7/26/2017 Morning Comments

Good Morning,

 

Outside Markets as of 6:20am: Dollar Index up 0.0050% at 94.0900; Euro down 0.107% at 1.16710; S&P’s are up 2.50 at 2476.50; Dow futures are up 21.00 at 21,581.00; 10-yr futures are up 0.04%; Crude Oil is up $0.37 at $48.26; Heating Oil is up $0.0004 at $1.5734; Paris Milling Wheat is up €1.00 at €169.25/MT; Paris Rapeseed is up €1.25 at €360.50/MT; Dalian corn closed down 0.36%, Dalian soybeans finished up 0.03%, Dalian oil closed down 0.07% and Dalian meal finished down 0.70%.

A band of rain on the radar this morning stretching from SC-NE up to W-WI this morning which looks to be bringing with it decent rainfall amounts.  Spots in the WCB have received decent rainfall in the last 24-hours including NC and NE-NE, SE-SD and parts of S-MN to the tune of 0.50-2.50” in the heaviest localized areas.  The area of focus this morning is NW-IA with rain in that area badly needed.  The entire state of IA looks to receive 0.50-2.60” over the next 24-hours, and those rains will also spill into IL to drop another 0.50-1.90”.  Thur/Fri will see rain in S-MO/S-IL/S-IN/S-OH/KY to the tune of 0.50-1.25”.  By Friday, most of the Midwest will be mainly dry through the 7-day period.  Temperatures the next week will be in the upper-80’s to low 90’s for the plains and mainly the low 80’s for areas west of the MO-River.  Cooler but definitely drier on the extended maps for the corn belt.

 

Meager overnight bounce as commodity traders try to figure out what hit them the last two days.  After a big sell off Friday, more losses Monday with a bit of recovery, followed by sharp overnight gains on crop conditions Monday evening and then a flush yesterday, corn now finds itself having traded to the lowest level since June 30th.  Gaps don’t always get filled, but they usually do, and the ones made this week didn’t take long.  The recent longs in the Ag room have had a rough week as forecasts turned wetter this for IA, and then cooler the next 15-days for the majority of the corn belt.  To the folks hitting the sell button, the weather to come is still more important than the weather received apparently, even if crop conditions continue to suggest yields quite a bit smaller than the USDA.  To be clear, however, the selloff in our opinion has not been all about the weather, but more a realization that weather alone will have a difficult time cleaning up the excessive stocks we are carrying around in several markets.  A 2.4bbu carryout in corn was not created overnight, and it will take much longer than one night to get rid of it.  Despite the impressive volatility in corn and soybeans, the selloff in Minneapolis has been even more impressive as traders realize the issue with the HRS balance sheet will not come until Q4-2017/Q1-2018.  The Wheat Quality Council Tour concluded their first leg yesterday which is discussed below.

First data from yesterday which included deliverable stocks of HRS.  Stocks in Duluth/MPLS grew a combined 923,000 bushels last week with stocks now at 20.204mbu vs. 23.14mbu a year ago.  Stocks have now risen in three of the last four weeks by a net  2.417mbu, setting their seasonal trough about a month earlier than normal thanks to the heavy movement of producer wheat during June on the rally.  This is one more reason the rally in Minneapolis has hit the skids as rallying futures prices are not usually tied to rising deliverable supplies.  Deliverable supplies are the supplies of last resort, and the stocks commercials know they can usually get their hands on.  This compared with buying wheat from producers or elevators which is subject to a host of factors like the calendar, income, work load, etc.  Deliverable stocks were trending tighter before the rally in May, but the cushion is being rebuilt swiftly.  The rise in deliverable stocks fits perfectly with softening spreads and basis, with the former slipping to -9.75c overnight, the lowest since May 9th and compared with the +35.00c inverse at the June highs.  Spot floor basis was softer again yesterday with 14.0-15.0% protein down 10-25c.  Spot 14’s are now bid +65/120U vs. +80/115U a week ago.  All three combined certainly point to the HRS balance sheet issue, which is still a very real and bullish problem, being down the road.

That provides a good segue to Day 1 of the HRS tour which according to Ag media found better wheat than expected.  Two things about the expectations: 1) No one has ever said there was an issue in E-ND or much of the eastern half ND for that matter which was where many of the routes started and traversed yesterday.  2) A lot of SW-ND, NW-ND, NW-SD, NC-SD and E-MT are not surveyed at all or particularly under surveyed which is where the drought and wheat conditions are the worst.  Having said that, Day 1 found an average HRS yield of 37.9bpa vs. 43.1bpa a year ago on the same route and compares with the 5-yr average of 45.7bpa.  Crops obviously deteriorated as groups went west, and the group that did get into SW-ND estimated as much as 40% abandonment for fields in that region based on wheat in a bale.  Would still expect a tour average yield to come in a bit higher than the market is currently trading based on surveying bias toward the eastern half of the state.  Harvest is advancing quickly in NC-SD with reports all over the board.  Some producers are finding protein content higher than yield while other are finding wheat around half their APH.  Highly variable to say the least.

Worth a quick look at the current corn balance sheet to help understand why the corn market is struggling to the degree it is despite yields estimated smaller than a year ago.  As it stands today, and based off the USDA’s latest S&D from earlier this month, we are going to carryout 2.367bbu of corn on August 31st.  This combined with the current yield and demand assumptions for 17/18 will see carryout of 2.325bbu.  The market is probably trading a yield of around 165-166bpa, or at least that is the sentiment in the trade.  With a 165bpa national average yield, carryout drops to 1.848bbu with a stocks/use ratio of 12.88% which is to say nothing about the USDA’s demand estimates.  Outside of last year this would still be the largest carryout since 2005/06 and the highest stocks/use ratio since 2009/10.  Now it becomes a bit more clear why the trade is struggling with $4.00+ futures.  Many in the trade think the yield is lower than 165-166, with one respected analyst in our opinion issuing a 162.6bpa yield yesterday.  With that yield, carryout would drop to 1.648bbu with a stocks/use ratio of 11.49%.  This yield, in our opinion, would support $4.00+ futures for an extended period of time provided demand can hold up.  Unfortunately, as we’ve been discussing for a couple of weeks, with the high degree of variability, a true handle on yield isn’t likely to be gained until combines roll in October.  One thing is for certain, the trade must believe yield is sub-165 to stem a price slide toward $3.70-3.75.

 

Bottom Line: Insert any market cliché about bullish markets needing to be fed every day, or bear markets after July 4th, etc.  Point is the trade married themselves to weather model changes which have been as erratic as any in recent memory.  The corn belt is incredibly variable this year, making good spots great and bad spots terrible, adding to the uncertainty.  We have solid old crop supplies to help buffer against a shortfall and the market needs to feel like those supplies are in jeopardy.  Today they do not.

 

Good Luck Today.

Tregg Cronin

Market Analyst

Tregg.Cronin@halocommodities.com

www.halocommodities.com

@5thWave_tcronin

 

 

COMMODITY TRADING INVOLVES RISK AND MAY NOT BE SUITABLE FOR ALL RECEIPIENTS OF THIS EMAIL. Neither the information presented, nor any opinions expressed, constitutes a solicitation for the purchase or sale of any commodities. The thoughts expressed in this email and basic data from which they are derived are believed to be reliable, but cannot be guaranteed due to uncertainty about future events and complexities surrounding commodity markets. Those acting on the information are responsible for their own actions.

7/25/2017 Morning Comments

Good Morning,

 

Outside Markets as of 6:25am: Dollar Index down 0.088% at 93.9550; Euro up 0.146% at 1.16940; S&P’s are up 4.75 at 2473.25; Dow futures are up 55.00 at 21,554.00; 10-yr futures are down 0.16%; Crude Oil is up $0.75 at $47.10; Heating Oil is up $0.0210 at $1.5433; Paris Milling Wheat is up €0.25 at €169.50/MT; Paris Rapeseed is up €1.25 at €362.50/MT; Dalian corn closed up 0.18%, Dalian soybeans finished up 0.26%, Dalian oil closed up 0.79% and Dalian meal settled up 0.78%.

Some scattered rains across ND and S-MN, otherwise fairly quiet this morning.  Commodity markets old off swiftly on the Sunday night predicated on the rains received over the weekend and late last week.  A closer look at actual, verified totals from NOAA show plenty of holes left behind the last week’s rain.  Most notably, the SW-1/2 of IA, E-NE, C-SD, N-MO, most of KS and the southern-2/3’s of IL.  IA and E-NE have solid chances to fill in these gaps starting tomorrow when the entire state of IA looks to pick up 1.00-2.50” with the same true for E-NE.  The ECB will stay well-watered over the next 7-days, but that has actually been part of the problem as many areas in IN/OH are running 150-400% of normal rainfall over the last 14-days with soybean conditions feeling the effects.  Cooler and drier remain the themes for the 6-10 and 8-14 for the majority of the Midwest.

 

Higher markets last night on the weaker than expected crop conditions, but those rallies fizzled out at the European open to fill gaps and trade weaker in both corn and wheat.  The soybean conditions were the real surprise, and they are maintaining positive gains on the session, but it is also soybeans which can recover best after a drier stretch.  The weakness in corn seems to be twofold: 1) more analysts are coming to grips with what a 164-165bpa yield means to the 17/18 balance sheet when demand is factored in.  Without a yield closer to 160bpa, it is just tough to erase the largest carryout in 30-years within one marketing year.  2) The cheap FOB offers out of Argentina and Brazil will remain a constant threat throughout 17/18 as global importers rest comfortably in a buyers’ market.  The Wheat Quality Council Tour kicks off the HRS tour today with expectations they will find a better crop than the USDA is currently carrying because the nature of the routes will avoid the worst areas of SD, ND and MT.

The crop progress report released last night showed national corn conditions down another 2pts to 62% G/E vs. 63% expected, 64% last week and 76% last year.  Based on just G/E ratings, and excluding 2012, our current conditions are tied with 2011 and 2007 as the lowest rating since 2006.  When looking at the full crop condition score, we see a value of 359 points which yields a similar result.  In the by-state conditions, the ECB mostly improved with conditions up in IL (+1pt), OH (+2), WI (+4) and MI (+3).  Conditions were mainly lower in the WCB, however, with IA and NE showing 3 and 4pt drops, respectively.  PA and CO were down 9 and 11pts, respectively.  Excluding 2012, NE has the lowest rated corn since 2006 while ND is the outright lowest since 2006 and SD is the lowest outright since 2002.  67% of the crop is silking vs. 40% last week and 69% average.  8% of the crop is doughing vs. 13% average.

Soybean conditions were the real show-stopper, however, with the national ranking down 4pts to 57% G/E vs. 60% expected and 71% last year.  Declines were witnessed from one end of the belt to the other which signifies both drought and excessive moisture are taking their toll on soybeans.  It must also be stressed, however, soybeans are the one crop you can’t count out as long as the calendar doesn’t read September 1.  Their ability to manage stress and still produce bountiful yield is unlike any other.  While the conditions need to be taken seriously, weather the month of August will still mean more for final yields.  The crop condition score nationally of 349 is the lowest since 2012 and the second lowest since 2006.  IN at 47% G/E compares with 54% average, while OH at 47% G/E compares with 52% average and NE is 59% G/E vs. 63% average.  ND at 41% G/E is the lowest rating for that state since 2006, while SD at 25% G/E is the lowest rating since 1993.  IL, IA, MI and MN are all at or slightly above the 5-yr average condition rating with 2012 added to the mix.  69% of the soybean crop is blooming vs. 67% average while 29% of the crop is setting pods vs. 27% average.

Spring wheat conditions declined 1pt nationally to 33% G/E which is what was expected by the trade and compares with 68% last year.  Conditions declined in MT, ID and WA while they were unchanged in the Dakotas and a point higher in MN.  The national spring wheat condition score of 277 points is the lowest since 1988’s 196 points.  The by-state changes were not worth mentioning, but suffices to say most remain the lowest since 1988.  We continue to monitor conditions vs. final yields on spring wheat with the USDA’s current other spring yield of 40.3bpa looking much too high based on history.  With the USDA’s current yield of 40.3, our regression analysis has an r-squared of 33.3%.  If we put 2017 on the trend line with a yield of 28bpa, the regression improves to 45.9%.  There are other variables which go into the yield assessment, and we are not currently forecasting a 28bpa national average yield, but the USDA still looks 4-5bpa too high in our view.  Winter wheat harvest was estimated at 84% complete vs. 75% last week and 80% average with no national spring wheat harvest to report yet.  Big progress will be made in South Dakota on HRS this week with yields incredibly variable but generally high quality.

Egypt’s GASC tendered for wheat overnight with 14 offers coming in from five different origins.  Cheapest offers were from Ukraine at $204.00/MT, Romania at $204.99/MT FOB and Russia at $205.00/MT FOB.  French wheat was offered at $206.75/MT FOB, while US-HRW was offered at $213/MT FOB.  US-HRW has been getting cheaper over the last 2-3 weeks, and some indications have had FOB prices even lower than the aforementioned, but GASC specs could have something to do with the premium.  Other cash sources note US-HRW is getting competitively priced into Algeria once again which wasn’t expected until 2018 given the bounce back in European production.  The tightening in FOB spreads along with US wheat being offered to GASC could be a sign futures have corrected enough to the downside which has amounted to around 61.8% of the entire rally which began in April.

Grain export inspections also released yesterday which included 16.6mbu of wheat vs. the 17.5mbu needed weekly to hit the USDA forecast.  Total shipments now stand at 161.2mbu vs. 135.7mbu needed weekly.  Corn inspections totaled 36.8mbu vs. the 15.8mbu needed weekly.  Total corn shipments are 2.039bbu vs. 1.538bbu a year ago.  Soybean shipments measured 21.9mbu vs. the 11.9mbu needed weekly.  Total soybean shipments measure 1.980bbu vs. 1.695bbu a year ago.

Two private crop tours of the hard red spring crop have pegged North Dakota around 180-185mbu vs. the USDA’s latest at 196.08mbu from earlier in the month and 269.10mbu a year ago.  This is probably a bit larger than the market was trading, and implies a crop closer to 375-380mbu compared with some of the low-ball estimates out there between 300-325mbu.  The moving target will continue to be harvested acreage, which we contend has risen from the where it was a month ago thanks to the futures rally.  Still, the USDA’s 96.3% harvested percentage is much too high and should be closer to 90-92%.  10-20mbu either way isn’t likely to affect the market in the grand scheme of things once farm marketing and logistics take over Q4-2017/Q1-2018.  In addition, Canada is still a moving target.  The fact managed money did almost nothing with their position over the last week according to the latest COT data probably had more to do with yesterday’s selloff than anything.  Commercials are especially well hedged in both winter wheat and spring wheat which we will cover in tomorrow’s comments.  The commercials are betting against higher prices, or at the very least, have locked in the carry and are betting on better basis down the road with all of the spring wheat harvest left to come in.

 

Bottom Line:  Market giving back overnight gains as corn and wheat longs weigh on the market.  More and more analysts are coming to the realization that the variability of this crop is as high as most have ever seen.  To wit, it may take combines rolling to get a real sense of what this crop has to offer in terms of yield potential.  Market participants will be anxious for both the WQC tour this week and the ProFarmer tour in two weeks.  While spring wheat has an especially bullish balance sheet, we still have to go through harvest and if the HRS farmer is anything like the HRW farmer, he could let it fly off the combine.

 

Good Luck Today.

Tregg Cronin

Market Analyst

Tregg.Cronin@halocommodities.com

www.halocommodities.com

@5thWave_tcronin

 

 

COMMODITY TRADING INVOLVES RISK AND MAY NOT BE SUITABLE FOR ALL RECEIPIENTS OF THIS EMAIL. Neither the information presented, nor any opinions expressed, constitutes a solicitation for the purchase or sale of any commodities. The thoughts expressed in this email and basic data from which they are derived are believed to be reliable, but cannot be guaranteed due to uncertainty about future events and complexities surrounding commodity markets. Those acting on the information are responsible for their own actions.

 

 

7/21/2017 Morning Comments

Good Morning,

 

Outside Markets as of 6:30am: Dollar Index down 0.132% at 94.1150; Euro up 0.167% at 1.16780; S&P’s are down 1.00 at 2470.25; Dow futures are down 23.00 at 21,557.00; 10-yr futures are up 0.12%; Crude Oil is down $0.44 at $46.49; Heating Oil is down $0.0146 at $1.5336; Paris Milling Wheat is up €0.25 at €170.50/MT; Paris Rapeseed is unchanged at €367.00/MT; Dalian corn closed down 0.30%, Dalian soybeans finished closed down 0.34%, Dalian soy oil finished up 0.46%, Dalian meal finished up 0.81%.

Scattered rain on the radar this morning in SD, S-MN, IA, IL and IN this morning.  The hot air mass and NW Flow continue to produce scattered, yet severe storms in the WCB with huge cells on the radar behaving erratically and rewarding some farms and not others.  In the last 24-hours, rains fell in NC and NW-SD to the tune of 1.00”, while rains also fell over a central strip through IA where it has been drier over the last 2-weeks.  The 5-day rainfall totals show impressive amounts in spots, but barely any rain in other spots.  Today will see rains in SE-MN and most of WI, but otherwise the WCB will be mainly dry until Monday/Wednesday when SD, MN and E-ND see chances at rain.  IA’s next best chance at rain comes Thursday/Friday next week with coverage at 0.50-1.20” for most of the state.  IA needs rain and soon.  Above normal temps and below normal precip for the WCB and Northern Plains continues on the extended maps.

 

Firmer markets yesterday and early last night gave way to lower prices this morning as traders wake up to radar returns and observed rainfall maps for parts of IA.  As mentioned in the weather section, it is important to really look at the moisture being received and where, as radar has sported some impressive colors the last 48-hours but the rainfall received have been anything but impressive for many areas.  Looking back at the last week of rainfall on Sunday will be important in our opinion considering the high temperatures and heavy water needs corn and soybean plants require at this stage of development.  The majority of the nation’s corn plant has either already pollinated or will be doing so in the next 10-days, so Sunday night forecasts will still be important for corn and especially so for soybeans.  The erratic nature of price change around weather model releases has also been a big talker in the trade as of late with many noting the lack of volume around those time periods also.  Producers are encouraged to manage risk appropriately in this environment where computer based algorithms are trading weather maps right alongside humans.

Export sales released yesterday were solid for all three major grain commodities, and especially so for wheat relative to expectations.  Wheat sales totaled 24.6mbu vs. the 13.9mbu needed weekly to hit the USDA export forecast.  Total commitments so far this marketing year measure 346.1mbu, up 2% from a year ago.  Big sales to the Philippines were the highlight, including 57,900MT of hard red spring as the inelastic demand of that class shows its teeth.  Corn sales were also better than expected at 18.4mbu vs. the 14.5mbu needed weekly to hit the USDA forecast.  Total commitments now stand at 2.213bbu which are up 17% from a year ago and almost clear of the USDA’s marketing year total of 2.225bbu.  There are 271.5mbu of outstanding sales vs. 407.1mbu at this time a year ago.  Soybean sales totaled 15.1mbu, which were the largest in 7-weeks and adding to the commitments which have already exceeded the USDA’s marketing year forecast.  Total commitments stand at 2.218bbu which are up 19% from a year ago and past the 2.100bbu forecast by the USDA.  New crop sales are taking on added importance as well given our proximity to the new marketing year.  The real story is how woefully behind corn and soybeans are to last year at this time with corn at 138.3mbu vs. 263.0mbu a year ago, and soybeans at 201.8mbu vs. 336.1mbu a year ago.  Way too early to affect USDA demand assumptions but the weight of the South American crop is not lost on importers.

Informa Economics released their latest update of US corn and spring wheat production mid-session yesterday.  They chose to cut 287mbu off national corn production which is now forecast at 13.9 billion bushels with a national average yield of 166.2bpa.  If we plug this number into our grain balance sheets with USDA carry-in we see a carryout for 17/18 at 1.872bbu with a stocks/use ratio of 13.05%.  This would be the second highest stocks/use ratio since 2008/09, and the second highest carryout since 2005/06.  As noted yesterday, there would appear to be room to cut demand in some spots should production prove to be around that level although the spotty nature of rains lately would seem to be keeping yield forecasts on a downward trajectory.  Informa cut 23mbu off their other spring wheat production from the USDA’s latest guess, pegging the crop at 400mbu.  The HRS portion of the USDA’s other spring crop amounted to 386mbu or 91.2%.  If we use the same ratio on Informa’s number that would imply a HRS crop of 364.8mbu.  That would be a yield of around 38bpa, which is much higher than crop conditions would imply.  It would also appear they have not adjusted for lower harvested acreage, so not sure what value this production estimate has any more than USDA’s from two weeks ago.

The USDA Attache to Australia updated his production forecast for their wheat crop yesterday, putting it at 22MMT due to drought conditions across much of the island.  This would be well below the 35MMT from last year and solidly below the USDA’s latest estimate of 23.5MMT.  The average yield is seen at 1.8MT/ha vs. 2.70MT/ha last year.  According to the report, in some areas, around 10% of the crop area appears unlikely to be harvested as less than 20% of normal rainfall had occurred as of July.  We would go one step further and say planted acreage could be down 10-20% from last year given producers’ decision to forego planting into dry dirt according to our sources on the ground.  Without rainfall in the immediate future, wheat production could be staring at less than 20MMT even though the critical water usage stages doesn’t really kick in until LH-Aug, FH-Sep.  To be clear, there are significant carryover stocks from last year both on-farm and in commercial hands to help buffer the shortfall.  Post is estimating wheat exports for the marketing year at 18MMT vs. the USDA at 19MMT and 22MMT this past season.

 

Bottom Line: Erratic trade isn’t going anywhere, especially with this NW Flow creating so many winners and losers with the rainfall it is generating.  By Sunday we will be able to assess the haves and have nots more clearly, and see how big the problem areas remaining are.  Difficult to believe the good areas are good enough to offset the poor areas this year.  Even in supply-led rallies there is rarely a good time to sit back and hit the pause button on marketing.  Take advantage of what has been a strong July as opposed to the big weakness which is normally seen.

 

Good Luck Today.

Tregg Cronin

Market Analyst

Tregg.Cronin@halocommodities.com

www.halocommodities.com

@5thWave_tcronin

 

 

COMMODITY TRADING INVOLVES RISK AND MAY NOT BE SUITABLE FOR ALL RECEIPIENTS OF THIS EMAIL. Neither the information presented, nor any opinions expressed, constitutes a solicitation for the purchase or sale of any commodities. The thoughts expressed in this email and basic data from which they are derived are believed to be reliable, but cannot be guaranteed due to uncertainty about future events and complexities surrounding commodity markets. Those acting on the information are responsible for their own actions.

 

 

7/20/2017 Morning Comments

Good Morning,

 

Outside Markets as of 5:45am: Dollar Index up 0.244% at 95.0310; Euro down 0.00145 at $1.15400; S&P’s are up 0.75 at 2472.25; Dow futures are up 10.00 at 21,606.00; 10-yr futures are down 0.02%; Crude Oil is up $0.03 at $47.15; Heating Oil is up $0.0022 at $1.5536; Paris Milling Wheat is down €0.50 at €170.75/MT; Paris Rapeseed is down €0.75 at €366.75/MT; Dalian corn closed up 0.12%, Dalian soybeans finished down 0.10%, Dalian soy oil settled up 0.92% and Dalian meal closed up 0.11%.

Scattered rain showers in the Dakotas and Nebraska this morning while separately it is raining in S-WI and N-IL.  In the last 24-hours, beneficial rain fell in some of the driest areas of the Dakotas, putting moisture in spots which haven’t had meaningful rain in close to a month.  Week-to-date totals have been best in SC-ND where as much as 2.50-3.0” fell, but all areas of the Northern Plains will welcome rains to try and peck away at the massive deficits which still exist.  Over the last 14-days, there is still a very large deficit in NW-IA/SE-SD/NE-NE as well as persistent dryness in the W-1/2 of ND and E-MT.  Dry spots in IL have been slowly filled in, but more will be needed in coming weeks.  The NW-Flow will remain active, bringing chances of rain to most areas of the WCB< but still no soaking rains seen.  Best chances over the next 7-days will be E-Dakotas, NE-IA, SE-MN, N-IL and the ECB.  Extended maps from the CPC show above normal temps centered over the Northern Plains with below normal precip expected for most of the Midwest.  The end of this period will see the main growing areas moving into pod-set for soybeans.

 

Mixed markets overnight with corn and soybeans leading the way higher but wheat trading off 3-4c across the three exchanges.  The weather pattern remains unsettled enough to provide support for row crops as the shaky start to the year in the ECB, and the dry June and FH-July of the WCB has created doubts about the USDA’s 170.7bpa national average yield.  While it can be argued soybeans still have the potential to achieve trend line yields, lower crop conditions than the past several years and an export demand pull which seems to grow every year without fail have been able to keep soybeans above $10.00 for the time being.  The correction in wheat generally, and winter wheat specifically, seems to be directly attributable to the huge grower sales at harvest in the United States as well as the lack of competitiveness on the world export stage at a time in which commercial storage is brimming.  The only class of wheat in the United States which has a supply problem is HRS, but up until now the market has acted as though the all-wheat balance sheet is going to be tight.  HRW and SRW need to maintain some semblance of export competitiveness to prevent carryouts from ballooning.

Reuters has published articles in the last 24-48 hours detailing the dryness in both Canada and Australia with projected production cuts thrown out by various analysts.  Halo Commodities can confirm that boots on the ground are currently looking for a crop closer to 20MMT of all-wheat compared with the USDA’s latest estimate at 23.5MMT.  One look at the Canadian Drought Monitor below will tell the tale about the Canadian drought with the worst conditions existing in Saskatchewan where 48% of Canada’s wheat production comes from.  Large swaths of SK and AB have gone 20-30 days without a rain of more than 0.02”.  If we use a 21MMT estimate for Australia, the national average yield would fall to 1.60MT/ha vs. the 5-yr average of 2.02MT/ha which would include last year’s record 2.73.  Using USDA demand, ending stocks would fall to 2.248MMT which would be the lowest since 1995/96 and the lowest stocks/use on record.  If Canada is trimmed by 2MMT to 26.550MMT, the national average yield would fall to 2.95MT/ha vs. the 5-yr average of 3.20MT/ha.  Ending stocks would drop to 3.363MMT which would be the lowest on record and a stocks/use ratio of 10.92%, also the lowest on record.  Ending stocks and stocks/use ratios are not likely to drop to record lows, implying demand will have to be rationed if production comes in around the aforementioned levels.  When combined with the issues in the Northern Plains, this could put a greater onus on US-HRW coming to the rescue for high quality demand.  The combined US hard wheat/Canadian/Australian balance sheet based on our best estimates of supply only puts ending stocks at 19.764MMT, the tightest since 2007/08’s 13.696MMT with a stocks/use ratio of just over 20% vs. 17.29% in 2007/08.

One common theme on the rally the last couple weeks has been the heavy grower sales in the US of both corn and wheat, with old crop on the former and new crop on the latter.  Basis has been weaker for both, and spreads have been sloppy, especially of late.  This presents a slight problem for continued futures appreciation as several wheat and corn spreads hit contract lows.  The CU/CZ has hit -13.75c the last three sessions, a fresh contract low while CZ/CH hit -11.0c last Friday to set a new contract low.  WU/WZ set a new contract low two days ago at -24.25c vs. the -23.75c we are trading at this morning.  WZ/WH tied a new contract low of -20.00c this morning which constitutes 52.91% of full financial carry.  KC wheat is no exception with KWU/KWZ and KWZ/KWH at the lowest levels since April.  Spreads hitting contract lows is usually not a harbinger of higher flat price, which should be a warning signal for producers managing price risk.  Calendar spreads are very weak and telling both producers and commercials alike to store wheat as long as possible provided the futures portion is protected.  Everyone is banking on basis appreciation later in the year which will keep spreads trending toward full carry.

Data yesterday included weekly ethanol production which improved by 19,000bbls/day yesterday to 1.026 million bbls/day.  While trending in the right direction, weekly ethanol production fell below the same week a year ago and was shy of the level needed to achieve the USDA’s marketing year demand estimate.  With only a little more than a month left in the marketing year, it is looking increasingly likely ethanol demand for corn may need a 25-50mbu reduction on the August WASDE.  When combined with feed/residual most likely still being overestimated, we may not have seen the largest carryout projection for the 16/17 marketing year.  Weekly ethanol stocks rose 956,000bbls, the largest weekly rise in half a year, to 22.137 million bbls.

In the FWIW category, Commodity Weather Group released their initial corn yield estimate yesterday, pegging the crop at 167.1bpa vs. the USDA’s current 170.7bpa.  With their yield estimate, CWG provided some data about their track record vs. the USDA from August through the final in January.  If anything, CWG has a slight tendency to come in under the USDA.  If we plug a 167.1bpa national average yield into the current USDA balance sheet, leaving all else unchanged, carryout drops to 1.947bbu vs. the current 2.325bbu.  The stocks/use ratio would be 13.57% which would be above the 5-yr average of 11.62%.  At that level, there still wouldn’t appear to be a real call to action for bulls, especially considering issue could be taken with those demand estimates at this early stage of the marketing year.  If yield slips to 165bpa, which some suggest it already has, ending stocks fall to 1.773bbu with a stocks/use ratio of 12.36%.  Tighter, but still not runaway bullish in our opinion.  A yield of 160bpa with ending stocks of 1.357bbu and a stocks/use of 9.47% would be outright bullish and require higher prices to ration back demand.  The real question is what USDA pegs the crop at with its first objective yield estimate.

Export sales estimates for later this morning put wheat at 300-500TMT, corn at 300-700TMT, soybeans at fine-tuned 150-2,200TMT, meal at 50-200TMT and oil at 5-20TMT.

 

Bottom Line: All about weather and if the dry areas of the WCB get filled in.  It is important to recognize the comfortable if not burdensome old crop corn stocks we have to buffer against a new crop production issue which will likely temper the need for an extended rally.  Soybean demand will keep bulls nervous until more confidence is gained on yield and that doesn’t come until the end of August.  Still have a spring wheat issue in the US, but how Canada finishes and how Australia recovers are becoming the front-burner issues.  Lots of HRW to help plug holes.

 

Good Luck Today.

Tregg Cronin

Market Analyst

Tregg.Cronin@halocommodities.com

www.halocommodities.com

@5thWave_tcronin

 

 

COMMODITY TRADING INVOLVES RISK AND MAY NOT BE SUITABLE FOR ALL RECEIPIENTS OF THIS EMAIL. Neither the information presented, nor any opinions expressed, constitutes a solicitation for the purchase or sale of any commodities. The thoughts expressed in this email and basic data from which they are derived are believed to be reliable, but cannot be guaranteed due to uncertainty about future events and complexities surrounding commodity markets. Those acting on the information are responsible for their own actions.

 

7/18/2017 Morning Comments

Good Morning,

 

Outside Markets as of 5:50am: Dollar Index down 0.556% at 94.6210; Euro up 0.712% at 1.16000; Aussie Dollar up 1.745% at 0.79300; Swiss Franc up 0.834% at 1.05230; S&P’s are down 0.25 at 2458.25; Dow futures are up 13.00 at 21,594.00; 10-yr futures are up 0.04%; Crude Oil is up $0.19 at $46.21; Heating Oil is up $0.0034 at $1.5029; Paris Milling Wheat is up €1.75 at €174.25/MT; Paris Rapeseed is up €0.25 at €368.25/MT; Dalian corn closed up 0.84%, Dalian soybeans finished up 0.03%, Dalian meal closed up 0.32% and Dalian soy oil closed down 0.03%.

Forex markets are grabbing attention this morning as the USD slides to the lowest level since September 8th, 2016 as the Trump administration fails to deliver a replacement for Obamacare according to financial media outlets.  According to some analysts the USD is a good barometer for the Trump administration as a whole with the weakness of late being tied to his agenda being bogged down in Congress and the Courts.  Also grabbing headlines was the Aussie Dollar rallying to the highest level since May 2015 after the Reserve Bank of Australia gave a particularly upbeat view of the economy in their latest meeting minutes.  One detail, their view that a cash rate of 3.5% which is well above the current 1.5% rate, would neither stimulate nor hold back the economy.  Certainly a hawkish view on rates which is a break with most central banks around the globe.

Some long-awaited rainfall on the radar across the Dakotas and Nebraska this morning which is putting moisture in spots which haven’t seen more than a few hundredths in close to a month.  Radar returns over the last 12-hours are showing 1.0” totals along the SD/ND border as well as a blob in E-SD.  More follow up is needed, and this rain is too late to help the spring wheat crop, but no one will be complaining this morning at least.  The WCB and Northern Plains will remain active the next 4-5 days with several chances of rain for the Dakotas, S-MN, N-IA.  5-day estimates put 1.00-1.50” in many of these areas with totals as high as 4.70” seen in SW-MN.  The northern half of IA is slated 0.50-1.75”.  It will be important for these rains to fall as extended maps don’t look particularly inviting for cooling temps or rainfall with above normal temps and below normal precip seen for the central/western corn belt again.

 

Firmer markets overnight as prices react to the declining crop conditions at a time in the crop calendar when actual weather means exponentially more than the weather forecast.  Much of the corn crop in the central belt is in full pollination mode while corn as far north as NC-SD/C-MN is throwing tassels.  The fact crop conditions are declining during this third week of July does not set forth the kind of trend markets like to see for a developing crop.  While 1-2 weeks ago, national average corn yield estimates of 165-166bpa looked a bit aggressive, yesterday’s crop conditions have lowered the perceived range with 166-167 probably on the high end and the low end down to 160.  The corn crop does not get a second chance at pollination, and after the troubling start, dry conditions in the Northern Plains and excessive moisture in the east, plenty of doubts exist for this crop.  Spring wheat is actually leading gains this morning as conditions declined further yesterday, but price is also holding up despite rains  moving across North Dakota as the market realizes rain at this stage isn’t going to help this crop.  Concerns also persist about the Canadian crop the next 2-3 weeks.

Corn conditions declined yesterday by 1pt nationally to 64% G/E vs. 64% expected, 76% last year and 64% on the 5-yr average.  The 5-yr average would of course contain 2012’s 31% G/E rating in that average.  The national condition score this week of 363 points is obviously the lowest since 2012’s 281 points, and the second lowest since 2006’s 362 points.  Still not a great correlation between crop condition scores for this week and final yield, but the correlation is improving.  It’s actually quite surprising the national rankings weren’t down further considering some of the state-by-state changes.  SD fell 7pts, ND fell 7pts, IA was down 6pts, WI down 3pts, NE down 3pts, KS down 2pts, IL down 1 pt and IN down 1 pt.  The only states in the corn belt with improvements were OH up 1pt and MO up 1pt.  IA has the lowest rated crop since 2013, NE the lowest since 2012, ND the lowest since 2006 and SD the lowest since 1988.  40% of the national crop is silking vs. 19% last week and 47% average.  The national soybean condition rating fell 1 pt to 61% G/E vs. 61% expected, 71% last year and 61% average.  This is the lowest rating since 2012’s 34% G/E, but the second lowest since 2008.  The full condition including fair, poor and very poor reflects the same.  North Dakota has the lowest rated soy crop on record while South Dakota’s at 29% G/E is the lowest rated since 1993.  Blooming progress is 52% vs. 34% last week and 51% average while soybeans setting pods was pegged at 16% vs. 7% last week and 13% average.

Spring wheat conditions also saw another dip thanks to another week of hot temperatures and no rain across the Northern Plains.  National rankings fell 1pt to 34% G/E vs. 34% expected, 69% last year 69% average.  The national G/E rating of 34% Is the lowest since 2006’s 34% and both are the lowest since 1989’s 24%.  The difference this year is conditions have been much worse, much earlier this year than some of the other drought years which could have sealed the yield fate earlier than normal.  The crop condition score of 278 points is easily the lowest since 1988’s 202 points.  The chart below shows the week 28 condition score vs. the final ‘other spring’ yield which is implying a yield of 28.2bpa.  As we have noted in week’s past, the correlation at 44% is by no means perfect, but it is improving with each passing week.  As one will notice from the chart, it seems to have more predictive powers for years of drought and other trouble than for “normal” years.  Spring wheat harvest has begun in South Dakota, but not enough progress has been made to make USDA’s report.  Next week should see reported progress.  Winter wheat harvest was pegged at 75% complete vs. 67% last week and 73% average.

Other data yesterday included export inspections were especially solid for grains as we round out the year for corn shipments.  Wheat inspections totaled 21.3mbu vs. the average needed at 17.5mbu.  Total wheat shipments stand at 144.1mbu which are up 26.3% from a year ago.  Corn shipments were 43.7mbu vs. the 18.9mbu needed weekly to hit the USDA’s marketing year objective.  Total shipments of 2.002bbu are up 34.7% from a year ago with inspections now accounting for 89.9% of the USDA projection.  Soybean shipments totaled 10.5mbu vs. the average needed at 13.4mbu.  Total shipments now stand at 1.957bbu which are up 17.3% from a year ago and now account for 93.1% of the USDA’s marketing year projection.

The other big data point yesterday was the June NOPA crush figures which missed average trade estimates rather sharply.  June NOPA crush totaled 138.074mbu vs. the average trade guess at 143.1mbu, 149.2mbu last month and 145.1mbu a year ago in June which was a new record.  There was a ton of maintenance downtime in the industry during the month of June which was well-reported but obviously not accounted for in the average trade estimates.  Three NOPA members were down for the entire month, which is also why May was so strong as end users built up meal stocks ahead of time.  This will put pressure on USDA to lower their marketing year crush projection again in August, although they could wait to see if July crush rebounds from this especially low rate.  Soybean oil stocks totaled 1.703 billion lbs vs. 1.749 billion at the end of May, a sizable drop of 46 million lbs.  Oil stocks a year ago in June were 1.975bbu.

One quick note from Friday’s COT report, worth highlighting just how big the fund buying was last week in corn and soybeans.  Managed funds in corn bought 132,700 contracts which was the third largest week on record, flipping their position from short -83,319 contracts to long +49,381 contracts.  This was met by massive selling by the commercial gross short position (elevator/farmer).  In soybeans, funds bought 80,202 contracts which was easily the largest single week of buying on record by that group.  Funds nearly covered their net short, but were still short -23,985 contracts as of a week ago.  Big farmer/elevator selling there as well.  The larger than expected buying helped markets open weaker Sunday night, but that seems to be an afterthought now that conditions are trending lower.

 

Bottom Line: Markets are concerned with a crop condition which is trending lower in July, not higher even if there is rain on the radar this morning in some of the drier spots of the corn belt.  If follow up rains and temperatures looked conducive to pollinating corn, markets might be a bit more receptive to lower prices but extended maps look tough.  Plenty of old crop buffer in the corn balance sheet, but until the national average yield is known corn will remain sensitive.  Moisture isn’t helping the HRS crop with the focus now shifting to Canada.

 

Good Luck Today.

Tregg Cronin

Market Analyst

Tregg.Cronin@halocommodities.com

www.halocommodities.com

@5thWave_tcronin

 

 

COMMODITY TRADING INVOLVES RISK AND MAY NOT BE SUITABLE FOR ALL RECEIPIENTS OF THIS EMAIL. Neither the information presented, nor any opinions expressed, constitutes a solicitation for the purchase or sale of any commodities. The thoughts expressed in this email and basic data from which they are derived are believed to be reliable, but cannot be guaranteed due to uncertainty about future events and complexities surrounding commodity markets. Those acting on the information are responsible for their own actions.

 

7/13/217 Morning Comments

Good Morning,

 

Outside Markets as of 5:45am: Dollar Index down 0.0003% at 95.7560; Euro down 0.310% at 1.14185; Aussie Dollar up 0.690% at 0.77290; S&P’s are up 4.00 at 2444.00; Dow futures are up 18.00 at 21,501.00; 10-yr futures are up 0.11%; Crude Oil is down $0.28 at $45.20; Heating Oil is down $0.0117 at $1.4620; Paris Milling Wheat is down €3.25 at €176.25/MT; Paris Rapeseed is down €6.00 at €368.75/MT; Dalian corn closed down 0.83%, Dalian soybeans finished down 0.23%, Dalian soy oil closed down 0.65% and Dalian meal settled down 1.51%.

China released June import/export data last night with both stronger than expectations as imports rose 17.2% y/y vs. expectations for a 12.4% gain while exports rose 11.3% vs. expectations for a 9.0% gain.  This left China with a $42.77 billion trade surplus for the month of June, higher than the $42.44 billion estimate by analysts.  The Chinese Yuan is trading around $6.7842 this morning, just off the strongest levels since last October.

Rains on the radar again this morning which look to be dropping decent totals in E-NE/S-IA/N-MO and just making their way into W-IL.  Separately, there is also a system dropping moisture in OH and SE-MI.  Heavy rain has already fallen in N-MO with totals there based on radar showing returns of 1.0-6.0”.  After the current systems finish up, the Midwest will be mainly dry until mid-week next week when MN/WI look to see the best chances of rain.  Totals of 0.50-2.50” look possible for a large portion of those two states, keeping them well watered.  Still nothing meaningful in the way of precip for the Dakotas/MT in the next 7-days.  Extended maps show above normal temps in the 6-10 for much of the Midwest, while temps moderate slightly for the 8-14.  Precip is mainly below normal for the corn belt during that time frame, although the Northern Plains look to break from the below side at least briefly.

 

Broadly weaker markets overnight led by wheat which has the most traded contracts down 2.00-2.25% while soybeans are down 1.7-1.9% and corn is trading down over 1.0%.    The combination of unexpected rains in the western reaches of the corn belt this week along with a lack of bullish surprise in yesterday’s USDA reports seem to be combining to give the Ag markets a one-two punch.  In somewhat discouraging fashion, December corn is now trading at $3.95, well off from the highs of $4.1725 set just two sessions ago.  Similarly, soybeans have given back about 33c and Chicago wheat is off just shy of 50c.  It doesn’t seem to matter whether prices are up or down, open interest keeps rising in most of our Ag markets.  Yesterday on the selloff, Chicago wheat open interest was up 2,785 contracts and corn was up 20,497 contracts.  KC wheat was down 506 contracts, while soybeans were down 6,952.

The focus yesterday was squarely on production forecasts which saw corn come in 190mbu larger than last month due solely to a rise in harvested acreage while yield was left unchanged at 170.7bpa.  Many in the trade were expecting a cut to the national average corn yield, but this was unlikely given USDA’s history on the July WASDE, but also because conditions were close enough to average as a whole to punt this month and wait until after pollination has occurred.  In general, it feels as though the trade is using something in the neighborhood of 165-167bpa as it stands today.  A yield in that area would cut 310-477mbu off of the supply side of the balance sheet.  Unfortunately, yield wasn’t the only negative yesterday as 16/17 feed/residual was cut 75mbu which went straight to the bottom line.  Many quickly pointed out that might not be a large enough cut to feed demand, but nothing will be changed there until the October WASDE.  On new crop, USDA raised feed/residual 50mbu which offset some of the production increase and left 17/18 ending stocks at 2.325bbu vs. 2.110bbu.  The USDA cut the average farm price 10c/bu from $3.00-3.80 last month to $2.90-3.70 this month.  Global changes included Argentina being raised 1MMT to 41MMT which along with the aforementioned changes left 16/17 global ending stocks at 227.5MMT vs. 224.6MMT last month.  17/18 ending stocks are seen at 200.8MMT vs. 194.3MMT last month with weather the sole focus moving forward until scouts hit the fields in August.

The soybean market was given some supportive inputs, but they were easily masked by the negative money flow elsewhere.  In the 16/17 balance sheet, crush was cut 10mbu to 1.900bbu but exports were increased 50mbu to 2.100bbu which left ending stocks down 40mbu to 410mbu.  For 17/18, harvested acreage was increased slightly, but all demand side estimates were left unchanged to put ending stocks at 460mbu vs. 495mbu last month.  No is steadfast in their soybean yield estimate at the moment, nor should they be considering it is July 13th.  The USDA at 48.0bpa is just fine with most analysts, but the encouraging thing is the continued gain in exports year after year without fail.  This was confirmed in the global numbers as Chinese soy imports for 16/17 were increased 2MMT to 91.0MMT and 17/18 imports were increased 1MMT to 94MMT.  South American estimates were left unchanged for both marketing years, although ending stocks for 17/18 did increase slightly to 93.5MMT from 92.2MMT last month.  Funds most likely got net long at the tail end of last week of the beginning of this week and will now have to defend that position given the price rally.  Still plenty of time for the soybean crop to get larger or smaller, but the stronger demand is encouraging.

Besides corn production, the big focus was wheat production and specifically hard red spring production.  All wheat production came in at 1.760bbu vs. the average trade estimate of 1.751bbu and last month’s 1.824bbu.  Winter wheat production rose 29mbu from last month due to a 15mbu rise in HRW, 8mbu in SRW and 7mbu in SWW.  Other spring wheat production was shown at 423mbu vs. the average trade guess at 414mbu with hard red spring implied at 385mbu.  This is a bit larger than most in the trade have probably been using as 350-375mbu is a bit closer in our opinion.  Durum production was indicated at 57mbu vs. the average trade guess of 76mbu and 104mbu last year.  The reason most think HRS will fall further is the lack of change to harvested acreage in either ND or MT with both expected to see much larger than normal abandonment.  Other changes for wheat include a cut to 16/17 feed/residual use of 42mbu thanks to larger June 1 stocks.  Exports were also raised 20mbu which concluded a solid 16/17 campaign.  Ending stocks rose 23mbu to 1.184bbu.  On the new crop side, feed/residual dropped 20mbu and exports were cut 25mbu to inch ending stocks up 14mbu from last month to 938mbu.  Believe most in the trade were using something around 875mbu for a carryout before today’s numbers.  Not a great deal of change on the world front although USDA did cut Australia to 23.5MMT from 25.0MMT last month due to dry weather.  The EU was also cut 0.8MMT while FSU-12 was increased 2.2MMT.  World ending stocks of wheat declined from last month’s 261.2MMT to this month’s 260.6MMT.

Spring wheat has held together since the data better than anything else for obvious reasons, but a closer look at the by-class balance sheet leads on to believe inter-market relationships have a good deal further to go.  Using the USDA data, hard red spring ending stocks as a percentage of hard red winter stocks look to finish 17/18 at 27.23% which would be the lowest on record going back to 1984/85.  This compares with the previous record low from last year at 39.65% and the low in 2007/08 at 49.44%.  Soft red stocks as a percentage of hard red spring stocks looks to finish next year at 193.44% which blows away the previous record of 122.52% in 2011/12.  Looked at a different way, hard red spring stocks as a percentage of all wheat stocks is currently pegged at just 12.99% vs. the previous record low of 19.84% set last year.  In 07/08 that ratio was 22.2%.  These ratios of course could get tighter still if production estimates slip further, or demand can’t rationed at current price levels.  There would appear to be plenty of ammunition left for spring wheat whether on a flat price or inter-market basis.

Weekly ethanol production was also released before the USDA data which showed production slipping 7,000bbls/day to 1.007 million bbls/day.  This is still 4-5% below the level needed to hit the USDA’s affirmed 5.450bbu corn for ethanol demand estimate.  Stocks dropped by a sizable 390,000bbls to 21.181 million bbls.

 

Bottom Line: Managed funds covered most of their short position over the last two weeks and ran into a bit better precip this week than was originally forecast as well as the USDA providing no call to action just yet.  To be clear, weather has been far less than ideal, especially in the Dakotas and the ECB early.  The national average corn yield is most likely smaller than the 170.7 the USDA is using, but we won’t get an update until the August WASDE.  Until then we have to trade weather forecasts, cheaper South American maize offerings and a large spec who needs to choose which position he wants to hold.

 

Good Luck Today.

Tregg Cronin

Market Analyst

Tregg.Cronin@halocommodities.com

www.halocommodities.com

@5thWave_tcronin

 

 

COMMODITY TRADING INVOLVES RISK AND MAY NOT BE SUITABLE FOR ALL RECEIPIENTS OF THIS EMAIL. Neither the information presented, nor any opinions expressed, constitutes a solicitation for the purchase or sale of any commodities. The thoughts expressed in this email and basic data from which they are derived are believed to be reliable, but cannot be guaranteed due to uncertainty about future events and complexities surrounding commodity markets. Those acting on the information are responsible for their own actions.

 

7/12/2017 Morning Comments

Good Morning,

 

Outside Markets as of 6:30am: Dollar Index down 0.020% at 95.7390; Euro down 0.187% at 1.14965; S&P’s are up 4.50 at 2429.00; Dow futures are up 38.00 at 21,405.00; 10-yr futures are up 0.12%; Crude Oil is up $1.55 at $45.74; Heating Oil is up $0.0126 at $1.4889; Paris Milling Wheat is down €1.75 at €180.00/MT; Paris Rapeseed is down €2.75 at €373.25/MT; Dalian corn settled up 0.48%, Dalian soybeans closed up 0.33%, Dalian oil closed up 0.13% and Dalian meal closed down 0.17%.

Lots of positive demand news for US crude oil this morning as private energy analyst PIRA Energy said US crude exports could reach 2.25m barrels per day by 2020 compared with 520,000 b/d last year.  If that level were reached, it would put it in company with countries like Kuwait at 2.1m b/d and Nigeria at 1.7m b/d.  Separately, the Energy Information Administration said US crude oil production is likely to hit 9.3m b/d by the end of this year, up from 8.9m b/d in 2016 and will rise to 9.9m b/d by 2018.  The US will be one of the top five producers and top ten exporters, but isn’t subject to production constraints like members of OPEC can be.  To be clear, the US still imports oil, having brought in 7.9m b/d in 2016 due in large part to domestic refiners not having demand for the light, sweet crude coming from North Dakota and Texas.

Scattered showers across the upper-Midwest this morning including light showers in SD/NE as well as the Great Lakes.  Rain in the last 24-hours has been limited to a cross section in C-MN, localized activity in E-SD and W-SD as well as a bit of rain in S-NE.  Western and southern WI also saw totals of 1.0-2.0” along the borders.  Best chances for rain in the next 7-days will be in C-IA during the next 24-hours in which 0.75-2.00” is expected on about 50-60% coverage.  The ECB will also combine several smaller chances of rain over the next 5-6 days, but relief for the Northern Plains and much of the WCB will remain limited.  Still plenty of dry pockets, and the heat continues through the 6-10 before moderating in the 8-14 day outlook.  Extended precip maps are dry for most of the central belt during the next 14-days, although the worm might be starting to turn in the Northern Plains, but a bit far out for confidence.

 

Weaker markets overnight as some of the rainfall returns lead to sell pressure, although a closer analysis doesn’t leave one especially confidence about performance through the heat blast.  Also some rewarding the rally taking place by farmers ahead of the USDA’s WASDE report later this morning as evidenced by spreads and basis.  Open interest changes on yesterday’s early rally and late weakness were mostly increases with Chicago wheat O/I up 5,776 contracts, while corn was up 23,947 contracts, KC wheat was up 3,232 contracts and soybeans were up 6,808 contracts.  Difficult to know what the size of the managed fund positions are and whether they are net long or net short for the individual commodities which makes discerning the open interest change difficult.  If the funds have moved to net longs, then the open interest increases yesterday are likely late-coming longs which are probably underwater and subject to liquidation.  If the funds are still short and added to those positions near the highs, it puts even more emphasis on the initial reaction following today’s numbers.  Corn ATM vol is above week ago levels while SRW and soybeans are slightly below.

The big focus of today’s reports will be the yield estimates for corn and hard red spring wheat, although expectations for huge changes to corn need to be tempered.  The USDA rarely makes big changes to their yield estimate in July as objective field data is not available until the August WASDE.  While the USDA may make small tweaks, farmers in the WCB hoping for a 5bpa cut shouldn’t be holding their breath.  Average estimates look for a national average yield of 169.6bpa vs. 170.7bpa last month with production at 14.126bbu vs. 14.065bbu last month as the higher acreage from the June 30th report is applied.  Soybean production is seen at 47.9bpa vs. 48.0bpa last month with production seen at 4.243bbu vs. 4.255bbu as slightly smaller acreage is plugged in.  For wheat production, all wheat is seen at 1.748bbu vs. 1.824bbu last month with HRW flat at 745mbu vs. 743mbu last month and SRW mostly unchanged at 303mbu vs. 298mbu last month.  Other Spring wheat is seen at 416mbu although the range of estimates goes from 470mbu to 305mbu.  Most private analysts are probably in the 350-375mbu area of HRW with a downward bias.

While production forecasts will take center stage, the bearish stocks report from June 30th should take on as much importance.  As one will remember, June 1 corn stocks in all positions came in around 102mbu larger than the average trade estimate which will almost certainly be taken directly away from feed/residual use.  16/17 ending stocks are therefore seen rising to 2.321bbu from 2.295bbu last month with 17/18 ending stocks pegged at 2.181bbu vs. 2.110bbu.  It will also be interesting to see what the USDA does with 17/18 exports given the still growing South American production and the large discounts to US FOB offers.  Wheat stocks for 17/18 are seen declining from 924mbu last month to 876mbu this morning due completely to the drop HRS production.

Deliverable stocks reports out yesterday saw a draw in HRS supplies with Duluth/Minneapolis down a combined 227,000 bushels to 18.080mbu.  This is slightly above the low set two weeks ago of 17.787mbu which is the lowest since September of 2014.  Daily activity suggests another draw coming for this week’s business.  Deliverable stocks kept rising last week in KCBT and CBOT with the latter jumping 4.768mbu on the week to 91.167mbu which compares with 75.075mbu a year ago.  No real change to HRW or HRS stocks in Chicago.  Kansas City stocks also kept rising as new crop bushels continue to flow in.  Total stocks rose 1.346mbu to 123.2mbu which compares with 107.344mbu a year ago.

CONAB released their latest Brazilian production figures yesterday which included an increase to corn production at 96MMT vs. 93.8MMT in June and 66.5MMT last year.  Brazil’s lineup is big and growing for corn exports which should keep pressure on the US.  Data show June corn exports at 1MMT, a new record with another 3.2MMT in the lineup.  They put out a soybean production figure of 113.9MMT vs. 114MMT from the USDA last month.

 

Bottom Line: Weaker markets as we head into the USDA reports with the trade likely to be disappointed by the lack of corn production cut, while the trade might be as interested in the spring wheat production numbers as anything.  Important to remember the USDA will probably not pick up the full extent of abandoned spring wheat acreage across the Northern Plains.  Forecasts will probably continue to cut spring wheat production with greater emphasis on Canadian weather over the next 30-45 days.

 

Good Luck Today.

Tregg Cronin

Market Analyst

Tregg.Cronin@halocommodities.com

www.halocommodities.com

@5thWave_tcronin

 

 

COMMODITY TRADING INVOLVES RISK AND MAY NOT BE SUITABLE FOR ALL RECEIPIENTS OF THIS EMAIL. Neither the information presented, nor any opinions expressed, constitutes a solicitation for the purchase or sale of any commodities. The thoughts expressed in this email and basic data from which they are derived are believed to be reliable, but cannot be guaranteed due to uncertainty about future events and complexities surrounding commodity markets. Those acting on the information are responsible for their own actions.

 

7/11/2017 Morning Comments

Good Morning,

 

Outside Markets as of 5:50am: Dollar Index up 0.079% at 96.1390; Euro down 0.083% at 1.14350; Russian Ruble is down 0.833% at 61.7283; S&P’s are down 1.50 at 2423.00; Dow futures are down 7.00 at 21,352.00; 10-yr futures are down 0.10%; Crude Oil is down $0.37 at $44.03; Heating Oil is down $0.0121 at $1.4415; Paris Milling Wheat is down €1.00 at €180.25/MT; Paris Rapeseed is down €2.50 at €375.00/MT; Dalian corn closed down 0.53%, Dalian soybeans closed up 0.72%, Dalian soy oil finished up 1.12% and Dalian meal settled up 1.25%.

Rains moving across E-ND, S-IA and the IL/IN border this morning, although none of the systems look especially concentrated.  Rains the next 3-days will be best in MN as well as S-IA and N-MO.  Totals look to be in the 0.50-1.30” range in total for all three areas, but the ECB will also see good chances for rain.  The northern half of IL, IN, OH, MI could also see 0.50-1.25” over the coming 72-hours.  The rest of the 7-day outlook doesn’t appear to add much to any area of the Midwest.  The Northern Plains look to get next to nothing the next 3-days with the exception of N-MN.  The extended maps from the Climate Prediction Center don’t look good for anyone with above to much above normal temps in the Northern Plains, but above normal elsewhere.  More important is the below normal precip the entire Midwest sees during the 6-15 day.  This will be prime pollination for much of the corn belt.

 

Reversals in the overnight session for most Ag markets as initial gains at the open have given way to modest losses.  Soybeans and corn are both posting 1.0-1.30% losses, with the former seeing 6-7 gains but are now down 10.50c on the day.  The reversal is obviously a bit surprising considering the weaker than expected crop condition ratings from NASS yesterday afternoon in addition to the latest forecasts which look far less than ideal for the key developmental weather of July.  Yet, it seems traders are quick to forget the June 30th reports on which we learned we have 514mbu of additional corn in storage than a year ago, 91mbu more soybeans and 208mbu of wheat.  Further, the USDA is unlikely to make substantial changes to their national corn and soybean yield forecasts on Wednesday’s WASDE report as most of the crop will not have been through pollination or pod-set.  In addition, while the USDA is likely to cut the national spring wheat yield, the harvested acreage component might not reflect the true level of abandonment across the Northern Plains given this report focuses on yield.  Regardless, it will be difficult for markets to slip too far with crop prospects flat to declining.

The national corn condition rating fell 3pts this week to 65% G/E vs. 67% expected and 76% last year.  The only states in the corn belt which saw an improvement in conditions were MO and IN, otherwise all other major corn producers were flat to lower with SD down 5pts and NE down 7pts.  The national crop rating is now the second lowest since 2008 with 10% of the crop rated poor/very poor.  While IN saw an improvement, only 48% of the crop is in G/E categories vs. the 5-yr average of 58%.  ND’s crop rating of 52% G/E is the lowest since 2002, while SD’s 37% G/E is the lowest on record.  19% of the crop is silking vs. 10% last week and 27% average.  62% of the national soybean crop was rated good/excellent vs. 63% expected, 64% last week and 71% last year.  MN saw a 1pt improvement while all other corn belt states saw a decline.  Like corn, the national soybean rating is now the second lowest since 2008.  IN has 50% of the crop in G/E categories vs. 55% on the 5-yr average.  47% of the ND soybean crop is G/E which is the lowest they have going back to 2000.  SD’s 34% G/E is the lowest rating since 1993.  It is important to point out, most other states have ratings right at the 5-yr average when 2012 is included.  34% of the national crop is blooming vs. 21% average while 7% of the crop is setting pods vs. 5% average.

Spring wheat conditions fell another 2pts to 35% G/E which was what was expected by the trade and would compare with 70% G/E last year.  Largest declines were noted in ID which saw a 6pt drop to 71% G/E while ND saw another 5pt drop to 36% G/E.  ND now has 36% of its spring wheat crop rated G/E and 35% rated P/VP.  Both are the worst ratings for the respective categories since 1988.  While MT saw a 3pt increase in its G/E rating to 11pts G/E, their 62% P/VP remains the highest since 1988.  The MN crop remains very highly rated at 85% G/E which is the highest since 1990 and compares with a 65% G/E rating on the 5-yr average.  WA saw unchanged conditions at 43% G/E which compares with the 5-yr average of 54% G/E.  Continue to look at G/E ratings relative to prior years’ yield estimates for a clue about what the USDA might do Wednesday and down the road.  Based on just the G/E ratings, this week’s conditions are implying a yield on Wednesday of 29.3bpa with an r-squared of 39%.  All three time frames show a yield of 28.0-29.5bpa, but we are not expecting the USDA to deliver a yield that low Wednesday.  Even a yield of 35bpa delivers a HRS crop of just 335mbu based on 92% harvested. Substantial rationing of exports and a massive jump in imports from last year will be required to keep carryout above 100mbu.  Much more will be known in 2-weeks when South Dakota starts harvested spring wheat.  79% of the crop is headed vs. 74% average.  Winter wheat harvest was pegged at 67% complete nationally vs. 53% last week and 65% average.  KS is essentially done at 93% complete vs. 89% average while NE is 52% complete vs. 38% average and SD is just getting going at 14% complete vs. 14% average.  SD should take a massive jump this week given the little amount of HRW not abandoned.

While not fresh news today, the latest COT data which reflects positions as of 7/4 showed funds still short -83,319 contracts with price up around 10c before the overnight reversal.  Odds are good they have covered most of these positions, with open interest declining until yesterday.  In soybeans, funds were short -104,187 contracts as of 7/4 with price up around 40c before turning lower last night.  In soybeans, however, open interest is up around 10,000 contracts over the last week which doesn’t signify exclusively short-covering.  As we’ve written about in this space recently, while funds were building a record net short position in soybeans, the gross commercial long (end user) had quietly amassed the largest position as a percentage of total open interest on record.  That position did decline last week as he sold positions into the fund short-covering.  Still, the commercial position is large and definitely foretold of a bottoming in price.  Both the corn and soybean fund short should be close to even by now which begs the question of whether they want to put on a substantial long as we head into pollination weather?  In KC wheat, funds bought 11,378 contracts to put their net long at 57,912 contracts which is the largest since 2010 but short of the record at 67,176 contracts.  The gross commercial short (farmer/elevator/hedger) now sits at 165,999 contracts which is the largest on record and fits with the huge amount of farmer selling we’ve been seeing off the combine.  Funds were still short 38,557 contracts of CGO wheat which has likely been covered since.  The 52-week average fund position is -127,565 contracts while the 3-yr average is -94,156 contracts which shows how rare it is for funds to hold a net long in this market.  Net selling took place in MGEX by the managed funds last week but they remain net long by 14,017 contracts.

Export inspections were also released yesterday which included 19.6mbu of wheat vs. the 18.1mbu needed weekly to hit the USDA mark.  YTD shipments now stand at 122.7mbu which is up 25.7% from a year ago.  Corn shipments totaled 39.8mbu vs. the 22.0mbu needed weekly.  Total shipments are now 1.958bbu which is up 36.6% from a year ago and account for 88% of the USDA’s marketing year objective.  Soybean shipments were much stronger than expected at 17.5mbu vs. the 6.8mbu needed weekly.  Total shipments of 1.947bbu are up 17.7% from a year ago and now account for 94.9% of the entire marketing year objective.

Anecdotal reports of increased cash movement for both corn and wheat as of late, and calendar spreads certainly support that idea.  The CU/CZ traded higher overnight, but hit a new contract low of -13.00c yesterday which accounts for 67.1% of full financial carry.  Similarly, the WU/WZ hit a new contract low yesterday of -24.25c, which actually only accounts for 61.9% of full financial carry given the large storage rates being applied at current.  Yesterday and overnight the KWU/KWZ traded down to -26.25c which is the lowest print since April 25th.  HRW cash markets remain firm on the lack of protein available to the market, but SRW cash is steady/weaker as quality in the ECB is good and mills don’t need to pay up for whatever class they are seeking.  CIF barge bids are off around 1c on the week.

 

Bottom Line:  Probably due for a bit of profit-taking on this Turnaround Tuesday, but doubtful markets are going anywhere fast given the forecast and ahead of the USDA reports tomorrow.  We have a solid old crop buffer against any yield adversity, but the unknown is going to keep markets firm.  Conditions and forecasts for the Northern Plains couldn’t look worse, and we plant a lot more row crop there than we did 5-years ago.  Seasonals are working against corn and soybean prices, but those are only as good as the particular year you happen to be in.

 

Good Luck Today.

Tregg Cronin

Market Analyst

Tregg.Cronin@halocommodities.com

www.halocommodities.com

@5thWave_tcronin

 

 

COMMODITY TRADING INVOLVES RISK AND MAY NOT BE SUITABLE FOR ALL RECEIPIENTS OF THIS EMAIL. Neither the information presented, nor any opinions expressed, constitutes a solicitation for the purchase or sale of any commodities. The thoughts expressed in this email and basic data from which they are derived are believed to be reliable, but cannot be guaranteed due to uncertainty about future events and complexities surrounding commodity markets. Those acting on the information are responsible for their own actions.

 

7/7/2017 Morning Comments

Good Morning,

 

Outside Markets as of 5:45am: Dollar Index up 0.176% at 95.9730; Euro down 0.00100 at 1.14545; British Pound is down 0.615% at 1.2921; S&P’s are up 0.75 at 2409.25; Dow futures are down 4.00 at 21,277.00; 10-yr futures are down 0.05%; Crude Oil is down $1.38 at $44.13; Heating Oil is down $0.0422 at $1.4396; Paris Milling Wheat is down €1.25 at €176.50/MT; Paris Rapeseed is down €2.50 at €364.75/MT; Dalian corn closed down 0.30%, Dalian soybeans are down 0.88%, Dalian soy oil closed down 0.10% and Dalian meal finished up 0.50%.

After stringing together eight winning sessions in a row, crude oil looks set to close lower for the third session in a row as losses push over 3.0% this morning.  The spot month contract had retraced 50% of the 52.03-42.05 selloff at 47.05 before backing away with little in the way of support until the June 21st corrective low at $42.05.  Fundamental data out in the last day was mostly supportive in the way of the weekly EIA report which showed US crude oil stocks down 6.30 million bbls vs. the expected draw of 2.30 million bbls.  Despite the larger than expected draw, crude oil stocks at 502.91 million bbls compare to 493.72 million a year ago and 426.99 million on the 3-yr average.  Crude oil stocks should continue declining until mid to late October.

Some scattered showers on the Midwest, but nothing organized which looks to be bringing anything meaningful to US growing areas.  Rainfall this week has been fairly limited in the central and western corn belt with nothing in the way of widespread rains seen for IN/IL/IA/S-MN/NE and most of the Dakotas.  Even areas which received rains still boast plenty of holes where conditions have deteriorated.  Rains will remain limited the next 30-days with the best chance of rain coming for SE-MN/NE-IA/W-WI on Sunday/Monday with forecasts calling for 0.50-1.40”.  This system will then pass into N-IL/N-IN/S-MI/N-OH which looks to bring 0.50-2.00”.  For the 7-day combined precip map, anything west of C-IA looks to be short changed, especially with the heat setting up shop in the west.  Above normal temps remain in place during the 6-14 day outlook, and below normal precip will also be a feature for the Northern Plains and expanding to cover the entire central/WCB in the 8-14 day.  Private forecasters keep touting a NW Flow which is expected to provide relief for the aforementioned areas but that has not been the case as of late.

 

Weaker markets overnight, although compared to the volatility witnessed the previous two overnight sessions, most traders would take the changes this morning.  Despite the volatility, Minneapolis wheat is down just 4.0c on the week, although the range has been an impressive $1.135.  Chicago wheat is up 7.25c on the week, KC wheat is up 10.25c, corn is up 20.50c, and soybeans are up 38.50c.  Open interest changes this week have been interesting as Kansas City wheat has climbed 5,705 contracts, Chicago is up 18,215 contracts, soybeans are up 5,453 contracts and corn is up just 370 contracts.  The increase in open interest the last couple of days in wheat looks like speculative longs coming late to the party which could make them vulnerable to further “get me out” selling if prices set back any further.  A lot of concern about Minneapolis wheat and the setback it has recorded which spans 99.5c at last trade, or 11.5%.  One would be well suited to remember, however, we rallied $3.31 from the corrective low on May 16th, an astounding 61.6%, with only four lower closes along the way.  To say a correction was overdue is a gross understatement and hardly indicative of anything being fixed or changing in MGEX.

Data out yesterday included weekly ethanol production which was down 1,00bbls/day to 1.014 million bbls day.  This was 3.0% above last year’s same week production, which is a little under the needed y/y gain to hit the USDA’s current 5.450 billion bushel marketing year target.  Ethanol production has missed the needed level over the last five weeks, and has put uncertainty on what the USDA might do with that line item on the corn balance sheet for next week’s WASDE report.  Ethanol stocks declined 267,000bbls to 21.571 million bbls, and now sit at the lowest level since January.  Ethanol prices have moved back to a premium over RBOB gasoline futures with the 6-month strip now sitting at -$0.09/gln.  This will hardly help ethanol’s plight in drawing down stocks, especially as we move past the halfway point of driving season.

Segueing to ethanol and DDGs exports, May Census Bureau data was released this week and showed another solid month of ethanol exports at 119.2 million gallons which was up from last month by 36% and up from last year by 74.5%.  2016 calendar year ethanol exports were the largest total since 2011, and through 5-months of 2017, we have exported exactly 50.7% of the entire 2016 calendar year total.  Certainly bodes well for another strong year of product exports.  The larger monthly total was due to Brazil taking 64.3 million gallons, the largest single month total since December of 2011, despite all of the chatter about Brazilian ethanol import duties.  India and China, which have been major importers in the past year and half, took essentially nothing during the month of May.  DDGs exports took a big step backwards during May to 742,043MT, down from last month’s 869,041MT and down from last year’s 1.031MMT.  In fact, these were the smallest monthly exports since February 2016.  China took a paltry 39,376MT, the smallest monthly total for them since November 2014.

While the focus a week ago was largely on the planted acreage report, there was plenty of data to pick through on the SIAP report as well.  Because of the larger implied corn stocks level, thought it worth looking through the state-by-state breakdown to see where the larger supplies were actually sitting. Not surprisingly, states on both ends of the corn belt were guilty of carrying over extra supplies.  On-farm corn stocks in IL totaled 385.0mbu, the largest for June 1 since 1988.  Illinois was really the only ECB state which saw multi-decade highs in on-farm stocks, however.  IA reported 660.0mbu of on-farm stocks which was the largest since 1988 and compares with the 5-yr average of 407.0mbu.  On-farm stocks in IA were also 35% larger than off-farm stocks held in commercial hands.  MN on-farm stocks totaled 490.0mbu which were the largest since 1988 and up from 316.0mbu on the 5-yr average.  On-farm stocks in MN were an incredible 180% larger than the stocks held off-farm.  NE on-farm totaled 305.0mbu, the largest since 1999, with on-farm comparing to off-farm at 271.5mbu.  North Dakota on-farm stocks totaled 145.0mbu, the largest on record by a huge margin.  On-farm stocks were 154% larger than off-farm stocks.  Stocks in South Dakota were actually down 25mbu from last year at 180.0mbu, but still well above the 5-yr average of 140.0mbu.  On-farm stocks were also still up sharply from off-farm at 101.2mbu.  The take-away point from all the numbers mentioned above would be the huge amount of corn which still needs to move from the farm into commercial hands, and just how much corn it takes nationally to carry over 2.300bbu into the next marketing year.  The larger supplies should continue to weigh on basis which will prevent any cash strength barring a major crop issue.  Spreads should also be weighed on which should keep CU/CZ trading weakly and moving toward full carry.

Export sales out later this morning are expected to show wheat at 350-550TMT, corn at 350-700TMT, soybeans at 250-750TMT, meal at 25-200TMT and soy oil at 10-25TMT.

 

Bottom Line: While wheat has grabbed most of the headlines this week, row crops have quietly put together a solid week of price gains with December corn trying to close over $4.00 and November soybeans the vaunted $10.00 handle.  Forecasts do not look good for the Northern Plains, and don’t look amazing for the larger WCB either.  A lot of the extra acres being planted to corn and soybeans on the fringe are located in the Dakotas and it is difficult to make the case those crops will be getting larger over the next two weeks.  While on-farm stocks are sharply higher than a year ago almost everywhere, don’t expect a lot of those bushels to move unless the market makes another move higher or successful pollination is achieved.  Remember, with the delayed crop, pollination will be strung over a much larger time frame than usual this year.

 

Good Luck Today.

Tregg Cronin

Market Analyst

Tregg.Cronin@halocommodities.com

www.halocommodities.com

@5thWave_tcronin

 

 

COMMODITY TRADING INVOLVES RISK AND MAY NOT BE SUITABLE FOR ALL RECEIPIENTS OF THIS EMAIL. Neither the information presented, nor any opinions expressed, constitutes a solicitation for the purchase or sale of any commodities. The thoughts expressed in this email and basic data from which they are derived are believed to be reliable, but cannot be guaranteed due to uncertainty about future events and complexities surrounding commodity markets. Those acting on the information are responsible for their own actions.

 

7/6/2017 Morning Comments

Good Morning,

 

Outside Markets as of 5:45am: Dollar Index down 0.130% at 96.0690; Euro up 0.237% at 1.14125; S&P’s are down 9.75 at 2418.50; Dow futures are down 69.00 at 21,353.00; 10-yr futures are down 0.21%; Crude Oil is up $0.69 at $45.82; Heating Oil is up $0.0193 at $1.4978; Paris Milling Wheat is down €3.00 at €177.00/MT; Paris Rapeseed is down €1.50 at €368.00/MT; Dalian corn closed down 0.48%, Dalian soybeans closed down 0.82%, Dalian soy oil closed up 0.85% and Dalian soymeal closed up 0.75%.

Some scattered rains moved through the upper Plains last night while separately some showers fell along the MO/IL border.  Neither system provided substantial coverage, but the areas which received the rains were very fortunate.  This AM has showers in the eastern Dakotas as well as the northern half of MN.  Light showers also moving around the ECB.  Rains will continue to be sporadic the next three days with E-IA seeing a chance at 0.40” by the weekend.  The next chances for substantial rains in the belt come Sun-Tue and again Wed-Thur for SE-MN/E-IA/IL/S-WI/IN/OH/KY where combined totals are seen around 1.25-3.00”.  This is a composite estimate, so localized totals could be heavier while holes will surely exist when the systems are past.  The WCB and Northern Plains will continue to be devoid of any major system the next 7-days which will include NE/SD/ND.  Extended maps keep heat and dryness parked over the Northern Plains during the next 14-days, limiting any relief for that area.  During the 8-14, the below normal precip will include IA/MN/WI/N-IL/MO/KS.

 

Volatility continues to be the name of the game, led by none other than Minneapolis wheat which saw a 94.5c range yesterday and has followed it up with a 64.5c range during the overnight range.  For all the fan-fare, Minneapolis is only 13.50c lower on the day, but is 62c off the inter-day high set yesterday.  The options market continues to show the heightened volatility with MWU closing at 48.74% yesterday vs. 47.08% a week ago.  CU corn vol closed at 28.61% vs. 26.92% a week ago, SU settled at 25.62% vs. 18.47% a week ago and KWU closed at 38.72% vs. 27.56% a week ago.  The increase in volatility is fairly remarkable considering last week’s volatility settlements were headed into one of the major USDA reports of the year last Friday.  Heightened volatility is usually more closely aligned with falling prices while low volatility with rising prices.  Worth noting on the selloff yesterday, Chicago wheat open interest rose 6,248 contracts in futures and 21,778 in options, while corn futures interest rose 7,430 contracts on the up day.  KC open interest declined 1,215 contracts and soybean open interest rose 1,339 contracts.  Minneapolis O/I had been rising, but their data is not available yet this morning.

One anecdotal note before jumping into the data, cash sources report an incredible amount of HRW being sold by the farmer off the combine as harvest wraps up in KS and NE.  Some are pegging it at 50-75% of the bushels coming across the dump scale, which would be a much higher percentage of the total crop than it would be in the Northern Plains where on-farm storage is so much more heavily utilized.  This is encouraging given the counter-seasonal rally during harvest, but also because of the lack of competitiveness for HRW on the export market.  Yesterday saw Egypt’s GASC tender for August 5th-15th delivery, eventually purchasing 410,000MT of Russian and Romanian wheat.  The wheat averaged $200.65/MT FOB and $214.40/MT C&F.  Compare this with TX-Gulf HRW ORDS at $231.30/MT FOB and 11.0% at $246.00/MT, while SRW is valued around $222.30/MT FOB.  While there are genuine concerns for the US-HRS crop, and the HRW crop may end up proving slightly smaller, there is more than enough winter wheat to go around and the job of the market would not appear to be that of rationing all export demand during the harvest season.

The weekly crop progress report was delayed until yesterday afternoon due to the Independence Day holiday in the US.  Corn conditions improved 1pt to 68% G/E vs. 66% expected and 75% G/E last year.  Essentially, the WCB saw declines while the ECB saw improvements which was what the trade was expecting.  The real mover could come next week after a week of 90’s and limited rainfall in the WCB.  The corn condition score nationally is the lowest since 2012, but right at the 5-yr and 10-yr averages.  10% of the crop is silking vs. 13% average.  Most of the states with solid conditions are right around the 5-yr average, although none could be described as superb.  On the other end of the spectrum, IN is rated 47% G/E vs. 73% last year and 58% on the 5-yr average.  ND is 55% G/E vs. 78% last year and 78% average.  ND would be the lowest rated corn crop since 2002.  OH is 56% G/E vs. 70% last year and 61% average.  SD is 42% G/E vs. 68% last year and 70% average.  SD currently has the lowest rated corn crop for week 26 on record.  The USDA will update their national average yield estimate next week which remains at 170.8bpa.

Soybean conditions nationally declined 2pts to 64% G/E vs. 65% expected and 70% last year as the WCB declines with no ECB offset.  18% of the nation’s soybean crop is blooming vs. 17% average.  Several state condition scores worth noting including IN soy at 51% G/E vs. 72% last year and 57% average.  ND soy is rated 48% G/E vs. 75% last year and 76% average.  South Dakota is rated 36% G/E vs. 67% last year and 68% average.  North and South Dakota both have the lowest soybean condition scores on record for week 26.  While it is easy to look at the national rating and these few state scores and start pulling yields back, it is incredibly difficult to assess soybean yield potential the first week of July.  Appearances in early July usually have very little correlation to final yield potential which makes cutting yields premature at this juncture.  Once the national crop has moved over 50-75% blooming, more can be gleaned.

National spring wheat conditions pulled back another 3pts to 37% G/E vs. 48% expected according to newswire services, although I’m not sure who they are surveying as absolutely no one on the ground expected an improvement in conditions.  SD saw her score decline another 1pt to 11% G/E which is the lowest since 1988.  ND improved 2pts to 41% G/E but is also the lowest since 1988.  MN was unchanged at 86% G/E and compares to a 70% G/E 5-yr average.  MT saw conditions decline 14pts to 8% G/E which is the lowest ranking on record.  WA saw conditions flop 25pts to 43% G/E which compares with a 56% G/E on the 5-yr average.  ID saw conditions improve 24pts on the week to 77% G/E, but this appears to be a correction to last week’s score as last week the P/VP score increased 15pts and this week it declined 19pts.  How the crop could change that much in the span of two weeks is a bit of a mystery.  59% of the crop is headed vs. 54% average and should really see heading progress leap after the week of temperatures currently forecast.  We continue to plot national condition scores against spring wheat yields to see what the USDA might be inclined to do on subsequent reports.  This week we plotted the week 26 score against the July USDA forecast as well as the final yield forecast in September.  The July forecast has a bit better r-squared at 39% and is currently implying a yield around 29.0bpa.  Condition scores against the final imply a yield around 29.5bpa with a 33% r-squared.  Still not very strong but improving.

Winter wheat conditions declined 1pt to 48% G/E and compare with 62% G/E last year.  Most HRW states saw an improvement with the exception of MT and CO which were down 9pts and 4pts, respectively.  The PNW was mostly lower as well.  Winter wheat harvest was estimated at 53% G/E vs. 41% last week and 54% average.  KS is 73% harvested vs. 72% average while NE is just getting started at 17% complete vs. 22% average.  HRW harvest should not take long in SD where much of the crop has already been desiccated or put up for hay, although the rally in spring wheat futures has undoubtedly pulled a few more acres out of the abandoned category and back into the harvested category.  This could pull the national average yield down further as lower yielding areas get cut, but at this point, it is all about bushels for a crop in this serious of a balance sheet predicament.

Yesterday also saw the weekly deliverable stocks reports which were delayed one day.  Spring wheat stocks actually increased by 520,000 bushels which was due to Duluth/Superior, and the daily reports suggest we could see another increase next week as the rally draws out bushels.  Total deliverable stocks increased to 18.307mbu which is still down from 21.274mbu a year ago.  In Chicago, weekly stocks increased 3.166mbu to 86.399mbu and is 17.953mbu above a year ago.  Deliverable grades were up 2.951mbu while non-deliverable were up 215,000.  In KC, deliverable grades were up 3.739mbu to 117.565mbu and are up 16.868mbu from a year ago.  Non-deliverable grades rose 452,000 bushels to 4.369mbu but are below a year ago at 4.906mbu.  The non-deliverable line item will be one to watch in coming weeks as we see how much sub-10.5% protein makes its way into commercial hands.  The plentiful nature of wheat stocks in both KC and Chicago should continue to weigh on calendar spreads, and is part of the reason spreads have been so reluctant to rally along with flat price.  Storage will be bidding for wheat just as hard as exports or domestic demand.

 

Bottom Line: The new-month and new quarter brought out buying early, but the money flow has turned much more one-sided as of late.  The winter wheat and corn markets seem to be realizing the large amount of old crop still available as well as the high amount of farm gate selling during harvest for wheat.  Spring wheat and soybeans continue to be supported by their subdued condition scores, and the final chapter is nowhere near written in spring wheat. The focus is quickly shifting to Canada, and the world hard wheat balance sheet cannot afford a major problem there as well.  Forecasts remain uncertain enough for the WCB that it would seem futures won’t be able to sell off too hard.  Weekly ethanol production will be delayed until 10:00 CDT this morning while export sales will be pushed until tomorrow.

 

Good Luck Today.

Tregg Cronin

Market Analyst

Tregg.Cronin@halocommodities.com

www.halocommodities.com

@5thWave_tcronin

 

 

COMMODITY TRADING INVOLVES RISK AND MAY NOT BE SUITABLE FOR ALL RECEIPIENTS OF THIS EMAIL. Neither the information presented, nor any opinions expressed, constitutes a solicitation for the purchase or sale of any commodities. The thoughts expressed in this email and basic data from which they are derived are believed to be reliable, but cannot be guaranteed due to uncertainty about future events and complexities surrounding commodity markets. Those acting on the information are responsible for their own actions.