11/17/2017 Morning Comments

Good Morning,

 

WTI crude oil is looking to close higher for the first time in four sessions, up 1.63% this morning as buyers reemerge.  The spread between Brent and WTI has been narrowing, and is continuing to do so this morning with the premium held by Brent at $6.02/bbl, the tightest since the end of October.  The spread has also dropped right down to the 50-day moving average, an indicator this spread hasn’t traded below since July.  Equities continue to maintain their premium over commodities as the S&P 500 is trading at a ratio of 30.14 to the Bloomberg Commodity Index.  This is just off highs set in October at 30.36 and the all-time record high of 30.67 set in June.  Prior to 2013, the ratio had never been over 11.00, and since February the ratio hasn’t been under 27.00.  Not difficult to see where the money flow has gone.

Some wintry mix is moving across the Dakotas this morning, predominantly in South Dakota, and isn’t expected to amount to more than 0.10” of moisture.  NE and IA will also see some moisture in the next 24-48 hours, but the heaviest precip will be in the ECB once again, complicating the tail end of harvest.  Over the next week, IL/IN/MI/OH are expected to receive 0.50-2.00” of moisture in one form or another.  Still plenty of corn harvest left to bring in for those states.  Otherwise, the Plains and WCB will be mainly dry in the next 7-days before chances late week next week.  Above normal temps for the 6-15 day period, and below normal precip for most until the Northern Plains turn above normal in the 8-14.  The latest forecast from the International Research Institute for Climate and Society at Columbia University kicked out their latest climate forecast which now puts odds of La Nina formation at 76% during Nov/Dec/Jan.  This would mean cool and wet for the Northern United States, but it is the impact on South American weather everyone will take most interest in.  La Nina can mean warmer and dryer in the main production areas of Brazil.

 

Firmer markets this morning led by wheat as we once again try to claw back some of wheat Wednesday took away in value.  It is now clear, several days removed, the downtrend channels are still very much intact in Chicago and to a lesser extent KC.  Nothing much has changed in wheat: cash markets still very firm, managed fund short positions have likely continued to grow, spreads are still flirting with a VSR segment removal (although less likely today), and winter wheat acres look set to decline for the sixth year in a row.  Yet it’s the threat of Russian exports taking even more US demand than they already have which seems to have fund sellers emboldened in their positions.  Wheat saw some short-covering yesterday, but the open interest train rolled higher in row crops.  Corn open interest rose 16,114 contracts to 1,727,716 contracts, the largest since 2/18/11, and just 17,542 contracts from the all-time record set on 2/17/11.  The open interest rise came as most corn contracts hit fresh contract lows throughout the curve.  Former support-turned-resistance at the 3.42-3.44 level will be a major focal point on an rally attempt as a fair amount of open interest has been added below that level.  Still, most managed fund positions have plenty of equity in them.  Soybean open interest rose 7,082 contracts with price down 4.25c as O/I continues to claw back the November option expiration related drop.  Chicago open interest fell 3,709 contracts while KC wheat was down 59 contracts.

Data yesterday included weekly export sales which were ho-hum for grains and a bit disappointing relative to expectations in soybeans.  Wheat sales totaled 18.0mbu which was above the 13.6mbu needed weekly to hit the USDA export forecast.  Total commitments of 616.6mbu are down 5% from last year at this time, which is right in line with the USDA forecast.  By-class sales were led by HRW at 8.8mbu, followed by HRS at 4.9mbu, both of which are above the needed pace.  Corn sales totaled 37.4mbu which is above the 26.9mbu needed weekly, but still a bit slow seasonally.  Total sales of 800.8mbu are down 26% from a year ago.  Soybean sales measured 40.6mbu vs. the 25.7mbu needed weekly, but compares with same week sales of 51.7mbu a year ago.  Total commitments of 1.197bbu are down 15% from a year ago while the USDA continues to call for a 3.4% increase y/y.  This remains the most troubling export forecast of all from the USDA given how seasonal the soybean export season is compared to corn and wheat.  Unless South American production runs into issues, this forecast may have more downside than upside, breaking a well-established trend for USDA underestimating demand.

Soybean calendar spreads remained weak yesterday and overnight with several tying contract lows.  The SF/SH continues to bounce off contract lows at -11.25c, accounting for 68.0% of full financial carry (LIBOR+300bp).  The SH/SK continues to sit at contract lows as well at -9.75c, 58.7% of full financial carry.  While soybean cash and spreads remain weak, corn has definitely turned the corner with CZ/CH trading at the highest level since 9/12/17 this morning.  In addition, PNW corn bids have been firmer nearly every day this week without a corresponding rise in BNSF rail freight.  Last part November bids were called +80Z last night while FH-Dec was +78Z and Jan was called +82/83H.  Compare these with +60Z, +75Z and +70/72H a week ago.  Until elevators finish storage programs or switch the focus from filling ground storage to loading trains, however, the basis appreciation in the country could be a bit slow.

Analytics firm Informa Economics released their latest acreage ideas yesterday during the session.  Would have to call most of their estimates in-line with trade ideas, but not really anything the market is going to focus on at the moment.  They see 2018/19 corn acreage at 91.415 million acres vs. last year at 90.429 million, and the second largest since 2013/14.  If that kind of acreage number is used, with a 4-yr average yield of 172.35, production is 14.491bbu vs. 14.576bbu this year, but total supplies balloon to 17.025bbu, the largest on record.  Carryout for 18/19 assuming record feed/residual demand, record ethanol demand and a 75mbu increase in exports would come in at a staggering 2.525bbu.  Really need those extra corn acres don’t we?  Soybean acres are estimated at 89.627 million, down from 90.207 million this year as the record soybean acres in the Northern Plains and WCB see a bit of rotation.  The soybean balance sheet looks a lot like the corn balance sheet with an acreage number like that.  Total supplies would be 4.895bbu with a yield of 50.0bpa vs. 4.755bbu this year.  We have a hard time increasing exports in 2018/19 when this year’s forecast looks difficult to achieve.  If exports are unchanged at a record 2.250bbu, carryout would come in at 560.54bbu vs. 429.5mbu this year.

Informa pegged all-wheat acreage at 45.625 million, down from 46.012 million this year.  Within all-wheat, winter wheat acreage is seen dropping from 32.696 million to 31.923 million, while other spring wheat is up to 11.335 million from 11.009 million.  First blush would be a few less winter wheat acres and probably a few more spring wheat acres, but plenty of time to sort that out.  Using their acres with a yield of 48.0bpa and harvested acreage of 86.0%, production hits 1.885bbu vs. 1.740bbu this year.  Assuming unchanged demand at this point gives us a carryout of 798mbu, a 3-yr low and continuing to move in the right direction.  The all-wheat balance sheet doesn’t jump off the page at a person, but there are plenty of reasons to be encouraged in the by-class balance sheet.  HRS will remain tight in 18/19 unless farmers increase acres more than 20%.  HRW has the potential to lose more acres than most are counting right now, and the fall emergence and moisture situation is far from ideal.  SRW acres are a big question mark given the delayed corn harvest in the ECB.

 

Bottom Line: Lots of interest in this afternoon’s COT data to see if managed funds now hold a record short position in corn, and are nearing a record net short in Chicago wheat.  Even if those two are confirmed, one has to remember the equity the funds have in these positions and how much it would take to force them to liquidate.  Record net shorts held by the managed funds aren’t as concerning as the most likely record long held by an undersold US farmer.  That will hang over the market on rallies, which could also limit basis appreciation further.  Volume should decline into the Thanksgiving holiday.

 

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.

11/16/2017 Morning Comments

Good Morning,

 

Nothing on the radar again this morning.  It seems like I’ve written that a lot lately, but nowhere has it been drier than the southern plains over the last 30-days as the map below shows.  The HRW belt has seen essentially zero moisture since early September, which is causing problems with emergence and establishment before winter.  Fortunately, the month of September was rather wet for the southern plains, and subsoil moisture levels are still solid despite the past month of precip.  Nonetheless, weather groups are putting about 10% of the HRW crop at risk for poor establishment heading into dormancy.  The ECB will see rain chances toward the weekend, otherwise a dry week ahead for the Midwest.  Above normal temperatures and below normal precip encompasses the entire Midwest and Plains region the next 15-days, which won’t provide much relief for the HRW.

 

 

Steady to better markets this morning as wheat attempts to stabilize after yesterday’s downdraft.  Almost everyone on social media found themselves looking around during wheat’s selloff yesterday as there didn’t seem to be anything glaring behind the move.  The only “news” anyone could point to was Egypt issuing another wheat tender, but this time had reinstated their “zero ergot” policy.  This will likely mean a complete lack of offers with the exception of Russia, but even they might not want to deal with the theatrics.  Otherwise, Brazil was said to be close to importing Russian wheat, but had not received final approval fromt their Ag Ministry.  In addition, Russian wheat would be subject to the non-Mercosur import tax, which likely keeps the Black Sea wheat out until Argentina has exhausted exportable supplies.  Either way, that Brazilian business would have went to the US during the last marketing year, but the lack of protein in the US is pushing basis levels up to the point where importers are looking elsewhere.  Lastly, and to a lesser extent, the Russian Ruble was a good deal weaker yesterday, trading down to the weakest level since August 4th as crude oil continues its short-term down trend.  Open interest saw another big jump as fresh shorts continue piling into grains, but volume was fairly subdued on the break.  Corn open interest rose 12,268 contracts, soybeans were up 3,292 contracts, SRW wheat was up 3,211 contracts and HRW wheat was up 2,985 contracts.  Corn open interest at 1,714,936 contracts is now the highest since February 18th, 2011, and is just 30,322 contracts from the all-time record set on February 17th, 2011.

As we posited on social media yesterday, the frustrating thing with the wheat market is total lack of confirmation by either basis or spreads.  Both are trading like a market which wants to rally, not selloff.  For example, domestic HRW trades were firmer again yesterday with 12.0-12.2% both up 12c with 12.0% now +197/212Z vs. +195/210Z a week ago.  This follows 11.0-11.20% trading up 10-24c the day before with 11.0% pro now +119/134Z vs. +105/120Z a week before.  Spring wheat spot floor trades were also better with 14.0% pro cars trading up 15-25c to +140/175Z vs. +125/150Z a week ago.  15.0% pro was up 10c to +175/210Z vs. +181/188Z a week ago.  SRW also joined in the fun with Toledo mills pushing bids to +25/30H, NW-OH mills up to +20H, and warehouse bids as high as -5Z with that wheat deliverable at -10Z.  SRW barges didn’t show any change, but if one needed to buy a barge it would be at the offer or better.  Z/W spreads in KC and CGO mostly maintained their uptrends, although it looks as though WZ/WH will run out of time to trigger a VSR segment removal.  The MWZ/MWH has been trading weaker, however, down to -14.50c yesterday and this morning, tying contract lows.

We wrote about the world corn market earlier this week, and the fact that Chinese ending stocks are finally in decline, but the rest of the world is seeing ending stocks rise.  We mentioned the wheat situation is the exact opposite.  The majority of the world’s wheat stocks, around 67.5% to be exact, sits in four countries: China, India, Russia and the United States (CIRU).  As the chart below shows, the share of these four countries as a percentage of total wheat stocks is now the highest since 1999/00.  The share of world wheat excluding these four countries is 32.45%, the lowest share since also since 1999/00.  But it’s not just the share that’s tight, it’s the ending stocks/use ratio which is at 15.32%, the second tightest on record going back to 1982/83.  As we’ve discussed before, China’s wheat stocks are not available to the market, and still require high quality wheat from the US, Canada and Australia to be blended up.  India was an importer last year, and will import wheat this year, so also not a threat to unload stocks on the market.  Russia and the US are two of the three largest exporters and will gladly export up to capacity and quality constraints.  All of the aforementioned puts greater onus on 2018/19 as acres look set to decline in the United States, and Russia could be counted on to an even greater extent.  But as cash markets are showing us, Russia can’t be counted on to supply everything to everyone, and winter’s arrival could really shake up the global wheat trade.

While very old news at this point, Monday’s COT data showed large specs adding to their already ballooning Chicago wheat short.  Funds added 12,810 contracts to their net short to put them at -144,805 contracts.  This position now accounts for 76.4% of the largest net short ever put on by managed funds, and they’ve undoubtedly added to this net short since the last COT data and the selloff yesterday.  On the opposite end of the spectrum, the gross commercial long now owns 166,833 contracts, the second largest position on record.  Same trends are true in KC with funds now short -26,608 contracts, the largest since September 2016 while the gross commercial long is a new all-time record at 110,800 contracts.  The boat is getting very loaded to one-side, but that in and of itself is not enough to turn the tide.  Just plenty of dry power for when it does turn.

Data yesterday included October NOPA crush data which was solid and in-line with expectations.  Monthly crush was 164.242mbu vs. the average trade estimate of 164.5mbu, 136.4mbu last month and 164.6mbu a year ago.  Soybean oil stocks totaled 1.224 billion pounds vs. estimates for 1.410 billion pounds and 1.343 billion a year ago.  The soybean oil yield was 11.54lbs/bu, the first yield to have new crop bushels, which was below last month’s 11.78lb/bu and last year’s 11.61lbs/bu.  Also released yesterday was weekly ethanol production which eased slightly to 1.054 million bbls/day from 1.057 million bbls/day the week before, but is still well better than the level needed weekly to hit the USDA’s estimate.  Weekly ethanol stocks rose by 152,000bbls to 21.497 million bbls.  Stocks remain well above levels posted a year ago.

 

 

Bottom line: Export sales later this morning which could help set the early tone, although don’t believe any additional business from the latest selloff would be represented in this week’s numbers.  Our markets are clearly in “go find demand” mode, which will come from lower prices.  It shouldn’t be a surprise we need lower prices to stimulate demand when grain supplies are the largest in 30-years, but it has still caught most off guard.  Soybeans will retain risk premium for South American growing weather for now, but could look to shed some of that if there are no issues into December.

 

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.

11/13/2017 Morning Comments

Good Morning,

 

Absolutely blank Midwest radar this morning, which followed a mostly dry weekend with the exception of a little rain along the IA/IL border and some precip in S-MN.  Will be another dry week for the majority of the Midwest, especially the Plains and WCB.  IL and points east are expected to see several shots of rain with WI/IL/IN/OH/MI all looking at 0.50-1.30” by the end of next weekend.  Extended maps remain below normal on precip which should allow harvest to get wrapped up in most areas which can, however temperatures are much more split.  The Plains and WCB are above normal on temps during the 6-10 and 8-14, although east of the MS-River is below normal.  Dry weather is expected to dominate Argentina which is beneficial as they plant, while most of the Brazilian growing regions see tropical activity during the 6-10 day, keeping things moist.  Still doesn’t appear to be any issues.

 

Softer markets as we begin the week, led lower by wheat which is down more than 1.0% across the three exchanges.  In typical wheat fashion, the move this morning comes after a solid week last week which saw prices rally away from support, attempt to break down trend resistance and was in the process of confirming a bullish divergence.  Friday’s COT data was delayed until this afternoon due to Veteran’s Day, but the large spec position is expected to decline given the drop in open interest of 28,456 contracts since 11/2.  While cash markets have been firm and spreads have been rallying, many only see the plentiful global balance sheet offered by the USDA’s latest WASDE report last week.  Corn and soybean charts have taken on a lot tougher appearance thanks to the late week price action with momentum down, trend line and corrective low support broken and open interest continuing to trend up as more fund positions are added.  Last week’s WASDE report was the last major grain report of the year, with our space shifting focus to South America weather, cash markets, spreads and weekly demand indicators.

Much of our time since the release the WASDE has been spent looking at the corn market both inside the US and out as focus starts to shift to the 18/19 marketing year.  With supply set, and attention now on demand, the 17/18 corn balance sheet is just not going to offer a lot of excitement.  Deferred carries will be difficult to earn, with it being more likely deferred contracts come down to spot prices.  Carryout projected at 2.484bbu will offer the largest beginning stocks buffer we’ve had since 1987/88.  So how much corn do we need for next year?  If one spends any time talking to the country, you get the sense corn acres will be steady at worst and up 2.0 million acres at best.  Even with unchanged acres, and a 4-year average yield of 172.5bpa, production comes in at 14.335bbu, the third largest on record.  Once can make the argument after this years’ weather and the record yield achieved, upside on yield is better than downside.  I’ve kept feed/residual demand at this year’s record, ethanol is a new record, and exports were increased 75mbu to 2.00bbu.  This gives us a carryout of 2.394bbu, barely changed from this year’s 30-yr high.  One gets the sense we don’t need that many corn acres and the market should be trying to discourage farmers from planting that many, correct? At current, CZ18 corn is $3.8750, which is off recent highs at $4.00 last month.  This compares with CZ17 this time a year ago at $4.00.  Are prices low enough to discourage additional acres?

Were it just the United States, one could make the argument the situation isn’t as bearish as what it could be.  However, a closer look at the global balance sheet tells a slightly different tale.  World ending stock are forecast to decline this year from 226.583MMT in 16/17 to 203.860MMT at the end of 17/18.  The majority, if not all, of that decline is from China which sees ending stocks dropping from 100.715MMT last year to 78.665MMT at the end of 17/18.  This is good news as nearly half of the world’s ending stocks start to decline, but much like the wheat market argument, Chinese corn ending stocks really aren’t accessible to the global market.  Down the road, if they turn into a major importer, then these declining stocks will be incredibly important.  For now, stocks declining in a country which doesn’t need any corn isn’t all that supportive.  In fact, if we chart world ending stocks with and without China, we get a really good sense of the two different markets.  World ending stocks minus China come in at 125.195MMT, down almost nothing from last year’s 125.868MMT and right near the highest level since 1987/88.  World stocks minus China represent 61.41% of the global total, the highest share since 2009/10.  Again, multiple ways to look at this data, but the point is the countries who are engaged in active trade on the global corn market have a lot of corn, and the reason world ending stocks are declining is because China is whittling down supplies which are not available to the rest of the globe.

While we will get a much better read on large spec activity later this afternoon when the latest COT data is released, data put out by www.sentimentrader.com last week was rather interesting regarding the corn market.  According to their data, corn was the most-hated commodity last week with their proprietary Optimism Index dropping to a value of 21 on Thursday.  In looking at their historical data, there have been 143 days since 1990 when the Optix was below 22.  Six months later, corn showed a positive return 90% of the time which averaged 10.6%.  Given the poor fundamentals, bearish technicals and low volatility, the aforementioned might be difficult to believe, but turning markets rarely scream buy or sell me.

The crop progress report this afternoon is expected to show corn harvest at 80-85% vs. 70% last week and 92% average while soy harvest is expected at 95% complete vs. 90% last week and 97% average.

 

Bottom line: The last big report of the year is behind us, leaving the only volatility to come from South American weather which looks benign at the moment.  The corn market has a daunting task ahead of itself as we really don’t need more corn acres next year, but is certainly pricing itself to take a few away from soybeans at the moment.  Wheat markets are offering things to be optimistic about, but the major implications will be in 2018/19 which we will discuss later this week.

 

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.

11/10/2017 Morning Comments

Good Morning,

 

Snow showers across North Dakota this morning, otherwise quiet.  The entire Midwest will be locked under high pressure today, making for a dry day across the corn belt.  Rain/snow chances increase tomorrow for IA/IL/MO which works east to IN/OH by Sunday/Monday.  Totals look light and generally less than 0.25”.  Another round moves into MO/IA/IL/WI Monday-Wednesday, bringing another 0.10-0.30” to those states.  That same system sets up shop a bit midweek next week as it moves east, bringing similar totals to IN/OH/MI/KY.  Could make for a start and stop affair the rest of the way through harvest.  The Plains and WCB will be bone dry the next 7-days, and potentially longer as the extended maps show below normal precip through the 8-14 day.  Temps are above normal for the Midwest throughout.

 

Weaker markets to close the week as we see a bit of follow through selling after yesterday’s USDA led selloff.  While the session is far from over, and intensity could increase when desks are fully staffed later this morning, there doesn’t seem to be a huge sense of urgency in driving our markets to zero just yet.  Big volume and big open interest changes yesterday as one would expect given the increased participation surrounding USDA reports.  The market was certainly not prepared for a record corn crop from the USDA, and even the unchanged estimate on soybeans felt bearish.  The supply side of the equation is more or less set now, pushing almost all of the focus to demand where we have plenty of work to do.  SRW wheat saw open interest drop 8,133 contracts as wheat tried to remain high with row crops lower, and there was probably some inter-market spreading being lifted or adjusted.  Chicago wheat volume was the largest since June 26th, 2015.  HRW saw open interest drop 5,894 contracts for many of the same reasons while volume pushed to a new, all-time record of 137,038 contracts.  Corn open interest increased 25,915 contracts as new fund shorts were undoubtedly added, and there was also probably some panic selling by producers.  Corn volume was the largest since June 7th.  Soybean futures saw open interest rise 12,029 contracts with volume jumping to a two week high.

A full review of the WASDE changes isn’t necessary, but is worth highlighting a few finer points.  The national average corn yield bumped up to a new record 175.4bpa vs. the average trade estimate of 172.4bpa, 171.8bpa last month and 174.6bpa last year.  Total production totaled 14.578bbu which was 249mbu above the average trade guess, 298mbu above last month but still 570mbu below last year’s record.  One of the more interesting things is not a single corn belt state recorded a new state record yield, despite the average yield for the US hitting a new record.  New state records were seen in MI, PA, LA, MS, LY, TN, SC and AL.  Further underscores the “fringe area” importance, and helps shed light on how we could achieve a national yield record despite some of the adverse weather experienced in parts of the Midwest.  The USDA made necessary changes to their balance sheet to account for some of the supply with feed/residual bumping up 75mbu and exports were also increased 75mbu.  The F&R increase I can live with, but the increase to exports looks completely out of line given commitments and shipments to date.  Only thing USDA might be banking on is smaller crops in the Black Sea, which we will touch on later.  Bottom line is we have a tremendous amount of corn, and new crop prices are arguably trying to maintain current acreage which would appear to be too much.  Markets are not likely to earn their carries, which means producers need to take steps to lock them in when able.

The national soybean yield was left unchanged this month at 49.5bpa which was above the 49.3bpa average trade estimate, but still below the 52.0bpa record last year.  Total production came in at 4.425bbu, above the average trade estimate of 4.407bbu, but below the 4.431bbu last month and above the 4.296bbu last year.  So the US has a record bean crop without a record yield which isn’t difficult to believe given the 7 million more harvested acres this year than last.  Demand estimates were left totally unchanged on soybeans which some took issue with, again given the pace of export sales and shipments to-date.  It is still fairly early in the marketing year, but until or unless South America has a weather issue, China will be able to remain hand-to-mouth on their buying and isn’t likely to help us alleviate our supply challenge.  Despite the record crop, however, soybeans don’t feel as though they are going to give up the ghost just yet, needing to maintain risk premium for a SAM weather stumble.  A correction down to the previous corrective lows at 9.70-9.80 would not be unreasonable, but the highs at 10.08-10.13 feel safe for now.

Not a big month for wheat changes, at least not in the US anyway, as the only change USDA made was a 25mbu increase to wheat exports which went completely to HRW.  This change was justified last month in our opinion, but definitely after the HRW business to Iraq last week, of which there could be more.  Second half exports were always going to be the US’s chance to pick up extra-ordinary business, and that remains the case today.  Despite a tightening US balance sheet, we were mostly overshadowed by increases elsewhere in the globe as has been the case this entire marketing year.  Russia’s production was increased again by 1.0MMT to 83MMT with exports also increased 500,000MT to 33MMT.  EU production was increased 450,000MT to 151.49MMT, while Australia and Argentina were left unchanged.  USDA did increase Argy exports to 11.7MMT from 11.5MMT last month, while Australia was cut 500TMT to 17.5MMT which is still 2-3MMT too high according to sources on the ground.  India saw imports reduced 500,000MT to 3.0MMT as they doubled their wheat import duty.  The various changes did help carryout for 17/18 drop from last month by 600,000MT but remains 12.1MMT above last year which will be the headline.  As we’ve been writing about for some time, the world’s wheat stocks are tied up in four countries: Russia, China, India and the United States.  When these four are isolated, world wheat stocks continue their multi-year decline.  The wheat story is turning more supportive by the month, but the real story looks to be in 2018/19.  We will be expounding on this next week.

Export sales were also released yesterday before the report with solid numbers across the board with the exception of soybeans.  Wheat sales totaled 28.7mbu which was above expectations and the 12.9mbu needed weekly to hit the USDA forecast.  16.5mbu was owed to the Iraq business from last week which was already known, but there was also 2.2mbu of HRS done to China which continues to bring demand to our shores most thought would be lost.  Total commitments of 598.6mbu are down 5% from this time last year, which is exactly in-line with the USDA’s latest export forecast.  Corn sales were huge at 93.1mbu which is well above the 25.1mbu needed weekly, but was also larger than the trade was expecting despite large known sales to Mexico.  Total commitments of 763.5mbu are down 25% from a year ago with the USDA now forecasting a 16.0% decline y/y.  Soybean sales totaled 42.6mbu which was above the 26.0mbu needed weekly, but below market expectations.  Total commitments of 1.156bbu are down 15% from a year ago while the USDA is forecasting a 3.4% increase y/y.  This why the soybean market is really in “prove it” mode the next couple months ahead of South American harvest.

Other tidbits worth noting from yesterday included another 20 HRW receipts being canceled out of Wichita which takes the one week total to around 208 if our count is correct.  End users are buying old delivery receipts as deliverable supplies become the cheapest source of 11.0% protein wheat in the country.  The spot floor saw 11.20% trade up another 10c to +125/140Z while 11.0% was indicated at +102/120Z vs. +75/90Z a week ago.  12.0% is called +195/210Z vs. +175/195Z a week ago.  The entire wheat complex did not want to trade lower in sympathy with row crops as cash markets remain very firm and calendar spreads are tightening.  Producers would do well to take note of current flat price levels in relation to recent price action as the market cannot buy wheat at current levels, and should serve as an indicator for futures as we move into the winter months.  GASC is also tendering this morning, the second day in a row they’ve issued tenders.  The latest business went exclusively to Russia as most of the recent tenders have, and the one this morning should be no different.

One more note on the corn market, as I think producers need to take a long look at current line items from the USDA both for 17/18 expectations and possibly 18/19 acreage ramifications.  Production declined 570mbu from last year, but total supplies are essentially unchanged at 16.922bbu this year vs. 16.942bbu last.  USDA increased demand from last month, but it is still down from last year at 14.435bbu vs. 14.647bbu.  This helps carryout rise to 2.487bbu vs. 2.295bbu last year, and the largest ending stocks in 30-years.  We have a substantial buffer against any unforeseen demand, which we would gladly take, and will have a substantial buffer against yield adversity heading into next year’s growing season.  Record yields being achieved in three of the last four years is starting to catch up with the market, and producers need to temper their expectations accordingly.  As we have discussed in recent weeks, what is more likely to occur: December or March corn at $3.40-3.54 rallies to where May, July and September are at 3.63-3.78, or are May, July and September going to end up down at 3.41-3.54 as the year grinds along?  If you believe the latter, there are still 13-30c worth of carry to lock in.

 

Bottom Line: Soybeans could see some additional sell pressure once volumes pick up later this morning as traders remain skeptical of the USDA demand estimates, and as long as there remains no weather threat in South America.  Corn set new contract lows throughout the curve, so technically there is really no support directly under this market.  That said, funds are large net shorts and it comes down to a game of chicken between under-sold farmers and over-sold funds.  Farmers usually have the better staying power, especially with the last 1/3 of harvest slow to come in.  We need demand.  Lots and lots of demand to clean up these piles of grain.

 

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.

11/9/2017 Morning Comments

Good Morning,

 

The huge reversal in crude oil prices yesterday caught the attention of many, leaving a blemish on charts which will have bears yelling top.  Spot month crude prices hit a new high for the move yesterday at $57.92/bbl before reversing course and closing at $56.81/bbl.  Fortunately, we remain sharply above all major moving averages with the 50/100/200-day all between $49.16-51.45/bbl.  Adding to pressure yesterday was a bearish weekly inventory report which showed crude stocks building by 2.24 million bbls vs. the expectation for a 2.90 million bbl draw.  Total crude stocks of 457.14 million bbls are well below the 485.01 million bbls last year but still well above the 429.63 million bbls on the 3-yr average.  Gasoline stocks fell by 3.31 million bbls to 209.54 million, below last year’s 220.96 million and below the 3-yr average at 211.99 million.  Distillate stocks are also well below last year and the 3-yr average.

A few flurries in NE-SD and S-MN, otherwise the Midwest radar is quiet this morning.  There are a couple chances at moisture for the balance of the week, but best odds will be east of the MS-River.  Looking at the next 5-7 days, IA/IL/MO/IN/OH could see between 0.25-0.70” of rain/snow mix, depending on temperatures.   Fortunately, temperatures are on the rise for the weekend extended forecast with above normal temps seen throughout the Midwest.  This should alleviate late harvest concerns with precip remaining below normal as well.  Over the last 2-weeks, the southern plains have been well below normal for precip while the OH-River Valley has been well above.  No major changes to report in South America, although a lack of precip in Southern Brazil will need to be monitored to see if it rolls forward this weekend.

 

A little firmer markets out of the gate this morning as we await refreshed data tables from the USDA later this morning.  Based on pre-report estimates, the market is clearly looking for a gain in corn production of around 50mbu, while soybean production is seen dropping roughly 20mbu.  The real risk in my opinion is either the USDA not cutting production as much as expected, or completely offsetting the production cut with a demand cut given the slow start to the export season.  In corn, it seems as though it could be difficult to get a major bearish reaction out of the USDA data, unless all-time record yields are achieved as the harvest push is over, basis is firming, spreads have bottomed out, the fund short position is closing in on a record and we still haven’t been able to move away from $3.50.  Open interest gains yesterday in row crops while wheat saw huge drops with corn up 3,492 contracts, soybeans up 8,003 contracts, SRW wheat down 11,056 contracts and HRW wheat down 7,782 contracts.  Worth noting, volume yesterday in KC wheat was the highest since June 20th, while volume in Chicago wheat Tuesday was the highest since mid-August.  Some of this can be attributed to the second day of the index roll.  Despite this, Minneapolis was the strongest leg yesterday, hitting the highest price since September 8th.  Z/H spreads at all three exchanges are headed higher, complementing the basis appreciation seen last week and earlier this week.

We’ve discussed firming cash corn, and obviously firm cash wheat markets of late, but soybeans are also getting in on the act as harvest is complete and beans are becoming harder to buy.  CIF soybean bids were up another 2-6c for NDJF yesterday with spot barges called +32/34F and Dec +36/39F vs. +23/26F and +33/35F a week ago, respectively.  Crush basis is also firmer, with board crush margins maintaining 88-96c margins throughout the curve to August.  A word of caution on the CIF bean strength, however, the firming basis appears tied to a lack of producer selling as opposed to runaway export demand.  Vessel lineups for soybeans at both major ports are dwindling, setting up a light November export program.  Given the USDA is counting on record export demand to help alleviate soybean supplies, it looks as though the only way that happens is a major weather issue in South America.  HRW basis remained firm yesterday with 11.00% up 5c to +105/120Z, while other proteins were unchanged.  MGEX spot floor saw 15.0% pro up 26c on the low side to +181Z while the high side fell 12c to +188Z.  SRW wheat remains well above delivery equivalence at all locations.

Data yesterday included weekly ethanol production which ticked higher by 1,000bbls/day to 1.057 million bbls/day.  This is just off record highs, and is well above the needed level to hit the USDA ethanol production forecast.  This week’s production was 5.5% above last year’s same week production, a good deal better than the average 3.3% gain to hit the USDA estimate.  Ethanol stocks declined by 129,000 bbls to 21.345 million bbls, but remain at record highs seasonally.  In fact, ethanol stocks last week were up 11.0% from a year ago as ethanol stocks drew down to historic lows in November and December last year.  Fortunately, gasoline demand has been record breaking seasonally, which should continue to promote ethanol blending.  RBOB holds a 36-50c premium over Ethanol over the next 6-months, with the most active RBOB and Ethanol contracts showing the largest RBOB premium since July 20th, 2015.  Ethanol prices themselves remain range bound between $1.37-1.55.  Analysts still believe Brazil will import a large amount of US ethanol in 2018, despite the government imposing a 20% duty on ethanol imports, however.  Continued ethanol demand growth via exports will be crucial to seeing corn demand for ethanol not plateau or even decline.

While South American and Australia will be the focus on the global production side of the WASDE today, one other area of focus should be the declining corn production estimates in Russia, Ukraine and Europe.  Poor yields and adverse harvest weather has caused private estimates as well as Attache estimates to be cut in recent weeks, which could increase imports for Europe from outside origins.  At the moment, Brazil is the cheapest priced corn into the EU, which will compete directly with the United States, but that demand could help sop up excess bushels from South America sooner, allowing the United States to enjoy its more traditional export window.  When USDA data sets are updated, we will take a closer look at major exporter balance sheets and projected ending supplies.

One last wheat note, worth mentioning another 49 HRW receipts canceled out of Salina, KS last night which follows 139 contracts canceled last week.  With HRW cash markets screaming higher, end users are finding the cheapest source of wheat to be delivery supplies, provided one can get the spec they want.

 

Bottom Line: Grains are slipping negative as we pass the 7:00 hour, but beans look to maintain strength this morning.  November reports are not usually game changers, but let’s get the numbers past us before focusing on the tail end of harvest, cash markets, and the large amount of contracts which need to be rolled further out the curve in November.  Corn market really looks as though the deferreds will come down to replace the front-month, meaning the $3.60 March will eventually be $3.50 March.  Producers need to look at locking in carry while it is available.

 

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.

11/8/2017 Morning Comments

Good Morning,

 

Last night saw the release of October import/export data from the General Administration of Customs in China.  Mostly solid import data once again this month with crude oil imports at 31.03MMT, which was up 7.8% y/y, but was the smallest total in 12-months.  Jan-Oct crude oil imports totaled 349.09MMT, up 12% on the year.  Coal imports measured 21.28MMT, down 1.4% y/y while Jan-Oct coal imports of 226.12MMT are still up 12% on the year.  Soybean imports totaled 5.86MMT, up 12% on the year with Jan-Oct imports at 77.31MM%, up 15% on the year.  Iron Ore imports totaled 79.49MMT, down 1.60% on the year, but Jan-Oct imports of 896.23MMT are up 6.3% on the year.

Rain in the southern plains, but otherwise a wide open Midwest radar.  Things should remain mostly dry the next several days until rains move into the corn belt Saturday/Sunday which looks to bring 0.10-0.30” of rain to every state from South Dakota to Ohio.  Temperatures remain well below normal until the weekend at which time the Midwest finally warms up.  Above normal temps are seen in the 6-10 and 8-14 day with below normal precip as well.  Harvest forecast looks about as good as one can hope for, if the grain is dry or if farmers are willing to pay drying costs.  Once into November, grain is not drying in the field any longer, so what you have is what you have.  Nothing to report in South America as benign conditions roll forward.

 

Mixed markets this morning as wheat adds to losses from yesterday while soybeans trade firmer for the third session in a row.  Soybeans really have the feeling they would trade appreciably higher if it weren’t for the anchors of corn and wheat.  Open interest changes were broadly mixed yesterday and a bit difficult to read into.  Corn open interest was up 729 contracts with price down 0.50c, soybeans were up 618 contracts with price up 2.0c, Chicago wheat was down 7,547 contracts with price down 3.50c and KC wheat open interest fell 6,231 contracts with price down 3.50c.  Funds are large net shorts in corn and wheat, making the drop in open interest in the wheat boards a bit peculiar.  Volume is trending up in corn, SRW and HRW wheat, but on-balance-volume remains negative for all three as bears remain in control so far.  OBV in soybeans has pushed into positive territory and is the highest since 9/14/17.

The USDA Attache to South Korea released his monthly report on feed grains yesterday, delivering a bit of disappointing news, although not exactly surprising.  In his monthly report, corn imports for 17/18 were revised down to 9.7MMT from 10.2MMT previously as the Korean government plans to release 750,000MT of brown rice for animal feed in 2018 to reduce government stocks.  The disappointing point was the expected drop in the US share of Korean corn imports.  Given the South American drought in 2016/17, US corn accounted for 65% of all corn imports last year, the highest import share since 2010/11.  That share is expected to drop back down to 41% this coming year, however, as South America bounces back with solid harvests in both Brazil and Argentina.  This would drop total imports from the US to 4.0MMT from 5.961MMT a year ago.  The drop in export share is not exclusive to South Korea, and is exactly why both commitments and shipments are off to such a terrible start to the marketing year.

The basis train marched higher yesterday in HRW with the entire spot floor from Ord’s to 14.00% protein up 5-45c.  Largest gains were for 12.40% protein, up 45c to +230/245Z vs. +185/200Z a week ago.  12.0% protein wheat was seen at +195/210Z vs. +165/180Z a week ago.  13.0% pro was pegged at +255/270Z vs. +240/255Z a week ago.  To be clear, volumes were not incredibly deep, with values being pushed up by only a few cars.  Still, the week/week and month/month changes on the spot floor are difficult to ignore as producers hold tight to on-farm ownership and commercials as of yet have no interest in parting with hedged inventories.  Add in some export business like Iraq, and the table is more or less set.  The firming basis is finally lending a hand to calendar spreads with KWZ/KWH hitting the highest levels this week since 9/12/17, while the KWH/KWK traded to the highest since 9/27 and the KWK/KWN is at the highest since mid-September.  Grain Marketing 101 manual says futures should be next if either the basis or spread rally isn’t extinguished shortly.

Deliverable stocks were released yesterday with HRS stocks declining by 1.447mbu to 24.057mbu which compares with 27.749mbu a year ago.  Duluth supplies are up 3.2mbu vs. a year ago, but Minneapolis supplies are down roughly 7.0mbu from this time a year ago.  In KC, deliverable stocks fell a combined 1.522mbu to 119.794mbu which compares with 110.545mbu a year ago.  While down from the marketing year peak in August/September, HRW stocks in deliverable position are at record highs for this time of the year.  Chicago deliverable supplies fell 332,000 bushels to 88.582mbu which compares with 91.390mbu a year ago.  Deliverable supplies in Chicago for this time of year are below last year, but the second highest on record.

Quickly, PNW corn bids appear to finally be lifting a shoulder off the mat with LH-Nov bids at +58Z vs. +55Z yesterday and +50Z two weeks ago.  FH-Dec bids called +75Z, unchanged from yesterday but up from +72Z two weeks ago.  Rail cars have firmed a bit from -$300/car 2-weeks ago to -$125/car last night.  Lastly, interesting to note the volatility in some of the major exporter currencies this week and last.  The Russian Ruble is chief with regard to volatility, trading to the weakest level since 8/24.  The Brazilian Real hit the weakest level since July 5th last week before retreating this week.  As long as crude oil remains volatile, so too will the Ruble, and with elections in 2018, the Brazilian Real should also retain its volatility.

 

Bottom Line: More ho-hum trade as we await refreshed balance sheets from the USDA Thursday.  Soybeans are clinging to gains as the trade expects the USDA to cut total soybean production from last month while corn production is expected to rise.  Difficult to buy into wheat weakness given firming basis, firming spreads and erratic open interest changes.

 

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.

 

11/7/2017 Morning Comments

Good Morning,

 

A few scattered snow showers this morning in SD, NE and IA, while rain showers moving through OH.  Otherwise fairly quiet.  The Midwest should be fairly dry the next several days until rain/snow chances increase for IA/MN/WI/IL/IN Friday through Sunday.  Odds are good this falls as snow given the current temp outlook, but by Saturday/Sunday, temperatures are predicted to warm up for most of the Midwest and stay that way through the 8-14 day outlook.  Precipitation also remains below normal during that time frame, which should allow harvest to catch up where grain is actually dry.  South American outlook calls for average rains in Argentina and Southern Brazil while soaking rains fall in Northern Brazilian growing regions.  No issues to report at the moment.

 

Easier markets across the board this morning as our space tries to give back the gains made yesterday.  Appears to have been some short-covering on yesterday’s bounce as corn open interest fell 8,203 contracts, SRW wheat fell 2,294 contracts and KC wheat fell 132 contracts.  Soybean open interest dropped just 86 contracts, which probably signifies ownership changing hands, while products were up with soymeal up 5,031 contracts and soy oil up 821 contracts.  Soybeans have once again defended the bottom end of its rising trend channel support, while wheat has bounced right to the top end of its downtrend channel resistance, keeping both trends intact.  When it comes to corn, most traders are simply trying to figure out if their quote machines are still working as opposed to worrying about a trend in either direction.

Yesterday saw the weekly crop progress report released with corn harvest reported at 70% complete vs. 70% expected, 54% last week and 83% average.  Big progress was made in the WCB, although many still face sizable deficits relative to average.  SD is 61% complete vs. 80% average, ND 59% complete vs. 73% average, MN 60% complete vs. 87% average, IA 67% complete vs. 84% average and WI 37% complete vs. 63% average.  Most ECB states are within spitting distance of average.  Moving forward, it will be about grain moisture and whether the farmer has the ability to dry on farm or wants to pay drying changes at the elevator.  Soybean harvest was reported at 90% complete vs. 83% last week and 91% average.  Nothing really to dive into here as nearly every state is complete or at average pace.  Winter wheat conditions improved 3pts to 55% G/E vs. 58% last year thanks to some large jumps in HRW states.  For example, MT jumped 21pts to 43% G/E but well below 76% G/E last year.  MT’s jump was reminiscent of CO’s corn conditions this summer.  NE was up 7pts to 62% G/E, TX was up 6pts to 46% G/E and KS improved 4pts to 59% G/E.  Planting progress nationally advanced 7pts to 91% complete vs. 91% average, but as we’ve been discussing, it’s more about the individual states which have already passed final insurance planting dates.  KS is 93% planted vs. 97% average, OK is 90% planted vs. 95% average and MO is 69% planted vs. 75% average.  Winter wheat emergence was 75% vs. 77% average.

Other data yesterday included weekly export inspections which were solid for soybeans, terrible for everything else.  Wheat inspections totaled 10.4mbu which is the second lowest in nine weeks and well below the 17.9mbu needed weekly.  Total shipments for the year of 419.7mbu vs. the 446.6mbu on this date a year ago.  Corn exports totaled 17.5mbu which is well below the 36.7mbu needed weekly to hit the USDA export projection.  Cumulative exports now measure 218.1mbu vs. 400.7mbu a year ago, a 45.6% deficit.  Soybean shipments were solid at 91.5mbu vs. the 38.5mbu needed, but was still below last year’s weekly pace over this stretch.  Total shipments measure 545.9mbu vs. 599.6mbu on this same date a year ago.  Producers in the Northern Plains and WCB have been complaining about the weak basis levels on all commodities this fall, and one need look no further than exports out of the PNW so far this marketing year.  Combined corn, soybean and wheat shipments out of the PNW since September 1st have been below year ago levels in seven of the last eight weeks.  They’ve been below the 3-yr average in five of the last eight weeks.  It isn’t just the PNW, however, as both the Center Gulf and TX-Gulf are behind last year’s pace and mostly the 3-yr average pace.  With regard to the PNW, a lot of the basis issues there come down to a set amount of demand, and too many export houses and country elevators competing for that same demand.  We went from not enough capacity to too much in the span of 4-5 years.

HRW premiums carried over their strength from last week with the spot floor trading up another 5c for 11.40-11.60% with other protein grades unchanged.  12.0’s are indicated at +175/190 vs. 171/185Z a week ago.  The Iraq business was definitely the shot in the arm US exports needed, and given the business was conducted via a direct government to government sale, it increases the likelihood of additional business.  Iraq was tendering over the weekend for a nominal 50,000MT with offers due this past Sunday and remaining valid through November 12th.  The spring wheat spot floor was up 5c to down 10c with 14.0% called +110/150Z vs. +115/145Z a week ago.  The spring wheat protein story has taken longer to develop than has the winter wheat story, but the marketing year is much younger for HRS than HRW.  Given the well discussed protein shortages in the Canadian crop, and the decent carries being offered in spring wheat right after harvest, a similar setup to HRW seems likely with end users unable to buy spring wheat from a farmer who doesn’t like the flat price, and unable to pry bushels loose from hedged commercial inventories without a major basis rally.

Lastly, the USDA Attache to Russia released his latest report on the Russian grain crop last week with several noteworthy nuggets included.  He put average wheat yields at 3.24MT/ha which is up 16% from 2016/17 and the third record yield in a row.  There is no definitive data on crop quality from Russia, but according to the Attache, industry sources claim there are no quality concerns with the crop this year.  Protein and test weight is indicated above last year.  Total production is called 83MMT vs. USDA’s current 82MMT with exports put at 33.5MMT vs. 32.5MMT.  Attache sees ending stocks at 16.832MMT vs. USDA at 17.330MMT, both of which will be the highest since the early 90’s.  As of October 12th, Attache said Russia had planted 15.5 million hectares out of the total 17.4 million hectares forecast by the Russian Ministry of Agriculture, which is slightly ahead of last year’s pace.  Attache did cut Russian corn production to 13.8MMT vs. USDA at 15.3MMT due to poor yields.  Exports were also cut to 4.2MMT vs. USDA at 5.5MMT with ending stocks seen at 529TMT.

 

Bottom Line:  Lower markets as we try to give back everything we gained on the COT-influenced short-covering yesterday.  It doesn’t appear as though our markets are ready to sustain any sort of gains until we get past this week’s WASDE or know more about South American weather.  Corn almost seems like it is taking on a “let a sleeping dog lie” role with its lack of volatility, huge large spec short position, and harvest having come and gone without any real concentrated selling by the producer.

 

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.

 

11/6/2017 Morning Comments

Good Morning,

 

Crude oil continues on its upward trajectory this morning, with both WTI and Brent making new highs for the move.  WTI is currently working on filling a gap which dates back to July 2015 from $55.34-56.50/bbl.  Adding to the support were the weekend events in Saudi Arabia in which members of the Saudi Royal Family were indicted on corruption charges, essentially concentrating power in one branch of the Royal Family.  In the past, policy has been made by committee, but it looks as though one family, and more specifically, two people, could be in charge moving forward.  Few know whether this is a good thing or a bad thing just yet, but it is definitely a different thing.  Managed funds in crude oil pushed their net long to +281,244 contracts, up 46,355 contracts on the week, and now accounting for 8.5% of total open interest.  Worth noting, producer/merchants also bought oil and have drastically reduced their position since March as their net short accounts for just 1.8% of total open interest.  The major short position belongs to the Swap Dealer who is net short -475,455 contracts, or 14.4% of total open interest.

Scattered snow showers in the Plains this morning while rain showers finish up in the ECB.  More snow will fall in the Dakotas this morning before giving way to a dry week.  Much of the Midwest will enjoy a dry week after the current moisture moves through, which should help harvest efforts advance.  Cold temperatures will hang around, however, with highs in the 30’s most of this week for the WCB and Northern plains.  Things do try to warm to above normal temps by the 8-14 day, and precip stays almost universally below normal for the entire Midwest.  Solid rainfall occurred over most Brazilian growing regions over the weekend while temps were more or less normal.  The 10-day forecast sees decent planting weather for Argentina and more welcome rains in Northern Brazil.  Doesn’t appear to be any concerns at the moment.

 

Mixed markets this morning with firmer grain markets and an easier soy complex.  Wheat markets are trying to keep short-term trends up on the back of red hot cash markets, large net short positions by the large spec and a general concern about the potential drop in winter wheat acres again this year.  The most-active continuous chart of Chicago wheat shows a downtrend channel dating back to the highs on September 28th, and it would likely take trade above $4.33-4.35 to break out.  Corn remains magnetized to the $3.50 mark basis December futures, and momentum indicators show absolutely no sign of leaving that price anytime soon.  Soybeans turned in an especially weak session Friday, dropping prices back down to rising channel support.  Part of the pressure was the Brazilian Real trading 2% weaker to the lowest level since July 5th.  With elections coming up next year, expect an especially volatile cross-currency trade with Brazil.  At any rate, a sharply weaker currency undoubtedly encouraging soybean pricing for both old and new crop.  Aforementioned weather in Brazil also adding to pressure as their planting campaign continues with no major threats.

Friday’s COT data had plenty of features, all of which point toward rising net short positions across the Grain and Oilseed complex.  In corn, funds sold 19,710 contracts to put their net short position at -233,516 contracts, the largest net short since March 8th, 2016.  In addition, funds have now sold corn for 16 weeks in a row, for a combined -282,897 contracts of net selling.  Their bullish sentiment score (long positions as a percent of total positions) in corn is now 32.95%, the lowest since May 9th and really taking away the explosive downside potential for this group.  The Gross Commercial Long used this opportunity to push his position to +600,063 contracts, the second largest on record.  In soybeans, funds bought a token amount of beans to put their net position at +7,308 contracts.  Option expiration saw 171,973 contracts of open interest come off, so some large moves in various positions are expected.  The gross commercial long position fell swiftly by 73,388 contracts.

Wheat is where many of the interesting changes occurred as funds sold 9,391 contracts in KC wheat to put their net position at -25,612 contracts, the largest net short since September 13th, 2016.  Similar to corn, funds have sold HRW for 12-weeks in a row for a combined 82,194 contracts of net selling.  More impressively, the gross commercial long position continues to surge, jumping by 10,000 contracts to a new record +109,516 contracts.  Commercials in HRW are the least short since December 13th, 2016.  In SRW, funds sold 30,885 contracts to put their net short at -131,995 contracts, the largest net short since September 6th.  Their current positon accounts for 69.6% of their largest net short on record, so definitely more room to press if they feel the need.  Importantly, however, the gross commercial long in SRW also shot higher to +152,805 contracts, the largest since 11/22/16 and the fifth largest on record.  The combined wheat fund short of -154,278 contracts is the largest since April, while the combined commercial long from the three wheat exchanges of +302,649 contracts is a new record.  In addition, KC wheat open interest hit a new record high this week while CGO wheat is the largest since 2011 and the largest seasonally on record.  Record participants, record commercial ownership and heavy non-commercial selling.  We’ve seen this story before.  The combined grain and oilseed managed fund position surged by 60,000 contracts last week to -330,979 contracts, the largest since June 27th.

Other data released Friday included import/export data for the month of September which saw another solid month of ethanol exports.  Exports totaled 86.4 million gallons which was below last month’s 103.0 million gallons and last year’s 98.4 million gallons, but is still a solid month from a historical perspective.  Ethanol exports year-to-date have been on a tear, totaling 992.9 million gallons which compares with 808.1 million gallons on this date a year ago.  India and Brazil both showed up last month with solid imports at 20.3 million and 19.0 million gallons, respectively.  DDGs exports had a bounce back month at 903,290MT which was above last month’s 761,467MT, but below last year’s 992,326MT.  YTD exports total 8.206MMT which is slightly below a year ago at 8.520MMT.  China continues to take next to nothing, a far cry from their 400-900TMT totals in 2013-2015.

Tonight’s crop progress report is expected to show corn harvest in the 73-75% area vs. 54% last week and 85% average.  Soy harvest is expected at 93% complete vs. 83% last week and 91% average.  Also expectations for winter wheat conditions to edge higher, but more important will be the amount of acres left to plant given final insurance plant dates have already been hit in many counties.  Expectations for corn production to rise 53mbu on Thursday’s crop report, while soybeans are expected to decline by 23mbu.  A deeper dive will be conducted later this week.

 

Bottom Line:  Corn has shown no interest in moving away from $3.50, soybeans are looking vulnerable technically and wheat appears to be at levels it has not paid to sell over the last couple years.  The structure of our markets are short and getting shorter by the week.  Considering corn and HRW have been sold 12-16 weeks in a row speaks volumes.  Another 50mbu of production added to corn doesn’t feel like it is going to drive us sharply lower than where we currently are.  Basis is firming, spreads are off the lows and end user margins are expanding.

 

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.

11/3/2017 Morning Comments

Good Morning,

 

We’ve written about the rallying crude oil market in recent days, but one of the surest signs of this market’s strength is the response in calendar spreads.  This week, the 6-month calendar spread between December and June trading to $0.19, moving to backwardation for the first time since May.  In other words, for the first time in 6-months, the market is pricing nearby crude oil higher than it is pricing crude for next summer, a sign traders are not willing to pay someone to store for that amount fo time.  The one-month calendar spread between Dec and Jan has not inverted yet, trading at -$0.22, but is well off lows hit in September over -$0.50/bbl.  While Brent crude has moved out of its 18-month trading range, WTI has not, remaining between $42.00-$55.00.  Until we move above our upper trading band, we will be susceptible to set backs.  Trade through $55.00 would open upside to $62.00.

Snow showers across the Dakotas and MT this morning, beginning what will be a rather wintry weekend in the Northern Plains.  Areas of the Dakotas and MN are expected to see 2-4”of snow in the next 24-36 hours, some of it starting or ending with freezing rain which could create treacherous conditions.  This will also add to delays to an already behind schedule corn harvest.  The Northern Plains will remain active in the 7-day, with more chances of snow Monday/Tuesday.  The ECB will also see a heavy round of moisture in the coming week as IL/IN/OH/S-MI are slated for 0.50-3.00”, predominantly in the form of rain.  The 6-10 remains below normal on temps, but the 8-14 day sees us move toward normal/above finally in the Plains.  The ECB sits below normal on precip, while the majority of the Midwest should see below normal precip.

 

After a two-sided week, markets are mixed on our final session of the week with soybeans trying to close the first week of November with 10c gains, while Chicago wheat is unchanged and December corn is up 1.75c.  Wheat’s recent performance has been both interesting and perplexing as yesterday we saw 8.0c gains in Chicago, but prior to that we saw six straight sessions of losses.  Looking back at the current downtrend since September, Wheat goes 3-4 sessions with losses followed by a single day of 7-10c gains before the losses resume.  Yesterday’s session was not technically a reversal in any classical sense of the word, but momentum indicators are certainly turning the right direction, possibly hinting at a bullish divergence.  Despite the sharp bounce in price, SRW open interest actually rose 3,323 contracts, suggesting it was not just managed fund short-covering.  KC wheat was also up 1,292 contracts, corn was up just 878 contracts as funds move positions into March and May, while soybeans were up 10,425 contracts on the lower close.  Most impressively, December corn is right back at its $3.50 magnet, a price it has had so much difficulty in moving away from.

Export sales yesterday included wheat at 12.8mbu vs. the 13.4mbu needed weekly.  This brought total commitments to 569.9mbu which is down just 5% from a year ago, even though the USDA continues to forecast a 19% drop.  By-class sales were led by HRW at 6.2mbu vs. the 5.4mbu needed weekly.  HRS sales at 3.0mbu were just under the 3.8mbu needed weekly, while total HRS commitments of 161.0mbu are down 13% from a year ago.  Corn sales were ok at 31.9mbu vs. the 26.7mbu needed weekly, bringing total commitments to 670.4mbu vs. the 974.4mbu a year ago.  Total commitments are down 31% from a year ago, but shipments are drastically behind year ago levels.  Soybean sales were solid at 72.3mbu vs. the 26.3mbu needed weekly.  Total export sales of 1.116bbu are down 16% from a year ago while the USDA is still maintaining a y/y increase.  This will be a tall task considering the slower start to the year, larger carryover stocks in South America and no major weather threats there just yet.  The larger export sale story yesterday was the daily corn sale announcement of 1.356MMT to Mexico, split 60/40 between this marketing year and next.  This sale would move into 10th all-time for single daily sales of corn.  Largest corn sale in a single day on record is still held by the USSR on January 9th, 1991 when the bought 3.720MMT.  They also own the number two spot with 2.00MMT purchased back on October 3rd, 1989.  Ahh, communism.

We’ve discussed the prospect for a decline in winter wheat acres here for the last couple months, but with the sowing campaign wrapping up, we can feel a little more confident about some of those assumptions.  While the focus has been on the tardy pace in Kansas due to dry conditions early, followed by too wet conditions in October, SRW states are also facing delays.  As the 7-day forecasted precip map shows below, the ECB and SRW belt is expected to receive quite a little bit of moisture in coming days, right as many states hit their final insurance planting dates for full coverage.  IN and OH began hitting final plant dates for insurance purposes on October 20th, with more counties falling off by the end of October and the two states had 19% and 9% of their acres left to plant, respectively.  IL also began to hit final plant dates on October 20th, and had 24% of its acres left to seed as of 10/29.  The northern 1/3 of MO hit final plant dates on 10/31, while the southern 2/3’s has until November 15th to plant.  As of 10/29, MO still had 45% of its acres left to plant.  74% of Kansas counties had hit final insurance plant dates as of 10/31, but there was still 16% of intended acres left to plant.  To be clear, farmers can’t plant past these dates, but they lose 1% of insurance protection each day that passes until they lose total coverage.  With prices already hovering near 10-yr lows, producers won’t think twice about switching to another crop if conditions warrant and full coverage cannot be achieved.

Previously, we had been working with ideas of unchanged to a 5% acreage cut, but the aforementioned delays have us leaning toward a 10% national reduction in winter wheat planted acres.  The majority of those would be HRW, but SRW acres could also now be affected.  Looking specifically at HRW, if we see a 10% reduction in acres, planted acres would be 21.4335 million vs. 23.815 million last year.  Using 77% for harvested acres, we would have 16.503 million which would be harvested.  Using 5-yr averages for yield and demand, that would push carryout down to 276mbu vs. 487mbu for the current marketing year.  This would be well below the 5-yr average carryout of 411mbu, and the lowest since 2013/14.  Many things will happen before we can have confidence in a carryout number like that, but if acreage does decline 5-10%, it will put even more onus on HRS acres increasing substantially next spring.  Even with a 16% increase in acres, we don’t see carryout moving above 200mbu unless demand is materially affected or yields reach blow-off type levels.  The tightening carryouts for next year should remain supportive moving forward.

Speaking of HRW and demand, would be remiss if we didn’t discuss cash premiums which are on fire, and the export business which most do not have in their grids.  First with the sale, cash merchants said C & A of ABCD sold a combined 450,000MT of HRW to Iraq yesterday, helping ignite TX-Gulf and domestic premiums this week.  This comes in addition to the 100,000MT of HRW Iraq bought in October, a good deal more than most were counting on this marketing year.  Correspondingly, HRW registrations at Cargill’s Salina-KS elevator fell 139 contracts last night, leaving 450 outstanding.  This would only be 695,000 bushels of the rumored 16.5mbu sold, but if the total is anywhere near the rumored level, we should see some sort of announcement from the USDA either today or early next week.  The trades helped push spot floor 12.0% to +175/190Z vs. +166/181Z a week ago while 13.0% pro is seen at +240/255 vs. +215/230Z a week ago.  TX-Gulf premiums are also a great deal firmer with Nov/Dec at +215/225Z vs. +198/208Z a week ago.  The firming basis continues to support calendar spreads with the KWZ/KWH at -17.00c the firmest since 8/11/17, but KWH/KWK and KWK/KWN remain well inside ranges.  Until futures rally to get producers to sell, or calendar spreads rally enough to get commercials to pitch hedged length, it will be difficult for end users to source wheat against storage revenue.  The protein shortage we’ve known about since harvest is finally starting to sink its teeth in and its only November.

 

Bottom Line: Mixed close to the week as private analysts release their guesses for next week’s WASDE report.  Looks like corn supply is going to get larger while analysts are on both sides of the fence as far as soybeans.  The question is whether more bushels at this point will cause a big break in the corn market, or whether those bushels are already priced in?  We haven’t been able to leave our $3.50 post in December corn for any meaningful amount of time, so a big plunge from here would definitely be a surprise to the market.  Wheat is slowly building its demand story at the same time producers continue to throw in the towel on winter wheat planting.  Most likely not a story which is going to sneak up on anyone, but constructive ground work is being laid.

 

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.

 

10/31/2017 Morning Comments

Good Morning,

 

Yesterday we focused on the currency markets and the move they’ve been on recently, but equally as impressive has been the strength in crude oil futures.  WTI futures made new highs for the move yesterday at $54.46/bbl, the highest print since February 27th, while Brent Crude futures hit $60.70/bbl, the highest trade since July of 2015.  Helping support crude prices is a general belief by the market the OPEC-led production cuts will be renewed well into 2018 and possibly through next year.  Also seeming to support price is the recognition of crude oil companies globally, but more specifically in the US, shifting their focus from mass production to max profitability.  Underscoring the aforementioned is the IEA affirming its demand estimate of 1.6 million bbls/day this year, which is almost double the growth rate from 2011 to 2014 when oil was above $100/bbl.

Snow showers are moving across the southern plains this morning, but otherwise the Midwest is fairly quiet.  Later this week and into the weekend will see more winter weather hit the Northern Plains with MT/Dakotas/MN all expected to see wintery mix Friday/Saturday.  The ECB will be no different with multiple rounds of moisture from Wednesday through the weekend.  By the end of the weekend, IL/WI/MI/IN/OH could see moisture accumulation of 0.50-1.50”.  Southern Plains will be mainly dry.  Same trend moving forward with below normal temps for the Northern Plains, but above normal temps for everyone else.  Precip remains mostly above normal in the 6-10 and 8-14, but turns below normal for SD/NE and Rockies by the 8-14.  This would be welcome to help finish harvest efforts before Thanksgiving.  Soaking rains still on tap for Northern Brazil in the 6-10 which would be welcome.

 

Lightly mixed markets this morning with grains looking as though another low-volume, tight ranged trade will take place again today.  Yesterday’s volume in corn was the lowest since September 25th, but that didn’t stop open interest from getting back to its upward trend and adding another 8,303 contracts.  Corn open interest is now the largest since April 26th, 2011.  Soybean futures dropped swiftly, down 20,123 contracts, which is likely still the effects of option expiration Friday and those trades being exercised or closed out.  With wheat futures down, SRW open interest rose 9,245 contracts while HRW added 1,452 contracts which likely means funds have continued to pile into the short side.  Wheat contracts are sitting at recent lows while corn is within 4-5c of recent lows, areas which have acted as solid support for months.  With harvest over half way, and the likelihood the remaining bushels will string out over the next several weeks, it doesn’t feel as though we will see a concerted harvest pressure push on the second half.

The weekly crop progress report was released yesterday afternoon and showed corn harvest at 54% complete vs. 38% last week, 53% expected and 72% average.  Severe deficits are evident across the Northern Plains and WCB as we’ve been discussing for a while now.  Those deficits are not likely to be made up this week given the high winds and wintry weather forecast.  Every major corn producing state except Michigan is behind average as evidenced by the chart below.  The largest deficits belong to MN at -35%, SD at -31% and IA at -26%.  While this is not the slowest harvest pace for these states or the US, it is larger than just looking compared to average given the size of the corn crops we are raising now.  In the second chart, I looked at bushels remaining to be harvested based on the pace of harvest according to NASS.  Based on that metric, we have 6.568bbu left to harvest, which would be the fourth most on record for week #43.  2008, 2009 and 2014 still rank above 2017, but our deficit isn’t going to be cleaned up this week either.  Soybean harvest was estimated at 83% complete vs. 70% last week and 84% average.  Nothing really to dissect with soybean harvest as the few states running behind average are only off by a point or two.  Buying soybeans, aside from bushels sitting at the elevator on Delayed Price, could prove difficult without a serious basis or flat price rally.

Also released in the report was winter wheat planting progress and conditions.  Planting progress came in at 84% complete vs. 75% last week and 87% average.  The nationwide average obviously skews the laggards which continue to be KS at 84% planted vs. 92% average, and OK at 83% planted vs. 89% average.  Like the corn harvest chart, I posted a planting progress relative to average for some of the major winter wheat producers below.  The obvious concern is the turn to colder weather and the lack of time to get the crop established before dormancy.  This was evident in the first crop condition score which came in at 52% G/E vs. 58% G/E last year.  Worst conditions were present in SD at 17% G/E, MT at 22% G/E and OK at 47% G/E.  Nationally, 52% of the crop was rated G/E which compares to the 5-yr average of 53% G/E which doesn’t look quite as bad.  However, the condition report was accompanied by a report from Kansas State University on poor stands for HRW planted prior to late-September 2017.  Many of these fields have poor emergence due to excessive rainfall in the first half of October which led to crusting and lack of aeration.  They offer tips on how to determine if reseeding is appropriate.

Weekly export inspections were also released yesterday, and were pretty dismal for corn and wheat but solid for soybeans.  Wheat inspections came in at 11.6mbu vs. the 17.6mbu needed weekly to hit the USDA export forecast.  Total inspections of 408.4mbu are down just 4.5% from a year ago vs. the USDA calling for a 19% drop.  Corn inspections totaled 20.4mbu which were much smaller than the 36.3mbu needed weekly.  Cumulative exports total 199.4mbu which are down an astonishing 45.2% from a year ago.  The corn export pace is a serious concern, but fears should probably be allayed during the next few weeks as the focus is almost exclusively on soybeans.  Soybean shipments totaled 92.1mbu, well better than the 39.7mbu needed weekly.  Cumulative exports total 453.5mbu which are down 9.5% from a year ago, even though the USDA is counting on a y/y increase.

 

Bottom Line: Difficult to see what is on the horizon which will push us out of our current ranges.  As long as wheat and corn continue to hold recent lows, it will be a technical victory and be a good sign going into the winter doldrums.  Helping that sentiment is the fact wheat and corn open interest keep rising, almost relentlessly, near the lows which is a good bet managed funds keep piling into shorts.  Commercials have been buyers, and the natural seller is soon to be out of the market in soybeans.  Plan accordingly.

 

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.