4/13/2018 Morning Comments

Good Morning,


Earlier this morning, crude oil prices made new highs for the move at $67.76/bbl, the highest trade since December 2014.  In addition, Brent crude oil is back firmly above $70.00/bbl, trading at $71.76 this morning.  The spread between the two contracts has reversed with WTI gaining on Brent, trading at $4.87/bbl this morning.  The spread made a high of $5.64/bbl Wednesday before reversing.  Both crude oil contracts and the spread between the two are all above the 50/100/200-day moving averages.

The major winter storm forecast for the last 10-days is finally hitting the upper-Midwest with South Dakota nearly covered with either rain or snow showers this morning.  W-ND and W-NE are also seeing some form of moisture, while rain is falling in S-MN/N-IA.  The storm continues for the next 24-36 hours in the upper-Midwest before moving east across the Great Lakes.  Precip totals as of this morning are still putting 0.50-2.00” of water across the entire state of SD, while S-MN and 80% of IA will also see 1.00-2.00” of water-equivalent moisture.  WI/N-IL/MI/IN/OH will all be wet through the weekend.  Fortunately, ND, N-MN and MT all look to avoid most of the moisture, although all three of these areas still have a fair amount of snow cover which needs to be melted first.  Temps remain below normal and precip above normal for the entire Midwest the next 14-days.  The southern plains continue to point toward above normal precip in both the 6-10 and 8-14, suggesting the best rainfall chances in months for the HRW belt.


The last sentence of the weather section is all one needs to know about wheat price action the last two days.  Kansas City wheat is leading losses once again this morning on better moisture prospects, and with the delayed development of this HRW crop, an up-turn in moisture could still leave Kansas with an average wheat crop.  The progression of the crop, and the disastrous crop condition reports since the end of January is another good lesson in not using these statistics as gospel.  If going by nothing but crop condition scores for TX/OK/KS, one would think this crop is dead with zero chance for recovery.  Boots-on-the-ground have been reporting this crop is 2-3 weeks behind most of this month, however, leaving ample opportunity for recovery.  While there are plenty of other balls in the air with regard to delayed spring planting in the Black Sea, cold temps in Europe, and droughty conditions in Australia and Argentina, rain in Kansas would help alleviate one of the situations which propelled KW over $5.00.  Price action in soybeans has most analysts dumbfounded as spot prices close in on March highs and new crop prices are butting up against contract highs.  New crop prospects for soybeans in the US remain bearish, but some analysts suggest Brazil is tapped out and the Argentine crop could still prove smaller.  Add in Argentine buying US soybeans, and now chatter about Brazil possibly doing the same, and bulls have plenty of ammunition.

Data yesterday included weekly export sales which were super-solid for soybeans, but a bit disappointing for corn and wheat.  Wheat export sales were 4.4mbu vs. the 9.8mbu needed weekly to hit the USDA forecast.  Total commitments of 846.5mbu are down 15% from a year ago with just seven weeks left in the 2017/18 marketing year.  Total commitments as a percent of the marketing year forecast at 91.51% is the lowest for this week since 2010.  We still have 24% of the export forecast left to ship on top of that, making the 925.0mbu export objective look ripe for a downgrade.  Corn sales totaled 33.1mbu vs. the 15.3mbu needed weekly.  Total commitments of 1.897bbu are down just 2% from a year ago with the USDA calling for a 2.9% reduction.  The average sales pace since the beginning of the year at 60.5mbu is nothing short of impressive and a new record by an incredible margin.  Importantly, we have only shipped around 46% of the export forecast, a figure which will prove pivotal the last five months of the marketing year.  Soybean sales were massive at 55.5mbu of old crop and 35.1mbu of new crop.  The old crop sales were the second largest since December and compare with the 6.8mbu needed weekly.  Total commitments of 1.947bbu are down just 4% from a year ago while the USDA is calling for a 5% decline.  The average sales pace since the beginning of the year at 32.0mbu is stronger than the 2015/16 pace of 30.3mbu.  We’ve sold 94.29% of the marketing year forecast, which is the largest in three years, but we’ve only shipped 74.7% which is the smallest since 2008/09.  Plenty of work left to do.

Lots of movement in the MW/S and MW/C spreads the last couple of weeks, even though Monday’s crop progress report should keep most states in the Northern Plains at 0% planted.  Nonetheless, the SX/MWU spread has made a round trip from $4.10 premium SX, all the way up to $4.60 premium SX, and back to $$4.05 earlier this week before trading at $4.21 this morning.  Similarly, the MWU/CZ traded around $2.10-2.15 two weeks ago, sold off to $1.77, and is back to trading $2.22 this morning.  Some analysts believe this has brought the USDA Planting Intentions for “other spring” wheat right back to what they said on the report after most have been making cuts.  To that, I would say producers don’t swing decisions like that back and forth over the span of 2-3 weeks.  Weather will be the ultimate driver of planting decisions, and right now, South Dakota is still looking at 2-3 weeks before entering the fields.  Plenty of time to seed spring wheat in North Dakota, N-MN and MT, but the chatter of more soybeans is undeniable.

While the soybean flat price strength has garnered most of the attention, trade in spreads has also been noteworthy.  Front-end spreads have been firm, but the SN/SX is back to trading the highest levels since early March with analysts beginning to trim carryout another 10-20mbu on exports and improved crush.  Also impressive, however, has been new crop spreads with the SX/SH, SX/SN and SX/SX all hitting fresh contract highs yesterday and again overnight.  The SX8/SH9 spread at a +14.00c inverse would seem to suggest tighter carryout ideas than the 17/18 balance sheet, even though most analysts are carrying significantly higher stocks.  The SX8/SX9 spread is trading +57.00c vs. the SX7/SX8 trading +8.50c a year ago on this date.  Something doesn’t seem to be jiving, with either acres being lower or demand being considerably higher?  Normally, a market which is being led by the back end is not especially bullish, but these sorts of structural moves are worth paying attention to.  Some of the move could be money flow related with funds preferring to go straight to the new crop months as opposed to rolling to the July and then the September and then November.


Bottom Line:  Kansas on tap for rains, export demand remains strong in corn and soybeans, and tariff concerns have been tamped down for the time being.  Weather is less than ideal, but planters were rolling in parts of the corn belt yesterday, with even some in S-SD turning wheels.  Soybeans have a downside gap left to fill on both the old and new crop contracts, which will remain a magnet for bears.  New crop November soybeans at $10.57 are almost 50c better than the spring insurance guarantee price, and should be attracting producer interest.


Good Luck Today.

Tregg Cronin

Market Analyst






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