8/8/2018 Morning Comments

Good Morning,


Another month of Chinese import/export data was released last night with imports and exports up more than expected, although soybeans saw buying cool as tariffs went into place.  July exports were up 12.2% y/y vs. expectations for +10.0%, while imports were up 27.3% y/y vs. estimates for +15.3%.  July soybean imports totaled 8.005MT, down 21% on the year with Jan-Jul soybean imports of 52.88MMT down 3.7% on the year.  Iron Ore imports for the month were 89.96MMT, up 4.3% y/y with Jan-Jul imports of 620.65MMT down 0.7% y/y.  Crude Oil imports of 36.02MMT were up 3.7% with Jan-Jul imports of 260.83MMT up 5.6% y/y.  The July trade surplus came in at $28.05 billion vs. estimates of $39.1 billion, while the trade surplus with the United States specifically narrowed to $28.09 billion from $28.9 million in June.  Winning.

Some scattered showers in the corn belt this morning, but a more organized system working across S-KS and OK.  Over the last week, best rains have been in the N-1/2 of IA, SE-SD and the far ECB.  14-day percent of normal precip values show the largest deficits across S-IA, N-IL, MO, SE-MN, SD, N-MN and ND.  Unfortunately, the driest areas the last two weeks will be the driest in the upcoming 5-days with no measurable precip expected across ND/SD/MN/NE and very little expected in IA and N-MO.  Next round of precip for the WCB and Northern Plains, and coverage would be light at best, not seen until Aug 14-15th.  Moisture deficits should grow, especially with widespread 90 degree temps through Sunday for everywhere in the WCB.  Soybeans in the WCB and Northern Plains need a finishing rain quite badly and it doesn’t look like its in the forecast.


Mostly better prices this morning, clawing back some of the late losses in grains and adding to the gains made in the soy complex.  Trade has turned consolidative in row crops this week as we await updated yield estimates from the USDA on Friday.  Traders are also anxious to get an update on the spring wheat crop with harvest producing slightly less than expectations in South Dakota and fears this could carry over into North Dakota.  Harvest is also running in Canada, which is around two weeks ahead of normal due to dry, hot conditions there.  This combined with what seems like a daily stream of smaller crop estimates out of the EU and Australia and the wheat market remains mostly firm.  Global wheat prices continue to share in the rally which we’ll touch on below.  Lots of discussion about USDA’s yield estimates on Friday, and the only thing we would add is to remember this will be a yield estimate based on stalk and ear counts, but no actual measurements of the ear itself.  With strong emergence reported throughout the corn belt, this could contribute to USDA inching their yield higher.  Stress from crops being pushed too quickly, resulting in shallow kernel depth and light ears will not be picked up until October.

Deliverable stocks data was released yesterday, and it would appear our seasonal low ahead of harvest was set last week in spring wheat.  Combined stocks in Duluth and Minneapolis totaled 15.120mbu, up 1.176mbu on the week and follows six straight weeks of stock draws.  The 15.120mbu compares with 20.559mbu a year ago.  The 15.120mbu would be the lowest combined stocks for this week since 2014.  Wheat stocks in Chicago declined 881,000 bushels to 83.031mbu and compares with 96.034mbu a year ago.  KCBT stocks were up 503,000 bushels on the week to 126.201mbu and compares with 125.581mbu a year ago.  Wheat stocks in Kansas are easily the highest for this week since at least 2012/13.  Stocks in Chicago are the lowest for this week since 2015/16, but above 2013/14-2015/16.

As important to us as the corn and soybean yield estimates Friday will be what the WAOB does with the major exporter balance sheet.  Private estimates of EU production have slipped another 3-5MMT since the July WASDE, and correspondingly, Paris futures have rallied €32/MT or 17%.  Even more impressive has been the rally in Aussie Wheat as production estimates continue to slip there and are centering on 18MMT vs. USDA at 22MMT.  Since the July WASDE, ASX futures have rallied A$83/MT, or 25.4%.  With Australia facing back-to-back droughts, some estimates have Australian export capacity dropping to 10MMT vs. 15MMT last year and USDA at 16MMT.  It will be difficult for USDA to maintain global import growth as well as global feed/residual growth if all of the major exporters are seeing production cuts of this magnitude.  Unfortunately, it feels as though the market is already pricing in US exports of 1.0bbu vs. USDA’s current estimate of 975mbu.  The US is certainly the logical place to fill the gap in global wheat demand, but unfortunately, we aren’t even on pace to hit last year’s terrible exports, let alone growth of 75-100mbu.  Total commitments as of 7/26 measured 7.196MMT (accumulated exports + outstanding sales), which is down 2.866MMT from a year ago or 28.4%.  The USDA is already calling for growth of 8.2%, creating a real dilemma for raising exports further.  The longer we go without seeing a material pickup in demand, the more difficult it will be to achieve these lofty estimates in the second half of the marketing year.  There is still time, but US cash offers must stop rallying away from business each time we get close to penciling into a major importer.

While old news now, we remain concerned about the current positioning of commercials and spec funds in KCBT and CBOT wheat.  In the former, funds bought 13,667 contracts of HRW last week, one of the top 10-15 largest weeks of buying on record.  The net long position held by specs of 26,396 contracts is back up to a five-week high.  This comes while the Gross Commercial Short is aggressively selling this rally, bumping his position back up to 162,578 shorts, the largest position for this group since June 12th.  In Chicago, funds bought 28,857 contracts on the week, a particularly large week of buying in its own right.  The net position held by specs of +37 contracts, is the first net long since 2014.  The GCS in Chicago of 228,976 contracts is right back to the 5-year set in mid-June.  The last time commercials amassed this large of short position in mid-June, the market rolled over the same week and saw December KC wheat drop $1.00 from June 12th to July 2nd.  Chicago saw prices fall around $0.70.  The commercial positioning combined with the relentless pressure in basis has us concerned futures are on the precipice of another selloff, depending on what USDA says Friday.  With producers staring at KCBT values of $6.28-6.50 for new crop ’19 and MGEX values of $6.60-6.70, producers need to be taking a long look at these with the prospect for more acres going in the ground this fall and next spring.



Bottom Line: Should see more consolidative trade ahead of Friday’s balance sheet updates.  Seems like it will be difficult for yields to feature a bullish surprise based on what USDA is actually measuring this month.  Northern Plains and WCB soybeans need a finishing rain, otherwise production ideas could wain in those states.  Wheat markets remain impressive, but US cash does not and is giving every reason to be cautious of another leg higher.  Great opportunity for catch up sales on 2018 crop and a solid chance to start making 2019 sales at levels not seen in half a decade.


Good Luck Today.


Tregg Cronin

Market Analyst






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