3/12/2018 Morning Comments

Good Morning,


Weekend weather in South America saw rains of 0.20-0.70” fall on around ¼ of the Argentine growing regions, although dry weather is expected to dominate once again in the 1-5 day outlook.  The big talker, however, is the forecast for widespread, soaking rains in the Argentine growing region Friday-Sunday.  As of this morning, two fronts look to work through the region bringing 0.50-1.00” on the northern half of the belt with the first system.  The second will bring 0.50-1.00” on Sunday/Monday to nearly the entire belt.  Coverage on 100% of the belt between the two systems hasn’t been seen in months, and could help avert further losses to corn and soybean crops.  The rains need to be kept in context, however, as Many locations in Cordoba, Santa Fe, Entre Rios, La Pampa, and Mendoza are running 5-59% of normal precip over the last two months.  One round of rain is going to heal things completely, but should alleviate some stress.  Average rainfall is seen for Brazil over the next 10-days.


Two-sided trade overnight for the soy complex, but weaker markets across the board this morning with wheat leading to the downside.  Wheat and soybeans were vying for the downside leader Friday, and it would appear bears have unfinished business in wheat this morning.  During the week last week, the jury was very much out on whether the pennant/flagging formation in wheat would result in an upside or downside breakout.  So far, it definitely appears this was a reversal pattern and additional downside awaits.  Having said that, of the major Ag commodities, corn has the best fundamental story for 2018 so far, and wheat could find support once wheat/corn spreads correct.  In-flows were seen again on Friday in corn as open interest was up 12,232 contracts, but soybeans were down 6,759 contracts, meal down 2,883 contracts, bean oil up 1,339 contracts, SRW wheat up 2,058 contracts and HRW wheat down 5,046 contracts.  The southern plains should continue to see dry weather in both the 7-day outlook as well as the 6-15 day period.

Traders were anxious to get the latest Commitments of Traders data Friday afternoon, although the report did not cover the WASDE report day or the sell off Friday which would have notably affected position size.  Nonetheless, funds showed up big in the week ended 3/6, buying 107,386 contracts to put their net long at +200,681 contracts.  This was one of just six weeks to see over 100,000 contracts of net buying.  Funds are now long the most corn since June 21, 2016.  As impressive was the amount of selling by the commercials, which saw the gross commercial position up 130,919 contracts to 1,041,253 contracts.  This is the largest position for that group since April 26, 2011.  650mbu worth of selling/hedging in a single week.  Difficult to ignore that sort of position statement even if funds want to continue buying corn.  In soybeans, funds bought 32,280 contracts to push their net long to +148,922 contracts, the largest net long since January 24th, 2017.  Hedgers also showed up selling in beans with the GCS rising to 545,499 contracts, the largest since June 28th, 2016.  End users are not buying in corn and soybeans, while hedgers are selling aggressively to the funds.  Important to take notice.  In wheat, funds bought 12,868 contracts of HRW, a big week of buying for that commodity, leaving them net long 21,194 contracts.  This is the largest net long since August.  Funds bought 29,524 contracts of SRW, cutting their net short to -43,444 contracts.  This is the smallest net short for the funds since August 1, 2017 and might suggest they’ve spent a fair amount of ammunition getting flat price to the level it’s at.  Managed money bought 9,220 contracts of meal putting their net long at +115,500 contracts, a new record long.  Bullish sentiment in meal by funds is now 95.4%, an especially frothy level.

Biggest talker this weekend is still the corn balance sheet for both 17/18 and 18/19.  We updated our global balance sheets this weekend for major exporters, shining a light on the combined Brazil/Argentina situation.  What’s remarkable is still the gulf between official South American estimates and USDA’s latest numbers Thursday.  Combined production for the two countries according to USDA is 130.5MMT, down from 139.5MMT last year.  BAGE and CONAB estimate, however, put the two at 123.0MMT.  Keeping demand unchanged from USDA sees carryout for 17/18 at 16.686MMT vs. 19.781MMT last year, but the South American estimates see ending stocks fall to 9.686MMT.  This would be the smallest since 2015/16 which was the lowest in a decade.  To get carryout up to the 5-yr average, the two countries would likely need to see around 5MMT worth of exports rationed out assuming domestic demand remains unchanged.  This should keep US corn as the cheapest source of FOB corn in the world for the foreseeable future, although lots of time yet for the Brazilian second crop corn to grow or decline.

Speaking to the competitiveness of US corn, PNW shuttle premiums kept advancing last week, closing the week on a firm note.  Spot shuttles were called +115K against no offers, while April was seen at +110K vs. offers at +125K.  This compares with +110K for spot a week earlier, while April was called +100/105K a week ago.  As impressive is June bids at +105/110N vs. +86N a week earlier, which should keep train demand solid for the summer months.  Almost all of the bid appreciation is being passed through to the elevator/farmer as freight was mostly unchanged on the week at $900/1200/car.  CIF bids have also seen strength, although levels unspoken at week’s end.  The basis appreciation has been supporting calendar spreads with the CK/CN hitting -6.50c the day of the USDA report before selling off Friday.  The CN/CZ hit -9.00c overnight, the highest trade since August 11th as carryout ideas continue to move lower for 17/18.  Even the new crop portion of the curve is seeing strength with the CZ8/CH9 rallying to -6.25c Friday, the highest print since July 24th.  CZ8/CZ9 rallied all the way to -6.00c Friday, the highest since August and the market clearly showing a need for acres.


Bottom line: Easier markets to start the week, but soybeans have almost managed to push into positive territory.  Forecasts look better for Argentina, but one rain isn’t going to fix the stress they’ve seen this growing season.  Corn continues to be the strongest market in our opinion from a fundamental point of view, but this is a story which will play out throughout the course of 2018, not all in March.  Wheat will struggle as long as the US remains $20-30/MT overpriced compared with stem from the Black Sea.


Good Luck Today.

Tregg Cronin

Market Analyst






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