12/6/2018 Morning Comments

Good Morning,


Equity and oil markets are sharply lower this morning but both stocks and oil have recovered off of their early morning lows.  At one point this morning, spot month crude oil futures were down over 4.5% to $50.23/bbl.  Comments from Saudi Arabia’s energy minister seemed to suggest doubt about OPEC’s decision to cut oil production to balance markets.  Specifically, there are concerns Libya, Nigeria and Russia would all agree to the cut after having been exempt from previous measures.  In addition, the cuts have no bearing on US producers which continue to ramp up production.  Equity markets are also sharply lower after having taken a day off yesterday for the national day of mourning for President George H.W. Bush.  DJIA futures were down well over 400 points this morning but have recovered to trade down 384.00 at last print.  Canadian officials arrested a top executive of the Chinese technology company Huawei yesterday with plans to extradite him to the US.  The company has been the focus of corporate espionage and cyber security with concerns over whether this could hurt current negotiations on trade between the US and China.

Flurries in in the central Midwest otherwise dry weather and expected to remain that way the next 7-days at least.  The southern plains, Delta and Mid-South are a different story, however.  The entire southern half of the US is expected to see a massive winter storm bring rain and snow to the tune of 0.75-5.00” of water-equivalent moisture by Sunday.  The cutoff is rather sharp with Oklahoma expected to see moisture but Kansas shouldn’t see much of anything.  Temperatures remain mainly above normal the next 15-days with precip above normal in the aforementioned region but below normal in the Northern Plains.  Still do not detect anything of issue in South America from the private forecasters.  Brazil continues to see water in most growing regions while Argentina is favorably dry to finish their planting campaign.  LH-Dec to FH-Jan is the critical developmental time frame for much of Brazil.


After mixed trade to begin the night, grain markets are weaker across the board as the outside market sentiment weighs on Ags.  The trade continues to wait with bated breath for a resumption of Chinese buying which President Trump seems confident about but most are cautiously nervous about.  According to our contacts, the only entity which has been given the green light to purchase US soybeans is Sinograin to refill state-owned reserves.  If that is the case, cash traders think reserves could be replenished with around 4-5MMT of buying.  This would be a big step forward but nowhere the level needed to support higher prices in our opinion.  In addition, if China isn’t going to buy US soybeans, there can’t be much hope they are going to buy anything else like wheat, DDGs, ethanol, sorghum, etc.  That all said, we are impressed with soybeans’ resilience at current levels, especially SX9 over $9.50 which to us looks overpriced and is sending the wrong signal about 2019/20 acreage.  Wheat markets traded weakly yesterday on concerns over financing with respect to Egyptian purchases of wheat.  GASC tendered again overnight and that is discussed below.

Concerns over letters of credit being granted by GASC began surfacing last week but seemed to gain momentum Tuesday and Wednesday.  Supposedly, there are 950,000MT worth of wheat with delivery dates in January which are at risk.  GASC tried to tamp down these flames yesterday saying LC’s for three cargoes were granted yesterday and another five will be coming soon.  Anytime the globe’s largest wheat importer is having liquidity concerns it is reason for pause.  Overnight, seven exporters offered twelve cargoes of Russian, Ukrainian and Romanian wheat at range of $236.30/MT FOB to $250.00/MT.  There was no US wheat offered to no one’s surprise as US exporters are taking a wait-and-see approach to the GASC situation.  US-SRW would have been competitive depending on freight valuations.  US wheat should win the recent Iraq tender with US-HRW coming in $7-24/MT cheaper than Aussie and Canadian on a landed basis.  However, Iraq has not always purchased the cheapest offer so remains to be seen what they do.

CHS registered a fresh 67 corn deliveries last night and delivered a total of 69 with an ADM customer stopping 64 of them.  These are the first real deliveries of the cycle, bringing the month-to-date total to 77.  ADM House registered a fresh 140 SRW receipts in Toledo last night and delivered same.  Didn’t appear to be any big commercial stopper, but again, these were the first deliveries against the WZ of the cycle.  Most of the 297 HRW receipts delivered the night before last by ADM have been stopped with only 82 put out overnight.  In fact, ADM stopped 70 of the receipts which could be a shuffling of receipts to get either older or newer stem depending on their position.   ED&F Man has stopped 600 of the total 877 put out, although we aren’t sure which commercial entity this is clearing through ED&F Man.  Continues to be no Minneapolis deliveries after CHS cleaned up everything the other commercials delivered on the first two days of the period.  While old news today, was interesting to see a fifth straight week of draws out of Duluth/Minneapolis on the weekly stocks report.  Stocks are now down to 17.630mbu, the lowest since 2011 for this week, and 19.7% below the same period a year ago.  Daily shipment reports would suggest another sizable draw next week and this activity is keeping basis mostly firm.  MWZ/MWH remains inverted and those two things together do not point toward weaker futures in the near-term.

StatsCan will be out later this morning with their December crop production report.  All-wheat production is expected to inch higher to 31.4MMT vs. 31.019MMT in September and 29.984MMT a year ago.  Canola production is expected to fall slightly to 20.800MMT vs. 20.999MMT last and 21.328MMT last year.  Barley production seen at 8.200MMT vs. 8.227MMT last and 7.891MMT a year ago.  Canada continues to handle China’s hard wheat needs, almost exclusively, so their export pace will need to be monitored closely this winter.


Bottom Line: Weekly ethanol production out later this morning and export sales delayed until tomorrow.  Yesterday’s session offered nothing and it was a pathetic showing by the CME Group to keep Ag markets open while the rest of the markets were closed in honor of President Bush.  That said, there were no data points to chew on but markets need to see some action out of the China/US negotiations soon to prevent a selloff to close the Sunday night gaps.  In our mind, nothing has changed from last week until we see some sales confirmations.  Each day closer to 2019 is a day closer to Brazilian new crop and the door closing on US soybeans to China.  Brazilian FOB are weakening which could be a sign we are headed in the right direction but still no activity off the PNW where it is badly needed.


Good Luck Today.

Tregg Cronin

Market Analyst






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