12/21/2018 Morning Comments

Good Morning,


Today is the last session before Christmas Eve and Christmas Day, so it provides an opportunity to look at a few financial markets and their price action into year end.  The US Dollar Index is firmer this morning but trading weakly the last week or so as it slips below the 50-day moving average and remains just above the 100-day.  Commodity currencies such as the Loonie, the Aussie and the Ruble had all been making new lows for the move and in some cases the lowest trades in a couple years prior to the late week bounce.  This certainly fits with the Bloomberg Commodity Index hitting the lowest level on Thursday since April of 2016.  The BCI hitting fresh lows came in large part to crude oil making fresh lows for the move and touching the lowest level since July 2017.  Momentum indicators such as stochastics are producing values below 4.00 which is about as low as we’ve ever seen.  The selling pressure remains strong and the term “oversold” means absolutely nothing in technical trading.  As we noted earlier this week, the energy selloff is dragging Heating Oil lower and in-turn producing some of the cheapest diesel prices in a year and a half.

Quiet weather in the U.S. through Christmas, although a fairly large winter storm will be hitting much of the Plains and Midwest Dec 26-28th.  This storm is expected to produce heavy snow and rain as well as the first real cold shot of the winter.  Weather to-date has been better than ideal, so a little moisture and a cool off shouldn’t be cause for concern.  The wetter pattern should remain in place through the 6-10 and somewhat into the 8-14 day while temps are mainly normal/below except in the far east.  Not too much changed in our view of South American weather.  Better rains are still seen for dry areas of south-central Brazil this weekend and early next week.  Provided they verify, should largely allay fears about shrinking production.  Crop estimates which are already making drastic cuts to Parana and MGSD seem premature in our opinion.


Mixed to weaker markets to close the week ahead of the lowest volume week of the year.  What traders haven’t already abandoned their trade desks will do so tonight and most will remain empty through New Year’s.  Corn is posting a modest little bounce after a very weak session Thursday which finally saw its daily chart gap closed.  It felt like the market could no longer ignore the current state of the ethanol market which has been bleeding red ink for weeks if not months.  Negative profitability by the largest user of corn is much more important than 3MMT of potential exports to China which may or may not happen.  Losses are being led by wheat, however, with news leaking out of the meeting between the Russian Ag Ministry and Russian exporters.  The latest headlines we’ve seen suggest no export curbs are being planned at this time while the Russian Ag Ministry sees Russian grain exports at 14MMT from January-June.  This would suggest full year wheat exports somewhere around 35MMT which is just shy of USDA’s current 36.5MMT estimate.  What’s 1.5MMT between friends? Soybeans remain underwhelmed with the size and rate pf Chinese purchases so far.  Open interest changes yesterday saw corn up 7,965 contracts, soybeans down 5,189 contracts, meal up 3,673 contracts, oil up 2,555, SRW wheat up 298 contracts and HRW up 829 contracts.

Export sales were the feature yesterday with solid postings by corn and soybeans while wheat was especially disappointing.  All wheat sales totaled 11.5mbu vs. the 15.7mbu needed weekly and were the lowest weekly commitments in 17-weeks.  This followed the largest weekly export sales last week since the middle of August and accurately reflects what happens when KC Wheat rallies above $5.20 and Chicago above $5.30.  KC wheat is caught between a rock and a hard place as the vast majority of wheat is owned by the commercial, is hedged and locked away against a pretty lucrative carry.  Flat price rallies will not entice him to sell.  Basis rallies will, but basis rallies take U.S. wheat out of contention in major export tenders.  If the basis doesn’t rally enough to warrant a sale, calendar spreads are still offering good enough carries to roll hedges further out the curve and sit on the wheat.  Basis and spreads need to rally to force wheat movement but that in-turn will rally the board and make U.S. wheat uncompetitive.  So here we sit, at least until exportable surpluses are exhausted in Russia and Europe which doesn’t appear to be the case yet.

Corn sales were strong at 77.7mbu, the largest of the marketing year and well better than the 34.1mbu needed weekly to hit the USDA forecast.  Total commitments of 1.166bbu are 17% ahead of last year while the USDA is looking for unchanged exports.  Soybean exports totaled 104.2mbu as they included 55.1mbu of sales to China.  More sales will be featured next week and should help exports make up ground on the needed level.  Total commitments are down 30% from a year ago at 1.011bbu.  Soybean meal sales were also strong at 300,000MT vs. the 141,000MT needed weekly.  Meal sales are 11% ahead of last year’s pace.  Bean oil sales were the second largest of the marketing year at 35,700MT vs. the 14,100MT needed weekly.  Total commitments are up 43% from the same point last year.  Yesterday morning saw the announcement from the USDA via the daily export sales reporting system that 204,000MT of soybeans had been sold to China, 257,000MT sold to unknown destinations, 100,000MT of meal to Columbia and 426,800MT of corn sold to Mexico.  The Mexico sale saw 373,455MT for 2018/19 and 53,345MT for 2019/20.

Two livestock reports released yesterday including the December cattle-on-feed report which showed on-feed at 101.9% of last year vs. estimates for 101.8%.  Placements in November totaled 95.1% vs. estimates for 93.8% while marketings were 101.4% vs. estimates for 101.0%.  Total cattle-on-feed as of December 1st were the largest Dec 1 numbers since 2011 and second largest since 2007.  Quarterly hog and pigs report was bearish feed demand but bullish hog prices in a relative sense.  All hogs and pigs as of Dec 1 were 101.9% of last year vs. estimates for 102.7%.  Kept for breeding were 102.4% and kept for marketing were 101.9%.  All hogs and pigs as of Dec 1 were a new all-time record by a fair margin over last year.  There were 74.55 million hogs and pigs in the U.S. as of Dec 1 vs. a shade under 65 million head just five years ago.


Bottom Line: Difficult to be inspired by the performance of any of our Ag contracts this week.  Corn and soybeans finally broke down and filled their gaps.  Wheat contracts have rejected retracement and moving averages.  Spring wheat contracts are trading at the lowest levels since mid-July.  Ethanol profitability remains rubbish, pace of Chinese soybean buying isn’t strong enough to make a dent in our balance sheet and South American weather doesn’t look ominous enough to threaten global soy supplies.  The holiday break coming up should offer a chance to examine weather more closely.  The U.S. farmer sold grain on the rally, but we’re not sure it was enough to get caught up to average.  Still a lot of grain to price in the country which can and will blunt rallies as we’ve seen.


Good Luck Today and Have a Merry Christmas!

Tregg Cronin

Market Analyst






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