10/10/2018 Morning Comments

Good Morning,


Winter is here, whether we like it or not.  The below picture comes from Gettysburg, SD but could be from anywhere in North and South Dakota after the evening snow fall.  Accumulation is somewhere between 1-4” depending on location, but the wet sloppy snow combined with the last several day’s rainfall will make for sloppy field conditions for the foreseeable future.  Fortunately, once the current moisture moves out later today, drier conditions should take hold for the next 7-10 days.  Temperatures unfortunately will not warm quickly, at least not until midweek next week.  The dry conditions do look to take hold for the 6-15 day outlook, but temps barley get back to normal for the Northern Plains and remains below normal in the corn belt.  The southern plains and eastern corn belt have more rain chances this weekend and early next week, keeping harvest and planting slow.


Grains are weaker across the board this morning, giving up small overnight gains in the grains with a softer soy complex throughout.  Momentum is lacking across all of our markets, especially December corn which looks to be throwing off a potential bearish divergence.  Getting married to a technical tilt the day before a WASDE report is not advised, but higher prices post-report are needed to prevent bears from taking control in our opinion.  Soybeans are grappling with the 50% retracement of the 9.22-8.12 selloff at 8.67, failing to close decisively above that level and hold it.  While we could focus solely on technical factors, the most important thing to the market is the lack of planting and harvesting progress, even if price isn’t reflecting same at this time.  Crop Progress numbers, which we discuss below, do not yet reflect the harvest and planting delays, but little to no progress should be made through next Monday’s report.  Even after the moisture quits in the Northern Plains, it could be a week before equipment will be able to get back in the fields, with loading on county roads and highways expected to be common place this fall.  Open interest changes yesterday included corn down 6,618 contracts, soybeans down 4,815 contracts, meal up 1,328, oil down 1,578, SRW wheat up 1,647 contracts and HRW up, 2,857 contracts.

The weekly crop progress report didn’t tell us much with delays expected to show up next week.  Corn conditions declined 1pt to 68% G/E vs. 64% G/E last year.  Corn harvest was pegged at 34% complete vs. 26% last week and 26% average.  IL remains ahead of schedule at 63% complete vs. 41% average.  Most ECB states are ahead of average while WCB states are right at average pace to a point or two ahead.  Soybean conditions were unchanged at 68% G/E vs. 61% last year.  Soybean harvest was estimated at 32% complete vs. 23% last week and 36% average.  Same story with corn as the ECB is ahead of schedule, but delays are already prominent in the WCB.  ND harvest was estimated at 34% complete vs. 50% average, SD at 28% complete vs. 41% average and IA at 18% complete vs. 31% average.  Expect these to get worse next week.  Winter wheat planting progress was estimated at 57% complete vs. 43% last week and 54% average.  Areas of focus include Montana at 60% complete vs. 80% average, while SRW states like IL/IN/OH are slightly behind average with that expected to get worse amid rain delays.  Kansas is 58% planted vs. 49% average although the US’s largest wheat producer saw statewide rains of 1-4” this week.

Brazilian crop progress was also released yesterday as of 10/05 with soybean planting progress continuing ahead of schedule at 10% complete vs. 5% last week and 5% average.  Progress is pretty much equal to 2016, although comparisons to anything in the past with Brazil is difficult given the record crops the last two years.  The 2016/17 crop was a record in terms of area and yield, but then so was 2017/18 on both accounts.  A swift start means beans available for export even earlier, helping China bridge the gap.  Brazilian 1st crop corn planting progress was listed at 36% complete vs. 28% last week and 36% average.

Offsetting wheat news yesterday as the USDA announced a 120,000MT sale of hard red spring wheat to Bangladesh which was not expected, but followed it up with poor weekly export inspections.  Total wheat inspected for export in the week ended 10/4 was 15.6mbu, below the 21.4mbu needed weekly to hit the USDA export forecast.  Export inspections haven’t hit the level needed a single time since the beginning of the marketing year on June 1.  As we noted yesterday, June/July/August exports were the lowest since 2009 and the second lowest since 1971 this summer.  Total inspections are down 28.9% from a year ago while the USDA is calling for a 13% increase y/y.  Unlikely they touch their estimate on tomorrow’s WASDE.  Corn inspections were 53.2mbu vs. 43.8mbu needed weekly.  Total inspections are up a whopping 62.1% from a year ago while the USDA is calling for a 1% decline y/y.  Soybean inspections continue poor at 20.9mbu vs. the 39.6mbu needed weekly.  Total inspections are down 35.2% from a year ago while the USDA is calling for just a 3% decline.  We remain very concerned the USDA is way overstating 18/19 soybean exports, possibly by 150-200mbu.  This is how many private analysts are getting carryout numbers over 1.0bbu, although we don’t feel the USDA will go there until 2019.  In our opinion, the current 2.060bbu export estimate does not fully reflect China’s absence, but another month or two of slow export inspections and sales will be difficult to dismiss.

While the Bangladesh sale caught most off-guard, the Canadian harvest and export offerings should prepare us for more.  Canada is usually the supplier of choice for Bangladesh, offering lower protein varieties at a more competitive value than US.  Cash sources suggest the sale took place around $290/MT C&F for 14% protein vs. offers from the Black Sea around $297/MT on 12.5% protein.  Exporters aren’t showing offers out of Canada until December with capacity said to be tapped out through the end of the year anyway.  For the offers listed, Canada is trading around a $24-32/MT premium to US-HRS.  A big pull off the PNW for spring wheat would be music to Northern Plains growers’ ears as basis remains weaker than normal with zero protein scales to speak of between 13.5-15.0% protein.  USDA is currently pegging HRS exports at 295mbu vs. 228mbu last year during the drought-shortened crop.  Two years ago, we saw HRS exports of 319mbu with the largest spring wheat program in recent history occurring in 2010/11 at 340mbu.  Back in the early 90’s we did 438mbu, but that sort of number is probably not applicable.  In 2010/11, Canadian exports of 16.7MMT were a three year low and around 1.0MMT below the 5-yr average.  We will have a better feel for Canadian offerings after the latest SK and AB crop progress updates tomorrow and Friday.


Bottom Line: More choppy trade in recent ranges until we get the WASDE behind us.  It is a bit surprising to us the market is not more concerned about the weather delays staring us down in the Northern Plains and WCB.  Perhaps we need to see confirmation next Monday.  Or, the lack of concern could be a sign of just how oversupplied our soybean market is at the moment and the lack of demand on the export front.  Cash guys are getting excited about the recent wheat interest and we can only hope it is the start of the long-awaited improvement in demand.


Good Luck Today.

Tregg Cronin

Market Analyst






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