9/10/2018 Morning Comments

Good Morning,


We’ve been watching emerging market currencies rather closely as of late for good reason with most equity markets and currencies in those countries setting multi-year or record lows.  One currency which popped up on our radar last week was the Australian Dollar as it fell 1.4% on Friday to the lowest level since February 2016.  This hasn’t been all in one fail swoop as the Aussie Dollar has been in a solid downtrend dating back to the beginning of 2018.  From the January highs, the Aussie Dollar is off 12.4%.  Australia’s economy is hugely dependent upon exports to China, so anything affecting that relationship, or the Chinese economy, is likely to have negative impacts on the A$.  While maybe not directly related to President Trump’s latest round of tariff threats toward China on Friday, it certainly can’t help the situation.

Some scattered showers in the Dakotas and Nebraska as well as some showers in N-Minnesota, otherwise the Midwest is quiet.  Substantial rains fell in the central/eastern corn belt over the weekend, dumping as much as 7.0” in spots of S-IN/S-IL with a larger area seeing 3-4” and an even larger area seeing 1.3” amounts.  10-day rainfall amounts from Iowa to Wisconsin into Illinois and Indiana are impressive with many 5-10” totals recorded.  This has limited early harvest activity, although a dry week lies ahead which will be welcome news to many in the aforementioned states.  In fact, the southern eastern half of Iowa, MO, IL, IN and parts of WI and MI are not expected to see any measurable rainfall during the next week.  The Northern Plains will see several rounds of rain, especially the RRV but nothing which should impact soybean harvest too much.  The Northern Plains remains above normal for precip and slowly shifts to normal/below temps by the 8-14 day.  The rest of the Midwest is fairly normal on both precip and temps.


Mixed trade to start the week with corn slightly lower, but soybeans and wheat firmer after a particularly rough week in the wheat markets last week.  Kansas City wheat lost 38.5c last week, which compares with the 45c losses two weeks before that.  We’ve retraced about 84% of the entire rally from the July lows to the August highs in the span of a month which was about how long it took to put those gains on.  Whether one wants to use Elliot Wave Theory or trend channel analysis or cycle lows or some other technical indicator, all signs point toward price revisiting the harvest lows around 4.90-4.95 basis the December KC contract.  Fortunately, momentum indicators are showing a potential bullish divergence in momentum with price slowing down on the last wave lower, a tell tale sign of a potential reversal forthcoming.  Corn and soybeans remain mired inside recent ranges, awaiting fresh input from the USDA or harvest reports in order to make the next move.  There is almost nothing one can look at for bullish inputs in the soybean market, which could be a signal we are in fact near a bottom and don’t need to make new lows below 8.26.  Trade rhetoric is bearish, yield talk is bearish, exports are slowing, basis is weak, deliveries were heavy, spreads are trading at large percentages of full carry, etc.  Lots of people leaning bearish in the soybean boat which is usually what happens right before it tips over.  The only reason making us cautious about getting supportive toward soybeans with the sentiment so decidedly bearish is the fact carryout could make its way toward 900-1,000mbu on this week’s WASDE or possibly the October WASDE.  Yield is almost surely going up but the USDA cannot increase demand given the lack of Chinese demand and crush already running near capacity.  If supply goes up, it just doesn’t appear demand can eat the slack, which will force our already record carryout to a new record.  If that isn’t reason for funds to rebuild a record net short position, I’m not sure what is?

Export sales were delayed because of the Labor Day holiday and were therefore released Friday.  Wheat continued its disappointing string of export sales week with the third week in a row of failing to meet the needed level.  Sales totaled 14.0mbu vs. the 17.5mbu needed weekly.  Total commitments now stand at 343.6mbu vs. 457.8mbu last year, a 25% deficit vs. the USDA calling for a 13.7% increase.  Total commitments are the lowest for the last week in August since 2009, but total commitments as a percentage of the USDA forecast are the lowest since 2000.  The 17.5mbu needed weekly would be the largest average sales pace since 2011 and the fourth highest since 1996.  The pace is still certainly doable, and the years with higher average sales saw total commitments 60-150mbu larger than what the USDA is calling for this year.  Fortunately, US FOB prices have tightened the gap considerably with Russian and European offers which should offer some stability.  Corn sales ended the 17/18 marketing year last week with 1.2mbu of sales and total commitments of 2.384bbu vs. the USDA target of 2.400bbu.  Sales should surpass the 2.400bbu level once Census Bureau data is incorporated.  New crop sales totaled 40.7mbu, taking total commitments to 451.6mbu vs. 334.2mbu a year ago.  This is a 35% increase vs. the USDA calling for a 2.0% decline. Soybeans ended the 17/18 marketing year with 2.163bbu of commitments vs. 2.222bbu the year before.  New crop sales totaled 24.7mbu, bringing total commitments to 510.4mbu vs. 478.5mbu a year ago.  Two weeks ago, 18/19 commitments were running almost 100mbu ahead of 17/18 at this time vs. just 32mbu this week.  17/18 is likely to surpass 18/19 in the next couple of weeks unless sales really take off, and especially with no Chinese business occurring.

Still got the latest CFTC data out on Friday with funds fairly quiet in some markets and fairly active in others.  In corn, funds did almost nothing, selling 385 contracts to put their net short at -82,570 contracts.  We are still seeing the effects of the September delivery cycle, so changes are a bit difficult to interpret.  Commercials saw both their long and short positions drop for a net sell of -12,719 contracts.  In soybeans, however, funds sold aggressively, adding 14,148 contracts to their net short position which is now -111,567, the largest since January 23rd.  Commercial positions were fairly quiet actually with their net position up 10,989 contracts to put them net long 21,824.  Funds remain stubborn with their net long in KC wheat selling just 3,943 contracts to leave them net long 37,911 contracts.  Since price peaked on 8/7, funds actually added to long positions until last week on 8/28 and have only sold roughly 4,000 contracts as price is down over $1.00/bu.  These positions are undoubtedly spread against other markets, but still painful.  The gross commercial long position has been sold every week since July 24th.  Not bullish.  Funds flipped back to a net short in Chicago wheat for the first time since July 24th, although small at -5,490 contracts.  The gross commercial long in Chicago wheat of 88,593 contracts is the smallest since March 6th.  Not bullish.

As noted above, US FOB prices are finally trading even money or a discount to European and Russian offers.  Going home Friday, spot offers out of Europe for 12.5% protein (dmb) were $241-243/MT vs. US-HRW for similar protein at $231/MT out of the Gulf.  Russian offers in spot slots were $224/MT vs. US-HRW at $231/MT, never mind the extreme freight advantage of Black Sea wheat.  For December, however, both offers were at $239/MT and for January the US was a $4/MT discount.  Again, nearby, both origins are still likely cheaper on a landed basis, but Dec-forward should see US prices keeping Russian wheat out of Mexico and Latin America.  US wheat probably needs to trade at larger discounts to Russian wheat to get into the Middle East.  In addition, while US wheat is making headway against Black Sea Dec-forward, Argentine wheat is trading healthy discounts to US-HRW for those slots.  Argentina will not have a huge amount of wheat to compete for a lot of swing business, but any additional bushels the US has to compete with gets us one day closer to new crop in the Northern Hemisphere next year.  Things are starting to happen, however, so it does appear wheat is close to a bottom.


Bottom Line: Wheat is trying to put a foot in the ground now that export prices are closer to our competitors, but business has to be conducted first.  Corn and soybeans are going nowhere fast until USDA confirms bigger crops later this week or harvest begins in earnest.  With the wet weather out of the way, this should happen by the weekend.  Soybeans are facing a litany of bearish headwinds, but seems like much of it has been priced in.  If we get a huge carryout print this week but don’t make new lows, I think we will have our answer.


Good Luck Today.

Tregg Cronin

Market Analyst






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