9/28/2018 Morning Comments

Good Morning,


Frost/freeze conditions across the Northern Plains this morning, although at this stage of the growing season, more welcome than not to hasten dry down.  Snow is actually falling in the Black Hills of South Dakota this morning, a friendly reminder of how quickly the calendar can change.  Also rain showers stretched across S-SD/NE/IA which will keep harvest efforts start and stop.  Plenty of rain around the next 7-days with all of IA, WI, MN, N-IL, E-NE, E-KS seeing rain.  The entire state of Iowa is looking at 0.75-2.00” during the next week.  Complicating matters are the below normal temperatures the next 15-days with a strengthening of the cold in the 8-14.  After what looked to be a fast harvest, a much more normal fall is likely to be the case.


Firmer row crop markets this morning but weaker wheat as we await updated USDA data sets later this morning.  December corn is trying to close higher for the seventh session in the last eight, taking us right up to the 50-day moving average at 3.67.  Corn has had an impressive run, but with harvest progress this weekend, USDA on tap, and a managed fund short which is much more balanced, bulls might want to be careful heading into the weekend.  Soybeans also up against the 50-day moving average with spot beans at 8.55 and the indicator at 8.62.  USDA is expected to increase 17/18 ending stocks by 6mbu, so the report in general should be a non-event.  Export sales all the way around were solid yesterday which we discuss below.  We continue to monitor global wheat production threats which are ramping up considerably according to our contacts in Australia.  Open interest continues to fall in corn, down another 7,253 contracts and a cumulative 52,810 contracts since the bottom on 9/19.  Price has rallied 22c with open interest down 52,000.  Something to keep in mind.  Soybean open interest was up 6,848, SRW wheat was up 3,265 contracts and HRW was up 992.

Export sales were strong for every class with all wheat sales of 24.1mbu were above the 17.4mbu needed weekly to hit the USDA forecast.  This week’s sales were the best in six weeks and were also the first above the needed level in six weeks.  Total commitments of 399.2mbu are down 20% from a year ago vs. the USDA calling for a 13% increase from a year ago.  The 10.8MMT of commitments are the lowest for this week since 2009 but are making strides toward getting back to pace needed.  Several weeks of 1MMT+ would be great, but not sure we see those kinds of sales until later on this calendar year.  Corn sales were very strong at 67.4mbu vs. the 34.1mbu needed weekly to hit the USDA forecast.  Total commitments of 719.2mbu are up 61% from a year ago vs. the USDA calling for a 1% decline.  Soybean sales were 32.0mbu vs. the 28.8mbu needed weekly and were at the high end of trade expectations.  Sales at this level are impressive considering China remains absent, but the deficit with a year ago will continue to grow the longer than remain out of the picture.  We remain concerned the current 2.060bbu export estimate, being down only 70mbu from a year ago, does not fully reflect the impact of the trade war.  Total sales are down 16% from a year ago while the USDA is only calling for a 3.2% decline.

Speaking with our contacts in Australia, the situation there continues to deteriorate.  Production estimates are now sliding to 17MMT for a central grouping with many under that level.  Wheat is being baled for hay up and down the East Coast where it is even suitable to do so.  Some of the wheat is too thin to even make a bale.  W.A. was going to have to carry the country anyway, but after late season dryness and several rounds of frost/freeze, the 10MMT estimate is in doubt.  This all leads to the question of what available exports might be.  With a 17MMT or under type of number, exports will struggle to best 8-9MMT vs. USDA at 14MMT.  This demand has to be pushed somewhere, and this week’s US export sales could be the start of that demand with cargoes to Japan, the Philippines and a cargo to Unknown.  When will the USDA acknowledge the true supply situation in Australia remains the question.  Of course, as long as Russian offers remain as heavily discounted on the front end as they are, US wheat doesn’t have to get in a big hurry.

Yesterday also saw the Quarterly Hogs and Pigs report which continues to support feed demand.  All Hogs and Pigs were 103.0% of a year ago vs. the average trade estimate o 103.5%.  Kept for breeding was 103.5% vs. 103.2% expected, Kept for Marketing was 102.9% vs. 103.5%.  The Jun-Aug pig crop was 103.3% of a year ago vs. estimates of 103.2%.  Pigs/litter during the summer quarter also grew by 0.7% as the breeding efficiencies continue.  Sept-Nov farrowing intentions were 101.5% of a year ago while Dec-Feb intentions are 102.0%.  Our takeaway is a hog herd which continues to expand, efficiencies continue to go up and producers appear ready to continue that expansion into the winter months despite the trade war with China.  Combined with the larger cattle-on-feed numbers, one would think feed estimates are safe or even need to move higher, but as we’ve seen time and again, animal numbers and what the USDA implies for feed/residual demand rarely match up.  Would say that is a main risk in today’s data.



Bottom Line: We will all be smarter at 11:00 CDT.  Regardless of what the USDA tells us in their monthly WASDE updates, it seems like the Quarterly stocks reports have been bearish going back as far as memory serves.  Somehow, the USDA tends to overestimate feed demand early in the year and find those bushels back at the end of the year.  We’ll see if the pattern continues today.  Wheat stocks, due to poor first quarter demand, should be negative but wheat production could slip a bit.



Good Luck Today.

Tregg Cronin

Market Analyst






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