soybean export problem unless we see a counter-seasonal rise later this spring/summer.

The KC spot floor rolled from the March to the May yesterday afternoon with protein classes rolling at different implied spreads.  The KWH/KWK closed at -15.75c yesterday afternoon, implying basis levels should have fallen by a like amount if values were to be unchanged.  Ord’s rolled at the board spread on the bid side as did 11.0-11.2%.  11.40-11.80’s rolled at 2-5c, implying a bump in basis of 10-13c.  12.0% protein rolled at 10.0c, and 13.0% protein was actually unchanged, implying a 15.0c bump in bids as they were unchanged at +185K vs. +185H the day before.  This is encouraging considering high protein has been mainly weaker the last month or so as the board rallied and protein content ideas ratcheted higher on droughty conditions.  The Minneapolis spot floor also rolled to the May with 14.0% bid +135K vs. +145H the day before with the MWH/MWK closing at -13.75c yesterday.


Bottom Line: The path of least resistance is clearly up with funds wanting to add to longs in the soy complex and corn, while they continue to pare back shorts in the winter wheat markets.  Crop insurance guarantee prices are going to end up almost exactly unchanged from a year ago for corn and soybeans, while wheat is around 65-70c better than a year ago.  No reason to think acres back up on either corn or soybeans, and at current price spreads should encourage more soybean acres.  The market is still clearly concerned about the Argentine situation, and until the forecast turns meaningfully, will be a buy the dip type of situation.  We contend the situation is more dire for corn with harvest beginning in March, while soybeans are still flower and will be setting and filling pods in March.  Rains can still help the soybean crop there, something the market may acknowledge if the forecast does turn.  The best prices producers were able to sell against the November 2017 soy board was $10.47 on July 11th.  We are just 16c away from that level this morning with the prospect of carryout growing for both 2017/18 and 2018/19.  Review marketing targets and coverage levels early and often.

Good Luck Today.


Tregg Cronin

Market Analyst






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