9/21/2018 Morning Comments

Good Morning,

 

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.

 

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.

9/20/2018 Morning Comments

Good Morning,

 

The US Dollar Index is weaker this morning and trading at the lowest level since late July.  In the process, the USD has also moved back below the 50 and 100-day moving averages with the 200-day just below at 92.5938. From a weekly standpoint, a clear-cut bullish divergence in momentum is present and suggestive of lower prices straightaway.  A weaker USD would certainly be supportive to commodities priced in USD from a demand standpoint, especially as the S&P 500/Bloomberg Commodity Index ratio just set new record highs three days ago.

Rain across the Upper-Midwest this morning adding to totals from yesterday morning.  The Midwest will remain wet the next week, especially across Minnesota and N-Wisconsin where upwards of 2.00-3.00” are expected on top of what has already fallen.  Nearly the entire corn belt will see rain this week as will the southern plains which should keep field work of any kind limited until the beginning of next week.  Extended maps continue to suggest a cooling trend with below normal temps featured during the 6-10 and 8-14 day outlook while precip is above normal throughout.  This could keep harvest a bit slower than what it looked like a week ago.

 

Mixed to lower markets this morning as we take a breather from the solid gains posted in soybeans and wheat yesterday.  Wheat continues to garner support from the lower production and export ideas coming out of Australia in addition to the increased confidence of traders that Russia will be limited on wheat exports beyond 30MMT.  The USDA is still calling for Russia to export 35MMT and Australia to export 14MMT.  There could be as much as 9MMT of demand that needs to be either rationed or shifted to another exporter.  Time of the United States to step up.  Soybeans were also better yesterday, although sources of the strength are much less clear cut than wheat.  Export demand has picked up, but analysts continue to make note of the fact China has more room to cut imports even lower than USDA is currently forecasting.  This is discussed below.  Open interest continues to rise across the grain room with September futures now expired.  Corn open interest was up 17,242 contracts, soybeans up 3,574 contracts, SRW was down 1,027, and HRW was down 1,310.

The USDA’s update to the global S&D’s last week included cuts to soybean imports for China in both 17/18 and 18/19.  China is now expected to import 94MMT in both marketing years.  The 0.54% growth in imports from 16/17 and 17/18 is the smallest y/y growth since imports declined 20% between 2002/03 and 2003/04.  Reuters articles yesterday ran quotes from a Chinese soybean crusher who said they were committed to backing the government and weening themselves off US soybeans.  One way they could do this is by cutting soybean meal inclusion in their feed rations from 20% to 12%.  The European Union uses the 12% inclusion rate in their feed rations.  According to Reuters, this would allow them to reduce soybean imports by 27MMT, or roughly 82% of the volume of US soybean imports last year.  This would obviously require increased alternatives, and probably more corn being used from state reserves which is already expected to be down sharply this year and next.  However, also important to note they could have cut meal inclusion rates when soybeans were $13/bu, but didn’t, so why would they do it now that soybeans are the cheapest price in a decade.  They cannot produce pork in a vacuum, but they can change the ingredients which would be a major blow to US farmers.  This will start in 18/19, and by our analysis, China could reduce soybean imports to 90MMT from the current 94MMT projection rather easily.  This would fall straight to ending stocks, cutting them to 16.756MMT.  This would be the lowest level since 2013/14 but just under the 5-yr average of 18.123MMT.  In addition, it is also important to remember 2016/17 and 2017/18 had the largest ending stocks on record by a big margin.  The point here is even if a trade resolution was completed between the US and China, which does not look likely today, there is no guarantee our markets would rally anyway.  China has the ability to reduce soybean imports this marketing year, and continue swapping rations in future years.  Even with 200mbu of added export demand from China, of which there is absolutely no guarantee, ending stocks would still be over 600mbu and the largest on record.

Data yesterday included weekly ethanol production which came in at 1.051 million bpd, up 31,000 on the week and up 1.7% from the same week a year ago.  This is almost exactly the y/y increase needed each week through the 18/19 marketing year in order to hit the USDA’s ethanol production forecast.  This could be difficult to maintain in coming weeks with stories of Green Plains Renewable Energy idling two plants and slowing run rates at another.  The tighter operating environment is not exclusive to GPRE as everyone is facing constricted margins.  Ethanol prices continue to bob around 13-year lows and the lowest prices the contract has ever traded in its history.  This is despite the fact crude oil is back over $71.00/bbl on WTI and nearly over $80.00/bbl on Brent.  Part of the margin weakness is the hefty stocks and no export demand.  Exports have slowed in recent months, due in part to the trade tensions with nearly every country on the globe.  In addition, the big spread between RBOB Gasoline and Ethanol is not translating to increased demand.  The spot spread at 75c/gln is right near the largest spread since late 2014.  While feed margins and exports are still strong, now is not the time to deal a big blow to corn demand via slowing ethanol production.

Calendar spreads continue to be a focus for us, and not necessarily in a supportive manner.  Most calendar spreads continue to trade at or slightly above contract lows with the SX8/SX9 spread trading to the lowest print on record going back to 1990.  CZ8/CZ9 has also pushed out toward -40.00c which is not a new record by any stretch, but also not indicative of higher prices straightaway.  Soybean spreads are actually paying the largest carrying charges on the board with the SX/SN trading at -50.25c and nearly 80% of full financial carry vs. CZ/CN at -27.00c and 62% of full carry and WZ/WN at -32.50c and 37% of full carry.  Not difficult to see what farmers are going to part with first this year both off the combine and at year end for tax purposes.  However, as is usually the case, producers will look at the large carries on the board and think the market is paying them to store soybeans.  These carries are not earned until they are sold or locked in, however, as in large carry markets, futures often trade lower to take the carry out of the producers pocket.  This happened with nearly every contract of wheat and corn during the 17/18 marketing year.  This is not to say producers should run out and sell soybeans straightaway at these levels, but simply carries are not earned until they are sold.

 

Bottom Line: Wet weather around should keep harvest at bay this week, and with it, hedge pressure from bushels being sold off the combine.  The China/soybean narrative has not changed and it is not getting any more supportive.  Even with a trade deal, one would be hard pressed to assume futures are sitting on a $1.00 rally in soybeans.  We outgrew demand even with China back at the table.  Not enough yield reports yet to confirm USDA’s record crops yet but going to take a lot of sub-trend numbers to knock those production estimates off.

 

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.

9/17/2018 Morning Comments

Good Morning,

 

Some scattered showers around the Northern Plains, otherwise quiet across the Midwest.  The run of dry weather across the corn belt and Plains appears to be coming to an end, especially by mid-week.  This morning’s GFS model shows heavy rainfall accumulatios by the weekend across the southern plains and central/eastern corn belt.  Projections now are putting many 1.50-3.00” totals across the corn belt which will impact early harvest efforts.  The wet pattern carries into the 6-10 and 8-14 for the Midwest with widespread above normal precip expected.  Nearly every part of the corn belt and Great Plains are under the above normal bubble.  Temperatures are seen mostly above normal except for the far northern plains.  This pattern could slow down what looked to be an incredibly quick harvest.

 

Mixed markets this morning with weaker row crops and firmer wheat boards.  Wheat is adding to late week gains on news out of Australia over the weekend of frost in both W.A. and NSW.  Western Australia was the bright spot in an otherwise tough year for Aussie wheat producers, but some of the pictures out of that territory this morning are brutal.  Analysts believe it will be difficult to clear 18MMT now, which we discuss below.  Row crops continue to languish, holding recent lows but all indications are those levels could be in jeopardy once harvest gets rolling.  Weekend headlines out of Washington and Beijing are negative and do not suggest trade resolution anytime soon.  In fact, headlines from the Wall Street Journal suggested China was willing to ramp up the trade war even more by suspending the shipment of some goods to the United States.  Were this to happen, it could impact global supply chains in a significant way, possibly the most since the financial crisis when exporters/importers didn’t know who they could do business.  For all parties, let’s hope it doesn’t come to that.  Either way, farmers will probably be seeing the second round of Trump payments at the end of the year.  Lucky us.  Open interest changes from Friday’s session shows corn up 7,604 contracts, soybeans up 10,843 contracts, SRW up 7,503 and HRW up 2,347 contracts.

The USDA issues their latest production estimates last week, pegging Australia at 20.0MMT with exports of 14.0MMT.  Based on the long-term regression analysis of Aussie wheat supplies vs. marketing year exports, this looks about right to possibly a touch light.  This would leave ending stocks essentially tied for the lowest levels in a decade.  If the weekend frost and continued dryness across Victoria continue, however, production could swing down to 17-18MMT.  Using 18MMT, total Aussie Wheat supplies would be 23.5MMT and imply exports around 13MMT according to the regression.  Unfortunately, if exports are allowed at that level, ending stocks fall to 2.948MMT, the lowest since 1998/99.  It is unlikely domestic end users of wheat for both industrial and feed uses will allow exports to get that high as inter-territory wheat trade could be record high this year to satisfy livestock feeders.  Ultimately, this should ensure more second half demand pull for the United States, but more demand we can pencil in which hasn’t actually occurred isn’t what the US balance sheet needs right now.

The other major exporter constantly in the news is Russia, so we decided to build the same chart for them as well.  USDA updated Russian production to 71MMT, up 3MMT from last month and totally catching the trade off guard.  The increase in production allowed them to keep their wheat export forecast at 35MMT, a number which looked completely improbable in relation to crop size.  Even with the bump in production, it still looks high.  Using USDA’s numbers, it would imply export demand accounting for 42.4% of total supplies which is down from last year’s 43.01% but the second highest on record.  However, looking at the regression analysis since 2000 of exports to total supplies, the USDA’s export numbers are well above the trendline.  Based on the trendline, exports would be implied at 31MMT, which is much more congruent with current trade ideas.  Would actually call 31MMT a bit high based on some of the export restrictions being discussed if exports grow above 25MMT.  31MMT of exports would put the export/supply ratio at 37.59% which is just a hair above the 36.64% 5-year average.  Ending stocks would be 13.4MMT which would seem to imply more exports could be done than just 31MMT.  The trouble with historical regression analysis is it relies to heavily on years in which Russia was not the major exporter it is today.

Soybeans continue to hold pre-WASDE lows, although it looks like a matter of time before those are taken out.  More and more discussion on the 2019 balance sheet and potential acreage changes.  This has us looking at the SX8/SX9 calendar spread which hit new contract lows overnight of -62.00c. This ties the lowest trade for this date on the calendar with 2006/07 and is just barely above the lowest ever trade for a SX/SX spread in September of 2006.  The soybean market is incentivizing farmers to store soybeans as far as the eye can see, but one has to wonder if the right message is being sent for the 2019 marketing year with $8.80 beans and $3.85-3.90 corn?  The ratio is favoring corn without a doubt, but we question whether the current price spread is wide enough to encourage the shift of 4-6 million acres away from soybeans?  Winter wheat acres increasing this fall will help some of this shift but cannot take the entire share.  If all of those bean acres switch to corn, December ’19 is probably overpriced.  If they don’t switch to corn, soybeans need to be $0.80-1.00 lower.  Neither scenario makes one feel especially bullish toward new crop prices.

US wheat could have been competitive in this weekend’s Saudi tender.  Their tender process does not always lend itself to cut and dried results, however, so it could be several weeks before we know the true results.

 

Bottom Line: Wet weather will slow the harvest process but we still have too many bushels coming at the market in too short of time.  The complete lack of a PNW soybean program will be seen and felt in a big way when bean harvest kicks into gear across the Northern Plains the next 10-days.  Piles will be huge, storage charges will be high and producers will find it difficult to store their way out of these prices.  Big soybean yields being harvested in S-MN and Iowa this weekend according to anecdotal reports.  Very big.

 

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.

 

9/13/2018 Morning Comments

Good Morning,

 

Financial markets yesterday and overnight focused on the prospect of renewed trade talks between the U.S. and China which could stave off the next round of tariffs being implemented on both sides.  The next round of tariffs on the U.S. side would have amounted to another 25% on all Chinese goods, or about $200 billion with another $267 billion in the ready.  Should both of those be implemented, there would be tariffs on every dollar of Chinese goods imported into the United States.  The encouraging sign is the new trade talks are being led by Treasury Secretary Mnuchin, not by the trade hawks like USTR Lighthizer or trade advisor Navarro.  Nothing set in stone, but there must be a first step.

 

Mixed markets this morning with corn firmer but beans and wheat lower as the trade continues to digest the USDA reports from yesterday.  Most analysts were left flabbergasted at the national average corn yield put forth by NASS as the average trade estimate was looking for a smaller crop m/m.  It has caused quite a little introspection by analysts of all shapes and sizes as no method proved accurate this year from satellite firms to crop tours to weather modeling services.  While it has been said many times in recent years, it would appear everyone continues to underestimate the potential of these hybrids and the genetic packages inside them when weather conditions are conducive to growing corn.  In addition, the last two years especially has witnessed localized problems in different spots of the corn belt weigh on analyst opinions about national yields.  Last year it was poor emergence in E-IL, IN and OH.  This year it was flooding in N-IA/S-MN.  Crop tours exacerbated this problem as did the constant barrage of drone pictures and crop insurance adjuster horror stories.  The fact is, the weather was pretty darn good in 95% of the corn belt, and even in the flooded area, there was enough crop benefitting from the increased rainfall than was being impacted by localized flooding.  In other words, the trade should now consider just how extreme of a weather event is needed to materially impact the national average corn yield enough to drop things well below trend.  This isn’t to say bank on a 180 yield in May next year but going into a year expecting a crop problem to rally prices is a tough sell after three record yields in a row and four records out of the last five years.  Open interest changes were mostly higher with corn up 5,812 contracts, soybeans up 9,243, SRW up 5,962 and HRW up 1,343 contracts.

While the 181.3bpa national average yield stole the show, the demand picture was equally as impressive as record demand allowed carryout for 18/19 to only move up 90mbu which is astonishing with that kind of headline print.  The good news is these demand figures are not just inflated place holders which will be cut in futures reports.  Export demand is strong and will remain so well into 2019.  Ethanol margins have slipped recently due to ethanol prices being under pressure, but production continues to run at levels above the threshold to hit the USDA estimates.  Margin improvement will be needed in coming weeks to prevent a slowdown, obviously.  Barring a major wipeout in the Carolinas this weekend, animal numbers continue to grow with depressed grain prices rallying feeding margins yesterday.  The stocks/use ratio of 11.7% is still the lowest since 2013/14 and December corn somehow managed to avoid setting new contract lows during yesterday’s session.  While new lows might be difficult to defend against with 14.0bbu of corn coming at the market the next few weeks, price should find good demand on set backs by end users armed with ample margin.

Had the focus not been all on the corn market, and if the Trump Administration would not have announced plans for more trade talks in coming weeks, soybeans might have found themselves much lower.  About an hour before the WASDE report, the Trump Administration announced plans for renewed trade talks between China and the US, rallying soybeans 12c off its new contract lows made that morning.  This allowed prices to shrug off the supply jumps in the soybean market which could get worse in coming reports.  Production came in at a new record of 4.693bbu with a new record yield of 52.8bpa.  Total supplies are now over 5.0bbu for the first time in history.  Old crop demand was increased by 35mbu, dropping 18/19 carry-in by a like amount, otherwise the new balance sheet would have looked even worse.  18/19 crush was increased by 10mbu but USDA has basically already said they can’t increase exports until something happens with trade.  Carryout therefore was put at 845mbu which was close to trade estimates, but avoided the 900mbu+ numbers some had suggested.  I would say the 900+ numbers aren’t dead yet as soybean yields have increased from September to Final in five of the last six years, and a 1.0bpa increase in national average yield would add 90mbu, pushing carryout over 900mbu.  Chinese soybean imports were cut 1MMT each for 17/18 and 18/19 which was not as much as feared.  Unfortunately, China’s official soybean import forecast sits down at 84MMT vs. USDA’s latest at 94MMT.  Even if imports are only down half of what China is projecting, that’s still another 5MMT of global soybean import demand lost which heads right to the carryout of the major global exporters.  Read the United States.

Wheat market changes were quiet for the US balance sheet with both marketing years completely unchanged.  The trade instead focused on the surprise increases in production to Russia and India and the lack of production cuts in Canada and Australia.  Russian wheat production was increased 3MMT to 71MMT after USDA spent most of the summer cutting production along with most other analysts.  In their commentary report, USDA said the increase to production was based on two factors: 1) a 2 percent increase in harvested area for total wheat and 2) a 3 percent increase in winter wheat yield.  However, we would note the USDA also said spring wheat production prospects remain “highly favorable” in the Siberian and Ural districts.  This is in stark contrast to the reports we’ve read online in recent weeks suggesting some of that area is already under snow and quality issues will be a major factor for the bushels harvested.  It is always difficult to get an accurate read on production in area the size of the Russian wheat belt, but this year seems especially suspect.  Bottom line, however, is Russian wheat offers continue to be well under the market and until the exportable surplus is exhausted and values move above US-HRW, there is little reason for a big, sustainable rally.  The production numbers aside, most analysts took more issue with USDA refusing to cut their 35MMT Russian export forecast.  Most in the trade are around 30MMT, but again, FOB offers should tell us exactly when the surplus has been reduced.  Australian production was reduced to 20MMT vs. 19MMT expected and being used by most in the trade.  Exports were also reduced to 14MMT from 16MMT last month but are still 2MMT too high.  Canadian production was cut to 31.5MMT from 32.5MMT last month, but here again, is probably 2MMT too high.  Exports were reduced 0.5MMT to 24.5MMT but would be 2MMT above last year.  Little to cheer about in the wheat market until US exports pick up.  The selloff yesterday has US-HRW trading a $15/MT discount to EU offers up front and is back to level money with Russian wheat for December.  HRW should probably move further below these offers to account for the freight disadvantage.

 

Bottom Line: Yesterday’s reports confirmed big crops, and at this stage of the game, there just isn’t going to be a supply side shock.  Any price appreciation from this point forward needs to be demand led, and even that is going to be limited in scope once the crop is harvested and bushels can be thrown at a rally.  Producers need to be looking hard at 19/20 already even though this crop is not yet in the bin, because yesterday’s report has implications for next year.  Without a trade resolution and soybean price appreciation, one has to ponder how long CZ9 can maintain $3.90+ futures when the inevitable switch in acres happens next spring?  Even with a drop in soybean acreage, carryout will be difficult to whittle down much below 600mbu which is still too many beans.  Maybe the Trump Administration will deliver us a Christmas Miracle in regards to trade?  A guy can dream…

 

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.

 

9/12/2018 Morning Comments

Good Morning,

 

Multiple financial media outlets are picking up comments from IMF Managing Director Christine Lagarde this morning in which she warned about the US-China trade war delivering a shock to already struggling emerging markets which could spillover into the developed world.  Would be interesting to hear what Mrs. Lagarde would consider a “shock” as record lows in the Argentine Peso, Turkish Lira and Indian Rupee have already been posted this year while many other currencies like the Russian Ruble and Brazilian Real are already near record lows against the greenback.  While the Dollar has mostly rallied in 2018, it remains nearly 10% below the highs posted in 2016.  While the equity market influence will be important to everyone, the continued underperformance of these emerging market currencies will continue to undermine the appreciation of commodity prices.

Scattered showers across North Dakota and C-MN, otherwise a quiet Midwest this morning.  The dry weather will continue for the next 5-days or so until early next week when rain chances return to the Central and Northern Plains.  Rainfall chances as of this morning’s GFS run are putting 0.50-1.00” in northeast ND and N-MN with 0.25-0.50” chances in most of Nebraska and NW-IA.  With those moisture chances will come a general cold front which will knock highs down 5-15 degrees from the recent heat, but extended maps do keep things mostly above normal for temps.  Precip will be above normal for the 6-15 day outlook, especially over the southern plains which could delay harvest efforts and possibly winter wheat planting.  Still plenty early to get concerned about winter wheat planting delays.

 

WASDE day, and boy do our markets need a fresh dose of fundamental input.  The feature overnight has been the decent volume in soybeans, specifically November which has made a push at contract lows.  At the lows, November soybeans were within 0.25c of contract lows but have bounced about a penny since.  Open interest in soybeans has been rising almost every day for the last week, tacking on just over 16,000 contracts as prices have moved back to contract lows.  This would seem to suggest fresh speculative shorts being added on the opportunity for a breakout to the downside.  If bears do not get the negative data they are after today, these fresh shorts could quickly find themselves underwater on a retest of the 8.50 level.  Having said that, does look rather likely the national average soybean yield will be moving higher and there is only so much the USDA can do with demand to mitigate the impact to 18/19 carryout.  Multiple analysts are discussing the potential for a carryout print of 900mbu+ today which would seem to be enough to knock prices through contract lows.  Corn remains rangebound but likely won’t stay that way long with 3.6350 and 3.6975 tipping the directional scales.  December corn should continue to find good support in the 3.50-3.55 area.  Wheat bouncing after yesterday’s selloff as it looks more likely Russian wheat exports could be less than 30MMT vs. USDA’s ideas last month of 35MMT.  Corn open interest was up 15,188 contracts yesterday, soybeans up 3,643, SRW down just 166 contracts and HRW up 3,096.

Both Egypt’s GASC and Algeria are tendering for wheat today with the former likely to book 3-4 cargoes of Russian wheat.  Lineups were announced within the last hour and are averaging around $226.41/MT FOB with the cheapest offer at $222.70/MT FOB.  Will be interesting to see if any US wheat is offered in the Algerian tender which is the only one we’ll likely compete in.  The more salient news from Russia, however, came yesterday with rumors from exporters that phytosanitary permits were becoming more difficult to obtain as the government might be using that approval process as a way to slow shipments without enacting formal restrictions.  In addition, there is more confidence the Russian Ag Ministry did in fact mean 30MMT of total grain exports when he gave his latest update, not 30MMT of wheat exports.  This would likely mean wheat exports somewhere around 25-26MMT vs. market ideas around 32-34MMT and USDA at 35MMT last.  In addition, Russian news agencies were reporting overnight on the slow pace of harvest in Siberia where area harvested-to-date is almost five times slower than a year ago.  This is expected to hamper quality as well as total bushels harvested with snow often showing up by the end of September.  Some pictures suggest there is already area under snow which will render the crop next to useless outside of animal feed.  Black Sea cash offers and futures are not yet expressing any sense of urgency, however, trading mostly flat yesterday.

The weekly crop progress report was delayed until yesterday morning due to technical difficulties at the USDA.  Not much out of the ordinary with corn conditions up 1pt to 68% G/E vs. 61% last year.  Corn harvest was estimated at 5% complete vs. 3% average.  This number could really jump next week with the wide open harvest weather and crops drying down at a rapid rate across the Midwest.  35% of the crop is rated mature vs. 22% last week and 21% average.  Northern Plains corn crops have nearly three times the amount of corn rated mature compared with average.  Soybean conditions jumped 2pts to 68% G/E vs. 60% G/E a year ago.  Soybeans dropping leaves was 31% nationally vs. 16% last week and 19% average.  Spring wheat harvest is essentially complete at 93% vs. 77% last week and 85% average.  Winter wheat planting is 5% complete nationally vs. 5% average.

Weekly deliverable stocks data was also released yesterday with combined stocks in Minneapolis/Duluth seeing a big jump of 2.152mbu w/w.  Total wheat stocks now measure 20.714mbu vs. 22.566mbu a year ago.  Stocks are still the lowest for this week since 2014, but the upward trajectory could see levels of the last couple of years challenged, especially with spot floor and domestic basis levels trading at such historically weak levels.  Farmer selling has shut off as many face cash basis levels at local elevators of -80/-90Z for 14.0% protein with little to no premium for 15.0% protein.  It will take a flat price rally to peel spring wheat out of the grower’s hand, and with harvest coming, that could prove even more difficult.  In Chicago, wheat stocks fell 31,000 bushels on the week to 82.285mbu but remain 14.8mbu below year ago levels.  Non-deliverable grades are up 2.2mbu y/y.  Kansas City stocks fell 669,000 bushels on the week to 127.313mbu but remain above year ago levels at 124.248mbu.

On today’s WASDE, the focus will obviously be on corn and soybean yield updates.  More specifically, however, we will be interested in what USDA does with Australian and Canadian wheat crops, Russian wheat exports, Chinese soybean imports for both 17/18 and 18/19 and where the eventual 18/19 US soybean carryout ends up after all supply and demand changes are made.  USDA could punt one more month on Australian production, preferring to use ABARES October numbers as they’ve done in the past instead of the September report they just released.  In addition, doubtful USDA moves Canadian production down to 28.990MMT where StatsCan was last vs. their August number up at 32.500MMT.  USDA will probably come in somewhere around 30MMT would be our guess.  Russian export numbers probably move down 1-2MMT, but unlikely they make the move down to 30MMT on this report.  The Chinese soybean balance sheet will be a very interesting read.  On the last WASDE, they put 18/19 soybean imports at 95MMT vs. 96MMT for 17/18.  Both of these could move lower based on the pace of imports to-date.  They could make this move rather easily as 17/18 ending stocks on the last report were pegged at 23.481MMT, the largest on record and well above the 5-yr average of 18.328MMT.  18/19 ending stocks of 20.781MMT have plenty of room to move lower without threatening comfortable stocks/use levels.  Even if a drastic cut to imports of 5MMT is made, ending stocks would only fall to 15.781MMT.  This would be the lowest since 2013/14, but still the second largest since 2000 prior to the 13/14 marketing year.  The point is, if US soybean yield is raised, exports cannot be raised much if at all to offset the supply increase.  Ending stocks will move higher, and possibly appreciably so.  A supply increase inside the United States combined with a clear sign the world’s largest importer is de-stocking instead of importing will be a double whammy to price prospects.

 

Bottom Line: Let’s get the WASDE out and reassess.  As a reminder, the national average corn yield is expected to fall to 177.8bpa from 178.4bpa last month while the soybean yield is expected to increase to 52.2bpa from 51.6bpa last month.  The average trade estimate for 18/19 ending stocks is 1.639bbu for corn vs. 1.684bbu last month, soybeans at 830mbu vs. 785mbu last month and wheat at 941mbu vs. 935mbu last month.

 

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.

9/10/2018 Morning Comments

Good Morning,

 

We’ve been watching emerging market currencies rather closely as of late for good reason with most equity markets and currencies in those countries setting multi-year or record lows.  One currency which popped up on our radar last week was the Australian Dollar as it fell 1.4% on Friday to the lowest level since February 2016.  This hasn’t been all in one fail swoop as the Aussie Dollar has been in a solid downtrend dating back to the beginning of 2018.  From the January highs, the Aussie Dollar is off 12.4%.  Australia’s economy is hugely dependent upon exports to China, so anything affecting that relationship, or the Chinese economy, is likely to have negative impacts on the A$.  While maybe not directly related to President Trump’s latest round of tariff threats toward China on Friday, it certainly can’t help the situation.

Some scattered showers in the Dakotas and Nebraska as well as some showers in N-Minnesota, otherwise the Midwest is quiet.  Substantial rains fell in the central/eastern corn belt over the weekend, dumping as much as 7.0” in spots of S-IN/S-IL with a larger area seeing 3-4” and an even larger area seeing 1.3” amounts.  10-day rainfall amounts from Iowa to Wisconsin into Illinois and Indiana are impressive with many 5-10” totals recorded.  This has limited early harvest activity, although a dry week lies ahead which will be welcome news to many in the aforementioned states.  In fact, the southern eastern half of Iowa, MO, IL, IN and parts of WI and MI are not expected to see any measurable rainfall during the next week.  The Northern Plains will see several rounds of rain, especially the RRV but nothing which should impact soybean harvest too much.  The Northern Plains remains above normal for precip and slowly shifts to normal/below temps by the 8-14 day.  The rest of the Midwest is fairly normal on both precip and temps.

 

Mixed trade to start the week with corn slightly lower, but soybeans and wheat firmer after a particularly rough week in the wheat markets last week.  Kansas City wheat lost 38.5c last week, which compares with the 45c losses two weeks before that.  We’ve retraced about 84% of the entire rally from the July lows to the August highs in the span of a month which was about how long it took to put those gains on.  Whether one wants to use Elliot Wave Theory or trend channel analysis or cycle lows or some other technical indicator, all signs point toward price revisiting the harvest lows around 4.90-4.95 basis the December KC contract.  Fortunately, momentum indicators are showing a potential bullish divergence in momentum with price slowing down on the last wave lower, a tell tale sign of a potential reversal forthcoming.  Corn and soybeans remain mired inside recent ranges, awaiting fresh input from the USDA or harvest reports in order to make the next move.  There is almost nothing one can look at for bullish inputs in the soybean market, which could be a signal we are in fact near a bottom and don’t need to make new lows below 8.26.  Trade rhetoric is bearish, yield talk is bearish, exports are slowing, basis is weak, deliveries were heavy, spreads are trading at large percentages of full carry, etc.  Lots of people leaning bearish in the soybean boat which is usually what happens right before it tips over.  The only reason making us cautious about getting supportive toward soybeans with the sentiment so decidedly bearish is the fact carryout could make its way toward 900-1,000mbu on this week’s WASDE or possibly the October WASDE.  Yield is almost surely going up but the USDA cannot increase demand given the lack of Chinese demand and crush already running near capacity.  If supply goes up, it just doesn’t appear demand can eat the slack, which will force our already record carryout to a new record.  If that isn’t reason for funds to rebuild a record net short position, I’m not sure what is?

Export sales were delayed because of the Labor Day holiday and were therefore released Friday.  Wheat continued its disappointing string of export sales week with the third week in a row of failing to meet the needed level.  Sales totaled 14.0mbu vs. the 17.5mbu needed weekly.  Total commitments now stand at 343.6mbu vs. 457.8mbu last year, a 25% deficit vs. the USDA calling for a 13.7% increase.  Total commitments are the lowest for the last week in August since 2009, but total commitments as a percentage of the USDA forecast are the lowest since 2000.  The 17.5mbu needed weekly would be the largest average sales pace since 2011 and the fourth highest since 1996.  The pace is still certainly doable, and the years with higher average sales saw total commitments 60-150mbu larger than what the USDA is calling for this year.  Fortunately, US FOB prices have tightened the gap considerably with Russian and European offers which should offer some stability.  Corn sales ended the 17/18 marketing year last week with 1.2mbu of sales and total commitments of 2.384bbu vs. the USDA target of 2.400bbu.  Sales should surpass the 2.400bbu level once Census Bureau data is incorporated.  New crop sales totaled 40.7mbu, taking total commitments to 451.6mbu vs. 334.2mbu a year ago.  This is a 35% increase vs. the USDA calling for a 2.0% decline. Soybeans ended the 17/18 marketing year with 2.163bbu of commitments vs. 2.222bbu the year before.  New crop sales totaled 24.7mbu, bringing total commitments to 510.4mbu vs. 478.5mbu a year ago.  Two weeks ago, 18/19 commitments were running almost 100mbu ahead of 17/18 at this time vs. just 32mbu this week.  17/18 is likely to surpass 18/19 in the next couple of weeks unless sales really take off, and especially with no Chinese business occurring.

Still got the latest CFTC data out on Friday with funds fairly quiet in some markets and fairly active in others.  In corn, funds did almost nothing, selling 385 contracts to put their net short at -82,570 contracts.  We are still seeing the effects of the September delivery cycle, so changes are a bit difficult to interpret.  Commercials saw both their long and short positions drop for a net sell of -12,719 contracts.  In soybeans, however, funds sold aggressively, adding 14,148 contracts to their net short position which is now -111,567, the largest since January 23rd.  Commercial positions were fairly quiet actually with their net position up 10,989 contracts to put them net long 21,824.  Funds remain stubborn with their net long in KC wheat selling just 3,943 contracts to leave them net long 37,911 contracts.  Since price peaked on 8/7, funds actually added to long positions until last week on 8/28 and have only sold roughly 4,000 contracts as price is down over $1.00/bu.  These positions are undoubtedly spread against other markets, but still painful.  The gross commercial long position has been sold every week since July 24th.  Not bullish.  Funds flipped back to a net short in Chicago wheat for the first time since July 24th, although small at -5,490 contracts.  The gross commercial long in Chicago wheat of 88,593 contracts is the smallest since March 6th.  Not bullish.

As noted above, US FOB prices are finally trading even money or a discount to European and Russian offers.  Going home Friday, spot offers out of Europe for 12.5% protein (dmb) were $241-243/MT vs. US-HRW for similar protein at $231/MT out of the Gulf.  Russian offers in spot slots were $224/MT vs. US-HRW at $231/MT, never mind the extreme freight advantage of Black Sea wheat.  For December, however, both offers were at $239/MT and for January the US was a $4/MT discount.  Again, nearby, both origins are still likely cheaper on a landed basis, but Dec-forward should see US prices keeping Russian wheat out of Mexico and Latin America.  US wheat probably needs to trade at larger discounts to Russian wheat to get into the Middle East.  In addition, while US wheat is making headway against Black Sea Dec-forward, Argentine wheat is trading healthy discounts to US-HRW for those slots.  Argentina will not have a huge amount of wheat to compete for a lot of swing business, but any additional bushels the US has to compete with gets us one day closer to new crop in the Northern Hemisphere next year.  Things are starting to happen, however, so it does appear wheat is close to a bottom.

 

Bottom Line: Wheat is trying to put a foot in the ground now that export prices are closer to our competitors, but business has to be conducted first.  Corn and soybeans are going nowhere fast until USDA confirms bigger crops later this week or harvest begins in earnest.  With the wet weather out of the way, this should happen by the weekend.  Soybeans are facing a litany of bearish headwinds, but seems like much of it has been priced in.  If we get a huge carryout print this week but don’t make new lows, I think we will have our answer.

 

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.

9/7/2018 Morning Comments

Good Morning,

 

The August employment situation report is in focus this morning for Wall Street with the average trade guess looking for 175,000 jobs to have been added during the month.  The unemployment rate is expected to downtick to 3.8% from 3.9% last month.  Investors will be anxious to see if job growth bounces back from the 157,000 jobs added in July compared with the 6-month average of 221,000.  Economic data should now be reflecting the impact of the tariffs which have been implemented on Chinese goods, although it may take another month to fully reflect the measures.

Scattered rain around the Midwest this morning, although nothing especially concentrated.  The 7-day forecast keeps things wet in the central/eastern corn belt but the western corn belt and the entire Great Plains are expected to be dry.  Temps remain warm this weekend and especially next week with highs in the Plains states inching over 90 degrees as far north as South Dakota.  This pattern should accelerate dry down and bring on fall harvest even faster.  These patterns remain in place for the 6-10 and 8-14 day outlooks with above normal temps and below normal precip.  By the 8-14 day, the Northern Plains moves to above normal precip which would be badly needed by then, even if harvest is underway.

 

Weak overnight trade across the Ag room as most contracts get set to put in a lower week.  The heaviest losses are of course in the wheat market with Kansas City December wheat working on weekly losses of 38.0c.  We are now just 21c away from the June/July lows in the 4.90 area, a far cry from the $6.20+ area hit in early August.  Over the last month, wheat futures have gone from full on ration mode for global exporters with the only clear course of action being to buy US wheat, to US wheat being overpriced by a mile.  In that span, the erratic nature of announcements from the Russian Ag Ministry had traders believing export restrictions were imminent to now it appearing Russia may export wheat the entire year at basement-level prices.  In August, it looked as though European and Black Sea wheat values needed to come up to US prices in order to ration demand.  In the last 7-10 days, it looks much more likely US prices need to close the FOB gap with other global exporters, not the other way around.  Export demand is weak and wheat/corn spreads are keeping wheat out of feed rations almost everywhere.  Corn and soybeans don’t seem to want to challenge recent lows but they don’t appear ready to uncork a rally either.  Basis is weak, calendar spreads have given back early week gains and every bit of the Midwest harvest is yet to be reaped.  Interesting to see the corn (+9,706) and soybean (+4,559) open interest increases during a fairly boring session yesterday.  SRW O/I was up 1,767 contracts and HRW up 3,569.

Data yesterday included weekly ethanol production which bounced back by 17,000bbls/day to 1.087 million bpd.  This level of production is well above the level needed to secure the USDA’s ethanol demand forecast and should ensure a 5-10mbu bump on next week’s WASDE report.  Production was up 2.5% from a year ago, although chatter on social media would suggest the margin structure in ethanol is not positive at the moment.  Weekly production does tend to slow seasonally into fall harvest as plants take downtime ahead of new crop.  Would not surprise to see a slowdown next week or the week after.  Ethanol stocks fell swiftly by 358,000bbls to 22.703 million bbls but remain almost 8% above year ago levels.  Ethanol continues to trade a 70c per gallon discount to RBOB which should be promoting maximum discretionary blending.  Ethanol exports have slowed as of late as the July Census data showed.

StatsCan released their principle field crop stocks as of July 31st yesterday morning with most levels in-line with expectations.  All wheat stocks were 6.2MMT, down 9.9% from a year ago but in-line with estimates.  Durum wheat stocks were 1.5MMT, down 19.4% from a year ago.  Oat stocks measured 0.8MMT, up 11.5% from a year ago while barley stocks of 1.3MMT were down 40.8% from a year earlier.  The largest surprise was definitely canola stocks which came in at 2.4MMT, up 78.2% from a year earlier.  Pea stocks 650,000MT were up 116.7% from a year earlier and lentil stocks were up 331.5% at 876,000MT from a year earlier.  The pulse stock increases y/y are staggering although not completely unusual considering the complete collapse of the export market to India.  Pulse prices remain depressed across the Northern Plains and Canadian Prairies and should lead to a sharp drop off in planted acreage next year.

The public comment period on the next round of tariffs on Chinese goods ended yesterday which means the additional $200 billion in punitive measures could go into effect soon.  China is poised to do the same on another $60 billion in US goods.  If the next round of $200 billion go into effect, it would represent almost 40% of the total value of all Chinese goods imported into the United States in 2017.  The more one reads from analysts on both sides, the more it looks increasingly likely this trade war will not end soon.  In the case of China, President Xi needs to be able to save face to the Chinese people, and bowing to the Trump Administration plans will not allow him to do that.  With the tumultuous state of the Trump Whitehouse, highly unlikely the President would be willing to back down on one of the few policies he has complete control over.  If things stay as turbulent as they have been in D.C., we could see a scenario where Trump realizes a second term is unlikely, enabling him to double down on things while his time in office still exists.  In other words, it looks likely the second half of the tariff payment to US farmers will indeed be received.

Paris wheat futures are breaking out to new lows for the move this morning, trading at the lowest level since July 24th.  The most actively traded December contract has another €2 to go to hit the 38.2% retracement of the entire rally from January to August.  A 50% retracement would take us down to the €186/MT area, or another 30c/bu.  Black Sea futures also remain weak, closing yesterday at $223.50/MT in the September contract, the lowest trade since July 24th.  Black Sea futures continue to sport impressive carries with over $20/MT present to the December contract which is 54c/bu and compares with the KWU/KWZ spread of -27.00c.  A country/market which is on the doorstep of limiting exports probably doesn’t need to pay farmers or elevators almost 9.0% return to sit on wheat for four months.

Export sales out later this morning are expected to show wheat at 300-500TMT, corn at 950-1500TMT, soybeans at 500-1350TMT, meal at 80-750TMT and oil at 0-35TMT.

 

Bottom Line: Need fresh inputs from either the USDA or harvest reports.  Taking a step back, it is highly unlikely final yields in January will deviate hugely from the August or September WASDE results.  With that in mind, waiting for a major supply led rally would be foolish.  Supply is nearly set with the focus shifting to demand more so every week.  Corn demand remains strong and should support prices.  One half of soybean demand is very strong.  The other half has been strong but is likely to slow in coming weeks without trade resolution.

 

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.

9/6/2018 Morning Comments

Good Morning,

 

More showers in the Midwest this morning with another band stretching from C-OK to MI, although not quite as heavy as yesterday morning.  7-day totals in the corn belt continue to impress, although the forecast for the next 7-days does look a good deal drier for Iowa, Minnesota, Wisconsin and Nebraska which have been the heaviest hit.  More rain for MO/IL/IN/OH, however.  In general, the above normal temperature pattern continues through the 8-14 day outlook which pushes us out to September 19th.  This will continue to speed maturation and dry down, allowing for harvest to start and finish early it would appear.  Precip turns more normal/below during the 6-15 day, however, which also will not be upsetting to most as combines begin to roll.  The southern plains are heading into winter wheat seeding with a fully recharged soil profile while farmers in the central/northern plains could use a bit more rain.

 

Quiet, mixed trade this morning across most grain contracts this morning.  Recent rains have stalled early harvest efforts in the Gulf/Mid-South, and traders/analysts are awaiting refreshed data tables from the USDA next week.  More waiting in-store it would appear.  Private yield estimates continue to roll out with Informa Economics expected to release their latest guess this morning.  Almost all production updates have been with 0.50-1.00% of the USDA in August which has me questioning if some of these firms actually have yield models or even do the surveys they claim to?  It seems as though most take the August numbers from USDA, tweak the yield and bushels a tick to make it look like they are changed, but make sure to be close enough to look realistic.  At any rate, as we have been arguing, USDA isn’t likely to come in drastically different on the September WASDE from their numbers on the August WASDE.  More important is maintaining the solid demand structure across all fronts which will be more supportive in the long-term than any yield tweaking to the downside.  Wheat markets continue to struggle as Black Sea exports rule the market, the latest GASC tender showed tepid buying interest and acres in the United States are set to rise 10-15% this fall.  Unlike corn and soybeans, funds appear entrenched in their long position in Chicago and KC, apparently willing to ride it all the way down to summer lows.  Open interest changes yesterday saw corn O/I down 14,578 contracts, soybeans up 2,118, SRW up 1,103 contracts and HRW down 857 contracts.

Yesterday saw the release of official Census Bureau exports for the month of July.  Most of the data was very supportive but the numbers only seemed to confirm the poor start to the marketing year in wheat.  Corn exports during the month were 6.766MMT, the largest for the month of July on record going back to the late 1960’s.  YTD exports of 55.958MMT are the largest since 2007/08, and the second largest since 1989/90.  Corn exports during August only need to hit 150mbu to achieve the USDA’s marketing year objective, a level which should easily be attainable based on weekly inspection data.  USDA will likely increase their export projection by 10-15mbu next week.  Soybean exports during July totaled 3.426MMT, the largest July on record and the largest month since February.  YTD exports of 54.577MMT are down just 2.4% from a year ago and should easily hit the marketing year forecast from the USDA.  Wheat exports for the month of July were 1.765MMT, the lowest since 2015, while Jun-Jul exports of 3.296MMT were the second lowest on record.  August should not offer a meaningful rebound.  Corn product exports in July were supportive with DDGs exports of 1.107MMT besting last month’s 1.034MMT and last year’s 997,101MT.  This was the largest single month exports since August 2016.  Ethanol exports totaled 104.3 million gallons, down from 151.4 million gallons last month and 118.3 million gallons last year.  Lower exports to Brazil, India and China were all felt.

GASC tendered for wheat the night before last, buying just 60,000MT of Russian wheat for the October 21-30 shipment slot.  The only cargo bought came in at $235/MT C&F with the average Russian offer around $3/MT cheaper than the previous tender.  There was more than 700,000MT offered in the tender with the purchase accounting for less than 10% of that total.  Lots of wheat looking for a home and not indicative of an origin ready to restrict exports.  So far this marketing year, more than 70% of the wheat purchased by GASC has been Russian.  No US-HRW was offered as in the last tender with the FOB spread way out of contention.  US-SRW was not offered as it likely wouldn’t meet GASC specs.  Several data outlets reported combined Russian/Ukrainian wheat exports in Jul-Aug was a tick more than 12MMT which is up 40% from a year ago.  As long as the Black Sea continues to front-load their export program, US wheat will have no way of competing.  Keep pushing that phantom demand further back in the marketing year.

Weekly deliverable stocks reports confirmed recent trends.  In Chicago, total wheat stocks fell 468,000 bushels w/w to 82.316mbu which compare with 96.653mbu a year ago.  I still have not heard a good explanation for why deliverable and non-deliverable grades of SRW are so sharply below year ago levels despite similar carry-in stocks and similar production?  Non-deliverable grades are up 2.501mbu from a year ago, but deliverable grades are down 15.891mbu. KCBT stocks were little changed at 127.982mbu, up 537,000 bushels on the week and up 2.499mbu on the year.  HRS stocks continued their seasonal rise, up 577,000 bushels on the week to 18.562mbu but well below the 22.794mbu from a year ago.  Stocks in Minneapolis/Duluth should continue rising until October.

Data from the folks at www.sentimentrader.com continues to suggest the levels of bearish sentiment currently being seen in corn and especially soybeans are indicative of prices bottoming soon.  The combined sentiment levels in corn and soybeans are among the lowest since 1991, having taken over from some of the soft commodities for the most hated contracts.  Most important, when sentiment has reached these low levels in the past, it has been pretty good for returns moving forward.  Corn saw average returns of 0.7-5.6% between 2-weeks later and 2-months later.  Returns 3-months out and longer were negative.  In soybeans, average returns were positive under all time frames from 1-week later up to 1-year later.  The average returns ranged from a low of +0.7% (2-weeks later) to +6.7% (6-months later).   1-month and 2-month returns sported winners 80% of the time.  With harvest lows likely around the corner, large managed fund short positions still a feature and news out of China seemingly incapable of getting any worse, one can see how the stars are aligning for strength moving forward.

 

Bottom Line: More aimless trade likely today with lows likely to be defended but prices in no hurry to go anywhere until harvest starts or the latest WASDE is kicked out.  Wheat prices should remain under pressure until demand improves.  Current FOB spreads and wheat/corn spreads suggest that is not close to happening at current price levels.  Weekly ethanol production delayed until later this morning due to the Labor Day Holiday.

 

Good Luck Today.

Tregg Cronin

Market Analyst

Tregg.Cronin@halocommodities.com

www.halocommodities.com

@5thWave_tcronin

 

 

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

9/5/2018 Morning Comments

Good Morning,

 

Emerging market currencies are continuing their slide this morning with the Brazilian Real hitting fresh three year lows.  At the lows overnight of 4.2167, the South American currency is just pips away from the all-time record low against the USD at 4.2872.  With so much time between now and the November elections in Brazil, it would seem to be a foregone conclusion new lows between the BRL and USD will be hit.  Mostly because of the currency weakness, corn priced in Brazilian Reais is hitting the highest level since October 2015.  The Russian Ruble and Turkish Lira are also under pressure this morning, trading back toward the lows of the last 30-days.  The USD remains above the 50/100/200-day moving averages.

More rain around the Midwest this morning with a system stretching from E-KS to the U.P. of Michigan.  Rainfall has been excessive across KS, SE-NE, N-MO, IA, N-IL and S-WI the last 7-days with many spots seeing upwards of 5.0”.  Over the last 14-days, most of the aforementioned areas are seeing 200-600% of normal precip.  Unfortunately, some of these areas are likely to see wetness concerns exacerbated by Hurricane Gordon which looks to put more rain in E-KS, all of MO, SE-IA, IL, AR, IN, OH to the tune of 1.00-4.00” over the next week.  Fortunately, 6-10 and 8-14 day outlooks keep above normal temps in place while precip drifts to below normal for much of the Midwest.

 

Mixed markets this morning as row crops have seen both sides of unchanged while wheat maintains 3-6c gains.  The story yesterday was the washout in the wheat market thanks to inaction in regards to limiting Russian wheat exports.  The Russian Ag Minister met with grain exporters and simply said they will continue to monitor the situation but see no reason to limit exports at this time.  With the fund length in KC and Chicago still a bit too long despite the 50c selloff since mid-August, it seemed like that was all the catalyst our markets needed.  More than anything, FOB spreads between US and competitor origins remain wide enough to limit additional export business.  Weekly export sales last week and inspections data released yesterday confirm this.  Adding to nervousness in our space was another outbreak of African Swine Fever in China, bringing the total number of outbreaks to eight.  As many as 40,000 pigs have been culled in the world’s largest hog herd with more expected.  The main concern remains that the disease could hop borders and get into the Korean Peninsula or other SE-Asian countries. With the current trade spat, the disease moving into the other countries would be of larger concern than continued spread in China.  Wholesale hog prices are up around 5% this summer, something which needs to be monitored closely.  Open interest changes yesterday included corn down 2,238 contracts, soybeans down 660, SRW down 1,942 contracts and HRW down 4,150.

Data yesterday included the weekly crop progress report which offers precious little at this time of the year other than harvest progress.  The national condition score fell 1pt to 67% G/e vs. 61% G/E a year ago.  Changes were mixed across the corn belt.  22% of the crop was rated as mature vs. 10% last week and 11% average.  Iowa has 15% of its crop rated as mature vs. 5% average.  National corn harvest was not estimated this week but several Delta states are making good progress.  LA is 94% harvested vs. 84% average, MS 57% harvested vs. 55% average, AL 49% harvested vs. 29% average and GA at 76% harvested vs. 76% average.  Soybean conditions were unchanged at 66% G/E vs. 61% G/E average.  Soybeans dropping leaves were estimated at 16% nationally vs. 9% average.  IL has 16% of its soybeans dropping leaves vs. 3% average.  ND and SD have 37% and 25% of their soybeans dropping leaves, respectively, with harvest likely to begin in both states by the 15th-20th.  Spring wheat harvest is hitting the home stretch with 87% of the crop cut vs. 75% average.  Cash market influence has been minimal on the second half of harvest as farmers try to take as many bushels home as possible.

Weekly export inspections were mixed last week with solid corn and beans but another week of poor wheat inspections.  Total wheat inspections were 14.4mbu vs. the 20.6mbu needed weekly to hit the USDA forecast.  Total inspections of 192.4mbu are down 32.4% from a year ago while the USDA is forecasting a 13.7% increase y/y.  We have not gone back through the data yet to confirm but some analysts are claiming these are the lowest first quarter inspections on record, placing serious doubts about the ability to achieve the lofty export totals.  Corn inspections were strong at 52.5mbu vs. the 39.2mbu needed weekly.  Total inspections of 2.272bbu are up 1.4% from a year ago and when official Census Bureau exports are added in should easily push marketing year exports over the USDA’s forecast.  Soybean inspections totaled 28.3mbu vs. the 17.4mbu needed.  Total inspections of 2.067bbu are down 2.7% from a year ago, but like corn, when official exports are added in should be enough to push over the USDA forecast of 2.110bbu.

Also released yesterday was the July oilseeds and grain crushing report.  The July industry-wide soybean crush was estimated at 178.9mbu vs. the average trade guess of 178.2mbu, easily setting a new record for the month.  As impressive was the fact this month’s crush was almost 15% higher than a year ago, and a new record for the month of July by over 20mbu.  It would appear USDA will need to revise their 17/18 marketing year crush forecast to the upside in a meaningful way on next week’s report.  USDA also reported July corn grind for ethanol at 481.3mbu vs. 462.7mbu in June and up a solid 5.8% from July 2017.  With weekly ethanol production running solidly above year ago levels, it would appear USDA also needs to revise its ethanol demand for corn estimate on next week’s WASDE by 10-15mbu.  It is very impressive the strength being seen in the domestic market of both corn and soybeans, which should provide solid support on set backs as end users are able to lock in solid profitability.

The focus most of this marketing year has been two themes: the trade war impact on the US soybean balance sheet and the corn carryout falling to the lowest level in four years.  Yet, we also remain impressed with the tightness in minor feed grain balance sheets as well.  We updated our global oat and barley balance sheets this week for the first time in a month and things remain as tight as they have been in decades.  The global oat balance sheet is expected to see production flat at 23.5MMT this year as do ending stocks at 2.762MMT.  The 2.762MMT carryout is the tightest since 2012/13 and the second tightest on record.  The stocks/use ratio of 10.63% is similar to last year and the tightest since 1995/96.  The global barley balance sheet is equally as tight.  Projected carryout for the 18/19 marketing year is 17.819MMT which is the tightest since 1983/84.  As would be expected, the stocks/use ratio of 10.24% is also the tightest since 1983/84.  The theme with both of these markets is not new, but will keep the corn market interesting as 18/19 progresses.

Deliveries overnight included 830 soybean oil, 237 corn, 99 HRW, 9 oats, 463 soybeans and 223 SRW.  Unfortunately, strong commercial participation remains lacking.

 

 

Bottom Line: The wheat losses yesterday were a wake-up call to bulls as funds remain too long a market which features anemic demand.  The higher y/y prices in wheat are 100% predicated on higher US exports.  If we don’t begin to see improved export demand, US wheat carryout will inch its way back toward 1.0bbu.  A carryout of that level is not congruent with current board prices.  Row crops are in a holding pattern until the September WASDE, but more importantly, fresh harvest results from the Midwest begin to roll in.

 

Good Luck Today.

Tregg Cronin

Market Analyst

Tregg.Cronin@halocommodities.com

www.halocommodities.com

@5thWave_tcronin

 

 

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

8/30/2018 Morning Comments

Good Morning,

 

The USD Index is slightly firmer this morning but has closed lower in nine of the last ten sessions.  The major currency index is now trading below its 50-day moving average with the 100-day moving average just below at 93.8669 vs. spot price at 94.5800.  While the USD has been weaker against the major currencies, emerging market currencies continue to trade weak against the USD.  The Russian Ruble has closed lower the last three sessions in a row, and is weaker again this morning.  The Brazilian Real is weaker this morning and only ticks away from its multi-year low set yesterday at 4.16.  Most impressive, the Argentine peso plunged by almost 8% yesterday, setting a new all-time record low against the USD at 33.9680.  Compare this with 17.39:1 against the USD on this same date a year ago.  The inflation furnace will be burning hot in Argentina which could create a run on the currency.

Rains in E-KS, otherwise the Midwest is fairly quiet this morning.  Rains in the last 24-hours were impressive in N-MO/W-IL/E-IA/S-WI yesterday with all four areas seeing totals up to 5.00”.  A general 1.5-3.00” fell, however, and more is on tap the next several days.  This morning’s GFS model puts rain in Iowa nearly everyday for the next week.  The forecasted precip map shown below has 2.50-5.00” for the entire state, something which would probably not be welcome.  This follows decent rains earlier this week and would produce saturated field conditions just ahead of soybean harvest.  Rain gauge totals this time next week could be impressive.  The WCB and Northern Plains are mostly dry the next week, accelerating maturation but drying out soils ahead of winter wheat seeding.  The heart of the HRW belt in KS/OK/N-TX has been well-watered the last 30-days.

 

Firmer markets this morning led once again by wheat as it sees follow through buying from yesterday’s sharp rally.  Almost every wheat contract settled 15-20c higher yesterday on the rumors and anxiety surrounding the Russian Ag Ministers comments to exporters.  Just like the last several times export restrictions have been floated, nothing concrete was actually discussed, simply an understanding that tariffs or duties could be implemented if exporters do not share their data with the government and if the pace of exports sharply outpaces recent loadings.  The number thrown out yesterday was 25MMT of wheat and 30MMT of all-grain vs. USDA currently forecasting 35MMT.  Almost no serious analyst is still carrying a 35MMT wheat export number for Russia, but rather something around 30-32MMT.  If wheat exports are limited at 25MMT, then demand will need to go elsewhere, although this has been the narrative for 60-days.  More than anything, this felt like a market which had dropped 80-90c over the last month and was using any reason it could to rally.  The speculative community remains long, although the rally in calendar spreads was encouraging.  Tickets go to the exchange after the close today with FND tomorrow and expectations for moderate deliveries against almost everything.  Open interest changes yesterday included corn down 1,260 contracts, soybeans up 3,420 contracts, SRW down 7,997 contracts and HRW off 3,462.

First, the data of yesterday which included weekly ethanol production.  Weekly ethanol production down-ticked slightly to 1.070 million bpd from 1.073 million bpd last week, although both are well above the level needed to hit the USDA’s marketing year forecast.  In fact, with just a week left in the 17/18 marketing year, it looks very likely the USDA will need to adjust their ethanol demand for corn figure up 10-15mbu on the September WASDE.  Ethanol stocks fell to 23.061 million bbls from 23.259 million bbls last week, but remain solidly above year ago levels.  We are anxious to get July export data from the US Census Bureau next week as the heightened stocks levels of the last 6-8 weeks could be projected a slowdown in export demand.  RBOB/Ethanol spreads continue to promote discretionary ethanol blending with the spot spread at 74.4c/gln.

The spot floor in Kansas City and Minneapolis rolled to the December yesterday, and in the case of KC, got walloped in the process.  Spot bids for 12.0% went from +135/150U to +96/111U.  The KWU/KWZ settled at -29.50c, but bids dropped 39c, implying basis down a dime.  We are well into the insurance pricing period for new crop winter wheat.  So far, KWN9 is averaging $5.90 vs. $4.87 a year ago and WN9 is averaging $5.81 vs. $5.02 a year ago.  A general 10-15% increase in acres is being expected, although the largest y/y increase in HRW acres came in 2007/08 when acres increased 12.41%.  However, it is easier to get a larger percentage increase in acres when the increase is coming from the lowest acres in a century.  A 15-20% increase might not be out of the question with KW maintaining a $1.90+ spread over corn throughout the curve in 2019.  As we’ve seen with almost every major commodity the last several years, however, producers who are maintaining or increasing the amount of winter wheat they are planting would do well to protect or hedge some additional production.  All to often, producers elect to raise more of a certain commodity, not realizing they are part of a larger wave doing the same thing, but failing to protect the profitability which made them switch acres in the first place.  Barring a second year of multiple Northern Hemisphere crop problems, board prices are not likely to offer the same profitability this same time next year.

FC Stone will kick off the next round of private crop estimates after the close today.  We’re not sure where they were last month but not sure it really matters at this point.  Private estimates are not going to break with the USDA is any meaningful fashion, at least not until combines roll at the end of September.  A yield of 177-178 does not really change the fundamental picture of the corn market, although a yield of 180+ would likely provide the pressure needed for December to take over September’s front-month spot around $3.40ish.  The encouraging thing for corn is demand is firing on all cylinders and this should continue well into 2019.  Corn doesn’t need to go lower to encourage demand but can’t rally away from current prices as long as soybeans remain a dog.  September is the second weakest month of the calendar year for corn, averaging a -2.204% annualized return over the last 30-years.  December corn will likely find pressure from heavy deliveries against the CU but setting lows early, possibly even before full scale harvest would not surprise.  Potential exists for a solid post-harvest rally once the necessary bushels have been sold and the grower is content to sit on bushels heading into winter.

Export sales out later this morning expects wheat at 250-500TMT, corn at 950-1500TMT, soybeans at 600-1350TMT, meal at 250-750TMT and oil at 0-20TMT.

 

Bottom Line: Our markets are coming off some heavy selling during the month of August and a little relief rally to close the month shouldn’t be too big of surprise.  Soybeans can’t rally for obvious reason, corn will struggle to rally with soybeans caught in cement and wheat shouldn’t be rallying.  Encouraging isn’t it?

 

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.