11/20/2018 Morning Comments

Good Morning,


Energy markets remain volatile this morning with natural gas down 4.21% after a sharp rally the day before.  Crude oil is finally settling down, having strung together several positive sessions following its 12 session decline.  It is becoming more clear what helped lead to the exaggerated energy moves last week with the first casualty of the blow up now public.  Optionsellers.com is a firm specializing in selling naked commodity options and happened to be short natural gas calls and crude oil puts.  The extreme moves didn’t allow them to adjust their positions quick enough, leading to a total blow up of the firm and their clients losing everything.  Some reading on this subject is a great primer to the risks of selling naked options for anyone unfamiliar.  With the limit up move in oats yesterday, we were wondering if the firm wasn’t short oat calls as well…….

Some light snow around the Great Lakes, otherwise a mostly quiet Midwest radar.  A mostly open week of weather in the Northern Plains and WCB where it is badly needed.  A few showers are expected in Kansas and Missouri where final seeding efforts are still occurring.  A good deal of soybeans remain in the field from North Dakota to Missouri with quality and shatter problems widespread.  Extended maps showing below normal temps moving in during the 6-10 and hanging around through the 8-14.  Above normal precip will be the feature over most of the Plains although below normal precip will hover over the central/east corn belt.  The week 3 and 4 outlooks show below normal precip but below normal temps which covers Dec 1-14.


Quietly firmer markets this morning following yesterday’s washout.  It appears the market did not like the comments out of the APEC Summit from the weekend, especially from Vice President Pence who seemed to suggest a deal is not imminent and additional tariffs would be forthcoming.  We have thought for a while that if no deal was agreed to at the end of the month, the market will extract additional premium.  Despite the comments from Mr. Meyers, the WAOB chairman, last week in Geneva, we do not believe the current 1.900bbu export estimate is achievable without additional sales to China.  If exports do not hit 1.900bbu this marketing year, then the ending stocks estimates over 1.0bbu will become reality.  A 1.0bbu carryout is not congruent with $8.75 futures prices in our opinion.  Wheat markets also traded weakly yesterday with Kansas City December making new contract lows and the lowest trades since mid-July.  It feels like funds are still trying to figure out how to position themselves with the drop in variable storage rates in Chicago.  Price action so far would suggest they plan to park their shorts in KC to earn roll yield if Chicago and Minneapolis are going to see spreads near par.  Export demand has improved, but Russia hasn’t slowed their pace and until they do, difficult to justify higher prices.  Open interest changes on the selloff included corn down 4,909 contracts, soybeans up 3,763 contracts, meal down 3,237 contracts, oil down 4,048 contracts, SRW up 3,941 and HRW down 9,007 contracts.

Data yesterday included the weekly crop progress report which showed a bit more harvest left to complete than expected.  Corn harvest was estimated at 90% complete vs. 91% expected, 84% last week and 93% average.  The concern areas are the Dakotas with North Dakota at 71% harvested and South Dakota at 82%.  Heavy snow last week kept farmers out of the field, and storage is also running tight with piles on farms and at elevators quite common.  Cash sources suggest the overrun is being sold, however.  Soybean harvest was estimated at 91% complete vs. 88% last week and 96% average.  Concern areas here are Kansas at 81% complete, Missouri at 77% complete, Arkansas at 83% and Michigan at 83%.  National progress is the slowest since 2009 and the second slowest since 1992.  Winter wheat planting progress was shown at 93% complete vs. 89% last week and 97% average.  This is also the slowest pace since 2009 and the second slowest on record.  Kansas has 5% of its acres left to plant, Missouri 18%, Arkansas 21%, Oklahoma 8% and Texas 15%.  It is next to impossible to estimate what is still going to get planted at this juncture.  Safe to say the 10-15% increase in seedings is out of the question.  Also of interest is national winter wheat emergence at 81% complete vs. 88% average.  Much of this wheat in the Great Plains which isn’t out of the ground yet will go into dormancy barely sprouted and obviously not as winter-hearty as desired.

Inspection data was less than inspiring again this week with wheat at 18.7mbu vs. the 22.5mbu needed weekly to hit the USDA forecast.  Borderline pathetic we haven’t hit the needed level a single week since the beginning of the marketing year.  Total inspections of 360.5mbu are down 18.4% from a year ago vs. USDA calling for a 13% increase y/y.  Corn inspections totaled 31.4mbu, below the 45.2mbu needed weekly to hit the USDA forecast.  Total inspections of 469.9mbu are up 79.8% from a year ago, so some breathing room is warranted.  Soybean inspections of 38.8mbu were slightly above the 34.9mbu needed weekly and achieved the needed level for the sixth week in a row.  This isn’t something to get cocky about, however, as the Oct-Nov shipment window is our largest and usually sees export weeks of 60-100mbu.  Total inspections of 405.4mbu are down 42.9% from a year ago.  Sorghum inspections of 2.2mbu were actually at the level needed for just the third time this year, although total inspections of 8.9mbu are down 68% from a year ago.

Spring wheat continues to have our attention with spot floor trades up 25-30c on the offer for 13.5-14.0% protein, although receipts were very light at just 8 cars.  Movement remains incredibly light as farmers across the Northern Plains are focused on finishing harvest and not hauling wheat.  The firmer basis helped the MWZ/MWH invert yesterday, hitting a high of +2.75c.  With the spread inverted, it should bring out deliveries by commercials unless the protein content of their receipts in Duluth are well above the 13.5% standard and they don’t want to part with it.  US-HRS and US-DNS continue to trade at a discount to CWRS, especially for higher protein.  13.5% protein offers have US-NS at a $6/MT discount to CWRS, but 14.0% protein has US-NS at a $20/MT discount for January.  The premiums are fairly consistent out to March which should keep business like Bangladesh at our shores.  Also watching European Union wheat exports which were reported at 6MMT total this week which are down 27% from a year ago.  In the last WASDE, USDA estimated EU wheat exports down just 1.2% from last year.


Bottom Line: Should be a quiet session into the holiday break, but we thought that about yesterday also.  The soybean market will continue to be battered around by comments and tweets until the US and China conclude their meetings in Argentina.  Our markets need a positive outcome from that meeting, not just for soybeans, but for wheat and corn as well.  The sentiment toward commodities as a whole is not good right now, and rotation out of the flailing stock market is not happening.  We continue to watch 2019 new crop prices closely.


Good Luck Today.

Tregg Cronin

Market Analyst






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