11/15/2018 Morning Comments

Good Morning,


Natural Gas decided the crude oil rout had stolen enough attention, rallying to a 4-yr high yesterday on a cold front moving into the East Coast, declining domestic stockpiles and prospects for LNG exports to China.  The single day gain yesterday of 18% was the largest single day gain since September 2004, pushing spot prices to the highest since February 2014.  US stockpiles of natural gas are currently about 16% below their 5-yr average as of last week.  There is also the very real possibility funds had been long crude oil, short natural gas and with the puke in crude oil futures this week, flipping their short natural gas positions could have been a natural progression.  Natural gas is one of the few futures contracts with extraordinary daily trading limits which can move about $15,000/contract before limits are enforced.

Wintry mix over the eastern corn belt this morning while the Great Plains and western corn belt are dry one more day before moisture tomorrow.  Tomorrow’s moisture for the western corn belt could come as rain or snow, depending on the temperature, but actual moisture with the system should be mainly below 0.25”.  Along with the moisture will come a cold front which will push high temps for Saturday into the 20’s for many in the Northern Plains and WCB.  Temps will be mainly in the 40’s or below for the next week.  Temps will be mainly normal in the next 14-days while precip will be below normal in the 6-10 but above normal for most in the 8-14 day.  The last 10-20% of harvest would do well to finish up by Thanksgiving.


Higher prices overnight led by soybeans as newswires carry comments from Chinese officials that trade talks have indeed resumed.  Most seem confident something positive will come out of the G20 Summit in Argentina at the end of the month, which certainly needs to be the case after futures have rallied back to 3-month highs.  If a trade deal is announced, and futures tack on an additional 50-100c like many are touting, this would seem to be a golden marketing opportunity for both old and new crop.  As we’ve discussed in recent weeks, the current USDA export forecast of 1.900bbu is down 160mbu from a year ago while Chinese imports are forecast down 147mbu.  This would imply the USDA’s estimate has a fair amount of Chinese demand penciled in.  If a trade deal is not done, and China can indeed forego US soybeans this season, there is no way we can reach 1.900bbu worth of exports.  Our current pace implies something closer to 1.500bbu which current futures prices certainly do not have priced in.  The caveat to this scenario is of course whether any trade deal has a guarantee of purchases of US soybeans which would impact Brazilian loadings Jan-Apr.  Much to prove yet and this rally does not seem to be built on firm foundation just yet.  All counties of Kansas will hit their last plant dates for full insurance coverage on winter wheat today, creating a large incentive to stop planting, regardless of current progress.

Prior to the rally overnight, December KC wheat futures traded down to 4.80 ¼, which is just 2c from where the September contract went off the board.  This is a classic example of futures grinding out the carry, and why carries are never earned until they are sold.  This should push producers to look at the forward curve and consider the carries currently available out to July.  This is not to say futures will never rally again, but in plentiful supply environments, even ones which should have second half demand pull, the market will do its best to not pay anyone to carry grain.  That said, Chicago and Minneapolis wheat futures have held in much better with KC receiving a disproportionate amount of pressure is applied on the unwind of KW/W and KW/MW spreads.  KW/W especially is trying to price in the difference in storage differentials now that Chicago will be 8c/mo and KC will be 11c/mo.  Prior to now, funds held shorts in Chicago to earn larger carries while putting their longs in KC on ideas of improved export demand.  It will be interesting to see if these positions are reversed to put shorts in KC to earn higher storage and longs in Chicago on better cash markets?  Minneapolis calendars and basis remain firm as producers focus on row crop harvest and not moving grain.  The MWZ/MWH traded to even money yesterday as neither farmer nor elevator is giving much though to marketing spring wheat as winter weather approaches unharvested crop.  PNW offers of HRS remain a discount to PNW offers of CWRS.

NOPA will release October member crush data later this morning with estimates looking for 170.2mbu crushed vs. September crush of 160.8mbu and October 2017 crush of 164.2mbu.  This should keep the string of monthly records going, which dates back to 2017.  Board crush continues to weaken with board spreads below $1.00 throughout the curve vs. every contract being above $1.00 just a short time ago.  $0.96/bu for Jan crush is still a solid margin, just well off the $1.30-1.60 levels earlier this year.  Soybean oil has continued its downtrend of late, probing back toward September lows.  Newswires earlier this week said the Trump Administration was reviewing the anti-dumping duties imposed on Argentina with the possibility of removing them ahead of the G20 Summit.  Would appear the Administration is interested in offering an olive branch to Argentina and showing the rest of the members the US is willing to take a look at all trade actions.  This would not bode well for crush margins as there is no shortage of vegetable oils in the US or anywhere in the globe.  Meal continues to find support in the low $300/ST area, a spot which has held four times dating back to late August.

Ethanol production delayed until later this morning with production expected around last week’s level.  However, ethanol margins continue to be especially poor with some calculating them at the lowest levels since 2008.  RBOB/Ethanol spreads have collapsed to $0.27/gln, the lowest levels since February, creating little incentive for discretionary blending, even though a great deal wasn’t occurring when the spread was north of $0.60 either.  It does make a person wonder how much effect the small refinery exemptions the Trump Administration’s EPA has been granting is ultimately having on ethanol demand?  Spot ethanol prices continue around the lowest levels since 2005, while the ethanol/corn spread remains in negative territory.  Not bullish corn prices.


Bottom Line:  Firmer until trade chatter says otherwise.  As mentioned in the open, we remain skeptical of a rally on a trade deal unless it involves concessions which guarantee purchases of US soybeans.  Short of that, any rally attempt will look like a good selling opportunity.  Brazilian FOB basis has been weakening, but still no serious bids for PNW soybeans.  Wheat has shown it can garner demand at these futures levels, so we would expect export demand to remain constant.  Corn has shaky exports and ethanol demand to deal with.


Good Luck Today.

Tregg Cronin

Market Analyst






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