The story yesterday was most certainly the US Dollar weakness, at least as it pertains to commodities. Obviously the record highs in equity markets were a feature, but the USD traded to the lowest level since July, moving below the 100-day moving average in the process. USD strength, or at least lack of weakness, has been a feature for most of 2018 and in general bearish commodities. With many folks long USD and short emerging markets, it will be interesting to see if some unwind occurs in coming days which helps weaken the USD further. As noted, with US equities making all-time highs yesterday, it doesn’t seem as though USD weakness is a forebearer of an economic collapse waiting around the corner. However, there is obviously fundamental justification for the weakness in the world’s reserve currency but we are just glad to have the pressure off commodities for a bit.
The Midwest is dry this morning, much to the relief of water-logged farmers everywhere. Rains are falling in the southern plains this morning with E-KS/OK/N-TX seeing good rains. The rainfall totals this week have been truly impressive with a huge swath of E-SD/S-MN/N-IA/SW-WI posting 2-8” totals and flooding being reported everywhere. A broader area which included most of South Dakota, Minnesota, Nebraska and the rest of Iowa saw 1.0”+ amounts as well. Fortunately, the Midwest will be dry until Monday/Tuesday when the eastern corn belt sees chances at rains in the 0.50-1.50” range. The western corn belt and northern plains should remain dry through the next 7-days. Extended maps keep temperatures well below normal with the first freeze chances coming next weekend. Precip gradually moves toward below normal in the west and north by the 8-14 day which would be welcome.
Mixed trade this morning following the impressive session yesterday which saw soybeans close with 20c gains and corn up 6-7c. Wheat markets lagged yesterday with long wheat/short row crop spreads being unwound, although wheat futures don’t really need to uncork a huge rally and move away from export business. The strength in soybeans was predicated on a lot of rumors, none of which can really be substantiated even today. First, we heard of Argentina buying 5-10 cargoes of US soybeans for the purpose of re-routing them to China. Where there is smoke there is usually fire, but CIF markets traded weaker yesterday in contrast with the 10 cargo rumor floating around. There was also chatter China was trying to cancel some US soybean boats it had previously purchased, which may have some validity considering the CIF weakness. Analysts were also discussing Chinese plans to cut import duties on a host of goods, although the United States and soybeans were not expected to be on that list. Certainly a lot more talk from folks suggesting China is ready and willing to deal on trade, going so far as to say they need to deal soon or risk a larger economic slowdown they can’t afford. So, lots of conjecture and not much fact but the aforementioned was more than enough to gas a market which is structurally short in the managed fund category and also used to making lows during the next 30-days which we discuss below. Corn open interest fell 2,242 contracts yesterday, soybeans were down 7,733 contracts, SRW was down 394 and HRW was up 375 contracts.
With the rallies yesterday, the talk of bottoms both from a contract low and seasonal basis were being discussed. We dug up the data and found that since 1990, December corn has hit its calendar year lows in September two other times: 1998 and 2009. In 1998, December corn set its low and proceeded to rally 17.8% to its fall high. In 2009, December corn posted a 36% rally from its seasonal low to its fall highs. Interestingly enough, a 17% rally from the lows made Wednesday would take us back to $4.00, a level which would buy a tremendous amount of corn from the US farmer. As many sage traders often remark, “sometimes you gotta go to where the orders are.” In soybeans, there have been three years since 1990 we have made our calendar year lows in September: 2006, 2014 and 2015. Those years saw rallies of 24%, 20% and 7%, respectively. In 2015, once the lows were set and prices rallied 7%, they actually gave up all of those gains to trade back to the lows by November expiration. A 7% rally would take us to $8.69, while a 20% rally would take us to $9.74. You could buy half the soybean crop from the farmer is beans were able to rally to $9.00.
Data during the session yesterday included weekly export sales which were strong for corn but middle of the road for wheat and soybeans. Wheat sales totaled 17.2mbu vs. the 17.6mbu needed weekly to hit the USDA forecast. Total commitments are now down 22% from a year ago vs. the USDA calling for a 13% increase. The sales get worse the further one digs as total commitments of 10.207MMT are the lowest all-wheat commitments for this date since 2006 and the second lowest since 1990. Worse yet, commitments as a percent of the USDA’s export forecast at 36.59% are the lowest on record going back to 1990. The average level of sales needed each week moving forward of 17.5mbu remains the fourth largest since 2000. With commitments similar to those of 2006/07, it is interesting to note that 2006/07’s export sales total ended up at 908mbu, very similar to last year’s 901mbu total. This would be nearly 125mbu below USDA’s current forecast. Also worth noting, in 2006/07, we had already sold or shipped 41.05% of the full year forecast vs. just 36.59% this year.
Corn sales totaled 54.5mbu, well above expectations and well above the 34.7mbu needed weekly to hit the USDA forecast. Total export commitments of 651.7mbu are up 50% from a year ago while the USDA is calling for a 1% slowdown y/y. With the short crops in Brazil and Argentina, the United States has the potential to have a record setting corn export season. The 2.425bbu worth of exports in 17/18, which could get larger yet when official Census Shipments are released, are the second largest on record behind 2007/08’s 2.437bbu. Based on the pace with which the US is selling and shipping corn, that record could be in jeopardy. Soybean sales totaled 33.7mbu vs. the 28.8mbu needed weekly to hit the USDA’s export forecast. Total commitments finally slipped below year ago levels, however, with total commitments of 658.9mbu now 7% below year ago levels. This is likely to get worse in coming weeks as last year we sold 37-110mbu per week over the next three weeks.
US wheat is close to connecting on business, thanks in large measure to rallying global wheat values. The most actively traded December contract for Black Sea Wheat futures is up $9/MT over the last week to trade the highest level since August 20th. Paris futures have also rallied, up €7-8/MT over the last several sessions. The lead needs to come from these two markets, otherwise the US risks running away from the business as we’ve done so many times before. FOB values for the US, Black Sea and Europe using bids and futures closes shows US-HRW at $242.88/MT, Paris at $247.60/MT and Black Sea at $245.50/MT all basis December futures. US values need to trade about $10/MT discount to the other origins to compensate for the freight disadvantage. Also worth keeping track of Aussie values which traded to a new record high of A$450.00/MT the night before last before closing the week at A$445.00/MT. These quotes are basis inland Victoria, while W.A. export values would be more like $275/280/MT vs. US-HRW FOB at $240ish.
Bottom Line: Our markets made a good effort yesterday at trying to put seasonal lows in and allow a relief rally. Harvest will be delayed this week, keeping cash off the market a little longer. The system is going to be taxed the way it is, so stringing harvest out a little bit isn’t going to be the worst idea. If seasonal lows have been set, also recognize that many of the fall rallies put their highs in during October before giving back part of the rally into Nov/Dec expiration. If a rally presents itself, make sure orders are in place.
Good Luck Today.
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