11/29/2018 Morning Comments

Good Morning,



A sharply lower Dollar Index yesterday thanks to comments from Fed Chairman Powell which seemed to walk back some of his previous hawkish stances.  The outside reversal in the USD came after nearly tying the 15-month highs from early November.  Many, many asset classes will be primed for a decent sized move in one direction or the other depending on the outcome of the G20 Summit.  The USD is near 15-month highs, crude oil is sitting on 13-month lows, 10-yr treasuries are near 3-month highs and equities have rebounded smartly since setting 8-month lows.  Expect volatility to ramp up today and tomorrow and the Sunday open to be more heavily traded than usual.


Snow around the Great Lakes but a mainly dry Midwest ahead of the next round of winter weather this weekend.  Two more days of dry weather before the next round of moisture moves into the WCB and Northern Plains but the central belt and ECB will also be affected.  7-day forecasted precip totals from this morning’s GFS see 0.50-2.00” of water-equivalent moisture to fall in the next week.  The question will be how it falls with rain/snow mixed expected.  Temperatures are expected to be below normal in the 6-10 and 8-14 day while precip moves to below normal for most of the Midwest by the 8-14.  Private forecasters continue to see nothing of concern in South America as planting continues.  As always, weather during the month of January will be the determining factor for the majority of the production there.



Weaker markets this morning as we take a step back from yesterday’s solid gains.  The soy complex remains the focus after prices hit a one-month low on Monday only to trade back up to 3-month highs yesterday.  The trade is skittish ahead of the G20 Summit, and for good reason.  It feels like the market is confident something will get done, but few think a full-blown trade deal with framework is likely to come out of the meetings.  As we’ve said, short of a guaranteed purchase amount of US soybeans or at least preferential treatment of US soybeans over Brazilian/Argentine beans, it feels next to impossible to hit the USDA’s current 1.900bbu export forecast.  If we cut exports any further, carryout will go over 1.0bbu and price should react negatively.  That said, there are still bushels of soybeans in the north to be harvested, so the final soybean yield in January isn’t likely to remain unchanged.  KC wheat led gains in the grains yesterday with some unwinding of MW/KW and W/KW spreads.  Cash was also very firm at the Gulf for both SRW and HRW, suggesting additional export business is getting done.  Export sales later this morning will include the holiday-shortened week, so light totals should be expected.  Open interest saw big drops ahead of first notice day Friday with corn down 68,601 contracts, soybeans down 6,636 contracts, meal down 9,024, oil down 11,411, SRW down 10,005 and HRW down 6,039 contracts.


Most in the trade expected yesterday’s weekly ethanol production to decline due to the poor operating environment but production improved by 6,000 bbls/day to 1.048 million bbls/day.  We aren’t sure why production is continuing to hang on through this period, other than plant operators would rather run at full capacity than idle a plant or slow to inefficient levels.  Every metric one wants to look at related to ethanol production is poor.  Even with the increase the 1.048 million bbls/day was down 1.7% from same week production last year and below the +2.2% over last year needed to hit the USDA forecast.  Weekly ethanol production hasn’t achieved the level needed a single week this marketing year which will keep the USDA’s ethanol estimate in question.  Stocks were up 139,000 bbls to 22.930 million bbls which are up 4.0% from a year ago.  RBOB/Ethanol spreads are trading just above the lowest level since September 2017.  Most ethanol calendar spreads are at or near contract lows.


Social media is abuzz with talk about Egypt’s GASC asking exporters to delay some shipments due to a “liquidity crunch.”  The issue is related to eight cargoes with a Dec 11-20 delivery slot with some shippers suggesting they will delay boats until January when GASC’s next letters of credit can be opened.  Others will ship the wheat and hope to be paid later, not wanting to snarl up their logistics.  As Rory Deverell from FC Stone points out, the value of wheat purchased during the 18/19 marketing year is the highest in at least five years and is up 60% from two years ago due to the higher futures prices.  Even though Egypt is the world’s largest wheat importer, they’re not like doing business with Japan or South Korea.  Whether this affects further offers of US-SRW remains to be seen, but it is definitely not a development the US export program needs to deal with now that things have started to roll.


The KCBT and MGEX spot floors rolled to the March yesterday with basis mainly unchanged at the Z/H spread.  Often times, commercials will try to take the spread by weakening basis, but bids simply reflected the roll which was a positive.  SRW barges traded at +76/78Z again yesterday, holding firm and well above delivery equivalence.  HRW was stronger at the Gulf with 12’s reportedly trading around +170Z vs. +157Z on Tuesday which is now +132H on the spot floor.  Those sort of Gulf numbers FOB back to 30-40c over the option, which is way over delivery but cash traders suggest shippers aren’t interested in loading trains just yet.  Carries are still large enough to justify sitting on wheat until JFM.  Spring wheat cash was mostly unchanged to a bit bitter with 15’s unchanged at +150/160H.  That sort of value should FOB back to near option price to slightly under for 15’s in the country, although you’d be hard pressed to get it from most commercials.  With winter weather on its way, concerns about logistics and mills get caught short should keep a bid in the market to keep wheat moving.


Export sales later this morning are expected around 300-500TMT for wheat, 600-900TMT for corn, 400-850TMT for beans, 175-400TMT for meal and 8-30TMT for oil.




Bottom Line: Hurry up and wait for the weekend’s events.  Most pundits believe a deal, even a partial one, results in 50-100c rally in the nearby.  We hope that’s the case, but remain skeptical of it.  If it occurs, it will be a golden marketing opportunity for both old crop and new crop soybeans.  November ’19 soybeans near $9.50 looks like a good place to start marketing for 19/20.  Prices at that level or higher doesn’t shift the acres away in our opinion.  Some chatter in the country suggesting farmers will get another MFD payment next year if the trade war is still ongoing.  We are not willing to count on that.




Good Luck Today.


Tregg Cronin

Market Analyst






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