11/5/2018 Morning Comments

Good Morning,


Equities a little unsettled this morning but the weakness in the energy market is grabbing attention.  Crude oil is lower for the sixth session in a row, trading below $63/bbl in WTI and below $73/bbl in Brent.  We are close to trading the lowest level in 7-months as US crude oil stocks rise seasonally into the winter months.  In addition, despite the US sanctions on Iran, Russia has vowed to help Iran get their oil to market.  Secretly, this is probably a win for the US in President Trump’s mind as his sanctions remain in full force, but rather than losing Iran’s oil supplies and driving prices up, Russia is going to help keep the supply on the market and prices under pressure.  In addition, President Trump announced there are eight countries which can continue purchasing Iranian crude as long as they make progress cutting their purchases.  Whatever than means.

Wet weather across the Plains this morning from North Dakota to Oklahoma which should work into the western/central corn belt later today.  Once this system passes, the Plains and WCB should be looking at a fairly dry week, allowing harvest to resume.  Unfortunately, the heat doesn’t come back for the foreseeable future.  High temps this week will be mainly in the 30’s for the Dakotas and Minnesota with highs in the 20’s by the end of the week.  This shouldn’t hinder corn harvest, but could slow any remaining sunflower or soybean combining.  Kansas sees several rounds of light rain at the end of the week which should hinder planting.  No warmup in sight as below normal temps dominate for the next 14-days.  Precip slides to normal/below by the end of the period.


Easier markets following last week’s impressive rally on optimism toward a trade deal.  It seems as though that optimism has faded a bit with analysts and traders alike realizing diplomacy requires more than a couple tweets.  There are several things which need to occur before anyone should have confidence a trade deal is imminent.  1) Brazilian FOB soybean basis needs to weaken substantially, and not just for new crop slots.  2) the PNW should see a bid put back into the market for the first time in 3-4 months.  3) Dalian soybean and meal markets should remain under pressure as available supplies grow.  Until one of the three things occurs, we shouldn’t get too far ahead of ourselves.  Wheat markets are trading lower in sympathy with row crops, but wheat probably has the best reasons for strength given continued delays to winter wheat planting and the long-awaited improvement in export demand.  We came across some interesting statistics on winter wheat planting in slow harvest years.  Corn doesn’t seem to have a story at the moment outside of a small yield reduction expected on this week’s WASDE.  Corn open interest fell 4,388 contracts on Friday, soybeans down 6,236, SRW down 1,208 and HRW up 1,994 contracts.

Beginning with the winter wheat delays, national planting progress last week was 78% complete vs. 85% average, the slowest progress since 2010 and the second slowest on record.  Kansas was 76% planted as of last Monday, the slowest progress on record.  In addition, soybean harvest was 72% complete vs. 81% average.  Since crop progress began, we were able to identify 11 years in which soybean harvest was 75% or slower as of week 43.  Of those 11 years, nine saw national winter wheat plantings decline from the year earlier while two saw plantings increase.  Worth noting, the two years of increases were 1993 and 1984, so we haven’t had this slow of soybean harvest and an increase in winter wheat plantings in 25 years.  Running a regression analysis over the last 34 years, 72% soybean harvest translates to a decline in winter wheat plantings of -3.530 million acres with an R-squared of 42%.  Admittedly, that is not the strongest correlation we have ever seen.  The average change over the eleven years in which soybean harvest was this slow produces a change of -2.708 million acres.  We aren’t comfortable forecasting a decline in winter wheat acres of that magnitude just yet, but we’ve also never had Kansas planting this slow before either.  Were it any other area of the US so far behind, one might be able to make the argument plantings could still end up near unchanged or higher.  However, given it is Kansas, the data points to a decline.  Since 1970, the direction of change in national winter wheat plantings has been the same as the direction in Kansas 73% of the time.  “As goes Kansas, so goes the US.”  We still aren’t sure a huge decline will be seen, but even unchanged acres from a year ago would be a major downgrade from the 10-15% increase many were expecting based on the higher insurance guarantee prices.

The other encouraging thing in the wheat market came via Friday’s COT data.  In KC wheat, the gross commercial long (end user) increased his position to +98,500 contracts, the largest since January 23rd.  The same is true in Chicago with the GCL pushing to +136,076 contracts, the largest since 1/23.  Further, managed funds finally liquidated their long in KC wheat, holding a net long of just 164 contracts as of 10/30. This is the smallest net long since funds were net short at the end of January.  Same is true in Chicago as funds are now net short the most since April 24th.  Not to be left out, commercials were also buying in Minneapolis with the GCL up to 40,682 contracts, the largest position since October 24th, 2017.  Very little activity in corn last week while funds sold beans to put their net short at -132,548 contracts, the largest since January 16th.  Overall, the commercial buying in wheat is a supportive point while funds being much more balanced should provide fuel to the fire.  In addition, funds being so heavily short soybeans should provide fuel to the fire should any trade deal headlines sneak out.

Multiple cash sources made note of the stronger PNW HRW basis going home Friday with bids said to be up 20c for nearby slots.  Saudi Arabia tendered for barley last week, which has preceded a tender for wheat on more than one occasion.  Commercials likely trying to test the market and see where they can get HRW bought should they need to compete for a major tender.  Both KC and Chicago saw more delivery receipts canceled on Friday with 20 axed in KC and 36 in Chicago.  There are 232 left open in KC and 142 left open in Chicago.  Not a lot of certs available for the supply of last resort.  This year should prove a good example of why producers should attack the market with either hedges in their futures account or HTA’s at their local elevator.  Selling the board allows a producer to lock in carry while keeping the basis open to appreciate this winter when wheat movement slows but export demand picks up.  Alberta reported spring wheat harvest at 96.1% on Friday, while Saskatchewan was 92% harvested.  Looks as though producers will get everything out the field, although the quality remains a question mark.  Some trying to draw conclusions from the Alberta crop progress report yields and final yields from StatsCan.  Does look as though StatsCan yields could prove a little high, and Informa Economics did cut their Canadian wheat estimate to 28.4MMT vs. USDA at 31.5MMT last.  Both Canada and Australia should see production/exports cut on this week’s WASDE report.


Bottom Line: Bulls need to play poker and jump rope every day or however the old saying goes.  We can’t continue to rally markets on a trade deal until it actually happens.  Wheat continues to have a story on delayed plantings and improving exports.  Here again, prices would do well not to rally away from the business, keeping Russia and Europe exporting longer than they should.  Fund positions are much more manageable now, however, so there shouldn’t be the anchor around price the way there was much of October.


Good Luck Today.

Tregg Cronin

Market Analyst






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