7/19/2018 Morning Comments

Good Morning,

 

The USD has quietly firmed back toward 12-month highs with weakness in the AUD, CAD, EUR and GBP all supporting the Dollar strength.  Crude oil trying to stabilize after dropping $7/bbl off its highs from earlier in the month.  Weekly energy inventories released yesterday showed a surprise jump of 5.84 million bbls vs. expectations for a 3.60 million bbl drop.  Still, crude oil inventories at 411.08 million bbls would compare with 490.62 million a year ago and 469.71 million bbls on the three year average.  Gasoline stocks remain just above both last year and the three year average.  Weekly gasoline demand bounced back from last week’s swoon to rise above last year’s same week demand and just below the high end of the 5-yr range.

More rain across the WCB and Northern Plains this morning, adding to totals from the previous 24-hours which saw widespread rains across North and South Dakota.  Combined with the cool down in temps, Northern Plains corn and soybean crops are entering reproductive stages with almost ideal weather.  Rainfall returns from yesterday’s system will not be available until later this morning.  The forecast this morning sees more rain in the WCB/Northern Plains as well as widespread rains across SE-WI/IN/OH/MI in the week ended July 26th.  Dry areas of KS/MO will continue to be missed in the coming week.  Temperatures are below normal in the 6-10 and 8-14 day for the entire Midwest with no heat threats of any kind seen.  Precip maps are mixed with below normal precip across all of the Midwest except NE/KS while the 8-14 days sees MO pulled into that group.  Northern Plains should be dry which will promote swift spring wheat harvest.

 

Slightly easier markets this morning, but prices aren’t going anywhere fast after the last several sessions of gains are consolidated.  There are an increasing number of analysts making the call that lows have been put in, despite the fact we are 60-days in front of harvest which often sees seasonal lows put in.  With the amount of unpriced old crop, in addition to the lack of forward sales for new crop, we have a difficult time making the claim lows are in and its up and away from here.  The speculative selling may have exhausted itself for the time being, but we’re not sure an impending rally is in the offing, at least not until USDA updates yield estimates for the August WASDE.  While many areas of the corn belt have received superior growing conditions this summer, some areas have been pushed due to warm temps, the results of which may not be known until harvest.  US wheat prices continue to tighten the gap with competitor offers, and it looks increasingly likely US wheat will enjoy a backloaded marketing year for exports.  US wheat offers would do well to not run away from global business, even if major exporter stocks are going to be near record lows by the end of the marketing year.  Corn open interest was up 9,385 contracts, soybeans were down just 457 contracts, meal up 1,703, oil up 1,625 contracts, SRW wheat up 1,932 contracts and HRW up 1,311 contracts.

Last week on the WASDE report, the World Board released a special breakdown of Russian wheat production by variety going back to 1987 as opposed to their normal all-wheat production number.  This allowed us to take a look at where production is suffering, and also what yield ideas look like by variety.  All-wheat production of 67MMT was broken down to 18.5MMT of spring wheat and 48.5MMT of winter wheat.  The winter wheat production figure, as the chart below shows, is still the third largest winter production number on record owing to the second highest harvested area on record.  The winter wheat yield of 3.46MT/ha is the lowest since 2016/17, but only looks low relative to the last two seasons which were incredibly strong yielding years.  Spring wheat is a bit different story with production seen at 18.5MMT being the lowest since 2014/15 on harvested area of 11.5 million hectares, the lowest since 2013/14.  The spring wheat implied yield of 1.60MT/ha is the lowest since 2016/17, but again, not that low compared to the 5-yr average of 1.57MT/ha.  Based on this breakdown, we can see were it not for the incredibly late spring planting campaign across Siberia which resulted in low planted area, and ultimately low yields, Russia probably would have been able to pull off another 72-75MMT crop.  Most analysts were fixated on how dry it was across southern Russia and how it would impact the winter wheat yields, but this wasn’t really the case.  I think this needs to be kept in mind next year when weather adversity is encountered in the former Soviet Republic.  That said, USDA is still counting on Russia to export 34MMT this year vs. 41MMT last year, but the second largest on record.  If private analyst estimates are accurate, both production and exports could still come down another 1-2MMT.

Data out yesterday included weekly ethanol production of 1.064 million bbls which was up 31,000bbls/day on the week and 3.7% above last year’s same week production.  This sort of run rate is well above the level needed to hit the USDA’s ethanol demand for corn estimate, and should lead to USDA raising their 5.600bbu demand estimate on next month’s WASDE.  US ethanol stocks declined sharply by 625,000bbls to 21.768 million bbls, which was also below last year’s same week stocks for the first time in many weeks.  Ethanol exports are a concern based on the latest month worth of data in June when exports fell sharply m/m and y/y.  Without a solid export program, stocks should build, although the decline this week is short-term supportive.  Between tariffs from China and the Brazilian new crop program getting ramped up, the US will be looking for destinations.  The RBOB/Ethanol spread at $0.60/gln remains incredibly advantageous for blending as much ethanol into gasoline as possible.

Back to the global wheat situation, Black Sea wheat futures closed a touch softer yesterday but have been rallying swiftly with all contract October forward notching new contract highs on Tuesday.  The most actively traded September contract hit a high of $217.75/MT which is just below the $218.25/MT set on June 12th.  Heavier rains impacting Russian wheat areas which are both delaying harvest and raising concerns over quality seems to be putting a bit of strength underneath things.  Black Sea wheat futures still sporting a fair amount of carry, however, as the U/Z spread closed at -$9.75/MT yesterday, off the lows of -$11.25/MT from June but still in an overall downtrend.  26c/bu carry from U to Z compares with 25c/bu on the KWU/KWZ, so plenty of incentive to store wheat.  Paris futures have also been strong, trading at €188.25/MT this morning, just below highs for the move at €189.75/MT.  After setting 5-yr highs earlier this week, London Feed Wheat is about £5/MT off those highs this morning but still trading incredibly firm on ideas of reduced production out of the UK and prospects for sizable imports this marketing year.  European and Black Sea prices need to lead rallies.

Export sales out later this morning with more of the same expected.  Worth noting, US FOB corn offers remain the cheapest corn in the world despite a solid export program.  South American prices should be cheaper than US prices at this time of the year, highlighting how strong the US program is set to be in 2018/19.  US FOB corn ex Gulf closed last night at $160.33/MT vs. Argy at $161.00/MT and the nearest Brazilian offer at $176.07/MT for September.

 

 

Bottom Line: We’re not sure futures prices are in a hurry to go anywhere until more objective data is collected out of the corn belt.  No resolution in trade appears close, and even though soybeans have enjoyed a little relief bounce, most feel better about US production prospects on soybeans than corn at the moment.  Wheat prices, of the major three commodities, appear most likely to have made their bottom, but US wheat can’t afford to run away from business.  Storage demand will remain strong until exports decide they want to carry the torch.

 

Good Luck Today.

Tregg Cronin

Market Analyst

Tregg.Cronin@halocommodities.com

www.halocommodities.com

@5thWave_tcronin

 

 

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

7/17/2018 Morning Comments

Good Morning,

 

Rains in the Central Plains this morning, with an especially heavy system across Nebraska and Kansas.  Otherwise, the Midwest is mainly quiet.  Cooler temps have moved in across the Midwest this week with highs mainly in the low to mid-80’s into the weekend.  That trend looks to continue into the 6-10 and 8-14 day with below normal temps throughout the Midwest.  In addition to a bit cooler temps, most of the cornbelt has a good chance at rain this week from South Dakota to Ohio.  Beginning Wednesday in the west and progressing to the east into the weekend, the corn belt looks to see chances at 0.50-1.00” for many locations with some localized areas in E-SD/MN/N-IA/N-MO looking at totals between 1.50-3.00”.  Precip looks to remain mostly above normal in the extended maps.  The up-turn will be well-timed as several locales are running moisture deficits over the last two weeks and conditions are reflecting that.

 

Better prices overnight, following yesterday’s price strength in soybeans which so far look like nothing more than a dead cat bounce.  Nothing has really changed on the trade front with China still planning to shun US soybeans if they can, and FOB spreads between the US and Brazil remaining wide although not quite at the 25% tariff differential.  The price strength could be tied to declining conditions, however, as some surprise drops on the latest weekly crop progress report were not expected by the trade.  However, weather does look mostly benign the next couple of weeks, and weather-model based yield forecasters are certainly dialing up national average ideas.  Otherwise, traders are still sorting through last week’s WASDE report with many implications for second half US wheat demand given the declining major exporter balance sheets.  The same could be said for corn with especially strong US corn exports expected well into 2019.  We continue to believe corn and wheat would probably be carrying an additional 20-30c of premium were it not for the unrelenting sell pressure in the soy complex.  That said, difficult to have sub-trend soybean yields in our balance sheet based on weather-to-date.

Yesterday afternoon’s weekly crop progress report showed national corn conditions slipping 3pts G/E to 72% G/E vs. 74% expected and 64% last year.  The largest declined were seen in MI (-11pts), MO (-15pts), SD (-5pts), TX (-5pts) and PA (-5pts).  The drops in Michigan and Missouri were not totally unexpected based on some of the snaps flying around twitter as rolled up corn is being chopped already in the south and some are still thinking of planting short day soybeans.  Conditions in Texas have also been declining for several weeks now under dry weather.  The drop in South Dakota was a little more unexpected, although the state has been a bit mixed on precip the last 10-14 days.  Speaking to the condition decline, however, was the corn silking progress which was estimated at 63% complete vs. 37% last week and 37% average.  Nearly 30pts ahead of average, and speaks to the incredible amount of heat units received in June and FH-July.  The silking progress in the northern tier states really speaks to the advanced nature of the crop with ND and SD nearly triple their average silking progress and MN more than double.  This year should shine a lot of light on a crop which has been pushed to maturity and whether that results in yields under their full potential.  Soybean conditions also declined by 2pts to 69% G/E vs. 70% expected and 61% last year.  Largest declines were once again seen in SD/MO/MI.  Soybeans setting pods were estimated at 26% G/E vs. 11% last week and 11% average.  Illinois soybeans setting pods were estimated at 41% vs. 11% average.  About 65% of the crop is blooming vs. 45% average.

Spring wheat conditions were unchanged on the week at 80% G/E which was more or less what was expected, although some by-state changes did occur.  MT saw her crop drop by 4pts to 80% G/E, ND was up 1pt to 83% G/E, MN up 1pt to 86% G/E and WA was up 3pts to 78% G/E.  Overall, this crop remains the highest rated since 2011, and the second highest rated crop since 1993.  Winter wheat harvest is progressing in South Dakota with around a third of the crop harvested so far, and yield ideas would have to be described as average to a bit below average vs. ideas a couple weeks ago.  This has some concerned it could carry over to the spring wheat and produce slightly lower yield ideas there as well.  Spring wheat harvest in South Dakota is probably about 10-14 days from commencing.  National winter wheat harvest was estimated at 74% complete vs. 63% last week and 71% average.  KS harvest is complete while NE is estimated at 62% and SD at 20%.  SRW harvest is mostly wrapped up with the exception of Michigan while harvest in the PNW is just getting started.

Other data yesterday included weekly export inspections which were mostly favorable for all major commodities.  Wheat inspections jumped to 17.3mbu vs. the 18.8mbu needed weekly, but were the highest of the marketing year-to-date.  Total inspections have been off to a rough start with 81.6mbu inspected so far vs. 144.7mbu a year ago.  That is a 43.6% decline vs. the USDA calling for a nearly 100mbu increase in y/y exports.  Corn inspections totaled 47.9mbu vs. the 51.5mbu needed weekly which were the lowest since March, but still near the needed level of 51.5mbu.  Cumulative inspections now total 1.907bbu vs. 2.001bbu a year ago, a 4.7% drop y/y.  Corn should continue to close the gap in coming weeks.  Soybean inspections totaled 23.3mbu vs. the 23.1mbu needed weekly to hit the USDA mark.  Total inspections measure 1.873bbu vs. the 1.959bbu a year ago, a drop of 4.4%.

Also out yesterday was NOPA member crush for the month of June which came in at 159.228mbu vs. the average trade estimate of 159.6mbu.  The 159.228mbu compares with 163.6mbu last month but was sharply above the 138.1mbu a year ago.  Despite being slightly below expectations, the total was easily a new record for the month, crushing the old June record of 145mbu set in 2016.  In fact, for the 2017/18 marketing year, the last eight months in a row have seen record NOPA crush which shouldn’t be too much of a surprise considering the impressive crush margins which have been available the entire year.  Soybean oil stocks totaled 1.766 billion pounds vs. the average trade guess of 1.807 billion pounds and vs. 1.856 last month and 1.703 last year.  Soybean oil yield continues to run at a consistent 11.52lbs/bu, unchanged from last month but below 11.74lbs/bu last year.

We continue to respect the major wheat exporter balance sheet based on the USDA’s latest updated.  According to USDA’s latest numbers last week, the combined balance sheet for ARG/AUS/CAN/EU/KAZ/RUS/UKR/US is expected to see total production of 376.7MMT which would be down 18.322MMT from a year ago with total supplies down about 20.8MMT.  Exports for the group are up 3.1MMT, although F&R is down 5.1MMT and total consumption would be down 6.8MMT.  All told, ending stocks for the group are expected to drop 17.1MMT to 52.888MMT which would be the lowest since 2012/13 and have a stocks/use ratio of 13.08%, tying the record low from 2007/08.  The y/y drop in production of 18.322MMT would not be the largest on record, but anytime we see a year-to-year decline of 20MMT or more, it is usually associated with price strength.  What concerns us a bit is the fact USDA’s estimates still have room to drop for the EU and Russia based on other private estimates in the market.  The EU has 3-5MMT of production downside, while the Russian Ag Ministry just Friday put out a production number of 64.4MMT vs. USDA last at 67MMT.  If another 4-8MMT or production is cut from this group, exports will be reduced further and the most likely origin to push that demand is the United States.  This all without discussing Australia which is having its production and export estimates cut as we speak by boots on the ground.  Plenty of reasons to like wheat, but we first need to see Black Sea FOB offers start to move toward US numbers before we can get too excited about futures strength, in our opinion.

 

Bottom Line:  This week is seeing a long-awaited respite in the relentless sell pressure of the last few weeks.  We went from sizable spec length in May/early June to sizable spec shorts in mid-July, so some short-covering wouldn’t be all that unexpected.  The farmer feels undersold, both on old and new crop, but it’s difficult to blame him or expected a ton of marketing “down here” with the localized issues across the corn belt.  The amount of grain which will be harvested across the Northern Plains from August 1st to October 15th will tax infrastructure and logistical capabilities, especially without a sizable export deck on.  Add in a rail performance which has been less than stellar and basis could get junky across the NW-Midwest.  Producers who need to move grain to the elevator at harvest need to be looking at their options closely.

 

Good Luck Today.

Tregg Cronin

Market Analyst

Tregg.Cronin@halocommodities.com

www.halocommodities.com

@5thWave_tcronin

 

 

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

7/13/2018 Morning Comments

Good Morning,

 

One of the more anticipated economic indicators since the trade spat began has been Chinese import and export data which was released last night for the month of June.  June Chinese exports rose 11.3% y/y vs. expectations for an 11.0% gain, while imports were up 14.1% vs. expectations for a 23.5% gain.  This resulted in a trade surplus of $41.61 billion vs. ideas for a surplus of $26 billion.  Of all of the imports, crude oil and soybeans are always two of the more closely watched with crude oil imports at 34.35MMT, down 4.9% y/y while soybean imports of 8.70MMT were up 13% y/y.  Jan-Jun crude imports totaled 224.82MMT which is up 5.8% on the year.  Jan-Jun soybean imports of 44.87MMT are up just 0.1% y/y, and the second half of the calendar year will be watched even more closely given the heightened tensions with the US.  One of the biggest fears would be if China decides to draw down state inventories in an effort to reduce the amount of soybeans it takes from the United States until new crop Brazilian supplies are available in January.  In the FWIW category, trade between China and North Korea fell sharply from a year earlier with Chinese imports from NK down 92.6% and exports from China to NK down 40.6%.

More rain in the WCB this morning, and it is debatable whether N-IA/S-MN actually want any more rain at this point despite the fact it is mid-July.  Over the last 30-days, a big cut of SE-SD/SW-MN/NW-IA are between 10-15” received which would be 400-600% of normal.  Pictures and video of flooded roads and washed out fields are numerous.  Despite that, one doesn’t have to go very far to find areas which could use a drink.  The corn belt will remain active this week with multiple rounds of rain this weekend for the Plains/WCB as well as the central/ECB.  Only the northern 1/3 of the Northern Plains looks to be devoid of moisture the next 7-days.  Temps remain below normal through the 8-14 day which puts us out to July 26th and should easily have the entire corn belt either pollinating or finished.  Precip will be a mixed bag with normal/below for most of the Midwest.

 

Mixed bag this morning with wheat continuing to show strength following yesterday’s WASDE report, while row crops are lower as corn is drug lower by soybeans which traded higher reluctantly yesterday.  There were three or four main takeaways from yesterday’s report in our view: 1) the soybean data as presented was bearish with lower than expected Chinese demand and higher than expected global stocks.  2) The HRS crop is massive and probably gets larger on subsequent reports.  3) Even with increased acres, and a trendline yield, the 18/19 corn balance sheet remains snug with no room for error and currently no risk premium in corn prices.  4) Major exporter stocks of corn and wheat are supportive and point toward increased reliance on US supplies as the 18/19 marketing year progresses.  All in all, the grain data yesterday was supportive in our eyes, but the bearishness of the soy complex seems almost too much to overcome at the moment.  Add in the fact the US farmers is undersold on both old and new crop of every commodity, with growing anxiety by the day, and it remains difficult to make a case for a sustained move higher at the moment.  Crop tours are 3-4 weeks out yet, which might be the first chance the market has to get some objective data about yields.  The trade spat, combined with slowing economic indicators out of China, amid a rising interest rate environment in the US and declining emerging market currencies continues to be a huge hindrance to commodities as a whole.

There were plenty of US balance sheet changes, and we will touch on these in coming days, but it was the change in the world balance sheets which caught or attention.  As noted, in soybeans the WASDE board cut Chinese soybean imports to 95.0MMT from 103.0MMT last month and vs. 97MMT in 17/18.  Plenty of folks took issue with these cut, and for good reason.  If this drop in imports y/y is confirmed, it would be the first decline in marketing year soybean imports since 2003/04.  The first rule of trading is the “trend is your friend,” and the USDA would certainly be bucking the trend.  As we noted above, we are not so much concerned with the total amount of imports, but rather China’s overall demand and whether they decide to draw down ending stocks to reduce their reliance on US soybeans.  Total usage (total domestic (consumption+exports) is forecast at 113.750MMT, which is up 5.6MMT y/y or 5.18%.  The 5.18% growth would be up slightly from 2017/18’s 5.09%, but below the 5-yr average of 7.20%.  Ending stocks are forecast to drop 4.250MMT, but if China wanted to really prove a point, they could easily draw stocks down another 3-6MMT without putting themselves in a precarious situation.  Between the 2MMT of lower imports, along with 6MMT worth of stock draw down, China could very easily reduce their reliance on US soybeans by 250-300mbu, which coincidently, is similar to the amount the WASDE board reduced 18/19 US soybean exports by from their prior month forecast.

On the grains portion of the report, especially on the world front, most changes were supportive in our eyes.  On the old crop portion of the report, USDA reduced Brazilian corn production another 1.5MMT, cur Australian wheat production by another 0.2MMT, and reduced exports for almost everyone on both corn and wheat.  For 18/19, notable changes included Russian wheat production being reduced 1.5MMT from last month to 67MMT which could point toward further cuts in the future and certainly doesn’t lend itself to a “larger than expected” crop this fall.  Exports were reduced 1MMT to 34MMT vs. 41.0MMT this year.  Ukrainian wheat production was also reduced 1MMT to 25.5MMT vs. 27.0MMT last year.  Exports were reduced 0.5MMT to 16.5MMT vs. 17.5MMT this year.  Also supportive was EU wheat production being cut 4.4MMT to 145.0MMT vs. 151.6MMT last year.  Many private analysts have estimates closer to 140-141MMT, so USDA could be making further cuts next month as dryness impacts both hard and soft wheat production.  EU wheat exports were pegged at 27.5MMT vs. 23.3MMT this past year, but down from 29-30MMT ideas just a month ago.  In total, EU/Russia/Ukraine wheat exports are estimated at 78MMT, down from 81MMT last month and down from 81.8MMT in 17/18.  These changes leave the door open for US wheat to make in-roads later in the marketing year, but there is a clear need to remain price competitive.

Last thought we wanted to touch on was the US-HRS balance sheet.  On Wednesday, we talked about the possibility of the HRS crop coming in at/around 588mbu based on acres of 12.25 million harvested and a new record yield of 48.0bpa.  We were wrong.  USDA says a yield of 47.6bpa on 12.25 million harvested acres which would produce a crop of 584mbu.  Our sincerest apologies.  All kidding aside, total supplies of HRS are now projected at 830mbu, vs. 695mbu a year ago, and would be the largest since 1992/93.  Total supplies went from a 5-yr low to a 25-year high in the span of 12-months.  Truly amazing.  The focus is still on yields with harvest beginning in South Dakota about two weeks from now, but the demand component will be hugely important this year with all of those bushels to account for.  Current demand from USDA of 547mbu would be up from last year’s 504mbu, but the second lowest since 2011/12.  We need a larger export program to prevent ending stocks from ballooning to current projections.  At 283mbu, current ending stocks would be the largest since 1987/88.  Through inter-market spreads and competitive export basis, HRS should remain priced to move barring a major protein surprise once harvest rolls in North Dakota.  Not that anyone needs to be reminded Minneapolis wheat remained below $6.00 from January 2015 until June 2017 with the exception of a few days in July 2015.  For much of that time period, futures were below $5.50, and traded all the way down to the $4.80’s in the fall of 2016.  We are not trying to project any hard price targets, simply pointing out where price went with less supplies than are currently projected.  We need demand.  Kansas City and HRW could be spring wheat’s best friend in 18/19 if major exporters exhaust supplies earlier than expected.

 

Bottom Line:  Difficult to believe corn and soybeans are going to mount a massive turnaround today based on recent trends and data received yesterday.  We think corn needs more weather premium than it is currently carrying, but if soybeans continue to drop, the price ratio between the two commodities becomes bearish to corn.  If soybeans can muster any more price strength than this, we will plant 100 million acres of corn next spring.  Wheat needs to be wary of being drug lower by row crops.

 

Good Luck Today.

Tregg Cronin

Market Analyst

Tregg.Cronin@halocommodities.com

www.halocommodities.com

@5thWave_tcronin

 

 

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

7/12/2018 Morning Comments

Good Morning,

 

The story in financial markets yesterday revolved around two commodities: crude oil and copper.  Spot month crude oil futures fell $3.73/bbl, while Brent crude fell $5.46, crashing through its 50-day moving average and falling right down to its 100-day.  The drop in Brent crude amounted to 6.9%, which was more than three standard deviations away from the mean, which was the first such move since February 2016 and the first time since crude oil moved into its up trend.  Copper also saw heavy selling as the economic gauge fell by 3% yesterday in London to the lowest level in a year.  Prices for zinc and nickel were also hit hard, down 6% and 3%, respectively as the trade war fears hit all raw materials.  China is the largest consumer of almost all metals which it turns into finished product and exports.  The premium for copper in China, the added price end users pay for the metal, has dropped to a 10-month low.

Active morning across the Northern Plains with rains moving along the ND/SD border as well as the MN/WI border.  Going to be an active week of rain through Sunday from Nebraska all the way to Ohio with this morning’s GFS showing 2.00” amounts across all of NE/IA/S-MN/WI/W-IL/NE-MO and slightly lower amounts across IN/OH/MI.  Northern Plains will be mostly dry the next 7-days, helping to push spring wheat toward maturity.  With the strong vegetative growth to date across the Northern Plains, row crop producers would like to see a rain in the next 7-10 days as corn pushes into pollination.  No major concerns, but a week without rain after the hot temps would start to cause some anxiety.  Importantly, extended models continue to point toward a broad cool down in the 6-10 and 8-14 day with normal/below temps across the corn belt.  Precip expected to be normal/below.

 

WASDE day with slightly higher prices across the board.  Another round of new contract lows in corn and soybeans yesterday while winter wheat boards are within 5-6c of new contract lows.  Until we can muster several days of sustained price strength, which would turn momentum indicators higher and even cause shorter-term moving averages to trend upward, bears are firmly in control.  As we noted yesterday, calendar spreads remain weak, and nothing about basis gives the indication commercials are standing in to defend prices in a meaningful way.  The trade will be anxious to get the WASDE report behind them, with weather still the most important fundamental input.  Based on historical precedent, there should be no change to corn and soybean yield estimates from the World Board, with the only changes being acreage updates and June 1 stocks inputs.  There is also the uncertainty of how the World Board adjusts exports due to the tariff situation with China, but based on export sales commitments to-date for 18/19, there should be no change given new crop sales are currently 127% larger than this same time a year ago.  Any adjustment based on tariffs would simply be a guess with no grounding in evidence.  Open interest changes were a bit interesting with corn down just 694 contracts, despite price closing down 7.50c.  Soybean futures were up 7,358 contracts with price down 22.50c, SRW down 221 contracts with price off 16.0c and HRW up 2,526 contracts.

One area of interest for us will be what the World Board does with Black Sea and Brazilian corn production estimates and the corresponding export demand changes.  Yesterday, CONAB updated their Brazilian corn production estimate by cutting it to 82.9MMT from 85MMT last month and would compare with 97.8MMT last year and 85MMT from USDA, previously.  Private analytics firm Informa Economics updated their Russian corn production estimate over the weekend, dropping the country to 13.0MMT vs. 15.0MMT previously, while the USDA was 15MMT last month.  The firm also sees exports being reduced to 3.5MMT vs. USDA at 5.5MMT previously.  On Ukraine, Informa cut 1.5MMT of corn production to 27.0MMT vs. 24.1MMT last year and USDA at 30.0MMT.  They also see Ukrainian corn exports at 20.5MMT vs. USDA at 24MMT and 18.0MMT shipped in 17/18.  If these firms are correct, this is another 7.1MMT of world corn production which will be removed from the major exporter balance sheet, placing even more importance on a good finish to the US corn and flawless export execution.  The earliest corn from South America will be available once supplies are exhausted this fall will be March/April 2019.  Until then, the US should be the only export game in town.

Data out yesterday included weekly ethanol production which took a step back yesterday, falling 34,000bbls to 1.033 million bbls which was a 7-week low.  Even with the decline, weekly production remains 2.6% above the same week a year ago, and above the 1.0% increase needed each week to hit the USDA’s ethanol demand for corn forecast.  Unless production continues to decline, and does so in an even sharper way, USDA’s current ethanol demand for corn estimate could be low by 20-30mbu.  Unfortunately, ethanol stocks rose sharply as well, up 418,000bbls to 22.393 million bbls.  Stocks at that level would be the highest for this week on record, but still well below levels achieved earlier in 2018.  Part of the stock build is likely a continued slowdown in ethanol exports as we saw with the most recent May data released last week.  Ethanol exports fell 43% from April and were down 23% from May 2017.  Brazil was a huge part of this export drop as they took the smallest amount of US ethanol since May 2016 as their domestic production ramps up.

Continue to monitor harvest progress with combines rolling South Dakota on HRW while the HRS crop is probably 2-weeks away at least.  Solid protein continues to be found as harvest makes its way north which has domestic mills breaking scales back sharply.  Fortunately, bids for lower protein have remained solid which is keeping a firm floor underneath 12.0% protein.  Elsewhere in the Northern Hemisphere, Ukraine is 28% harvested, while 14% of Russia’s crop has been reaped.  Black Sea wheat futures remain within $4-5/MT of recent highs, not following the US futures collapse which is a positive.  The World Board should show meaningful reductions to the EU wheat crop, and probably several export adjustments.  Eventually, global importers will almost surely have to come to the US for HRW and lower protein HRS, but that day is not today.  Signs of a sustained price move higher have to be led by Russian prices given their importance as the world’s largest exporter.  Their FOB offers have not budged much at all, and until they do, US futures can’t rally away from current levels.  The size of the looming US-HRS crop, followed 20-30 days later by a solid soybean crop is going to tax the infrastructure of Northern Plains rail shippers.  Growers should be paying close attention to storage needs and logistical capabilities of said shippers before they are forced to make drastic decisions in gut slot.  Cash only could be a familiar sign come September.

 

Bottom Line:  Balance sheet updates today, but changes should be relatively minor unless the WAOB makes the unusual move of updating their corn yield.  There is also the uncertainty of what they do with soybean exports, but we maintain they don’t need to make an adjustment today.  Waiting until August would allow another month of sales and inspections data to make an informed decision.  We aren’t bearish corn and wheat prices at these levels, but until soybeans take their foot off the gas pedal to the downside, they will drag everything down with them.

 

Good Luck Today.

Tregg Cronin

Market Analyst

Tregg.Cronin@halocommodities.com

www.halocommodities.com

@5thWave_tcronin

 

 

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

7/11/2018 Morning Comments

Good Morning,

 

Another round of proposed tariffs from the Trump Administration was announced last night, totaling another $200 billion worth of Chinese goods which would be subject to penalties if imported into the United States.  According to the Financial Times, the list targets large companies who rely on sourcing materials from China such as automotive parts, food ingredients and construction.  These $200 billion, if implemented, would be combined with the already $34 billion worth of tariffs implemented last Friday.  At last check, the US exports around $133 billion worth of goods to China while importing $521 billion worth of goods from China for a net trade deficit of $388 billion.  If all of the proposed tariffs are enacted, we would then be placing import penalties on 44% of what we import from China.  Most would agree, however, China would appear to be suffering worse than the United States as their main equity index the Shanghai Composite slipped to a 2-1/4 year low last Friday while the S&P 500 is still up 4.5% for 2018.  It would not appear either side is ready to back down anytime soon.

A few scattered showers across the Northern Plains, otherwise mostly quiet across the Midwest with one more day of intense heat before cooling takes over.  Widespread 90’s will be the feature again today with temps across the Plains nearing 100* from South Dakota to Texas.  This is day 3-4 of intense heat across the WCB/Plains, although temps begin to ease tomorrow slightly across the Northern Plains.  90’s will still be prevalent across the corn belt into the weekend.  Many areas of the corn belt in IA/S-MN/W-IL/MO will not see overnight low temps below 70* through the weekend with a huge majority tasseled and silking.  If the literature about corn pollination is correct, even with well-watered soils, this should have a negative impact on yield potential.  We shall see.  Fortunately, the areas of most concern will see multiple rounds of rain during the next 7-days with IA/NE/SE-SD/MN/WI looking at 1.00-2.00” amounts, while the ECB looks at a broad 0.50-1.25”.  Temps also move to below normal in the 6-10 and 8-14 day in addition to the week 3 and 4 outlooks, which would appear to be well-timed for the later developing corn.  Plenty of balls in the air.

 

Lower overnight and adding to yesterday’s losses as the announcement of another $200 billion in tariffs continues to rattle markets.  It is difficult to ascertain at this juncture how much of the selling is based on tariff fears, how much is based on increasing yield ideas and how much is purely technical/momentum.  Algorithmic/momentum traders are locked in a self-fulfilling trade right now as weakness begets more weakness until red lines begin to cross blue lines in the other direction.  Only price strength can produce more strength right now, and at the moment, there is no buyer willing to defend these prices.  That said, fundamental traders continue to look at the cash spread between US and Brazilian soybeans to see if the weight of the 25% Chinese tariff on US soybeans has been completely offset by the price decline.  As of last night, the cash FOB spread between the two countries was still around 14.5-15.0%, which does not fully offset the 25% import tariff.  However, reports continue to point out US soybeans would not be subject to the 25% import tariff if purchased into state reserves by COFCO.  The tariffs would only be implemented on beans purchased by private companies, although COFCO has not made any substantial purchases anyway.  Export sales and shipments will continue to tell the tale, but the closer we get to fall harvest without a meaningful export book for Northern rail shippers, the more concerning the situation will become.  The weakness is not exclusive to soybeans as corn hit new contract lows yesterday and again overnight while wheat contracts have given up half of last week’s gains.  The macro concerns are allowing managed funds to sell anything that isn’t nailed down which is even remotely connected to Ag and Chinese imports.

Unfortunately, the weakness hasn’t been confined to flat price with corn and soybean spreads equally as weak.  Looking a little further out the curve, the CZ8/CZ9 corn spread is trading at -30.75c this morning, which is off about 7c since the beginning of the month, and would be among the weakest spreads for this date of the last 20-years.  Most years, especially in years with record yields, we see additional weakness throughout the summer and into the fall.  Almost every record yielding year since 2000 saw the CZ/CZ spread trading to -40.00c, and several even made the move toward -50.00c.  It should be noted, however, 2010/11 which is a year which continues to be brought up due to the late summer heat affecting yields, saw weakness through July before bottoming on 7/26 at -36.50c.  This spread then began to rally all through August and into September, hitting a pre-harvest peak of +36.50c before easing to +5.00c in early October and then rallying to +56.50c by mid-October.  Similar setup in SX8/SX9 with that spread trading down to -31.25c overnight, which is the third lowest trade for this date going back to 2000.  Only 2000/01 and 2006/07 saw wider spreads on this date with most contracts remaining above -25.00c until delivery.  The soybean spread weakness makes a bit more sense than the corn, but regardless, both spreads showing this amount of weakness does nothing to build confidence for higher futures prices.

We made a quick road trip to southern Saskatchewan the last two days, traveling through a big part of North Dakota we hadn’t yet been through.  After returning home, and combined with our previous trips to eastern ND, WC-MN and much of South Dakota, this HRS crop is everything it is advertised to be and more.  There is little doubt in our minds this year’s HRS crop should challenge 2014/15’s record yield of 46.3bpa, it not set a new record altogether.  Very few years feature such solid growing conditions across all four of the big spring wheat states, MN/MT/ND/SD.  Whether one wants to use percent of normal precip maps, crop conditions, anecdotal reports from the country or inter-market spreads, all point toward a whopped of a HRS crop coming on.  We began playing around with higher yield ideas in our HRS balance sheet using both a record tying yield of 46.3bpa as well as a new record of 48bpa.  The former would yield 567mbu on 12.25 million harvested acres, which would be the largest HRS crop since 2015/16 and the second largest since 1996/97.  If we set a new record of 48bpa, total production would come in at 588mbu and easily be the largest since 1996/97.  Should that scenario play out, we would go from the smallest HRS crop last year since 2002/03 to the largest since 1996/97.  Quite the contrast.  We have a much more aggressive demand component than most, relying on HRS getting competitive against Canadian offers later this fall which they currently are not.  Even with 20mbu additional domestic demand and 75mbu more exports vs. last year, carryout would still be 251mbu, the second largest since the early 90’s.  We need demand in a big way.  With these ideas, it is difficult to see how cash wheat will get stronger in the next 60-days and is something growers need to be paying attention to if wheat needs to be sold at harvest or before soybean harvest which will follow HRS very quickly based on how far advanced the North Dakota crop is.

One more wheat note from the Commitments of Traders data released Monday we though worth sharing.  Managed funds have been pounding the Minneapolis wheat market as of late amassing a new record net short position of -10,664 contracts.  This eclipses the old record of -9,322 contracts set in September of 2015.  This position accounts for 18.6% of total open interest which is also much higher than the previous record of 14.5%.  Bullish sentiment (percentage of fund longs vs. total positions) currently stands at 21.05%, which is still above the record low of 15.60%.  Bullish sentiment, or lack thereof, is not a reason in and of itself to turn a market.  Rather, bullish sentiment merely greases the skids for a move the opposite direction if funds are forced to begin covering.  At the moment, the funds are in great position with positions well in the money and fundamental data supporting those bearish bets.  At some point, however, this market will run out of sellers and these positions could prove vulnerable.  More something to monitor as opposed to something which requires action today.

 

Bottom Line: In a perfect functioning market, lower prices should spur increased demand, but that equilibrium has not yet been achieved.  The sell momentum is vastly outweighing any price strength which can be mustered.  USDA will release their updated WASDE tables tomorrow, incorporating the June 29th stocks and acreage data.  There isn’t likely to be anything in this report to stem the sell tide as yield estimates are almost never changed on the July WASDE with the exception of a truly anomalous year like 2012.  We haven’t made either the corn nor the soybean crop, but that doesn’t feel like it matters today.  Farmers and Ag make up a disproportionately smaller percentage of the American populous, and until proven otherwise, will shoulder a disproportionately larger burden from the proposed tariffs.  Like it or not, that is reality.

 

Good Luck Today.

Tregg Cronin

Market Analyst

Tregg.Cronin@halocommodities.com

www.halocommodities.com

@5thWave_tcronin

 

 

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

7/6/2018 Morning Comments

Good Morning,

 

A mostly clear Midwest radar this morning, although a few scattered showers across KS and OK are present.  The feature today and through the weekend will be heat, especially across the Plains and WCB where high temps tomorrow will be near 100* in South Dakota, S-North Dakota and W-Nebraska while most other areas will be above 90* west of the MS-River.  The bulk of the corn belt will only see temps up to 90* through Monday, although many areas in the WCB will see sporadic highs up to 92-93*.  The concern for most in the actual corn belt will be overnight lows which are expected to remain right at or just above 70* in IA, IL, MO, IN while the Plains and WCB should dip below 70* most nights.  Fortunately, the areas which are expected to be hottest, both during the day and night, in the Plains are not as far advanced as their corn belt brethren, so should not be going through critical pollination phases.  Unfortunately, not much around for rain during this hot snap, with little to no precip seen the next 7-days across the corn belt.  Extended maps keep temps above normal and precip below normal through the 14-day outlook which gets us out to July 19th when the corn belt should be full-swing pollination.

 

Mixed markets overnight with slightly easier grains and a tick higher oilseed complex as the tariff deadline came and went last night at midnight.  It certainly feels like the corn market would be trading a good deal higher if it were not for the trepidation over the 25% tariff being implemented on US soybeans.  Weather will certainly be warm as the corn belt heads into pollination this week and next, although the key difference is how wet soils will be going into the key developmental phases.  There is scarcely an area in the corn belt which is not over 100% of normal precip the last two weeks.  The overnight-low-dooms-dayers are out in full force, and this year may be the best test of that theory.  Row crop markets aside, there is little doubt where the strength has been as of late with wheat markets rebounding nicely off their lows on fears of lower production totals out of the Black Sea and Europe.  Since Friday, lower crop estimates have come out for France and Germany with others adjusting both Ukraine and Russia lower as well.  Add in current estimates below USDA for Australia, and signs are beginning to point up for US wheat demand later in the marketing year.  Even though the US has been relegated to the reserve supplier to the world the last 18-months, US hard wheat could be in high demand in a few short months.  Open interest changes yesterday included corn down 1,078 contracts, soybeans up 8,814 contracts, SRW up 5,493 contracts and HRW up 5,266 contracts.

Data yesterday included weekly ethanol production which ticked lower, but maintained recent advances for the most part.  Weekly production was down 5,000bbls/day to 1.067 million bbls/day but up a solid 5.2% from a year ago.  Production continues to run much stronger than the “needed” level to hit the USDA estimate, which could prompt an upward adjustment in ethanol demand for corn on the July WASDE.  Ethanol stocks also pushed higher by 301,000bbls to 21.975 million bbls, which are back above year ago levels for the first time in almost four months.  Fortunately, gasoline demand continues to run stronger than year ago levels, despite prices being 50-60c/gln higher than a year ago.  Ethanol prices have maintained a substantial discount to RBOB gasoline futures, which will continue to promote higher discretionary blending provided overall gasoline demand doesn’t dip.  Higher crude oil, and therefore gasoline, prices remains one concern point for the Trump Administration as the benefits of their tax cuts could be largely eliminated if national average retail prices inch over $3.00/gln.

As noted above, cuts to EU-member wheat production has been supporting the wheat complex this week with a German cooperative association cutting their estimate of the crop to 20.5MMT from 24.1MMT a year ago due to warm temps and dry conditions in northern growing areas.  Last Friday, Strategie Grains cut their estimate of the French wheat crop by 4.5MMT to 33.2MMT, although a private estimate put the state at 37MMT this week.  Along with cuts to Denmark, Italy, the Baltic States, Poland and the United Kingdom, Strategie Grains put their estimate of EU soft wheat at 130MMT vs. 141.7MMT.  Adding in the roughly 9MMT of durum wheat USDA also includes in their EU estimate, this would put the overall EU wheat crop around 140-141MMT vs. 149.4MMT in June.  If USDA maintains their current demand ideas, which they won’t, it would put carryout at an untenable 1.474MMT.  If we adjust Australia down 2MMT from USDA, as well as take Russia to 70MMT and Ukraine to 23MMT, while maintaining current USDA demand we see Major Exporter Wheat ending stocks drop to 44.802MMT which would be the lowest since 2007/08.  It would also imply a stocks/use ratio of 11.01% which would be the lowest on record.  Demand will not remain unchanged, but we simply want to look at how much rationing might need to take place if crop estimates do in fact come in at those sort of levels.  Lots of grass between the ball and the hole, but Black Sea/EU production estimates moving lower at this point on the calendar likely means estimates could keep moving lower, adding further support to the wheat market.

There are two schools of thought with major exporter demand with one being EU/Black Sea exporters will maintain aggressive FOB offers to retain market share at the expense of drawing down stocks.  The other school of thought is EU/Black Sea demand will have to shift to the United States earlier than expected to preserve adequate stocks.  FOB offers tell the tale best with US-HRW 12.50% protein now exactly on par with German 12.50% pro offers as of last night.  Baltic States are still sitting at a $3 discount to US.  Obviously freight spreads remain in the EU camp’s favor, but the trend is in the right direction.  11.0% protein HRW has also closed to gap with French offers, but remains $2/MT premium to French.  Russian FOB offers continue to provide the floor with their offers still $30/MT below equivalent US-HRW offers out of the Gulf.  Still, one cannot deny the Paris/UK led price strength as MATIF futures hit the highest level yesterday since July 2015 on a closing basis, while UK London Feed Wheat prices hit the highest spot prices since June of 2013.  Black Sea futures prices are within a few dollars of contract and all-time highs.  FOB spreads should continue to tell the tale.

Calendar spreads have also been especially supportive to wheat board gains with the WN/WU inverting yesterday and the WU/WZ trading up to -13.25c, the highest spot trade since July of 2017.  The WU/WZ VSR-period doesn’t begin until mid-month, but current prices are indicating 35.5% of full financial carry, a strong enough spread to drop variable storage rates from 11c/mo to 8c/mo.  Chicago wheat hasn’t really been anywhere close to decreasing storage rates the last year or so, supporting the narrative the worm has turned in wheat.  KWU/KWZ has also been firm, trading up to -20.25c on 7/2, but maintaining overall uptrends this week to trade to -21.25c this morning.  This is still 54% of full financial carry, so not enough to drop storage rates, but trending in the right direction.  Despite the huge board collapse, soybean calendar spreads not implying a bottom is in sight.  Soy spreads remain lackluster and within spitting distance of contract lows.  Corn spreads are no better, remaining at or just off of contract lows.

Export sales are due out later this morning after being delayed from the July 4th holiday.  Estimates put wheat sales at 250-700TMT, corn and 800-1,250TMT, beans at 400-900TMT, meal at 100-400TMT and oil at 15-50TMT.

 

Bottom Line: Remains to be seen whether the tariff implementation will lead to further losses in the oilseed complex or whether it will be a sell the rumor, buy the fact scenario.  Weather would seem to command more of a premium than it is at the moment, a testament to how hard momentum traders are pushing the tariff talk.  Wheat markets have to deal with expanding northern hemisphere harvest, but the bulk of US-HRW harvest is behind us, and competitor production estimates are getting smaller.  US FOB offers would do well to not run away from the demand we so desperately need.

 

Good Luck Today.

Tregg Cronin

Market Analyst

Tregg.Cronin@halocommodities.com

www.halocommodities.com

@5thWave_tcronin

 

 

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

7/3/2018 Morning Comments

Good Morning,

 

Chinese economic fears continue to be center stage as the Chinese currency suffered one if its largest intraday falls on record.  The onshore Yuan fell 0.8% in early trade, the fourth largest intraday drop on record, and comes after a 3.3% drop during the month of June.  The Yuan is falling against most currencies, however, which is different than previous drops which saw the Yuan fall mainly against the US Dollar.  Regardless of why, the globe’s largest consumer of raw materials seeing inflationary pressure and troubling economic data is not good for the global economy.  The Bloomberg Commodity Index closed yesterday at the lowest level since early February.

Large storms moving across North Dakota and Minnesota this morning, providing finishing rains to the hard red spring wheat crop, but undoubtedly adding to flooding concerns in S-Minnesota.  Now that the calendar has flipped to July, full-month June precip can be assessed and it was certainly one of the wettest across the corn belt on record.  Every state, with the exception of a hole here and there, in the corn belt saw above normal precip during June.  Only eastern Kansas, Missouri and Michigan saw less than 100% of normal precip during the month.  All of Iowa, Nebraska, The Dakotas except for Northeast SD, Minnesota, Wisconsin, Illinois, Indiana and Ohio saw 125-200% of normal precip.  The Northern Plains/WCB will remain active the next 48-72 hours as will Nebraska, but Iowa should be a bit drier the next week.  The ECB will also see light chances with 7-day totals around 0.50-0.75”.  The heat stays in place the next 14-days with above normal temps throughout.  According to the GFS, below normal precip will also be the feature through July 16th.  With the heavy accumulation of GDU’s so far this growing season, pollination should be occurring for the bulk of the corn belt by the 20th of July.

 

Mostly firmer prices overnight led by wheat markets as they begin Tuesday much like they began Monday with bulls hoping for a different result.  Wheat prices sported early season gains yesterday, only to relinquish them by the close with 15-20c losses as a broader commodity selloff saw grains close sharply lower.  The wheat market continues to give off signs a bottom might be closer at-hand than previously thought, especially after data provided Friday outside of the USDA.  The actual US wheat market fundamentals are not all that supportive at the moment with growing winter wheat production, much larger planted acreage in spring wheat than previously thought, and a slow start to the export program.  Yet, there are reasons to be optimistic in 2018 if crop production ideas in Russia, Ukraine, France/Germany and Australia don’t rebound from some of the whisper numbers being floated.  It would appear, major exporter ending stocks could be in such a position global importers will have little choice but to turn to the US for additional bushels.  US wheat has closed the gap with both Paris futures and EU cash offers, but Russian offers remain at a meaningful discount and it has to be Russian offers to lead us higher.

Yesterday’s crop progress report showed corn condition scores sliding 1pt to 76% G/E vs. 68% last year.  Largest declines were witnessed in SD (-5), IA (-3), WI (-3) and OH (-3) while TX saw a surprisingly large 11pt drop to 30% G/E.  In the state report, it said conditions in Texas were being affected by a lack of water with corn ear development being affected, while harvest was beginning in areas of south Texas.  The overall condition score is now tied with 2014 as the highest since 1999.  17% of the corn crop is silked nationally vs. 5% last week and 8% average.  This remains our concern with the US corn crop as Growing Degree Units continue to be accumulated at a break-neck pace, pushing this crop toward pollination across nearly the entire belt at a pace rarely seen.  As one will notice from the map below, the majority of the corn belt is above the 1135 GDU’s threshold needed to produce tassels.  Silking occurs at 1660 GDU’s, while it takes 1925 GDU’s to enter the R4 stage, or the dough stage.  Physiological maturity occurs at 2700 GDU’s and what is known as “black layer,” or when the crop is safe from a premature end to the growing season.  Many parts of IA, NE, IL, IN and OH are already halfway through the needed GDU’s to hit maturity, which of course leaves less time to deal the crushing blow to yield potential.  That said, areas laboring under excessive water seeing yield determining phases clip by without the ability to recover.

Soybean conditions declined 2pts to 71% G/E vs. 64% G/E a year ago.  The soybean crop as a whole is still rated as the second highest since 1999 behind 2014.  27% of the soybean crop is blooming vs. 12% last week and 13% average.  Spring wheat conditions were unchanged at 77% G/E with a sharp decline seen in SD of 5pts.  South Dakota endured two terrible hail storms over the last week, completely wiping out corn and wheat crops in the Onida and Pierre area.  Ten’s of thousands of acres were destroyed, which could have been part of the decline.  Conditions in areas which were not affected continue to look excellent.  The HRS crop is the highest rated for this week since 2010.  Winter wheat conditions were unchanged at 37% G/E vs. 48% G/E last year. Harvest was estimated at 51% nationally vs. 41% last week and 49% average.  Kansas is 71% harvested vs. 63% average.

Other data yesterday included Brazilian corn harvest data which showed progress behind last year and average.  10% of the safrinha corn crop has been harvested vs. 5% last week, 16% last year and 15% average.  Once harvest is further along, report should paint a better picture of whether this crop is actually sub-80MMT like some in the trade are suggesting.

Also released yesterday were export inspections which continue to impress on the row crop side.  Wheat inspections totaled 11.9mbu vs. the 18.0mbu needed weekly to hit the USDA forecast.  Total inspections for the 18/19 marketing year measure 54.5mbu vs. 103.2mbu at this time last year.  The 47% y/y decline is obviously off pace and not the start analysts would like to see.  Corn inspections totaled 60.5mbu vs. the 43.3mbu needed weekly to hit the USDA forecast.  Total inspections of 1.801bbu are down 6.1% from a year ago, although show no sign of coming up short if the current pace is maintained.  Soybean inspections were probably the most surprising at 31.2mbu vs. the 20.5mbu needed weekly to hit the USDA forecast.  Total inspections of 1.825bbu are down 5.5% from a year ago but making up ground swiftly.  It is ironic to see the drop-in soybean futures prices, but yet export sales and shipments over the last month have been stronger than a year ago, and both NOPA and Census crush are setting new records on a monthly basis.  Do you think we’ve maybe overdone it on the downside?

Futures markets today will feature an early close with CBOT markets closing at noon.  Trade will re-open Thursday morning.

 

Bottom Line: Beginning to see some encouraging signs in global wheat markets, and there are too many analysts already marking a 179-180 national corn yield in pen for our liking.  Where weather has been good, it has been great but where it has not yields will struggle to reach trend in our opinion.  Lots of areas in high yielding counties of Iowa and Minnesota will see flooding losses be significant.  In addition, this crop is being pushed very quickly which is manageable if the rains continue to fall.  Without enough water, the extreme pace of development could become an issue.

 

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.

6/28/2018 Morning Comments

Good Morning,

 

It’s hard to say which is the more important outside market influence at the moment: crude oil rallying back to multi-year highs or ongoing concerns about China’s economic slowdown?  Crude hit $73.06 yesterday, the highest trade since November 2014, bolstered in part by the nearly 10-million-barrel drop in weekly crude oil stocks to 416.64 million bbls vs. 509.21 million bbls a year ago and 478.77 million bbls on the 3-yr average.  The sharp drop was thanks to refiners processing a record amount of crude oil in addition to exporters shipping an all-time record high as well.  Refinery utilization was up 0.8% to 97.5%, the highest utilization rate since 2001.  On the other end of the spectrum is China’s economy which has growing fears about a recession/slow-down outside of the US/China trade spat.  The Shanghai Composite fell into bear market territory yesterday for the first time in more than 2-years as downtrends in fixed asset investment, retail sales and residential property prices all remain in place to varying degrees.  The Chinese Yuan has been weakening swiftly the last week or so, trading down to 6.6203 overnight, the lowest trade since December 21st.  China grinding into recession might actually make a trade war “easy to win.”  At the same time, having the world’s largest consumer of raw materials enter a recession isn’t exactly stellar for global growth.

Light, scattered rain around the Midwest this morning with no real organized systems.  Pretty good coverage across the corn belt in the last 7-days with only N-WI, N-MN and parts of MI not seeing totals of at least 0.50-1.00”.  Heaviest rains continue to be in NW-IA/SW-MN/SE-SD.  Totals upwards of 5.0” have fallen there in the last week with heavy flooding being reported.  The WCB and Northern Plains remain active in the coming week, especially North Dakota which will see rains start later tonight and into tomorrow with chances of nearly the entire state seeing 1.00-2.00”.  Most of IA and MN will be in the same boat with high odds of 1.00-2.00” by week’s end, while the central and eastern belt will see net drying as we enter the heat this weekend and head into the 6-15 day period.  Temps will be above normal throughout this period, especially north and west while precip gradually trends toward below normal.

 

Slightly easier markets this morning as we back-and-fill yesterday’s massive gains.  We wouldn’t want markets to get too far in front of themselves before tomorrow’s reports, heaven forbid.  Based on average trade guesses, analysts are certainly leaning bearish with tomorrow’s reports, so it may not be difficult to produce a supportive surprise.  However, the most important fundamental input will be forecasts next Monday as we move into the 4th of July holiday.  Extended models as of yesterday have heat and dryness easing around mid-July, but they are a ways out with little confidence at this juncture.  If we come back from the weekend with maps confirming the same, markets will breathe a sigh of relief.  If the forecast remains hot and dry both before and after the 4th, then our space should readily add risk premium back into these depressed prices.  Weather and USDA aside, it is still difficult to quantify how much negativity is still prevalent from the trade war talk as well as the growing concern about China’s economy slowing down?  We know Wall Street hedge funds were piling into the short side of soybeans earlier this month as a hedge against equity exposure and Chinese economic fears.  Those positions are still alive and well, but could be turning into more of an intermediate term trade than a short-term one if the signals from China continue to point negative.  July 6th looms large as the date tariffs on both sides would be implemented, but could be a sell-the-rumor, buy-the-fact type of situation.

Data yesterday included weekly ethanol production which rose 8,000bbls/day to 1.072 million bbls per day.  This was the third consecutive weekly increase, and was the highest production rate since last December.  This week’s production was obviously well above the needed increase over last year to hit the USDA’s marketing year target.  Encouragingly, even with a swift increase in production, stocks have remained mostly flat, rising just 27,000bbls last week to 21.674 million bbls.  This level is just off the lowest stocks levels since November and essentially unchanged from a year ago.  The ramp up in crude oil production and exports is certainly going to have a lifting effect on ethanol prices as will the RBOB/Ethanol spread which remains at 50-72c/gallon through December.  This encourages discretionary ethanol blending, even if most of the press around ethanol lately has been negative from a demand stand point as more refinery exemptions are granted by Scott Pruitt’s EPA.

Calendar spreads remain a focus for us, especially the WN/WU which rallied to -7.75c yesterday, the highest trade since July 20th of last year.  The rally in the spread right into First-Notice-Day is interesting, and begs the question of whether quality fears over this year’s SRW harvest are real or imagined?  The wheat sitting in deliverable store is of high quality with a low percentage of non-deliverable grades, even if some of the concrete owners would have us believe it has low falling number.  These #2 SRW stocks could become valuable as blending stocks if the quality fears are more widespread.  The strength also has VSR implications as even though the WN/WU averaging period came and went with no changes, the WU/WZ is currently pricing in a reduction in storage rates from 11c/bu to 8c/bu.  At -15.25c this morning, the WU/WZ is trading at 40.26% which is below the 50% threshold to reduce storage rates.  Unfortunately, the averaging period does not start until the middle of July and runs until the middle of August.  Still interesting considering the complete lack of demand for SRW from an export front, and what should be a growing carryout in 2018/19.

Will be a ton of data released tomorrow, with the largest focus on corn and soybean acreage followed by corn and wheat stocks as of June 1.  We will of course be especially interested in the ‘other spring’ wheat acreage number which the average trade estimate sees declining slightly.  We have no issue with this as there will certainly be less acres than March in South Dakota, although changes in ND/MT/MN should be fairly minimal.  One prominent analyst thinks acreage should go up given the price incentive and the open weather once planting took off even if it was a delayed start.  We have a difficult time subscribing to higher acreage than the USDA’s 12.627 million which is up from last year’s 11.05 million given the higher incentive for North Dakota growers to switch to soybeans and plant those crops in a timely manner.  HRS usually accounts for 95% of the ‘other spring’ number, so if we use 12.4 million acres of ‘other spring’ vs. USDA’s 12.627 million number, we get 11.78 million acres.   Are currently using a record-tying 46.3bpa national average yield which gives us total production of 532mbu vs. 385mbu a year ago.  Production at that level would be just under the 556-568mbu level in 2014/15-2015/16 an among the largest since the 631mbu notched in 1996/97.  1996/97 was also an incredibly late planting year as was 1992/93 which saw the all-time record HRS production of 707mbu, but was done on 17.2 million acres.  With mostly static demand except for a bounce back in exports, we see carryout at 241mbu vs. 203mbu TY.

While not updated tomorrow, we remain interested in Black Sea production prospects as other analysts continue to cast doubt on those crops.  Ukraine’s state weather group estimated the wheat crop at 23.3MMT vs. the USDA at 26.5MMT in June, and is within the range of analyst estimates although certainly at the lower end.  This sort of a production number would probably require a reduction in exports of 1-3MMT.  In addition, SovEcon recently reduced Russian spring wheat planted area to just 12.3 million hectares which would be the smallest in more than a decade.  This could keep ideas of Russian production inching back of 70MMT at bay, although cool/wet conditions are usually pretty supportive to spring wheat production.  Yield prospects in this area will have to be monitored as they stand in stark contrast to the dry/hot conditions in the southern winter wheat belt.

 

Bottom Line: Export sales later this morning will be in focus, although we really need to get passed tomorrow’s USDA data so the focus can return to weather.  If maps remain hot and dry on Monday, premium will probably be added back in.  If the heat/dry is taken out, doesn’t feel like we need to take additional premium out at these levels and instead may shift focus forward to the tariff-implementation date of July 6th.  Bottom line is farmers will become more willing sellers on small rallies, blunting any buying efforts by managed funds.

 

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.

6/27/2018 Morning Comments

Good Morning,

 

A system moving across South Dakota this morning, while scattered showers are working through the ECB and Great Lakes.  Any rains this week will be welcomed as temps rise to the mid to upper-90’s in KS/NE/IA/S-MN/WI/IL/IN/OH by Friday and into Saturday before easing slightly by Monday.  The WCB and Northern Plains have several chances at rain during the next week, especially in North Dakota, S-Minnesota and Iowa where totals could tip 2.00”.  South Dakota and E-Nebraska will also see additional chances of rain, but some spots in the WCB are already laboring under excess water and the moisture will not be welcome.  The central and eastern corn belt will be mostly dry with only chances of light rain.  Temperatures remain above normal for the entire 6-15 day, with the warmest temps in the WCB and Northern Plains late.  Moisture is mostly seen below normal for the corn belt.

 

Higher markets this morning as futures seem to want to add a bit of risk premium in for the coming forecast, and also simply a technical bounce after the beatings have continued in our space.  Wheat and soybeans continue to suffer the most severe losses, and rightfully so as they have less bullish fundamental prospects than corn.  Add in the seasonality component for wheat with Kansas in full-bore harvest, and a still hefty long position held by managed funds and that is a recipe for lower prices.  KC wheat does seem to have found some short-term support at the 200-day moving average near $4.72 which is bounced off of yesterday and held overnight.  In addition, while still not pricing into every destination, the selloff has at least warded off Black Sea and European wheat from some of HRW’s strongholds in Latin America.  FOB and futures spreads will be discussed below.  Otherwise, we are in a slow grind toward the end of the week reports which most think will be neutral to bearish if they are anything.  History certainly points toward more acres and more stocks than the trade typically anticipates.  Comments from the Trump Administration about farmer-support programs seem to be doing little to ease trader or farmer anxieties.

Black Sea wheat futures have continued lower, but Paris futures have somewhat stabilized as of late.  The PMU/WU spread is trading at $23.90/MT premium Paris this morning, near the highest levels since mid-April, while the December spread is at $21.54/MT, the highest since early April.  Black Sea wheat vs. CBOT futures have also seen a mighty correction with front-month spreads back to sporting the largest Black Sea premiums since mid-April as well.  Unfortunately, Black Sea calendar spreads have not show much life with the U/Z spread closing at -$10.75/MT yesterday, just off contract lows and well below the -$6 to -$7 carry seen most of the spring.  More importantly has been the correction in actual FOB prices and landed prices into traditional HRW strongholds.  Russian FOB offers are now below $200/MT for the first time since February. Black Sea wheat is still pricing into Mexico, but the correction has pushed out European wheat on a landed basis.  Russian wheat is also still cheaper into Brazil than US-HRW, but is priced below Argentine even with appropriate import taxes applied.  The fact Russian wheat is still cheaper than US-HRW into traditional HRW markets is a concern for sure, but Russian wheat cannot supply all export demand around the globe without hitting capacity constraints or giving up the more price-sensitive business into MENA.  This doesn’t mean HRW doesn’t have to do any more work to win back market share, but it has definitely moved in the right direction.  Also, given Russian cash and spread response, does not appear to be any concern with crop size, obviously.

Calendar spreads remain a focus as traders try to gauge whether futures have done enough to the downside.  Minneapolis wheat spreads remain under pressure with MWN/MWU just off contract lows at -13.25c and certainly trading as though most of the 1,000+ receipts will hit the street on FND.  The new crop portion of the curve also remains weak with the MWU/MWZ and MWZ/MWH at or just off of contract lows.  On an inter-market basis, Minneapolis has witnessed less pressure than its cohorts, clinging to a 60c premium for most contracts.  MWU/KWU traded back over +70.00c yesterday after hitting contract lows below +40.00c a week ago.  Chicago calendar spreads also remain well supported with the WU/WZ trading at -17.25c this morning, well up from the -23.00c levels hit around June 13th and 14th.

Mixed bag for domestic end users of corn in the last week with some seeing margins contract.  Gross ethanol margins as calculated by RJ O’Brien are seen at $0.68/gln vs. $0.73/gln last week and $0.76/gln a year ago.  Broiler crush margins finally down-ticked at 100.13c/lb vs. 101.31c/lb a week ago but up sharply from 90.43c/lb a year ago.  Hog board crush slipped further to $60.68/hd vs. $64.52/hd last week and $72.50/hd last year.  Cattle board crush improved slightly to $89.69/hd vs. $82.06/hd last week and $124.01/hd a year ago.  Both hog and cattle crush remain well below their seasonal averages.  Cash soybean crush remains outstanding, however, at $2.21/bu vs. $2.00/bu last week and $1.09/bu this same week a year ago.  Cash crush margins are implied at their best levels since January of 2015 in C-IL.  I guess we will have to crush our way out of this tariff war.

 

Bottom Line: A little relief bounce today, but doubt it carries us too far.  There are too many big evens on the horizon for futures to recover all that much just yet in our opinion.  First we have the USDA reports Friday, followed by the pivotal forecasts around July 4th which usually paints a decent picture of what pollination weather will be like for the bulk of the corn belt and finally we have the July 6th date of when tariffs by China and the US will actually go into effect.  Our markets have obviously already priced in the negative consequences of the tariffs, so difficult to imagine there will be further downside on the actual day itself.  The spread between US and Brazilian soybeans is not quite enough to totally offset the 25% tariff China plans to implement, but it is getting close.  Forecasts remain uncertain enough we probably don’t need to take any more premium out.  Wheat rallies should be sold until proven otherwise.

 

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.

6/25/2018 Morning Comments

Good Morning,

 

Plenty of rain around over the weekend, along with some cooler temperatures for most.  Heavy to flooding rains continue to plague N-IA/S-MN/SE-SD with roads closed and some towns being forced to evacuate homes.  Dry spots in the Midwest continue to get filled in, and the 14-day percent of normal precip map shows Michigan, E-Kansas and most of Missouri as the only spots still running below average precip.  The 7-day forecast based on this morning’s GFS shows best rain chances continuing in areas which have received too much rain, i.e. MN, SE-SD, NW-IA and NE-NE.  Areas there could be on tap for another 1.2”.  Most of the central and eastern corn belt will also see rain opportunities as will the dry spots in Missouri.  Much of the Northern Plains will also see another 0.50-1.00” in the coming week which should tie a bow on this year’s spring wheat crop.  Temperatures remain above normal for much of the Midwest through July 4th, while precip is above normal in the Northern Plains in the 6-10 day.  Most of the Midwest will be below normal on precip in the 8-14 day, although weekend model runs can be flippant.

 

Lower at the open and then sharply lower within the first 15 minutes as wheat led losses.  At this writing, winter wheat boards find themselves down by 2.0% led by the front end as Australia finally sees solid rain chances for the eastern wheat belt, Canadian forecasts remain wet and there seems to be less concern about Russian wheat prospects than there were 10-days ago.  Black Sea futures prices took out premium on the selloff like all wheat contracts did, but have recovered $2-3/MT off the lows.  Unfortunately, however, spreads on the new crop portion of the curve continue to add carry.  The September/December spread traded down to -$11.25/MT late last week which compares to -$7.25/MT on June 12th.  A market paying to store is not a market concerned with supply.  The weakness was not limited to wheat, however, as corn and soybeans both fell 1.0% on continued concern surrounding tariffs and trade wars after the latest round of Trump Tweets.  Shortly before the open, President Trump sent out a tweet to the effect of the US is requiring all countries drop duties and tariffs against the US otherwise we will reciprocate in an equal manner.  Lends itself to more questions than answers, but more trade barriers not a good thing for agriculture.

Friday saw Commitments of Trader data released through June 19th, which was the day we put in our exhaustion lows for most contracts.  Data was about as expected with funds selling another 49,460 contracts of corn to leave them net long 35,003 contracts vs. +237,995 contracts on May 8th.  Over the last 3-weeks, funds have sold 169,528 contracts of corn, an incredible 847.6mbu in less than a month.  Encouragingly, commercials continue to buy with the gross commercial long pushing his position to +801,065 contracts, a new all-time record by a huge margin.  The gross commercial short was flat on the week.  In soybeans, funds sold 40,948 contracts, bringing their three-week dump to -133,544 contracts and leaving them net short -52,390 contracts.  Largest net short since January 30th.  The gross commercial long, as in corn, moved sharply higher to 425,747 contracts which is a new record.  The commercial short position is the smallest since February.  Funds sold wheat, but not nearly enough to feel confident lows are in.  In KC, funds sold 11,176 contracts to put them net long 42,793 contracts.  This is still plenty of length in KC and makes downside likely.  Funds sold 25,044 contracts of Chicago wheat which kicked their net short back up to -36,639 contracts which is the largest since mid-May but still paltry compared to history.  In MPLS, funds continue to add to their net short which is now up to -5,324 contracts, the largest since January 2016.  Commercials are net long for the first time since April of 2017.  Funds are net short the entire soy complex for the first time since the end of January, while the combined meal/corn position is the smallest since mid-February.  Ag commodities feel much more balanced after the sell off, as they should, although funds building large short positions at the end of June is definitely counter to traditional seasonal trends.  Is there still enough weather in front of the market to cause funds to flip positions once again and move to a meaningful net long?

Weather will remain the primary driver of price direction this week, but we also have the June 29th Planted Acreage and June 1st SIAP reports this coming Friday.  Average trade estimates have been released, and point toward more acres in corn and soybeans with slightly less acres in the all-wheat category.  The average trade guess sees corn acreage at 88.562 million vs. 88.026 million in March while soy acreage is seen at 89.691 million vs. 88.982 million in March.  History is certainly on the side of adding acres as soybean area has risen from March to June in seven of the last eight years.  Corn area has risen from March to June in five of the last seven years.  All wheat acreage is seen dropping from 47.339 million in March to 47.124 million in June on the back of spring wheat acreage falling from 12.627 million to 12.431 million.  We have no issue with spring wheat area declining slightly due mainly to South Dakota, although think intended acreage was planted in ND/MN/MT.  Stocks reports see wheat stocks declining to 1.091bbu from 1.181bbu last year. Corn up slightly to 5.268bbu from 5.229bbu and soybean stocks up sharply to 1.225bbu from 966mbu a year ago.

 

Bottom Line: We continue to feel there is value in row crop prices at these levels, and are leery about leaning too short.  Having said that, it wouldn’t be unreasonable to see markets test last week’s lows and buyer resolve one more time before being able to say lows have been made.  Everything about this summer seasonal feels different: highs have been made in May which is not typical, trade war fears seemed to coincide with good growing weather even though key developmental weather remains in front of the market and USDA hasn’t issued its first objective yield estimate.  Wheat harvest continues to roll north with average to slightly better yields being found.  The Northern Plains HRS crop is in excellent shape and should continue getting better.  Keep an eye on protein spreads as the bushel count ticks higher.

 

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.