3/7/2018 Morning Comments

Good Morning,


No major changes to South American weather forecasts with the 1-5 day period still showing below average rainfall for most of Argentina.  The next chance of rain is still slated for this weekend, although rainfall amounts vary depending on which model one looks at.  The European model sees fairly widespread rains across most of Argentina, while the GFS is indicating rains to be confined to the northern portions of the belt.  Rain ideas are in the 0.20-0.80” with isolated areas to 1.00” on around 45-60% of their growing area.  Temperatures in Argentina continue to run below normal with highs in the 80’s and even some 70’s, which might be their saving grace.  Brazil continues to see tropical rainfall in most areas except for Rio Grande Do Sul.  This is aiding in early soy harvest efforts in the soy but is drying soils out ahead of Safrinha planting.


Lower at the evening open last night, but most of our contracts have clawed back a majority of the losses as we head towards the 7:00 hour.  At the lows last night, KC May wheat was down 6-7c, but has pared losses to be down just 1.0c at this writing.  Very light news day.  As we noted yesterday, many of our CBOT contracts are showing bullish pennant formations with the last several sessions mostly trading inside the previous day’s price action.  This would appear to be setting up for a decent move in the near future, possibly coinciding with the release of the WASDE report tomorrow.  Many have noted the weakening price action in soy meal the last several sessions with the front-month contract trading below its 10-day moving average last night for the first time since February 7th.  In addition, the entire move from Feb 12 through yesterday has been done on drastically lower volume than the beginning of the move.  This lack of participation could be money remaining on the sideline until the next leg higher, or weak longs getting ready to bail at the first sign of trouble.  Board crush spreads have dropped around 20-30c/bu since the highs set last week, but remain at an impressive $1.39 basis May futures.  Despite lack of volume, open interest remains on the rise with corn up 14,869 contracts yesterday, beans up 11,734 contracts, meal up 1,787 contracts, bean oil down 6,760 contracts, SRW wheat up 1,467 contracts and HRW wheat up 653 contracts.

Delivery activity last night was all re-deliveries with 135 soymeal, and 677 month-to-date.  Soybean oil saw 35 deliveries overnight, bringing its month-to-date total to 5,007 contracts.  Corn saw 67 re-deliveries overnight with 880 contracts for the cycle.  KC wheat had 7 re-deliveries with 394 for the March cycle.  Comparing the March delivery cycle to the past couple delivery periods, the 677 meal is much lighter than the 2,073 and 2,009 during the January and December periods, respectively.  Bean oil deliveries of 5,007 contracts is sharply higher than Jan and Dec and 764 and 1,868 contracts, respectively.  880 corn is sharply lower than the 7,919 during the December delivery period, and 394 KC wheat is about 1/3 of the 992 delivered against the December.  821 soybean deliveries were a bit more than the 664 against the Jan.  Most surprising, however, is the zero Chicago wheat deliveries against the March vs. the 5,403 delivered against the December.

Deliverable stocks also released yesterday with Minneapolis/Duluth seeing total wheat stocks up a combined 185,000 bushels to 22.836mbu which compares with 23.603mbu a year ago.  Deliverable stocks in 2018 are pretty middle-of-the-road for this point in the marketing year, but the composition of those stocks is of more interest than the outright bushels.  High protein wheat from the drought stricken areas in the western Dakotas mixed with low protein Canadian wheat will keep the market guessing well into the 18/19 marketing year.  There were zero cars on the spot floor yesterday which was most likely weather related.  Chicago stocks declined 807,000 bushels w/w to 77.903mbu which compares with 79.941mbu a year ago.  Non-deliverable grades are 670,000 bushels below a year ago at 4.895mbu.  KC wheat stocks were unchanged on the week at 105.029mbu, but remain 3.186mbu above year ago levels.  The KC spot floor was up 2c for 12.0-12.2% wheat yesterday with 12.0’s now at +133/148K vs. +140/155K a week ago and +165/180K a month ago.  Futures changes put the close last night at $5.4375 vs. $5.0475 a week ago and $4.69 a month ago.

Otherwise we continue to pay attention to Minneapolis wheat and its relationship to KC wheat and soybeans.  The MWK/KWK hit a low on Monday of +78.50c, which was the lowest print since mid-May when the spring wheat rally really got going.  The correction in the spread is one more sign of how HRW is trying to ration demand, especially considering the December spread between the two contracts is down at +59.75c.  Unfortunately, September/December might be the earliest domestic mills can take advantage of the inter-market spread as end users are not going to change their grist this late in the marketing year.  Nonetheless, the fact HRW is trying to ration domestic demand as well as export demand, 2-3 months before the earliest HRW will be harvested seems a bit hasty to us.  Minneapolis also continues to lose ground relative to soybeans with the front-month spread at +442.00c just off the highest level since last March, while the new crop SX8/MWU8 spread at +402.50 is the highest since February 2017.  A month ago, we were convinced we had the necessary HRS acreage increase to keep that balance sheet comfortable assuming normal yields.  With the correction in this spread, we are starting to wonder if the increase in acres might be a more mild 4-7% increase than the 10% increase we were expecting.  Fortunately, regardless of what Northern Plains producers decide to plant, moisture prospects have improved dramatically over the last 30-days.

January Census Export data will be released later this morning in addition to the weekly ethanol production.  CONAB will release updated Brazilian corn and soybean estimates early tomorrow morning, setting the table for the WASDE data later tomorrow morning.


Bottom Line: Impressive recovery off the lows in most of our contracts.  Some of the technical signals being thrown by various grain contracts are certainly cause for concern ahead of an important WASDE update.  Soy meal and wheat contracts feel tired, while corn has witnessed a meaningful correction in 15c or about 10-sessions.  Funds have bought a combined 800,000 contracts across the grain and oilseed markets the last 6-weeks.  How much more buying are they willing to do ahead of spring planting?  Time will tell.


Good Luck Today.

Tregg Cronin

Market Analyst






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