1/18/2018 Morning Comments

Good Morning,

 

UREA FOB US Gulf Swaps traded lower yesterday by $1.50-$11.00/MT depending on the calendar month, putting in a few weaker sessions for the first time in quite a while.  Since the end of November/beginning of December, UREA prices at the Gulf had been on a one-way march higher, hitting a peak around December 18th at $259.50/MT for spot.  Spot prices are now at $242.00/MT, while swaps for May are trading around $233.00/MT.  UREA swaps hit a seasonal low at $219.00/MT on November 28th, but hit their calendar year low on June 28th at $163.17/MT.  If the last two years are any guide, fertilizer swaps tend to hit highs between November and January before trending weaker all the way through spring and hitting lows around June/July.  In terms of corn/fertilizer ratio, that relationship is trading at 57.3% for front-month, which is barely off the lows of 52.0% hit in late October.  At the peak in July, the ratio hit 97.7% which was the highest ratio since at least 2011.  As a risk-management strategy, producers should be looking at locking in inputs with corn/wheat sales during these high ratio times.  The ratio for December ’18 corn to May UREA swaps is currently at 65.0%.

 

Very quiet prices once again overnight as corn sat in a 0.75c range, soybeans in a 1.50c range and Chicago wheat actually a bit firmer, up 2.75c.  Despite the lack of volatility, money continues to flow into the Ag space with corn open interest up another 9,876 contracts, soybean O/I up 10,996 contracts, Chicago wheat down 649 contracts, and KC wheat up 2,126 contracts.  Encouragingly, corn turned in a decent session yesterday, trading up 4.75c and closing on the highs.  The increase in open interest, despite a massive net short position by the managed funds, should be signaling commercial buying.  This is especially true when looking at corn spreads which saw the CH/CK up 0.50c at the close, and is trading up another 0.25c overnight to tie the strongest levels since September 12th.  After marking fresh contract lows Monday, the CN/CZ has traded 1.25c off the lows.  The spread activity is in-keeping with stronger basis off the PNW and at the Gulf with corn exports picking up since the turn of the calendar year.  Conversely, wheat calendar spreads have been mainly weaker since the start of the year, and would certainly agree with the less bullish supply situation outlined on the January 12th reports.

Data released yesterday included weekly deliverable stocks which showed a continued draw in Chicago wheat stocks, down 793,000 bushels on the week and 3.450mbu on the year to 85.136mbu.  Northern spring stocks fell 337,000 bushels in St. Louis, leaving a total of 1.009mbu.  Non-deliverable grades remain on-par with a year ago.  KC wheat stocks increased 74,000 bushels on the week and are up 6.79mbu on the year at 112.147mbu.  Non-deliverable grades are up 1.798mbu on the year at 4.070mbu, in-keeping with the low protein crop.  KC wheat stocks at the level they are would be the largest for this week since at least 2012/13.  Spot floor trades on the KCBT were firmer with ORD’s and 11.0% both up 5.0c, while 13.0-14.0% was up 10c on the bid and offer.  11.0% pro was indicated at +125/140H vs. +115/130H a week ago, 12.0% pro at +205/220H, unchanged, while 13.0% pro was seen at +265/280H vs. +255/270H a week ago.  MGEX stocks fell 265,000 bushels on the week to 21.847mbu and would compare with 21.860mbu a year ago.  There were 70 cars on the spot floor yesterday including two trains.  14.0% pro was up 5c on the offer at +120/125H, unchanged on the week while 15.0% pro was up 5c on the bid and down 10c on the offer at +190/200H vs. +193H a week ago.

The USDA Foreign Ag Service released a bulletin on January 2nd regarding crop damage to Brazil’s wheat harvest, which we admittedly missed at the time.  The USDA incorporated the FAS estimates from earlier this month on the January 12th reports.  It was interesting to us to note that heavy rains damaged their wheat crop to the point only 4.25MMT is expected to be harvested in total, which would be the lowest since 2007/08.  The average yield is seen at 2.24MT/ha which would be the second lowest since 2009/10.  This will result in the largest imports (8.00MMT) since 2006/07 in order to maintain a stocks/use ratio of 11.82% vs. the 5-yr average of 11.31% and a 10-yr average of 14.04%.  Even more intriguing is the percentage their imports will make up of total supplies.  At 8.0MMT, imports will account for 55.46% of total wheat supplies, easily the largest since 2006/07 and vs. 48.75% last year.  To put this in perspective, some of the world’s largest wheat importers have import ratios below that of Brazil’s, illustrating the importance imports will have in 2018/19.  For instance, Algeria is sporting a 53.06% import ratio (7.7MMT total), Egypt sits at 49.69% (12.0MMT total), Iraq at 41.63% (3.5MMT) and Morocco at 30.78% (4.8MMT).  For a country which has bought plenty of US-HRW the past several years, this could be a supportive input in 2018/19 if any issues arise with Argentina’s ability to export.  To be clear, Argentina did have a favorable harvest of 17.5MMT, up 3% on the year.

Speaking of Argentina, the USDA Ag Attache to Argentina released a memo yesterday about the country’s oilseed production and tax implications in 2018.  The government of Argentina still plans to reduce oilseed export taxes by 0.5% every month beginning with January 2018 through December 2019, lowering the tax by 12% in total.  As such, the soybean export tax will be 18% for soybeans and 15% for soybean oil and meal by the end of this period vs. the current 30% and 28% taxes, respectively.  This follows the trend of drastic export tax cuts for corn and wheat in 2017 which has been a boon for grain exporters.  Parts of Argentina have been dry, which could impact total soybean production, but most areas have been living off timely rains.  The post is maintaining total soybean production of 57.0MMT, in-line with the USDA’s latest estimate, although private guesses are probably 2-3MMT below that level.  Exports are expected to nudge higher this year to 8.5MMT vs. 7.335MMT last year, but pale in comparison to the 46MMT of crush expected and hefty soy meal exports.  By contrast, Brazil is expected to export 67.0MMT of soybeans this year, a new record, while crush is seen at 42MMT.  Argentina exports 31.2MMT worth of soymeal vs. 3.055MMT of domestic consumption vs. Brazil at 15.25MMT of meal exports at 17.48MMT of domestic consumption.

 

Bottom Line: Bulls are hoping for some follow through strength in corn today to confirm the surge yesterday, although it didn’t seem as though a ton of cash grain was purchased.  $3.00 cash paid to the farmer in the far western corn belt will buy corn, while $4.40-4.50 probably buys HRW.  Otherwise, the hold and hope mentality probably rolls forward another month.  While corn spreads have rallied along with flat price, soybean spreads don’t seem impressed with the move so far.  Ethanol production and stocks data delayed until this morning and export sales delayed until tomorrow.

 

Good Luck Today.

Tregg Cronin

Market Analyst

Tregg.Cronin@halocommodities.com

www.halocommodities.com

@5thWave_tcronin

 

 

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

1/17/2018 Morning Comments

Good Morning,

 

Wide open Midwest radar this morning, and should remain dry and warm until Saturday/Sunday when the next round of precip moves in.  On Saturday, snow is expected to impact E-NE/SE-SD/S-MN/IA/WI/MO/IL/AR with varying water equivalent moisture of 0.50-1.20’”.  Until then, however, the Midwest will see a much needed warm-up over most of the WCB with temperatures in the 40’s and 50’s until Saturday when temps dip back into the 30’s for highs.  The 6-10 and 8-14 show a cooling trend for the west to below normal, while the east sees a warm up to above normal.  The eastern corn belt will remain in above normal precip the next 15-days with several rounds of precip expected.  The southern plains remain normal to below normal on precip the next half a month.  No major changes to South America with good rains the next 2-3 days in Argentina before drier.  Brazil continues to see healthy rains.

 

Quiet markets in narrow ranges overnight as Ag commodities come to the realization the next market moving inputs are probably a month away in the form of the USDA Outlook Forum.  Volatility has absolutely collapsed in the wake of the January 12th reports, as would be expected, but it also doesn’t bode well for doing much of anything in the near future price wise.  March corn ATM option vol closed the day before the report at 12.26% and settled at 9.91% last night.  That tells us there is a 68% chance we remain in a $3.37-3.59 range the next 37 days until March opex.  March Chicago wheat ATM vol closed Jan 11 at 18.72% and last night at 15.64%, setting up a $3.95-4.37 range for the next month and change.  March soybean ATM vol closed at 11.74% the day before the report and 10.62% last night, providing a 68% chance we settled inside $9.35-10.00 37 days from now.  Option volatility can greatly aid us in forming realistic price expectations for the near future, which should help in setting marketing targets.  Corn open interest has continued to surge into and after the report with total O/I up 104,257 contracts since December 27th, and up 39,907 contracts since the report.

Plenty of data released yesterday which included weekly export inspections, most of which were on the low end of expectations.  Wheat inspections totaled 13.5mbu vs. the 20.2mbu needed weekly to hit the USDA projection.  Total inspections of 556.1mbu are down 6.5% from a year ago, which is about what the USDA is calling for on a y/y basis and has been pretty steady the last 3-weeks.  Corn inspections totaled 23.0mbu, below the 41.7mbu needed weekly to hit the USDA’s projection.  Corn inspections haven’t hit the needed level of exports since the beginning of the marketing year, putting an incredibly large share of the burden on the second half of the marketing year.  Still doable, but each week which passes without decent inspections raises the level needed even further into record territory.  Soybean inspections aren’t much different with inspections at 45.2mbu vs. the 30.0mbu needed, but was below last year’s level and below the seasonal pace needed to hit the USDA.  Total inspections are 1.133bbu, down 14% from a year ago vs. the USDA’s recently revised export projection of a 1% y/y drop.  Here again, it will require record sales and record shipments to hit the USDA’s latest export projection, something we have the capacity for theoretically, but not something we want to rely on when we move into the seasonally dead summer months.

Also released yesterday was the December NOPA-member crush statistics which were generally positive with crush coming in at 166.382mbu vs. the average trade estimate of 165.4mbu.  This was above December’s 163.5mbu and well above December 2016’s 160.2mbu.  This total also reflected a new December monthly record.  Using a proxy for US-wide crush, Sep-Dec crush should have come in somewhere around 670-672mbu, which would be up 2.7% from 2016’s pace.  Things appear to be on pace to hit the USDA’s record crush projection of 1.950bbu.  Soybean oil stocks totaled 1.538 billion pounds which was sharply above the average trade estimate of 1.381 billion pounds, above last month’s 1.326 billion pounds and above last year’s 1.434 billion pounds.  Soybean oil production totaled 1.921 billion pounds vs. last month’s 1.874 billion pounds and last year’s 1.861 billion pounds.  It appears as though soybean oil production during the month of December recorded a new all-time record for all months going back to 2004.  Oil yield was 11.55lbs/bu vs. 11.46lbs/bu last month and 11.62lbs/bu last year.

The big focus of the January 12th reports is always corn and soybean, and to a lesser extent winter wheat with the first acreage projections released.  The minor crops often get overlooked, and so we wanted to take a closer look at the US sunflower balance sheet given their prominence in the Northern Plains.  Most of the fall, anecdotal yield reports were proving much stronger than the USDA was expecting, and the USDA finally came clean last Friday.  The US national sunflower yield measured 1,613lbs/ac, down slightly from last year’s record 1,731lbs/ac, and notching the third highest yield on record.  This is stark contrast to the drought conditions experienced in much of the western Dakotas.  Total SFS production totaled 2.168 billion pounds vs 2.651 billion last year.  With the USDA’s demand assumptions, US SFS ending stocks are expected at 315.1 million pounds, the smallest since 2014/15, but close to the 5-yr average of 355.7 million pounds and the 10-yr average of 337.4 million.  Stocks/use ratio of 11.98% is below the 5 and 10-yr averages.

The global SFS balance sheet is a bit more constructive than the US picture, however.  Production totaled 45.8MMT, down from 47.6MMT last year, but would be the second largest on record.  Demand appears up to the challenge, however, with ending stocks projected at 2.088MMT vs. 2.524MMT last year, and would be the smallest ending stocks since 2001/02.  The stocks/use ratio for this year of 4.35% would compare with 5.10% last year, and would be the smallest since 1997/98.  Exports only account for about 7.0% of total US demand, putting the US on somewhat of an island in terms of the more supportive global SFS market.

 

Bottom Line: Option markets are telling us to strap in for a rather boring string of sessions upcoming.  South American weather can usually provide some volatility, but that continues to be mostly favorable with time running out to do material damage to Brazil.  Argentina is still in-play, but conditions there seem benign at the moment.  Otherwise, we are left to argue over the 18/19 balance sheet and acres, something which feels years away at the moment.  Drought monitor maps and ice formation on the Great Lakes should keep us pacified until spring.

 

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.

1/16/2018 Morning Comments

Good Morning,

 

The USD is consolidating just above 3-yr lows this morning, having set fresh 37-month lows on Friday.  Many commodity currencies are benefitting from the Dollar’s plummet with the Aussie Dollar at the strongest level since September 21st, the Russian Ruble the strongest since June, and the Brazilian Real the strongest since mid-October.  Several commodity markets have also benefited from the dollar’s demise as crude oil hit the highest level since December 2014 before reversing this morning.  Several metal markets are also at or above multi-year highs, but the strength hasn’t translated to grain market strength as of yet.  The Dollar/Grain correlations are still fairly negatively correlated, which should translate to strength if the USD keeps trading weaker.  He Dollar/Wheat correlation at current is a -0.76, corn a -0.61 and soybeans a -0.74.

Good rains over the weekend in Argentina with 0.50-1.50” across 95% of the growing region which was heavier than forecasts were calling for heading into the weekend.  In addition, 0.50-1.50” also fell on about 90% of the Brazilian growing regions as weather there continues to be nearly ideal.  Limited rains are expected to fall across most of Argentina through most of the week, but an upturn expected by the 6-10 day.  Brazil is seen close to average for temps and rains the next 10-days.

 

Mixed markets this morning and in-keeping with closes Friday except for corn which is a bit firmer.  Wheat opened higher last night, but drifted lower during the early morning hours to put in fresh lows for the move as the bearish Dec 1 stocks and winter wheat acres, relative to expectations, continue to weigh on the market.  Strength is being driven by the soybean market which saw the 2017/18 US soybean crop come in below expectations, but also saw a cut to demand which could prompt additional cuts exports if sales don’t begin picking up soon.  The report was especially ho-hum for corn, with the crop proving to be an even larger record from a yield standpoint than we already had.  An additional 30-40mbu of corn here or there doesn’t change the overall narrative of the corn market which is one of over-supply until weather threatens production in either the US or South America, allowing demand to clear excess bushels.  The record corn yield will also prompt analysts to start with an even larger yield for 18/19 than they would have otherwise done, which could weigh on prices until yield adversity surfaces.  The next major event for our space will be the February insurance pricing period.

I’m not going to rehash the entire report as we’ve had ample time to digest the numbers over the long-weekend.  There are several poignant observations I would like to touch on a bit further.  To start, I believe the soybean export situation bears further examination.  On Friday, the USDA cut 17/18 soybean exports to 2.160bbu from 2.225bbu in December, as commitments continue to run behind year ago levels.  If exports hit the USDA mark of 2.160bbu they would come in below 16/17’s 2.174bbu, and would be the first y/y decline in export sales since 10/11-11/12.  Despite the cut, the sales estimate could still prove to be too large.  To hit that mark, we would need to sell around 19.3mbu each week through the end of August.  The chart below puts this average level of sales in context relative to the last several years.  19.3mbu would be a new record average from Jan 1 through August by about 3.0mbu.  The 19.3mbu would also compare to the 5-yr average of 10.0mbu and the 10-yr average of 11.0mbu, both of which illustrate how front-loaded our export program has been the last several years.  If sales hit the previous record of 16.5mbu each week through the rest of the year, total exports would come in around 2.065bbu, which is another 100mbu below the current USDA estimate.  One really gets a sense of how much risk there is in the current soybean export estimate if sales don’t have a very strong second half of the year.

A few other noteworthy points were found in the Dec 1 stocks data, especially in the wheat section.  As of Dec 1, stocks in all positions totaled 3.747bbu which was down from last year’s 4.158bbu but still above the 5-yr average of 3.387bbu.  Interestingly, the on-farm total of 393.1mbu was the smallest since 2007, and the percentage of stocks held on-farm at 20.99% is the smallest since 1963.  A lot of this is due to the Northern Plains drought where many farmers hold the majority of their crop on-farm as opposed to their HRW or SRW brethren who typically push stocks to the elevator system at harvest.  In fact, the amount of total wheat stocks in MN/SD/ND/MT as of Dec 1 totaled 462.6mbu, the smallest since 2012/13.  In KS/OK/TX, total wheat stocks measure 650.2mbu, the second largest total since 1987/88.  In IL/IN/OH/MI, total wheat stocks of 202.8mbu is the largest on record going back to at least 1986/87.  This lower percentage of wheat held on farm could/should have basis/spread ramifications for the second half of the marketing year as those are the ways you coax supplies out of commercial hands.  A higher percentage held in commercial hands should also mean capped board rallies as well, however.

In corn and soybeans, plentiful stocks everywhere.  Corn stocks as of Dec 1 totaled 12.516bbu which is the largest on record and above last year’s 12.383bbu.  On-farm stocks totaled 7.739bbu, which is up from last year’s 7.611bbu, and accounts for 61.83% of the total.  This is the largest percentage since 2014, and represents a record amount of corn to move off-farm and into commercial hands between now and August.  Dec 1 soybean stocks totaled 3.157bbu, a new record, and above last year’s 2.899bbu.  The percentage on-farm was 47.04% which is the largest since 2015 and slightly above the 5-yr average of 46.61%.  Lastly, durum wheat stocks totaled 56.2mbu, which is well below last year’s 72.9mbu, but just barely below the 5-yr average of 58.4mbu.  On-farm stocks accounted for 54.5% of that total, which is just below the 5-yr average of 60.3%, but nowhere near the levels one would expect given the Northern Plains drought hit durum production areas the worst.

Winter wheat acres are still forecast to fall around 88,000 acres in total from 32.696 million to 32.608 million, but this is a far cry from the 1.3-1.5 million analysts were expecting.  The trade set themselves up for failure in this instance given the impressive track record of coming in above the USDA in 29 out of the last 30-years on this specific data point.  HRW acres are forecast down 357,000 acres, while SRW is seen up 247,000 and White acres are up 22,000.  This will still help the HRW balance sheet to tighten considerably in 18/19, but not as dramatically as what it looked like just a couple weeks ago.  The onus is still on yield, with especially dry conditions the last 60-90 days in the southern plains, and various rounds of frost/freeze on little snow cover.

 

Bottom Line: Follow through from Friday, although the ideal weather in South America and the concerns over US soybean exports could limit how much further the soy board can run.  Wheat could shed more premium in the days ahead, but downside should be somewhat limited provided US wheat moves back into the export grids as we approach $4.10 basis WH.  Corn will continue to carry around its $3.50 front-month magnet for the foreseeable future.

 

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.

1/12/2018 Morning Comments

Good Morning,

 

Currency moves continue to have our attention this morning with the USD trading down to the lowest level since September 8th, and is just 297 pips away from the lowest levels since December 2014.  The Euro and British Pound are seeing the strongest response to the USD weakness, up 0.728% and 0.693%, respectively.  One other currency benefitting from the USD weakness is the Russian Ruble, which is off -0.114% this morning, but hit the strongest level yesterday since June 7th, 2016.  A great deal of resistance for the Ruble lies at the 56/57-handle area, so moving through that level might be difficult.  The strength in energy markets is underpinning the Ruble, but the strength is also making wheat worth less to Russian farmers, and more expensive to importers.  Russian FOB offers last night were around $194/MT for spot, up $1-2 on the week.

A good deal of moisture on the Midwest radar this morning in the eastern corn belt where a mix of rain/snow/sleet is impacting the area.  Nothing doing moisture wise for anything west of the MS-River.  Bitter cold continues to grip the WCB and Plains, with air temperatures peaking at 0-1* today, and wind chills values 20-30* below zero. A  couple chances of snow for SD and NE this weekend, and then temperatures gradually warm early next week.  Nothing for relief to the southern plains the next 7-days.  Temperatures in the 6-10 and 8-14 look to warm appreciably for the Plains and WCB, while normal/below temps are confined to the Mid-South and SE.  Precip remains above normal, especially the Great Lakes which see sharply above normal precip odds in the 8-14 day.  South America looks to be in good shape with solid rains for Argentina the next 2-3 days with drier weather after.  Brazil remains ideal.

 

Report day, finally.  Tepid markets overnight with small, nominal gains as we await refreshed balance sheets from the USDA and the “final” word on 2017/18 production.  As important, if not more, will be the December 1 stocks estimates which will give us demand clues about feed use during Q1 for corn, and Q2 for wheat.  These are crucial for gauging full year demand as they are only one of four updates a year on that line item.  The average trade estimates have been in the market for several days now, but it would seem the areas for largest surprises would be soybean production, Dec 1 corn stocks (feed/residual), Dec 1 wheat stocks (feed) and 2018/19 winter wheat acres.  Even with notable production changes for either corn or soybeans, it is going to be difficult to change the overall narrative of plentiful supplies of both, and rising production ideas in South America.  As encouraging as anything, the January reports allow us to finally shake off the dust from 2017/18, and begin to officially start looking at 2018/19.  With rising commodity markets in other spaces, a weak USD and equity/commodity ratios at record levels, maybe 2018 is when we finally see the worm turn.

First with data from yesterday, weekly export sales were rather poor for the second week in a row thanks to the holiday shortened week.  Wheat sales totaled just 2.6mbu vs. the 12.8mbu needed weekly and vs. 14.4mbu on this date a year ago.  Total export sales of 718.0mbu are down 8% from a year ago, which is just a tick behind the pace needed to hit the current USDA mark.  Exports shouldn’t change on today’s WADE.  Corn sales totaled 17.2mbu, below the 25.0mbu needed weekly and below the 23.8mbu from this date a year ago.  Total sales are now 1.067bbu, down 25% from a year ago.  Soybean sales were 22.3mbu vs. the 21.4.mbu needed weekly, and were above the 12.8mbu on this date a year ago.  Total sales measure 1.523bbu which is down 14% from a year ago and should certainly be cut on today’s WASDE report.

Headline data yesterday included CONAB releasing their latest corn and soybean production estimates for Brazil.  They see soy output at 110.4MMT vs. 109.2MMT last month and 114.1MMT a year ago.  The USA is currently at 108.0MMT and should increase that estimate later this morning.  Brazilian soybean planted area is seen at 34.9 million ha, up 3.2% from a year ago.  Just like their US counterparts, Brazilian firms like to race each other up and down on estimates.  Also out yesterday was AgRural with an estimate on soy of 114.0MMT vs. 112.9MMT last month.  Brazilian corn production according to CONAB is seen at 92.3MMT vs. 92.2MMT last month and 97.8MMT a year ago.  Of that total, 25.2MMT is seen as first crop and 67.2MMT as second crop.  The USDA currently sees Brazilian corn production at 95.0MMT vs. 98.5MMT last year.  The Rosario Grain Exchange said Argentine will harvest 52MMT of soybeans vs. USDA at 57MMT and 54.5MMT previously.  Corn production is seen at 39.9MMT vs. 41.5MMT last month and USDA at 42MMT.  Most other analysts have not been as quick to axe Argentine production estimates given the upturn in shower activity as of late.

Not going to go through every pre-report estimate, but instead focus on the few which could grab attention.  Corn quarterly stocks as of Dec 1 are seen at 12.431bbu which would be above last year’s 12.386bbu.  Production and feed demand will drive this number, with the national average yield and production seen basically unchanged from the November report at 175.4bpa and 14.579bbu.  Feed demand should have been above year ago values given the larger pig, poultry and cattle numbers in the US.  Wheat stocks as of Dec 1 are seen at 1.849bbu vs. 2.077bbu a year ago, with particular interest in the HRS stocks given the mixed emotions about the size of the crop and the amount of old crop which moved prior to harvest.  A swift revision in either direction could really move the spring wheat market.  Soybean stocks are seen at 3.181bbu vs. 2.898bbu a year ago, and have upside risk given the poor Q1 export program.  Production is seen mostly unchanged from November, although some analysts are expecting the production number to move lower after doing so in November.  The only commodity expecting to see a noticeable revision to ending stocks would be soybeans with analysts expecting that to jump up to 472mbu vs. 445mbu in December thanks to the struggling export program as of late.

Of particular interest to us is the winter wheat seedings report which is expected to come in at 31.307 million acres vs. 32.696 million in 2017.  This would include 22.327 million HRW acres vs. 23.426 million last year, 5.555 million SRW acres vs. 5.733 million last year and 3.435 million White Winter acres vs. 3.537 million last year.  If HRW acres come in at the average trade estimate, it would reflect a 6.25% drop from the year before, and be the lowest since 1909.  Plugging those acres into our balance sheet with a 40bpa yield (39.4bpa 5-yr average), with a harvested percentage of  78.8% (77.9% 5-yr), it gives us production of 703mbu for total supplies of 1.179bbu.  We have demand unchanged from 17/18 at 875mbu, which gives us a carryout of 304mbu and a stocks/use of 34.71% vs. 470mbu and 53.71% in 17/18, respectively.  Numbers close to the aforementioned should be supportive, and anything under 300mbu should be especially supportive to cash and spreads.

 

Bottom Line: Not worth analyzing much else until we get the numbers out later this morning.  The data today needs to be kept in context as unless truly earth-shattering numbers are released, it isn’t likely to change the overall narrative.  Corn and soybean calendar spreads are still hitting contract lows, are export sales programs are behind schedule, and US wheat remains overpriced into many major importers.  South American crops are stable to moving higher, but USD weakness and other commodity markets rallying are supportive.  More at 11:00.

 

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.

1/9/2018 Morning Comments

Good Morning,

 

There has been a lot of commodity talk so far in 2018, and two stories from the Financial Times this morning caught my eye as interesting.  The first said the Australian government’s statistics office was forecasting the price of iron ore to fall 20% in 2018, which reflected lower expectations than some private estimates.  They see the price falling 20% in real terms to $51.50/MT at the end of 2018 vs. $64.30/MT at the end of 2017.  They cited growing supply from low-cost producers such as Australia and Brazil.  At the end of the article, they noted Chinese steel production was “sensitive to a range of economic, monetary, and environmental policies…”  The very next article from FT said Chinese steel production growth is expected to slow sharply in 2017 as state-mandated factory closures and policies to protect the environment kick in.  The world’s largest producer is expected to see growth of just 0.6% in 2018 vs. 5.7% growth through the first 11 months of 2017.  Global annual production is still expected to rise 2.1% vs. 5.4% Jan-Nov 2017.  Lots of interesting nuggets in the global commodity story this year, at least much more so it would appear than 2017.

No major changes to the South American weather outlook with dry weather expected in Argentina the rest of this week.  A front is expected to bring rains to Buenos Aires by the end of the week, and the rest of the growing region by the weekend, with totals in the 0.50-1.00” range.  These are fairly critical rains, which if missed would expand the dry area concerns.    Things will then be mostly quiet in Argy during the 6-10 day.  Temps are in the high 90’s this week ahead of the rains.  Still no concern areas for Brazil to speak of with fairly healthy tropical rains expected during the 1-5 and 6-10 day.  No major heat threats in Brazil as well.  Would be fair to characterize Brazilian growing weather to-date as near perfect.

 

Mixed to weaker markets this morning following a rather dismal session yesterday.  Worth noting was the surge in open interest on the weaker close, especially in corn, which saw a jump of 42,724 contracts on the session.  25,589 contracts went into the front-end March and 11,036 into the May, with the expectation being funds added to their fairly large net short.  Open interest in corn is now the largest since November 27th, which was just ahead of First Notice Day for December futures.  Soybean futures were also up by 13,992 contracts, while SRW wheat was up 2,033 contracts and HRW wheat was down 3,930 contracts.  Rather quietly, Chicago wheat is on pace for its fourth lower close in a row, mirroring the downtrend from 12/4-12/12 which saw seven lower closes in a row.  Chicago wheat should consolidate ahead of Friday’s winter wheat and Dec 1 stocks report, but it certainly feels as though the trade is positioning to be disappointed by one report or the other.  The trade has consistently overestimated winter wheat plantings on the January report, having come in above the USDA in 28 out of 33 years since 1984, and hitting the mark once back in 1996.  It feels as though analysts are determined to not have that happen again, which could set the stage for a bearish surprise on acreage if USDA doesn’t cut as much or leaves things unchanged.  Unchanged acreage would likely see the most recent rally given up, especially with US FOB prices carrying a premium to most origins in the latest slate of tenders.

Data yesterday included weekly export inspections which were a mixed bag but disappointing for wheat.  Wheat inspections totaled 8.6mbu, well below the 19.9mbu needed weekly, and the second week in a row which has missed the mark.  In fact, wheat inspections have missed the mark in 12 of the last 14 weeks.  The inspection deficit with last year is now up to -6.6%.  Corn inspections totaled 33.4mbu, below the 41.2mbu needed weekly, but the best inspections of the marketing year to-date.  Total shipments of 449.4mbu are now down 36.3% from a year ago with plenty of ground left to be made up.  Soybean inspections totaled 43.5mbu which continued the seasonal decline, but was still better than the 32.3mbu needed weekly.  Total soybean inspections of 1.086bbu are down 14.2% from a year ago.

Other data from last week which came out late Friday included November ethanol and DDGs exports.  Total November ethanol exports measured 107.1 million gallons which were the largest since July, but down from November ‘16’s 129.0 million gallons.  With just one month left in the calendar year, 2017 ethanol exports have totaled 1.193 billion gallons which is larger than any other full year total with one month remaining.  The growth in ethanol exports has been a much needed boost to ethanol growth, and is a much more likely candidate for continued growth than is higher blends in the domestic gasoline supply.  India was in for 15.4 million gallons which was the second largest monthly total since March.  Also encouraging to see Brazil bounce back with 28.1 million gallons of imports, the largest total since July as the added import taxes don’t seem to be having ill-effects just yet.  China continues to be a notable absentee after an incredibly strong 2016.  DDGs exports totaled 875,302MT which was down from last month’s 1.027MMT and last year’s 982,446MT, but solid in the grand scheme of things.  The 2017 annual total will likely come in below 2016, but should run close to 11.0MMT.  China continues to take paltry amounts, not having shown up in sizable force since the removal of some of their import taxes on US-DDGs.  With their increased demand for barley and sorghum, DDGs could see improved demand in 2018 as they attempt to whittle down their massive corn stockpiles.

Wheat news of note would include Egypt’s GASC tendering overnight for February 11-20 delivery.  Should be dominated by Russian offers, but where the prices fall relative to the last tender could be interesting.  Russian FOB offers have worked higher over the last week, with asking prices up $1-3/MT depending on the slot.  Getting Russian wheat offers closer to $200/MT FOB as opposed to the $190/MT FOB magnet they’ve been attached to for the last month will be key to global prices working higher.  Otherwise, the big news on the export sales report last week was Morocco canceling 90,000MT of US-HRW in a somewhat surprising manner.  This certainly helped precipitate the idea US wheat was overpriced and needed to work lower.  In a reversal of fortune, it looks likely Morocco will purchase 315,000MT of US-HRW for May delivery under the preferential tariff rules with delivery by May 31st.  Doesn’t mean US offers couldn’t stand to shed a few bucks, but encouraging to see nonetheless.  Elsewhere, there are growing concerns about the Australian sorghum crop after what was a promising start.  Excessive heat and dryness is trimming crop prospects, which should limit their export availability as the domestic feed program competes for bushels.  At the very least, it should strengthen Aussie feed wheat demand, which in turn could limit additional export offerings from the East Coast.  Somewhat of a zero sum game, and could support second half US-HRW demand into SEA.  Lastly, a good discussion last night on the amount of low protein Canadian wheat trying to find homes in the US, which is in turn keeping a lid on calendar spreads and low pro basis.  Canada is mopping up any and all 12.0-13.5% export demand, and the large supply of US 14.0-16.0% protein due to the drought has mills staying hand to mouth for high pro wheat.  Having said that, farmer and elevator offers have dried up as of late as evidenced by the small spot floor run of cars.  In order to get through spring planting and into new crop, there is likely to be another run on basis which should offer opportunities.

 

Bottom Line: Hurry up and wait for Friday.  Average trade estimates have begun hitting the wires, and will be adequately priced in before the end of the week.  Get the feeling we are setting ourselves up for a negative reaction Friday if winter wheat acres don’t come in below estimates, or if Dec 1 stocks come in above.  Even if USDA cuts corn or soybean production, it likely won’t be enough to turn things “bullish.”  Feed demand for both corn and wheat will be a wildcard as animal numbers are surging and margins are strong which could have seen more disappearance than analysts are giving credit for.

 

There will be no Morning Comments the next two days as we attend the National Sunflower Association Research Forum in Fargo, ND.

 

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.

1/8/2018 Morning Comments

Good Morning,

 

A particularly nasty band of weather stretching from Mississippi to Pennsylvania this morning which includes rain to the south, snow to the north and a mixture of both in between.  The rest of the Midwest is quiet this morning.  Temps will be above normal the next 3-4 days in the Midwest, which will continue melting the recent snow cover before temps dip back down to normal or below by Thursday.  Along with the cold front, moisture will move into the Plains in the form of snow with KS to MN getting 0.50-1.00” of water-equivalent moisture.  Temps will also swing from 70* Wednesday to lows in the teens for W-KS/E-CO by Saturday.  NE and SD are seeing their snow pack dissipate and this should continue until the next round of snow Wednesday.  Weekend weather models for South America show expanding rainfall coverage in the 6-15 day outlook, which should aid S-Brazil and Argentina.  The driest areas in northern and southwest Argentina will remain concern area, but account for less than 20% of corn and soybean production.  Argentina will see 90’s before the next round of rain comes, placing added importance on the forecast.

 

Lower markets out of the gate last night, and following through this morning, led by wheat which is down 0.80-0.90% in KC and Chicago.  The rally in wheat which began after New Year’s was predicated on the winter kill threat across the southern plains, which hasn’t disappeared, but is just impossible to quantify on this date in January.  All too often, these bouts of short-covering while the winter wheat crop is still dormant give way to selling pressure when the trade realizes no damage can be assessed until March.  Add in the fact US wheat found itself way overpriced into Algeria last week, along with dismal holiday export sales, and the combination was enough to hold prices in check ahead of the important January WASDE report this Friday.  March corn hasn’t been able to move away from the $3.50 magnet price which held December in check for so long.  Encouragingly, however, both corn and soybeans saw export premiums finish the week on a stronger note without being bumped higher by freight costs.  Both corn and soybeans are in desperate need for an improvement to exports in 2018 to hold the USDA in check on the export estimates.

Export sales were abysmal Friday, although partially expected due to the holiday shortened week.  The dates aside, these were still bad, especially considering some of the cancellations within the details of the report.  Wheat export sales totaled just 4.8mbu vs. the 12.3mbu needed weekly and were the lowest of the marketing year.  For reference sake, on this date a year ago, export sales totaled 6.7mbu.  In the cancellations section, Morocco axed 90,000MT of HRW, something which caught most off-guard.  Throw in the fact US HRW was around $15/MT more expensive than the next cheapest offer into Algeria last week, and nearly $30/MT more expensive than Argentine replacement, and one gets a sense of where US wheat is in the export grids.  Corn export sales were 4.0mbu vs. the 24.8mbu needed weekly and 16.9mbu on this date a year ago.  Total commitments are now 1.050bbu which is down 25% from a year ago.  Soybean sales totaled 20.4mbu vs. the 21.2mbu needed weekly and 3.2mbu a year ago.  Total commitments of 1.508bbu are down 14% from a year ago, but have shaved 2% off that deficit vs. 2-weeks ago.

The other data set we took a look at Friday was the amount of grain under loan at the USDA-FSA office, which continues to soar for both corn and soybeans.  Total corn loans outstanding as of Friday totaled 840.8mbu, which is easily the largest total since at least 2008, the earliest date for which data is available online.  Typically, the amount of grain under loan begins to peak and be redeemed sometime during January.  The loan term is a maximum of 9-months at which time the loan needs to be either paid back or the grain forfeited.  With cash prices above the loan rate, all the loans should be redeemed.  The point of tracking this data set, however, is to give us a sense of how much grain is still in the country which needs to be moved and priced.  If the amount of grain under loan doesn’t peak during January as it typically does, it could give us a clue about cash basis during the second half of the year.  The amount of soybeans under loan totaled 126.5mbu, the largest total since 2008.  Wheat under loan totaled 33.5mbu, which seems to have already hit its seasonal peak and begun declining.

As noted above, cash markets were firm for corn and soybeans going home Friday.  CIF corn premiums were unchanged Friday at +43/46H for spot, but was up 1c on the week for both bids and offers.  PNW corn shuttles went home bid +98H for January trains vs. no offers, and that would compare with +91H for bids and +97H for offers a week previous.  BNSF equipment went home at tariff bids vs. offers at $400/500 per car.  Bid/offers on BNSF cars a week earlier were tariff bid as well against $250/car offers.  So not much transportation influence on the firmer corn bids which is encouraging.  CIF soybean trades Friday were up 3-10c for Jan, down 1c for Feb and mixed March beyond.  Spot barges were called +49/60H vs. +36/42H a week earlier.  Brazilian FOB offers were also sharply better Friday, up 2-6c through April, with spot called +75/78H vs. +70/72H at the start of the week.  Planting got off to a bit of a slow start in Brazil last fall, but beans should still be available for export by the end of the month.  From a FOB standpoint, February offers out of the US look like $377.27/MT vs. $385.37/MT out of Brazil.

The only other data set out Friday included the Commitment of Traders Data which didn’t have a lot of feature.  Funds sold 10,670 contracts of corn to put their net short position at -232,089 contracts.  Commercial activity was quiet.  Funds sold 23,829 contracts of soybeans to push their net shot over 100k to -105,030 contracts.  This is the largest net short position by this group since July 4th.  Funds bought a jag of KC wheat, and bought 12,965 contracts of Chicago wheat to leave their net short at -146,325 contracts.  Funds maintained a small net long in Minneapolis of +1,822 contracts.  Funds continued to dump meal, taking their net long down to +18,685 contracts, the smallest in 6-weeks.  The combined grain and oilseed net fund position is now -490,059 contracts, the largest net short since June 6th, and not far off record territory.  Bullish sentiment (percent of fund longs to total positions) for corn, soybeans and Chicago wheat are now all right at or just below 30%, which is a rare feat.  This level of pessimism to begin a calendar year isn’t very common, and should be remembered in the grand scheme as we move toward the January WASDE.

 

 

Bottom Line: Probably in for a quiet week as we square positions ahead of Friday.  Pre-trade estimates should be out today or tomorrow, and would imagine it will be difficult to see any kind of bullish surprise out of the data.  The trade is predisposed to lower winter wheat acres, a cut to soybean exports and probably a bump in corn production.  With that in mind, producers need to consider where the most risk lies heading into the reports.  With the amount of grain we have in the United States, and the amount the producer has left to sell, any bullish surprise should be met with copious amounts of selling.

 

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.

1/5/2018 Morning Comments

Good Morning,

The Bloomberg Commodity Index closed higher for the 14th session in a row yesterday, the longest run of daily price rises on record, and now trading at the highest level since February 14th, 2017.  The index has been propelled higher by stronger energy and metal markets, although that record run could come to a close today with crude oil down over 1.0%.  Many hedge fund managers and market observers alike have noted how 2018 could be kind to commodities as equity valuations continue to soar, making the physical assets look more attractive or “cheap.”  The S&P 500/BCI ratio sits at 30.86 this morning, which is off the record highs of 31.90 in mid-December, but still incredibly high historically.  Energy inventories have been coming down for some time, with US supplies now under the 3-yr average.  Industrial metal stocks have been drawn down with the rise in electrical vehicles, and 2018 will see several major grain commodities begin to draw down their global supply surpluses.  While incredible strength might not be in the offing, a major bottom in commodities could very well have been set in the latter stages of 2017.

 

Mostly better markets to end the week, which are being led higher by soy meal, trading up just shy of 1.0% as of this writing.  There doesn’t appear to be any major changes in the Argentine forecast which would be prompting the meal move, with most overnight models actually agreeing on better odds for rains in major Argy growing areas in the 6-10 day.  What has been flying under the radar, however, has been the effect of the cold temps on soy crushers in the central and eastern corn belt.  Cold temps have caused issues with several plants, not to mention the difficulty moving meal amid cold and heavier snow totals.  Cash meal offers were firmer by $3-5/ton both domestically and in the export channels.  Firming meal prices have aided board crush which is now over $1.00/bu through September ’18, providing great opportunity to lock in solid paper margins on the board into new crop.  Volumes were finally decent in what felt like the first day since the holidays, and open interest mainly rose.  Corn open interest rose 4,272 contracts, soybeans were up 948 contracts, meal down 566 contracts, soy oil down 2,693 caks, SRW wheat up 701 contracts and KC wheat down 1,900 contracts.

Data released yesterday included weekly ethanol production which fell sharply amid the holiday slowdown, dropping 58,000bbls/day to 1.032 million bbls/day.  This was the lowest average ethanol production of the last 11-weeks, and was actually lower than the same week a year ago, which is the first time in four months.  The 1.032 million bbls/day was below the roughly 1.045 million bbls/day needed to hit the USDA’s 5.525bbu ethanol for corn target.  Similar to the meal market mentioned above, there was more than likely operation issues attributing to the slowdown in production with cold temps slowing inbound corn as well as outbound ethanol and DDGs.  Throw in a couple days in which plants weren’t receiving or moving either due to holidays, and efficiencies can certainly decline.  Adding further evidence to this idea is the fact ethanol stocks ballooned by 588,000bbls to 22.619 million bbls, rising to the highest level since May.  Ethanol stocks are now up 21% on the same week a year ago, a truly gigantic supply rise.  After rallying out of the basement, ethanol futures posted a nasty reversal yesterday trading above the previous two sessions highs and above the 50-day moving average before closing below the previous three days entire range.  Ethanol and DDGs export data for the month of November will be available later today, and will be of great interest to traders in gauging export demand to close 2017.  We must maintain solid export business for both to prevent ethanol grind from slowing.

Argentina crop progress was released yesterday afternoon with corn planting progress advancing to 78% complete from 70% last week and 83% on the same week a year ago.  Planting progress continues to be delaying in northern areas which are too dry to plant.  According to BAGE estimates, there are around 1.2 million ha left to plant, with what has been planted being rated 3% excellent, 30% good, 34% normal, 21% fair and 11% poor.  Too bad the USDA doesn’t add a “normal” category to bring even more clarity to our crop condition situation.  😉 Argentine wheat harvest progress was pegged at 91.6% complete, up 10.4% on the week.  BAGE has maintained their production estimate of 17.0MMT vs. USDA at 17.3MMT.  This should have a downward bias.  Soybean planting in the country advanced to 87.5% complete vs. 81.9% last week and 92.5% a year ago.  First crop planting is 91% complete with 41% of the second crop also planted.  There are still 2.3 million ha left to plant with around 1.7 million of that total awaiting rain.  Crop ratings for their soybeans are 53% good, 38% fair and 9% poor/very poor.

Still not exactly sure what got into Minneapolis calendar spreads yesterday, causing the front-month spread to rally by 31%.  The MWH/MWK jumped 2.25c to close to -5.00c, but at the highs was up 37%.  The MWK/MWN was also firm, but it was the MWN/MWU which also showed a strong performance, jumping 5.75c on the day, or 191% on the day.  Volume rocketed higher for both spreads with the MWH/MWK trading 2,370 contracts vs. 511 the previous day, while the MWN/MWU posted volume of 141 contracts vs. 17 the day previous.  Given the time of year, and the fact there didn’t appear to be any major cash trade, it is quite possible index funds were rolling out of the March and further out the curve, which they are sometimes want to do unpredictably.  As we wrote about recently, the spring wheat market needs to maintain some semblance of premium to ensure enough planted acres go in the ground this spring.  Without a 15-20% increase in planted acres, the hard red spring wheat balance sheet will not see a rising carryout and could actually see a modest decline even with average yields and static demand.  Add in the fact large portions of the western spring wheat belt have not had soil profiles recharged fully since last summer’s drought and there is plenty of room for anxiety.  Granted, Canada is likely to see a rise in planted acreage next spring, but as we’ve seen in the HRW market this year, bushels and quality bushels are often two different calculations.

Worth noting, the active-continuation chart of soybeans posted an impressive doji yesterday, which is when a market opens and closes at the same price.  It is noteworthy because of the way March soybeans opened at $9.5925, fell all the way to $9.5025, and then rallied back to $9.5925 by the close.  This signals there wasn’t enough selling interest below the open to keep price under pressure.  Whenever a doji is posted, it signals indecision by a market, and when the doji has a long tail below the market, the indecision is very likely about trading lower.  When a doji is posted after an extended move, similar to the downtrend in soybeans from 12/5 to 12/28, a turning point could be aloof.  Adding to the signal is the fact overnight price action also managed to push through the 200-day moving average, a major MA to trend following funds.  With trade above the 12/27 corrective highs, soybeans have also confirmed a bullish divergence in momentum.  The 100-day moving average rests just overhead at $9.67 and the 50-day sits at $9.76.  ATM option volatility settled above week ago values for the Feb and March contracts yesterday, and should continue that rise with today’s settlements.

 

Bottom Line: Gearing up for next week’s reports as well as preparing for another Sunday night weather model debate for Argentina.  In general, weather forecasts in the US look much more favorable for grain movement, and freight logistics.  Any short-term strength in basis will probably be fleeting, with plenty of grain left on farm to be thrown at any sustained rally attempt.  Continued USD dollar weakness would be a supportive influence, and US tax law changes should be a real benefit to producers, especially the revised Section 199 provisions for business done with coops.

 

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.

 

1/4/2017 Morning Comments

Good Morning,

 

Crude oil is pushing to new highs for the move this morning, and also the highest levels since mid-2015.  While most of the focus has been on the higher trending energy markets due to higher global demand, there are noteworthy supply highlights to keep track, especially out of Russia.  Reported yesterday by multiple outlets, Russian crude oil production pushed to a new 30-yr high of 10.98 million bbls/day, although the pace of growth slowed slightly from 2016 due to their involvement with the OPEC production pact.  Russian natural gas production totaled 63.5 billion cubic meters in December, up from 60.6 billion cubic meters in November.  In addition, Russian natural gas exports to Europe rose 8.1% in 2017 to a new record level of 193.9 billion cubic meters.  This amount accounted for close to 30% of Europe’s gas demand, and comes despite efforts to block a new pipeline into Germany which would double supplies from Russia to the EU’s largest economy.  In 2019, the $55 billion “Power of Siberia” pipeline will also start carrying natural gas to China which some analysts estimate at close to $400 billion over the 30-yr pact.

Dry weather in Argentina yesterday, with mainly dry weather in Brazil as well.  Not much change to the forecast from yesterday with only light rains in Argentine growing areas the next 5-days.  Models are mixed in the 6-10 for Argentina with the European calling for soaking rains while the GFS remains in a dry pattern.  A continued tropical rainfall pattern is seen for Brazil most of the next 5-days with average rains seen in the 6-10.  No excessive heat is seen in either country the next 10-days.  Dryness concerns will begin to develop in Argentina by the weekend if the forecasts do not side with the European model.

 

The first day of weaker trade in wheat and soybeans, while corn follows through on the light bit of weakness posted yesterday.  Technical patterns for both wheat and soybeans look encouraging with bottoming action, and trendy/impulsive behavior to the upside.  Corn on the other hand seems to be presenting slowing momentum, and volume studies still suggest more participation on down days than up days.  Open interest in the corn market has been mainly flat, which doesn’t indicate heavy flows in either direction as traders are most likely trying to square things ahead of the January 12th reports.  Worth noting, however, corn and wheat are both above their 50 and 100-day moving averages with the 200-day resting around 11c above for both.  Soybeans remain below all major moving averages, helping to put into perspective the 13c rally off of the December lows.  The encouraging thing for both corn and soybeans are the firming basis bids at export hubs despite the rallies.  Front-month spreads in both markets have not yet caught a bid, however, while the WH/WK is still in a longer-term uptrend with domestic cash markets remaining firm.

Deliverable stocks reports released yesterday showed a continued draw in Chicago with total wheat stocks down 666,000 bushels w/w to 86.426mbu which is 4.148mbu below a year ago.  114,000 bushels of HRS were added in STL, taking total deliverable HRS supplies to 1.350mbu vs. 723,000 bushels a year ago.  SRW cash remains firm on the river with icy conditions on the OH-River.  KCBT stocks declined 1.392mbu to 111.827mbu, but remain 4.742mbu above a year ago.  Light trade on the KCBT spot floor with 12.0% indicated up 2c on the bid and offer to +192/207H which compares with +190/205H a week ago.  Wheat stocks in Minneapolis/Duluth rose 126,000 bushels w/w to 22.026mbu which compares with 21.839mbu a year ago.  There were 35 cars, including 1 train, on the spot floor yesterday which saw 15.0% up 10c on the bid and down 15c on the offer to +185H.  This compares with +175/200H a week ago.  Brokers remark mill pipelines are well supplied with only a handful of cars needed here or there to keep things stocked.  A continuation of weather witnessed at the end of 2017 would likely start to draw those pipelines down and put a bid under HRS cash.

Otherwise, export bids for corn and soybeans remain firm with PNW shuttle bids going home last night bid +94H for spot against offers of +105H which compares with +90/95H a week ago.  PNW bids are actually inverted by 1c for Jan vs. Feb trains while April trains are bid +82K vs. +79K for May placement.  BNSF equipment prices have picked up, which can partially explain the bids firmness, as spot was called +$400/$600/car last night vs. tariff to +$150/car a week ago.  CIF barge bids for corn were called up 1-3c for Jan-Apr with spot boats called +45/48H vs. +38H a week ago.  CIF bean bids were up 8c in the spot and 1-6c higher Feb-April with Jan called +43/48H vs. +42/44H a week ago.  Front end Brazilian FOB basis was down 1-3c yesterday, but is mostly unchanged on the week.

A lot of the focus this week has been on the winterkill threat across the southern plains amid already poor conditions thanks to thin stands and generally dry soils as we went into dormancy.  As we have stressed, little to nothing will be known about potential winterkill damage for another 45-60 days, so the 50-70mbu of production loss already flying around is really not pertinent to the discussion.  Flying under the radar, however, has been the strength in exporter currency.  The Australian dollar traded to 0.7856 this morning, the highest trade since October 20th.  Earlier this week, the Canadian dollar pushed over 80c, the first time since October 20th as well.  The Euro traded to the highest level since December 2014, while the Russian Ruble is the strongest since September 6th.  The incredibly firm export basis levels out of the United States for 12.0% HRW will limit the ability of US wheat to come splashing back onto the export scene, but the currency strength from these exporters is undoubtedly helping the cause.  It is also worth noting while on the topic that Russian wheat export forecasts continue to rise thanks to the relatively warm and open winter to-date.  Normally, Russia is faced with cold temps and ice conditions, which slow and sometimes limit loading altogether.  Pictures from social media yesterday showed lots of Russian acres without any snow cover and still green wheat.  This is allowing exports to continue unfettered, with some now calling for 36.5MMT of exports to as much as 40.0MMT!  This compares with the USDA at 33.5MMT and early season estimates assuming Russian export capacity would be limited at 32-33MMT.

 

Bottom Line: A little back and fill trade today as we take a breather from the early weak gains.  The supportive outside market influences we’ve had to start 2018 are still alive and well, and should be friendly toward the Ag space.  As long as the equity bull keeps surging, however, the demand for physical assets could remain limited.  Producers should be looking to take advantage of further strength in the run up to the January reports given this month is the second weakest from a seasonal perspective in Chicago wheat, shows no bias of strength or weakness in soybeans, and has traditionally posted slight to modest gains for corn on the 30-yr average.

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.

1/3/2017 Morning Comments

Good Morning,

 

Light snow showers around the Great Lakes, otherwise the Midwest is quiet and will remain so most of the next week.  Next best chance for moisture will be Saturday/Sunday and into early next week for the ECB and Mid-South.  Totals for the 7-day outlook this morning look between 0.50-1.60” for S-IL/IN/OH and the rest of the Mid-South.  If this moisture falls as snow, some impressive totals could come with.  Temperatures gradually warm toward the weekend before slipping back towards below normal in the 6-10 and 8-14 day.  Precip will be solidly above normal the entire 6-10 and 8-14 day outlook for the entire Midwest.  Given the time of year, we could be looking at some serious snowfall totals if things verify.  In South America, dry weather was present in Argentina while decent rains fell in Brazil yesterday.  Light rains will fall in Argy Thur/Fri of this week before dry weather takes hold the next 5-days.  The 6-10 is also dry with rains of less than 0.50” seen on 65% coverage.  By the end of the 10-day, dryness concerns will most likely surface once again.  Brazil remains in excellent shape for weather received and weather forecast.

 

Firmer markets again this morning as all of our markets look to add to the New Year gains from yesterday.  Definitely fresh money flowing into row crops at least with corn open interest up 6,446 contracts on the day, while soybean futures were up 5,738 contracts.  Managed funds are short both corn and soybeans, so an open interest increase may have come from commercial buying.  SRW futures fell 2,756 contracts while HRW futures were up 7 contracts.  Unfortunately, volume remains somewhat depressed as desks are probably still not fully staffed from the holiday hangover.  A bit more volume on these up days would be encouraging, although wheat and corn OBV is starting to trend higher.  Soybean on-balance-volume is down and headed lower with that running total the lowest since April.  Bears still firmly in control despite the three days of higher closes.  Unfortunately for soybeans, calendar spreads have done nothing on the flat price rally with the SH/SK at -11.25c, just 0.25c off contract lows, while SN/SX set a new contract low of +3.50c yesterday.  Certainly no concern about a tightening US soybean carryout just yet with the prospect for a cut to exports next week.

Speaking of exports, inspections data was released yesterday morning with mostly disappointing results due to the holiday shortened week.  Wheat inspections totaled 10.1mbu vs. the 19.0mbu needed weekly with the total the lowest in 6-weeks.  Total inspections measure 533.9mbu vs. 570.9mbu a year ago, a 6.5% deficit vs. the USDA calling for a 7.2% decline.  Corn inspections remains slow at 26.9mbu vs. the 41.6mbu needed weekly.  Corn inspections have not met the level needed the entire marketing year, placing great importance on the second half of the marketing year.  Total inspections of 414.8mbu compare with 671.2mbu, a 38.2% deficit.  Soybean inspections continued to slow seasonally at 41.9mbu vs. the 32.7mbu needed, but were the lowest inspections since September.  Total inspections of 1.040bbu are down 14.2% from a year ago while the USDA is still forecasting a 3% increase y/y.

Other data out yesterday included the USDA Oilseed and Grain Crushings Report which showed US wide soybean crush at 173.3mbu which was a bit below the average trade guess of 174.1mbu.  This total was also down from October’s 175.9mbu, but was up 1.5% from November 2016, and was also a new record for the month.  The first quarter of the marketing year posted a US-wide crush of 495mbu vs. 485mbu a year ago.  Soybean oil production in November totaled 1.977 billion pounds vs. 2.017 billion pounds in October and 1.961 billion pounds in November 2016.  The average oil yield measured 11.40lbs/bu, which was down from 11.47 in October and 11.49 in November 2016.  The USDA has been assuming a marketing year average oil yield of 11.60lbs/bu, which will notably tighten the soybean oil balance sheet when the new average is calculated.  The November Grain Crushings report showed 476mbu of corn being used for ethanol production in November vs. 470mbu in October and 452mbu a year ago.  Total corn for ethanol production of Sep-Nov totaled 1.391 billion bushels vs. 1.343 billion a year ago, with that margin set to widen even more during December thanks to record crushing.

Something else we’ve been tracking of late has been the amount of grain under marketing assistance loan with the USDA-FSA offices.  The total has slowly, but surely, worked its way up to the highest levels since 2008 for corn and soybeans, while wheat is the lowest since 2014.  Total outstanding loans for all crop years on corn now stands at 797.3mbu, 790.9mbu of which is in the 2017 marketing year.  This is the largest total since at least 2008, the last year USDA data is searchable on their website.  Soybean loans outstanding total 123.7mbu, 123.0mbu of which is in the 2017 marketing year.  This is the largest total since the 2008 marketing year.  The rise in popularity of MAL’s is not all that unusual given the low price environment we are in, and the 1.625% interest rate on the 9-month product, which is almost assuredly cheaper than the rate on a revolving line of credit with a financial institution.  What is interesting, however, is the likelihood of it speaking to the larger issue of how much grain is left on farms and unpriced.  This could hold big implications for basis as we move through the marketing year, especially if the outstanding total doesn’t begin its seasonal decline soon.  This will be a data set we will be watching closely in coming weeks to help gauge the movement of grain from the farm we move through 2018.

One other note worth mentioning has been the continued weakening of the MW/W and MW/KW inter-market spreads of late with the focus on winter-kill in the southern plains.  MW/W made a new low for the move at+182.75c, the lowest trade since 10/25, while MW/KW hit +182.50c, the lowest trade since 10/24.  With funds heavily short both KW and W, the order flow into those contracts amid the winter kill headlines is not at all unreasonable.  However, the HRS market absolutely needs acres for the 2018/19 marketing year, and the amount it has already bought with $6.20-6.30 futures is highly debatable.  As we get closer to the February insurance pricing period, we believe spring wheat will need to make a more concerted effort to secure additional acres for this spring.  If order flow continues to head into winter wheat contracts the next several sessions, there could be some good ownership opportunities on the spring wheat side.  KC new crop calendar spreads have been firming well before the recent winter kill scare, meaning there was concern about acres to begin with.  We will get confirmation of the lack of acres next week from the USDA.  Keep an eye on Minneapolis calendar spreads, which have gone dormant of late, for signs spring wheat is ready to reassert some premium.

 

Bottom Line: Firmer prices as managed and index funds rebalance a little during the new year.  There is still plenty of grain left for sale above the market, which should help cap any serious rally threat.  In addition, South American weather seems better than the weather terrorists would lead one to believe, so would caution against thinking Argentine is fire and brimstone at the moment.  Volumes have still been light, which should be a signal there isn’t a ton of participation behind these rally efforts to date.  Refresh marketing targets for both old and new crop often.

 

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.

1/2/2018 Morning Comments

Good Morning,

 

The USD is on the move to start the New Year, and that move is lower by 0.41%, heading in the same direction as we ended 2017.  At the lows this morning of 91.751, the USD hit the lowest level since September 20th, and is just 75 pips away from hitting the lowest level since December of 2014.  The Dollar at that level would require some serious recalculation of the value of physical assets considering that last 3-year shave witnessed a USD at a much higher plateau.  The Bloomberg Commodity Index traded to the highest level since March on the last trading day of the year, and should open steady/better today given the gains in energies and metals.  Most commodity markets turned in a solid 2017 with the exception of grains, which underperformed the broader index badly.  If the USD continues to trade weaker to start the year, grains might finally be able to turn the corner for a more positive 2018.

Blank Midwest radar this morning as frigid temps hang on for one more day before somewhat of a warmup moves in by the weekend.  Many areas of the Plains set new records for minimum high temperatures over the weekend with air temps in parts of NW-SD and W-ND hitting -30 to -40 below before wind chill.  Some winter kill is expected in KS and MO given the lack of snow cover where temps were cold enough to do damage.  Way too early to accurately get an assessment, however.  Temps in the western half of the Great Plains will move into the 20’s and even 30/40’s by Saturday, which will be a welcome relief.  Colder temps are maintained in the Great Lakes through much of the week.  Nothing much for moisture the next week until the weekend in the ECB with 0.25-1.00”being seen Sunday/Monday for IL/IN/OH/KY.  Temps cool back off in the 6-10 and 8-14 day to below normal, while the entire contiguous United States is above normal on precip in the 6-15 day.  Weather forecasts from the weekend keep most of Argentina dry the next 10-days before relief shows up in the 11-15 day for nearly the entire growing region.  That is a ways off to have a ton of confidence, so doubt the market can price that in until later in the week.  Some good rains did fall in the heart of the growing region this past weekend.  No issues in Brazil.

 

Old school this morning with no overnight markets and a hard open at 8:30am CST this morning.  Given the temps from the weekend in US wheat areas, a dry 10-day forecast for Argentina and the USD index being taken to the woodshed, I believe markets can start off the New Year on solid footing.  Would look for opening calls to be 1-3 higher in corn and wheat and 2-4 higher in soybeans.  US export sales have improved in recent weeks as futures prices slipped to multi month lows in several contracts.  This is encouraging, and should allow the market to have confidence in the lower boundary attracting demand moving into the second half of the marketing year.  We have eight trading sessions before the January 12th WASDE report, which probably holds the most implications for wheat, and to a lesser extent corn and soybeans.  Traders will be anxious to get a reading on winter wheat acres given the poor conditions most went into dormancy with and also the weather experienced to-date.  In addition, Dec 1 stocks for both corn and wheat will be of interest given the rapidly expanding livestock sector, and the record high basis levels being witnessed for HRW.

Starting with data from Friday, export sales were fairly solid all the way around with wheat at 17.6mbu vs. the 12.0mbu needed weekly.  This is the third week in a row of sales exceeding the level needed to hit the USDA’s most recent export sales forecast.  Total commitments of 711.0mbu compare with 763.0mbu a year ago, a 7% deficit and right on pace to hit the USDA target.  By-class sales were led by HRW at 10.3mbu, followed by HRS at 3.2mbu and SRW at 2.2mbu.  Outside of 2-week ago, HRS sales have been lackluster, while the other classes have been impressive.  HRS has only had one week in the last six which hit the level needed.  Corn sales totaled 49.0mbu vs. the 24.2mbu needed weekly.  Total export commitments of 1.046bbu are now down 25% from a year ago while the USDA is calling for a 16% decline.  Soybean sales of 35.8mbu were better than the 21.2mbu needed, but were probably a bit weaker than expected.  Export sales of 1.488bbu are down 15% from a year ago while the USDA is still calling for a y/y increase.  A cut to export sales is forthcoming on the Jan WASDE.  Meal sales were solid at 288,300MT vs. 128,600MT needed, while soy oil at 44,200MT was well better than the 13,300MT needed.

With each data set released from the USDA, livestock numbers continue to impress, giving a good impression for feed demand in 2018.  The USDA’s Quarterly Hog and Pigs report released on December 22nd showed all hogs and pigs at 73.2 million head which was up 2% from a year ago, but down slightly from September 1, 2017.  The number is a new record for December by a wide margin.  Market hog inventory of 67.1 million head was up 2% but also down a hair from September.  Cattle-on-feed as of Dec 1 totaled 11.516 million head which was up 8.1% from a year ago, and would be the largest since 2011.  In addition, placements during the month of November were up 13.9% from a year ago to the highest for the month since 2007.  On egg sets, 227.5 million egg sets were placed in hatcheries during the week ending December 23rd, up 4% from a year ago and blowing away anything of the last four years for this date.  Chick placements of 186 million were also up 4% from a year ago.  Layer chicken inventory of 379.9 million during the first week of December was easily the largest since at least 2008.  The aforementioned collectively speaks to the profitability currently being experienced across the livestock sector as feedlots take advantage of the abundant supply of cheap feed grains.  There shouldn’t be any reason to doubt current USDA feed forecasts, and this should set the table for what could be record feed demand in 2018.

One last tidbit, worth noting 225 SRW registrations were canceled in Maumee, OH Friday night leaving just 220 out of the 2,000 which were originally delivered on First Notice Day.  This seems to further underscore the fact The Anderson’s delivered the gargantuan amount of wheat to blow the spread out, even though cash markets were well above delivery equivalence at the time.  The cancellations signal someone loading the wheat out to take advantage of cash markets which are still trading +10H in NW-OH, while Toledo is option to -10WH for Jan.  Eastern Indiana mills are still trading +30/40H.  This should continue to support the WH/WK.  Spot Chicago wheat futures have managed to climb back above the 50-day moving average, which we haven’t managed to stay above for any meaningful amount of time since July.

Some buying in corn, some selling in soybeans and very little activity for wheat on the latest Commitments of Traders report.  The latest bullish sentiment scores are attached below.  Across the grains and oilseeds markets of the CBOT, managed funds are now short a net -480,257 contracts, the largest since June 6th.

 

Bottom Line: 2017 was a pretty ugly year ago grains as we continue to deal with the highest supplies in decades for most of our commodities.  The stage is being set for investment money to come back into our space specifically with higher energies, higher metals and a significantly weaker USD than we’ve had for several years.  Having said that, managed funds do seem to have figured out the positive and negative roll yields with corn/wheat, a position they feel comfortable with for the time being.

 

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.