11/21/2018 Morning Comments

Good Morning,


US equity futures look to open higher this morning following another washout on Tuesday.  Equities are still above their October lows, but not by much.  As one of our colleagues pointed out, the argument the US was winning the trade war based on our stock market performance vs. China’s is starting to wear thin.  China waited out the midterm elections, and now that our equity market has turned south, the PRC is more likely emboldened to let things play out.  In our opinion, this is not a good thing for commodities generally and grains specifically.  There is a line of thinking that hard assets become more valuable as inflation rises and money flees equities.  While there might be a sliver of truth to this, grains and the rest of the commodity sector will be hard pressed to outperform anything when the cause of the equity selloff is the world’s largest consumer of commodities.  In the 2007/08 financial crisis, no asset classes were safe, although we are certainly not calling for anything of that magnitude.  In short, grains are not likely to be a safe haven if the trade war worsens and equity performance continues to decline.

The weather focus has certainly shifted to South America, although still harvest left to complete in the US.  Fortunately, looking at mostly open weather through Thanksgiving although there is a system set for Saturday through Monday impacting Kansas, Nebraska, Iowa, and Missouri.  Totals on this morning’s GFS look to be in the 0.50-1.00” amount for IA/MO/IL/WI/NE-KS.  Have to believe winter wheat planting is complete everywhere, or certainly will be when this storm hits.  Most calling for this moisture to fall as snow given temps.  Temps in the 6-10 and 8-14 day outlook will be below normal while precip moves to above normal.  Looks like winter will be here in full force by the first week in December.


Lower markets because the path of least resistance is down.  Looking across the technical and fundamental landscape, there aren’t very many bullish narratives one can spin right now.  Russia is still exporting wheat and the US is not hitting the targets it needs to.  The trade war between the US and China rages on, and depending on which Trump official speaks next, the conflict is either nearly over or set to continue for the next 12-months.  Ethanol and export demand for corn have been showing cracks for weeks now, even if most in the trade believe the supply is set to get smaller in January.  Outside of the G20 Summit, South American weather is the next market moving event and so far, they are off to a blazing fast start on planting with few dry spots to worry about.  Most cash sources believe the US farmer is much longer than he wants to be, which should limit rally attempts as volatility declines into the holidays.  With all of the 2018/19 length in the bin and on the ground, the last thing the US farmer wants to discuss is 2019/20 despite seed orders being placed hot and heavy.  Open interest changes yesterday included corn down 5,759 contracts, soybeans down 8,909, meal down 3,942, oil down 2,546, SRW wheat down 4,486 contracts and HRW up 1,478 contracts.

Data was lacking yesterday, although we did take interest in the weekly deliverable stocks reports.  The majority of the time, these reports are a boring glance at data which barely moves.  However, one checks them weekly so when a situation arises like we have in spring wheat, attention can be paid.  Combined wheat stocks in Duluth and Minneapolis fell 1.622mbu last week to 19.659mbu.  This compares with 23.660mbu a year ago, and would be the lowest for this week in November since 2011.  Our data set goes back to 2003, and looking at the chart of all of those years, current stocks levels are below nine of the fifteen years listed.  The stocks situation, along with firming basis levels on the spot floor and in the to-arrive market, certainly help explain the MWZ/MWH inverting this week and trading around even money this morning.  Minneapolis can, and often does, get nutty in delivery periods when stocks are out of position or quality differentials come into play.  With the spread near even money, one would imagine commercials would deliver against the December, but if the stocks in Duluth/Superior are 13.5% protein or higher, commercials might be hesitant to let go of their delivery certs.  Without commercials making delivery, it is difficult to say what could happen to front-month spreads.  If you don’t have a reason to be in December Minneapolis wheat, take your chips to the March and live to fight another day.

In Kansas City, weekly stocks fell 1.886mbu to 120.945mbu but remains 2.276 mbu above a year ago.  KCBT stocks remain the highest for this week on the calendar since at least 2011/12.  Similar to MGEX, CBOT stocks continue to decline to multi-year lows with total wheat stocks down 450,000 bushels on the week to 76.892mbu which compares with 94.861mbu a year ago.  Stocks are at a three year low for this week.  Here again, the stocks levels in addition to the firm basis trades, help to address the drop in variable storage rates and the WZ/WH trading into -5.50c earlier this week.  KCBT basis was firmer yesterday by 7c for 12.20-14.00% protein.  12’s are now listed at +151/166Z vs. +131/146Z a week ago while 13’s are +158/173Z vs. +135/150Z a week ago.

Ukraine’s Ag Minister said their country’s corn crop has moved further into record territory, now estimated at 34.8MMT vs. 34.0MMT last, USDA at 33.5MMT and their previous record of 30.9MMT in 2013/14.  Ukraine produced a maize crop of 24.1MMT last year as drought reduced supplies.  Conventional thinking would assume more supply would mean more exports.  Currently, USDA is forecasting Ukrainian exports at 27.0MMT which would easily be a new record by a huge margin.  The previous record was 20.004MMT in 2013/14.  It is often helpful to look at demand estimates as a percentage of total supplies.  USDA is currently forecasted exports (27MMT) to account for 77.29% of total supplies (34.934MMT).  The 77.29% would be a new record by almost 5%.  If the crop hits the Ag Minister’s level, this percentage would fall to 74.52%, compared with the 5-year average of 68%.  Even if exports can’t be further raised into record territory, the supplies will mean Ukraine competes all year long with US supplies into Europe, the Middle East and SE-Asia.

South American planting progress was reported yesterday with soybean planting for Brazil at 80% complete vs. 69% last week, 71% last year and 69% average.  All of the major producers are over 90% complete.  1st crop corn planting progress was 87% complete vs. 78% last week, 82% last year and 85% average.  Argentine corn planting progress was seen at 55% complete vs. 52% last week, 46% last year and 41% on the 5-yr average.


Bottom Line: Conventional wisdom would say today will be a quiet session heading into the holiday break but these markets are anything but conventional.  As outlined in the first paragraph, there are precious few bullish headlines at the moment and it is difficult to see that narrative changing until South American weather becomes a problem.  Russian exports need to slow for the wheat market to get traction.  Period.  Corn would do well to see ethanol prices rebound and RBOB/Ethanol spreads head the other direction.


Would like to wish everyone a Happy Thanksgiving and safe travels this week.


Good Luck Today.

Tregg Cronin

Market Analyst






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