3/5/2018 Morning Comments

Good Morning,


A major winter storm is impacting the upper-Midwest down into the MS-River Valley this morning, bringing heavy snow, rain and severe winds.  The blizzard conditions, which are expected to last until Tuesday afternoon, should further already bad railroad logistics.  In total, parts of C-ND and C-SD could see 6-12” of snow after rain already fell last night, followed by winds which will gust to 45-60mph.  The moisture is welcomed, but how it is going to fall is not.  After this storm moves out Tuesday evening, a fairly dry week will move in, although the US-SE will continue to see rain, adding to flooding issues there.  Extended maps shift to below normal precip for the entire contiguous US east of the Rocky Mountains, while temps are normal to slightly above.  No relief for the southern plains the next 15 days.  In South America, is was a fairly dry week over most growing regions.  Limited rainfall looks to fall in Argentina during the week ahead, although the 6-10 does see average rains to fall in most Argentine growing areas.  Totals being discussed right now call for 0.30-0.80” with isolated 1.00”+ amounts on around 75% of the growing region Sunday/Monday.  Temps will be average.  Brazil looks fine for the next 10-days.


Mixed trade this morning after a fairly firm Sunday night open with especially volatile trade from the soy complex.  Soybeans opened 6-7c higher, but turned lower within the first 30 minutes, trading down 3-4c at the lows before recovering this morning.  Soymeal has been mainly negative the entire evening session, while soybean oil has clung to gains.  The winter wheat boards have tried to maintain strength after a particularly ugly session Friday which saw new highs for the move posted, only to close sharply lower.  The lack of follow through selling is encouraging, although the lack of consolidation or correction for the last 60-70c probably means the next move is lower to at least some extent.  This week the trade will be focused on Thursday’s WASDE report which could see the USDA begin to make cuts to Argentine corn and soybean crops.  The degree of cuts they make could be an indicator about final crop size, but how much they increase Brazilian crops will also be important.  US export sales projections will also be a hot topic with corn and soybeans towing the line while wheat should see a cut.  Open interest mainly increased on Friday’s lower move with corn O/I up 13,358 contracts, soybeans up 13,141 contracts, meal down 510 contracts, bean oil up 9,746, SRW wheat up 7,497 contracts and HRW wheat down 950 contracts.

There were a fresh 316 corn certificates registered for delivery on Friday evening out of two Cargill facilities on the IL-River.  525 total deliveries were issued, with 500 thrown out by Cargill.  This brought the month-to-date total to 600, and there didn’t appear to be any strong commercial stopper.  There were 25 HRW certificates canceled out of Salina at the Scoular elevator, dropping the number of outstanding registrations to 425.  Total deliveries overnight were 33, bringing the month-to-date total to 377 with Cargill stopping 24 contracts overnight.  Otherwise, just re-deliveries with 150 meal (407 MTD), 402 soy oil (4,847 MTD), 530 soybeans (821 MTD) and zero SRW wheat.  The complete lack of SRW deliveries is an encouraging sign, especially considering the way the December delivery cycle shook out with The Anderson’s flopping 2,000 caks on the market early in the period.

Data Friday included the most recent Commitments of Traders data, which once again didn’t not include a volatile end of week period.  Nonetheless, recent trends were mainly extended with funds buying 49,957 contracts of corn to leave them net long 93,295 contracts.  This is the largest net long in corn since July 5th, 2016.  Another big round of selling by the commercials to offset with the Gross Commercial Short selling 36,807 contracts while the gross commercial long dumped 27,700 contracts.  It is difficult to ignore the commercials selling copious amounts of corn to the funds by way of fresh shorts, not just dumping old longs.  These trends are even more apparent in soybeans with funds buying 50,841 contracts to put them net long 116,642 contracts.  This is the largest net long since 2/21/17, while commercials have the largest net short since the same date.  The commercial selling was done mainly by longs dumping old contracts.  Funds sold 1,632 contracts of HRW to leave their net long at 8,326 contracts, while funds bought 10,505 contracts of SRW to leave their net short at -72,968 contracts.  The most anticipated positions were probably in the meal market, however, with managed funds setting a new record net long at +106,280 contracts vs. the previous record of +101,618 contracts in 2012.  Even more impressive is the fact the net commercial position of -248,542 contracts is 23% larger than the previous net short in February of 2017.  Incredible crush margins are causing heavy selling by commercials.

A couple other COT tidbits, the combined soy complex net long (S+SM+BO) is now +231,739 contracts, the largest since February 2017, but well shy of the 347,389 contract record in 2012.  The soybean+soybean meal net long of 222,922 contracts is the largest since June 2016.  Combined corn and soybean meal net length of +199,575 contracts is also the largest since June 2016.  The aggregate net long position across C/S/W/MW/KW/SM/BO of +259,091 contracts is the largest since 2/21/17.  What’s more impressive, however, is the amount of buying over the last 6-weeks across these seven markets which now totals 835,216 contracts since January 23rd.  That is an incredible amount of buying which helps explain how prices got to where they are, but one must ask if they have an appetite to buy that amount moving forward to continue recent rallies?

Export sales of corn have been particularly impressive as of late, and after export inspections are released later this morning, we will dive into the pace to-date and needed moving forward in tomorrow’s comments.  However, looking at global FOB offers, we need to be paying attention to the pace of corn, soybeans and wheat.  US wheat is overpriced to every major export origin, and should continue to see dismal exports moving forward.  In corn, the US Gulf remains cheapest origin until July, at which time Argentine offers squeak out a $0.78/MT advantage from a FOB basis.  Ukraine is said to be a cheaper landed source into Europe for summer months.  On a FOB basis, US soybeans are cheaper than Brazilian beans April forward, although Brazil does enjoy a quality advantage.  Probably most interesting, however, is the fact US meal offers are now more expensive than Argentine meal offers for every month through August.  The goal should be to push meal demand to the US, not back to the country which is supposed to be rationing it.  These FOB offers will be key to gauging futures expectations moving forward, and at the moment would appear we have gone far enough for now.


Bottom Line: While mostly firmer trade this morning, all of our markets remain below last week’s highs, and might need some confirmation from the USDA later this week before mounting another assault higher.  US winter wheat prices would do well to take stock of where prices are relative to global competitors as well as square this against demand expectations for 18/19.  At current prices, we will ration out all export and feed demand fairly easily for the next marketing year.  Moisture deficits are severe, but not insurmountable just yet.


Good Luck Today.

Tregg Cronin

Market Analyst






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