9/12/2018 Morning Comments

Good Morning,


Multiple financial media outlets are picking up comments from IMF Managing Director Christine Lagarde this morning in which she warned about the US-China trade war delivering a shock to already struggling emerging markets which could spillover into the developed world.  Would be interesting to hear what Mrs. Lagarde would consider a “shock” as record lows in the Argentine Peso, Turkish Lira and Indian Rupee have already been posted this year while many other currencies like the Russian Ruble and Brazilian Real are already near record lows against the greenback.  While the Dollar has mostly rallied in 2018, it remains nearly 10% below the highs posted in 2016.  While the equity market influence will be important to everyone, the continued underperformance of these emerging market currencies will continue to undermine the appreciation of commodity prices.

Scattered showers across North Dakota and C-MN, otherwise a quiet Midwest this morning.  The dry weather will continue for the next 5-days or so until early next week when rain chances return to the Central and Northern Plains.  Rainfall chances as of this morning’s GFS run are putting 0.50-1.00” in northeast ND and N-MN with 0.25-0.50” chances in most of Nebraska and NW-IA.  With those moisture chances will come a general cold front which will knock highs down 5-15 degrees from the recent heat, but extended maps do keep things mostly above normal for temps.  Precip will be above normal for the 6-15 day outlook, especially over the southern plains which could delay harvest efforts and possibly winter wheat planting.  Still plenty early to get concerned about winter wheat planting delays.


WASDE day, and boy do our markets need a fresh dose of fundamental input.  The feature overnight has been the decent volume in soybeans, specifically November which has made a push at contract lows.  At the lows, November soybeans were within 0.25c of contract lows but have bounced about a penny since.  Open interest in soybeans has been rising almost every day for the last week, tacking on just over 16,000 contracts as prices have moved back to contract lows.  This would seem to suggest fresh speculative shorts being added on the opportunity for a breakout to the downside.  If bears do not get the negative data they are after today, these fresh shorts could quickly find themselves underwater on a retest of the 8.50 level.  Having said that, does look rather likely the national average soybean yield will be moving higher and there is only so much the USDA can do with demand to mitigate the impact to 18/19 carryout.  Multiple analysts are discussing the potential for a carryout print of 900mbu+ today which would seem to be enough to knock prices through contract lows.  Corn remains rangebound but likely won’t stay that way long with 3.6350 and 3.6975 tipping the directional scales.  December corn should continue to find good support in the 3.50-3.55 area.  Wheat bouncing after yesterday’s selloff as it looks more likely Russian wheat exports could be less than 30MMT vs. USDA’s ideas last month of 35MMT.  Corn open interest was up 15,188 contracts yesterday, soybeans up 3,643, SRW down just 166 contracts and HRW up 3,096.

Both Egypt’s GASC and Algeria are tendering for wheat today with the former likely to book 3-4 cargoes of Russian wheat.  Lineups were announced within the last hour and are averaging around $226.41/MT FOB with the cheapest offer at $222.70/MT FOB.  Will be interesting to see if any US wheat is offered in the Algerian tender which is the only one we’ll likely compete in.  The more salient news from Russia, however, came yesterday with rumors from exporters that phytosanitary permits were becoming more difficult to obtain as the government might be using that approval process as a way to slow shipments without enacting formal restrictions.  In addition, there is more confidence the Russian Ag Ministry did in fact mean 30MMT of total grain exports when he gave his latest update, not 30MMT of wheat exports.  This would likely mean wheat exports somewhere around 25-26MMT vs. market ideas around 32-34MMT and USDA at 35MMT last.  In addition, Russian news agencies were reporting overnight on the slow pace of harvest in Siberia where area harvested-to-date is almost five times slower than a year ago.  This is expected to hamper quality as well as total bushels harvested with snow often showing up by the end of September.  Some pictures suggest there is already area under snow which will render the crop next to useless outside of animal feed.  Black Sea cash offers and futures are not yet expressing any sense of urgency, however, trading mostly flat yesterday.

The weekly crop progress report was delayed until yesterday morning due to technical difficulties at the USDA.  Not much out of the ordinary with corn conditions up 1pt to 68% G/E vs. 61% last year.  Corn harvest was estimated at 5% complete vs. 3% average.  This number could really jump next week with the wide open harvest weather and crops drying down at a rapid rate across the Midwest.  35% of the crop is rated mature vs. 22% last week and 21% average.  Northern Plains corn crops have nearly three times the amount of corn rated mature compared with average.  Soybean conditions jumped 2pts to 68% G/E vs. 60% G/E a year ago.  Soybeans dropping leaves was 31% nationally vs. 16% last week and 19% average.  Spring wheat harvest is essentially complete at 93% vs. 77% last week and 85% average.  Winter wheat planting is 5% complete nationally vs. 5% average.

Weekly deliverable stocks data was also released yesterday with combined stocks in Minneapolis/Duluth seeing a big jump of 2.152mbu w/w.  Total wheat stocks now measure 20.714mbu vs. 22.566mbu a year ago.  Stocks are still the lowest for this week since 2014, but the upward trajectory could see levels of the last couple of years challenged, especially with spot floor and domestic basis levels trading at such historically weak levels.  Farmer selling has shut off as many face cash basis levels at local elevators of -80/-90Z for 14.0% protein with little to no premium for 15.0% protein.  It will take a flat price rally to peel spring wheat out of the grower’s hand, and with harvest coming, that could prove even more difficult.  In Chicago, wheat stocks fell 31,000 bushels on the week to 82.285mbu but remain 14.8mbu below year ago levels.  Non-deliverable grades are up 2.2mbu y/y.  Kansas City stocks fell 669,000 bushels on the week to 127.313mbu but remain above year ago levels at 124.248mbu.

On today’s WASDE, the focus will obviously be on corn and soybean yield updates.  More specifically, however, we will be interested in what USDA does with Australian and Canadian wheat crops, Russian wheat exports, Chinese soybean imports for both 17/18 and 18/19 and where the eventual 18/19 US soybean carryout ends up after all supply and demand changes are made.  USDA could punt one more month on Australian production, preferring to use ABARES October numbers as they’ve done in the past instead of the September report they just released.  In addition, doubtful USDA moves Canadian production down to 28.990MMT where StatsCan was last vs. their August number up at 32.500MMT.  USDA will probably come in somewhere around 30MMT would be our guess.  Russian export numbers probably move down 1-2MMT, but unlikely they make the move down to 30MMT on this report.  The Chinese soybean balance sheet will be a very interesting read.  On the last WASDE, they put 18/19 soybean imports at 95MMT vs. 96MMT for 17/18.  Both of these could move lower based on the pace of imports to-date.  They could make this move rather easily as 17/18 ending stocks on the last report were pegged at 23.481MMT, the largest on record and well above the 5-yr average of 18.328MMT.  18/19 ending stocks of 20.781MMT have plenty of room to move lower without threatening comfortable stocks/use levels.  Even if a drastic cut to imports of 5MMT is made, ending stocks would only fall to 15.781MMT.  This would be the lowest since 2013/14, but still the second largest since 2000 prior to the 13/14 marketing year.  The point is, if US soybean yield is raised, exports cannot be raised much if at all to offset the supply increase.  Ending stocks will move higher, and possibly appreciably so.  A supply increase inside the United States combined with a clear sign the world’s largest importer is de-stocking instead of importing will be a double whammy to price prospects.


Bottom Line: Let’s get the WASDE out and reassess.  As a reminder, the national average corn yield is expected to fall to 177.8bpa from 178.4bpa last month while the soybean yield is expected to increase to 52.2bpa from 51.6bpa last month.  The average trade estimate for 18/19 ending stocks is 1.639bbu for corn vs. 1.684bbu last month, soybeans at 830mbu vs. 785mbu last month and wheat at 941mbu vs. 935mbu last month.


Good Luck Today.

Tregg Cronin

Market Analyst






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