9/25/2018 Morning Comments

Good Morning,


Aside from the constant trade chatter, the story in financial markets is oil rising to fresh 2-1/2 month highs in WTI while Brent crude prices notched a fresh 3-1/2 year high.  Brent crude prices are now above $82.00/bbl vs. WTI at $72.50, and with a few more dollars will set 4-year highs.  The most recent strength seems tied to OPEC and Russia ruling out an immediate need to boost oil output in an attempt to bring prices down.  OPEC and other major oil producers watched government coffers dwindle as oil prices collapsed in 2014 and seem in no hurry to return to that environment.  The willingness of OPEC to increase production to offset oil prices stands in direct opposition to the Trump Administration which is likely to ratchet up their rhetoric further toward the Middle East conglomerate.  Just what we need, another trade spat with a different part of the world.

Shower activity over Nebraska and South Dakota this morning as well as systems in S-IL/IN/OH.  Nearly every square inch of the Midwest has witnessed rainfall in the last 7-10 days, some of it reaching the excessive category, and keeping harvest from breaking wide open.  The next 7-days will see moderate to heavy rainfall in Iowa, SE-Minnesota, Wisconsin, Illinois, Indiana, Ohio and Michigan.  Most of the Northern and Central Plains should be spared any heavy amounts, but the wet conditions the last week make every tenth feel like an inch.  This is compounded by the fact temperatures are below normal this week and most of the 6-15 day as well, providing little drying weather.  Aside from Wednesday, highs the next week fail to get much out of the 50’s.  Extended maps continue this trend which could extend what looked to be an otherwise fast harvest.


Mixed markets this morning with the oilseed complex showing gains while grains are a bit softer.  Strength in the soy complex is being bolstered by strong gains in Dalian markets overnight which saw soybeans up 0.79% and meal up 1.75%.  No market breaking news behind the strength but meal is almost back to 2-month highs.  Additional cases of African Swine Fever have been reported so unlikely the strength is on improved demand from the feed sector.  On-Balance-Volume in soybeans is in positive territory as bulls have taken control over the last 20-sessions.  Adding to the firmer tone in soybeans is the concern harvest could drag out longer than expected given the forecast for the next 15-days.  This wouldn’t be the worst thing from a market structure standpoint as CIF bids remain weak thanks to “no bid” off the PNW and Northern Plains’ soybeans looking elsewhere for homes.  While a pain for farmers, an extended harvest could be what this market needs to keep cash from collapsing further.  Wheat markets waiting to see if US competed in the recent Iraq tender which it should have based on available offers.  Corn open interest fell 7,490 contracts yesterday, soybeans were up 1,746, SRW was down 2,562 and HRW up 1,064 contracts.

CIF bids were softer yesterday for October with bids called -10X vs. offers of 0X.  Sept is still bid -6X against offers of -1X.  Even bids for November are just +9X vs. offers of +19X.  The PNW remains no bid which is causing commercial shippers to look to crush markets via crush or shuttle bids into St. Louis.  Many elevators plan to store soybeans and wait for bids to improve this winter which could lead to storage being zapped up quickly and country locations going to cash only.  Farmers will have to move more corn at harvest to store the soybeans they normally send out the door right off the combine.  Beans and wheat will be the priority for storage as they have the weakest cash from a historical perspective and are offering the best board carries.  Speaking of carries, most soybean calendar spreads hit fresh contract lows yesterday with SX8/SX9 trading down to -70.00c.  This is the weakest trade on record going back to at least 1990 for a November/November spread.  It is important to remember for producers staring at lucrative storage returns: a carry is not earned until it is sold.  If deferred futures prices end up coming down to spot prices by the time they roll to front month, you earn nothing for storage.

Data yesterday included weekly export inspections which were solid for corn but somewhat disappointing for wheat and beans.  Wheat export inspections totaled just 15.1mbu for the second straight week which is well below the 21.0mbu needed weekly to hit the USDA export forecast.  In fact, wheat inspections have not hit needed level a single week this marketing year going back to June 1.  Total inspections of 239.8mbu are down 29.3% despite the USDA calling for a 13% increase y/y.  Corn inspections were strong at 49.7mbu vs. the 44.3mbu needed weekly.  Total inspections three weeks into the marketing ear of 117.2mbu are up 38.8% from a year ago.  Usually, corn shipments don’t get rolling until November when fresh bushels are injected into the system.  A strong start gives confidence about a strong year of exports.  Soybean shipments were soft at 25.5mbu vs the 38.9mbu needed weekly to hit the USDA forecast.  Total inspections of 85mbu are down 24.8% from a year ago vs. the USDA calling for a 3.0% drop y/y.

Wheat prices are weaker this morning, although firmed yesterday on news US wheat offered into Iraq at $337/MT C&F matched the lowest offer from Canada.  Aussie wheat was a good deal higher, although Iraq doesn’t necessarily always buy the cheapest offer because why would they do something simple like that?  US-HRW needs this business if we have a prayer of meeting USDA’s current export forecast.  Helping wheat’s plight was the fact the Russian Ruble traded to the firmest level since August 9th against the USD.  This drops the price paid to farmers in Russia and slows the movement of wheat from the interior to the coast which are the critical bushels are Russia achieving the big export forecasts.  This is directly reflected in forecasts calling for September exports out of Russia being lower than year ago levels.  15.0% protein on the spot floor was sharply firmer in Minneapolis yesterday.

The crop progress report yesterday showed harvest ahead of schedule but that should fall closer to average in coming weeks.  National corn harvest was pegged at 16% complete vs. 9% last week and 11% average.  Soybean harvest was estimated at 14% complete vs. 6% last week and 8% average.  Of most interest to us, winter wheat planting progress is ahead of average nationally at 28% vs. 26% average.  However, Montana is a key winter wheat producer and planting progress there was just 8% complete vs. 44% average.  Progress in South Dakota could also slow appreciably in the next week which stands at 53% complete vs. 47% average.  Cool, wet conditions are hampering progress in both states and could curtail acreage expansion ideas which have been in the 10-15% increase area.  Kansas is 21% complete vs. 16% average, but Kansas has the entire month of October to finish planting while progress in MT and SD typically needs to be completed by the first ten days of October to ensure above average yields.


Bottom Line: Mixed markets as traders continue to field harvest reports and try to get a feel for the next change in national yields.  Weather doesn’t look real conducive to doing anything the next 7-10 days with wet, cool conditions persistent into October.  Still lots of time to get everything done, but days getting shorter makes farmers anxious.  Definitely feels as though seasonal lows have been set in corn and soybeans, but strength in spreads and cash would make this feel even more certain.


Good Luck Today.

Tregg Cronin

Market Analyst






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