3/1/2018 Morning Comments

Good Morning,


Data released earlier this morning confirmed India is the world’s fastest growing major economy, moving back ahead of China after a year of second place.  India’s economy grew at an annualized rate of 7.2% in Q4 of 2017 vs. the Chinese economy which grew at an annualized rate of 6.8% during the same quarter.  Within the figure, construction grew by 6.8%, manufacturing by 8.1% and the country’s all-important agriculture sector grew by 4.1%.  The International Monetary Fund has forecast India will grow at 7.4% in 2018 and 7.8% in 2019.  Much like China, India has made it a priority to remain as self-sufficient in grain production as possible, but the sort of growth figures being touted will make that increasingly difficult.  Add in what can be an especially volatile monsoon season which swings India from an exporter to an importer on annual basis, and it isn’t difficult to imagine India needing sustained grain imports.

Not much change in weather forecasts for the US with a major winter storm set to hit the upper-Midwest Sunday/Monday.  Precip totals as of this morning as indicating 0.50-1.25” of moisture over SD/ND/MN/IA and extending east over the northern portions of IL/IN/OH.  This would be welcome news for areas still impacted by last summer’s drought.  Logistics could be hampered further, however.  Nothing in the 7-day forecast for the driest areas of the southern plains, especially SW-KS.  Temps are below normal in the 6-10 day, but warm to above normal in the 8-14 for the southern plains.  The Northern Plains are below normal throughout.  Mostly below normal precip for the 6-14 day for the Great Plains, although above normal precip is being shown in the US-SE which could further delay early fieldwork and planting in the Delta.


Lower prices.  Yes, I said lower prices this morning as we attempt to consolidate the recent move, at least for the moment.  Soymeal has been the upside leader of the CBOT this week, and for much of the last month, but it is leading losses this morning.  After trading as much as $10.00/ST lower at the open last night, meal is off $5.30/ST this morning, a bit more than 1.3%.  KC wheat also turned in a particularly impressive move yesterday, climbing as high as 24c at the high, before closing up 17.50c.  No one seemed to have a good explanation for the price surge yesterday as dry weather in the southern plains by itself doesn’t seem to explain the need to buy yesterday specifically.  While moisture is needed soon, there are probably a few more weeks before the situation becomes irreversible in the south.  The buying yesterday saw money flow into grains with corn open interest up 25,669 contracts, soybeans up 5,382 contracts, meal down 5,305 contracts, soy oil up 4,330 contracts, SRW wheat up 2,775 contracts and KC wheat up 475 contracts.  The lack of open interest change in KC wheat despite the surge in pricing looks a bit conspicuous.

No change to delivery registrations last night, meaning all delivery activity were re-deliveries of old receipts.  There were 150 deliveries of soymeal with ADM accounting for 141, and bringing the month-to-date total to 159.  There were 1,610 contracts of soybean oil delivered last night, with the month-to-date total at 3,396.  25 corn deliveries with 50 total for the month, and no strong commercial participation on either side.  There were 134 deliveries in KC, all of which were re-deliveries and brought the month-to-date total to 268.  Cargill stopped 44 contracts.  101 re-deliveries of soybeans, with the month-to-date total at 202.  SG Americas issued all 101 contracts.  There were no Chicago wheat deliveries once again with cash remaining above delivery equivalence, and delivery supplies being the cheapest wheat in the United States.  The lack of deliveries across the board is supporting front-month calendar spreads, and likely will until the spread becomes too strong a commercial can’t resist making delivery instead of carrying forward.

Data yesterday included weekly ethanol production which dropped by 24,000bbls/day to 1.044 million bbls/day, but was still 1.0% above the same week in 2017.  This is close to the needed 1.3% gain y/y in order to hit the USDA’s current 5.525bbu corn for ethanol estimate.  US ethanol stocks increased by 226,000bbls to 22.979 million bbls, but remain historically high for this time of the year.  Ethanol prices remain in an uptrend, and above the major 50/100/200-day moving averages.  In addition, RBOB/Ethanol spreads remain 37-44c in ethanol’s favor, encouraging discretionary blending.  However, more important could be the second meeting at the White House today between President Trump and proponents of both the ethanol and refining lobbies.  No action came out of the meeting Tuesday, but chatter surrounding today’s meeting suggests some sort of give and take between capping RINs and allowing year-round E15 could be on the table.

While the focus at the CBOT has been on the flat price gains and weather forecasts for the southern plains, we continue to monitor spreads between US futures and other exchanges as well as FOB comparisons.  MATIF/KW spreads are plummeting with the front-month PMH/KWH spread at $14.51/MT this morning, the lowest print since July 20th and around $15/MT below the 50/100/200-day moving averages.  The more active May spread is down to $11.60/MT, while the PMK/WK is still sitting up at $22.74/MT.  On the cash side, the spreads are even more egregious.  There are no offers out of the Gulf for March HRW, but April offers for 12.50% protein (DMB) are indicated around $238/MT FOB vs. German at $217/MT FOB and Russian at $210/MT.  Off the PNW, 12.0% HRW (DMB) is indicated around $236/MT FOB vs. Aussie wheat at $244/MT FOB, while the spread between higher protein grades is even tighter.  Cash sources also suggest low protein Canadian spring wheat is being offered less than standard grade HRW, displacing the wheat into traditional destinations.  Both the Northern Plains and Canada are experiencing logistical issues on rail, however, which could limit origin switching.

Last piece of data yesterday was Brazilian crop progress which continues to indicate delays to soybean harvest and 2nd crop corn planting.  Soybean harvest was shown at 24% nationally vs. 16% last week, 34% last year and 30% on average.  The largest state of Mato Gross is 58% harvested vs. 55% last year and 51% on average, but second largest state Parana is only 13% harvested vs. 31% last year and 35% average.  Brazilian 1st crop corn harvest was shown at 31% complete vs. 25% last week, 29% last year and 33% in 2016.  2nd Crop Corn (Safrinha) planting was shown at 46% complete vs. 33% last week, 58% last year and 74% in 2016.  The later 2nd crop corn planting drags out, the more at risk corn yields become due to heat stress as well as frost risks later in the season.  2011 and 2016 were other years in which planting was delayed and weather issues affected yields.  This needs to be monitored closely.


Bottom Line: First of the month and lower prices, although morning session and closes haven’t necessarily been perfectly correlated as of late.  Our markets are on a tremendous run, and if higher prices from here are desired, some consolidation is 100% necessary.  Spring insurance prices are set, and almost exactly the same as a year ago for corn and soybeans, while spring is up around 60.0c.  Current biases are for more soybean acres, although $4.00 corn will bring out the corn acres as well.  181-182 million combined acres of corn and soybeans looks perfectly logical today.


Good Luck Today.


Tregg Cronin

Market Analyst






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