We continue to watch the Baltic Dry Freight Index and its counterparts as they make fresh multi-year lows. The benchmark index closed Friday at 668.00, the lowest value since 8/12/16. The complimentary indices such as the Baltic Capesize and Baltic Supramax indices are also making new lows for the move with the former at the lowest level since late November and the latter at the lowest levels since March 2016. With China being such a large influence on the global freight market, it would stand to reason these indices are a warning signal against a larger slowdown in Chinese economic activity. This obviously doesn’t bode well for soybean and meat demand. That said, energy markets and shipping typically go hand-in-hand, but crude oil futures are trading at their highest level since Thanksgiving. Difficult to say which indicator is leading and which is lagging.
Snow across N-ND and N-MN this morning while some rain and wintry mix are present in WI and IL. Otherwise fairly quiet as we get set for another brutally cold week across the Northern Plains. High temperatures this entire week across the Dakotas, Minnesota and Montana will be in the single digits with some days not crossing the zero mark. Windchill values will be -20 to -30 below much of the week as well with on and off snow showers. This should complicate logistics across the Northern Plains much the way it did last week with trains and crews being prevented from operating in this weather. There will be a sizable moisture event in the mid-South and eastern corn belt this week with moisture equivalent amounts as high as 3.00” in SE-MO, S-IL, S-IN, AR, KY, and TN. Well below normal temps will continue for the next 10-15 days across the Northern Plains.
Weaker prices across the grain complex this morning as we round the corner to our first WASDE report since early December. Markets finished last week on a positive note, although well off the Oval Office highs in which President Trump said China will be buying 5MMT of soybeans per day. The President obviously misspoke, as China is not planning to buy 180 million bushels of soybeans from the US every day. However, by the time the final bell sounded, it seemed as though traders were growing more skeptical of the Chinese purchase. Until the USDA gets caught up with export sales reporting, we don’t really have a solid handle on what they’ve bought out of the 10MMT of “promised” sales. From a price and availability standpoint, it doesn’t make any sense for China to buy one bushel of soybeans from the U.S. they don’t have to. Instead, it would make strategic sense to verbally commit to buying U.S. soybeans to placate Washington politicians, while still buying the vast majority of their soybeans from South America. The larger question is how long we can be strung along until cash traders realize the total purchases will fall well short of needed levels? Open interest changes Friday saw corn down 4,678 contracts, soybeans up 4,233 contracts, SRW up 21 contracts and HRW up 4,769 contracts.
Friday did see the first Commitments of Traders data released since mid-December, but this data is essentially worthless in our opinion considering its date. Knowing the positions of traders from 6-weeks ago doesn’t do you much good unless you’re comparing it to current positions. Unfortunately, we won’t have current positions until the first week of March, so this data set will be of limited value until then. During the shutdown, we paid quite a bit of attention to private sentiment indicators like those from sentimentraders.com, and when combined with seasonality, can give a decent view on fund mentality. Corn and Wheat Optix readings are very middle-of-the-road at the moment with the former at 46 and the latter at 45. This would be smack dab in the middle of their bullish and bearish readings. Their Optix reading for soybeans is a bit more supportive a 38, which is just below the 40 reading which denotes bullish sentiment. However, the reading is still well off the fall lows of 15.00. On a seasonality basis, February is a strong month for both corn and soybeans. February is the second strongest month on the calendar for corn, averaging a 1.501% return over the last 30-years. February is the strongest month on the calendar for soybeans, averaging a 1.928% return over the last 30-years. February is not so friendly to wheat, averaging a -0.890% return, the third weakest on the calendar.
Friday saw some strength at the Gulf for SRW and HRW bids with both going home at the strongest levels of the marketing year. Bids for 12.0% protein HRW were indicated at +160/165H while SRW was seen at +93/94H for Feb/Mar. This basis strength is certainly suggestive of ongoing demand for U.S. wheat which is the demand that has been touted since last fall. Calendar spreads are strong, consistent with the basis strength as the WH/WK rallied to -3.00c overnight and the KWH/KWK rallied to -7.75c. For the WH/WK, this is the strongest trade since 8/2 while the KWH/KWK is the strongest since 8/8. The strength in these spreads should also ensure storage rates drop by 3c/mo in both KC and Chicago. Even once storage rates are decreased to 8c/mo in Kansas City, the KWK/KWN would be trading at 45.6% of full financial carry. This would drop storage rates to 5c/mo which is where Chicago should find itself once this VSR period is done averaging. In Chicago, once storage rates are dropped to 5c/mo, the WK/WN would be trading at 23.3% of full financial carry. Once the storage rates are reduced, could be some decent bullspread opportunities provided the winter wheat crop doesn’t come up short.
Bottom Line: With China closed for Lunar New Year celebrations, we shouldn’t expect much on the trade front. Much of this week will be about position-squaring ahead of Friday’s USDA reports. It will be an intense day with final production of the 2018/19 corn and soybean crop, quarterly stocks, winter wheat seedings and updated production for South America. Luckily, the trade has a full two hours to digest all of the information and trade it! Crop insurance pricing is off and running and producers would do well to see where those values track relative to the last couple years.
Good Luck Today.
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