3/13/2018 Morning Comments

Good Morning,


Several chances for moisture in the central plains this week, although the southern plains continues to be short-changed.  The 7-day forecasted precip map shows no measureable precip in the SW-1/3 of KS, E-CO, the panhandle of OK and N-TX.  NE-KS and all of NE is expected to see moisture, with the latter picking up 0.50-1.25” on 100% of the state.  SW-SD will also see a couple of chances where drought conditions still linger.  The US-SE and Delta will also be wet this week with that entire region looking at 0.50-1.75” for the 7-day total.  Above normal precip for the 6-10 and 8-14 for nearly the entire United States with of course the exception being the southern plains.  The driest stretch of the plains remains in below normal precip for the next 15-days, although E-KS is moving closer to above normal on moisture.  Temps will be mostly below normal in the Midwest and above normal in the south.


Firmer markets this morning as we follow through on the late-session buying which helped gas beans and wheat into positive territory yesterday.  While still well below the recent highs, beans, meal and wheat charts put in a positive candle yesterday with a new low for the move, but managing to close high-range and add to gains today.  Unfortunately, but not totally unexpected, volume for both wheat and meal remain in sharp downtrends with total volume across all contracts in wheat at the lowest levels since January.  A lack of participation could be the norm for another week or so as we await the end of the month reports which will give us our first clue on 18/19 planted acreage.  Corn charts have yet to take out the report day highs, but have only had three lower closes in the last twelve sessions.  Corn charts are a perfect example of why the terms “overbought” and “oversold” have no technical use or place in trading.  If a person was trading based on “overbought” and “oversold” with reference to momentum indicators, they would have been out of corn way back in late January when corn was trading around $3.65-3.70, missing the entire move to $3.90+.  This is not to say corn isn’t susceptible to correction, simply that a trading based on that rule has no value whatsoever.  Another big jump in corn open interest of 14,803 contracts, beans up 7,166 contracts, SRW wheat up 9,993 contracts and HRW wheat down 1,433 contracts.  Corn open interest of 1,836,217 contracts is a new all-time record, besting the previous record of 1,745,258 contracts set back on February 17th, 2011.

Data yesterday included weekly export inspections which were solid for corn and beans, but continue to miss the mark for wheat.  Wheat inspections totaled 14.3mbu vs. the 17.8mbu needed weekly.  Total inspections now measure 685.3mbu vs. 737.2mbu last year, a 7.0% deficit while the USDA is calling for a 12.3% y/y decline.  Wheat will continue to struggle in competing for elevations with corn and soybeans which are posting solid margins for export houses.  Corn inspections totaled 54.2mbu, the largest of the marketing year and better than the 52.0mbu needed weekly.  Total inspections of 800.1mbu are down 29.7% from a year ago.  Inspections and shipments need to be record large from now through the end of August to meet the USDA’s recently revised export forecast, but it can be done.  Soybean inspections totaled 33.4mbu vs. the 21.8mbu needed weekly, but still the second smallest of the marketing year.  Total inspections now measure 1.458bbu, down 11.9% from a year ago.  There are still questions about the soybean book, although we keep seeing daily sales announcements for soybeans and impressive weekly sales data.

Yesterday we talked about our major corn exporter balance sheet, and today we wanted to take a look at the major soybean exporter balance sheet.  The big changes from the WASDE last week were obviously the larger than expected cut to Argentine production, and the smaller than expected increase to Brazil.  However, when taking a look at the Argentine balance sheet, total demand falls only 400,000MT from a year ago thanks to a draw-down of their record large ending stocks.  Ending stocks are expected to fall 5.020MMT to 31.200MMT, but this would still be above the 5-yr average of 29.3MMT, and the stocks/use of 57.33% (USDA marketing year, not local), is still above the 55.94% 5-yr average.  In essence, USDA is counting on Argentine farmers drawing down their record large old crop stocks to satiate demand, which of course remains to be seen.  With the Argentine peso still hovering around record lows, inflation concerns will be alive and well in 2018.  The Brazilian balance sheet sees total supplies up 6MMT this year, most of which will in turn be exported as total use rises from 107.4MMT last year to 117MMT this year.  Ending stocks will fall from 25.473MMT to 21.673MMT, but stocks/use at 18.52% is just below the 5-yr average of 20.09%.   The combined Brazilian/Argentine balance sheet sees total production at 160MMT vs. 171.9MMT last year, but total supplies are actually UP at 224.293MMT vs. 223.984MMT last year.  Total usage is seen at 171.420MMT vs. 162.291MMT last year, and ending stocks are seen at 52.873MMT vs. 61.693MMT a year ago.  The stocks/use ratio of 30.84% is well below last year’s 38.01%, but near the 31.3% average.

Rolling Brazil, Argentina, United States and Paraguay all together, we see combined production of 288.718MMT vs. 299.485MMT last year, but total supplies are once again up at 362.567MMT vs. 357.571MMT a year ago.  Total usage will be record large at 294.305MMT vs. 287.009MMT last year, but ending stocks only drop to 68.262MMT from 70.562MMT a year ago.  The stocks/use ratio for these countries combined is 23.19% vs. 24.59% last year and above the 20.72% average.  The point of all these statistics is to illustrate that while South American combined crops are smaller than a year ago, and demand is larger, we have the supplies to meet increase global demand.  This demand being met will be contingent on South American farmers drawing down their record large stocks, which will not be a seamless process.  However, the bushels exist to meet demand and some, it is simply a matter of temporary dislocation and shifting demand to the origins which can handle it.  Despite the worst drought in 30-years for the world’s largest soybean meal and oil exporter, global ending stocks fall only 2MMT, a rather impressive figure.  The US farmer is likely to respond to the higher price environment, further adding buffer in 2018.  All of these data points need to be used to build context for our price environment moving forward.

March futures goes off the board tomorrow, and delivery activity has all but ceased.  Overnight, there were four soybean deliveries bringing the month-to-date total to 864 contracts.  Bean oil also saw four deliveries, with the month-to-date total at 5,129 contracts.  There were 441 corn deliveries with the month-to-date total at 1,538 contracts.  3 HRW deliveries, 438 month-to-date.  Zero soybeans, but 821 for the month.  Surprisingly, there were finally nine SRW deliveries, the only deliveries to-date.  Cargill stopped six of the nine.



Bottom Line: The highs could be in until we get the March 31st acreage data out, but that doesn’t mean we won’t see some price strength between then and now.  One rain doesn’t undo the last four months’ worth of drought in Argentina, and the southern plains till isn’t expected to see widespread relief.  Yet, one still needs to remember it is March 13th, and rallying from this point through the US weather market will be incredibly difficult and take an unprecedented amount of managed fund buying.  Corrections are healthy as is consolidative trade.


Good Luck Today.

Tregg Cronin

Market Analyst






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