11/13/2018 Morning Comments

Good Morning,

 

Crude oil is sharply lower overnight, working on its 12th lower close in a row.  Since 10/29, crude oil is off over 13% and spot prices are $9.00/bbl below their 200-day moving average.  Spot prices are now the lowest they’ve traded since February as OPEC appears unwilling to cut production and risk losing market share as they’ve seen happen in the past.  In addition, despite US-imposed sanctions, Iran appears to have allies like Russia willing to help get its crude to market.  Further, the US granted exemptions to seven or eight major countries to continue importing Iranian crude which defeats the entire purpose.  Also, as we’ve seen time and time again, shale drillers in the US have become the leanest, lowest cost producer outside of Saudi Arabia and appear to be able to keep pumping crude and make money at these levels.

Some snow flurries around this morning, but otherwise the Midwest should see 7-10 days of wide open weather to finish harvest.  After the unseasonably cold weather to begin November, the second half looks to warm to above normal beginning on Wednesday.  This will aid in farmers getting the last 10-20% out of the fields.  Otherwise, meteorologists taking stock of the heavy rains in Argentina over the weekend which dropped 3-10” in various spots of their growing belt.  Ripening wheat would have received the largest damage, although corn and soybean planting could also be delayed for several days.

 

It’s a wheat world and everyone else is just living in it.  Grains are weaker overnight, but the buying enthusiasm in Chicago and to a lesser extent Minneapolis and KC are the talk of the markets.  The idea variable storage rates would be reduced from 11c/mo to 8c/mo did not show up yesterday, but you would have thought it did they way traders are reacting.  For much of the last two years, managed funds have been short Chicago wheat thanks to the huge carrying charges which allowed them to attain a positive roll yield by moving their contracts down the curve each delivery period.  The returns were not sexy, but they were stable and consistent which is preferable to a roller coaster each way.  The drop in storage charges should mean tighter calendar spreads which reduce the incentive and amount of yield from rolling each delivery cycle.  Chicago storage charges will be reduced, but Kansas City will not, so it will be interesting to see if funds move more short positions in KC?  That spread has also been upended as funds tried to reduce their risk exposure by being just short Chicago with a long position in KC.  As funds decided to bail on Chicago, they’ve also bailed on the long in KC, sending that spread from +7.00c on October 12th to -26.50c this morning.  Not much to say about corn and soybeans this morning although soybeans acting well at resistance from the last 30-days.  Open interest changes saw corn down 2,408 contracts, soybeans down 2,769, SRW down 5,638 and HRW up 2,753 contracts.

Adding to the strength in wheat yesterday was another 132 delivery registrations being canceled out of Indiana last night at Cargill’s elevator.  This leaves just 10 outstanding delivery registrations in Ohio, which is a bit interesting to think there are only 50,000 bushels as the supply of last resort.  There are still 232 delivery registrations outstanding in Kansas City as that market is not facing the same sort of pressures as Chicago.  Minneapolis has 102 outstanding registrations with 94 in Duluth and 9 in Minneapolis.  With cash basis above delivery equivalence in all zones including Chicago, it would not be a surprise to see the last 10 registrations canceled in Ohio.  Adding to the cash strength and demand component is the idea winter wheat acres could be unchanged or even down from a year ago when most expectations were for a 10-15% increase back in September.  A poor fall for seeding and germination has put a damper on those ideas with this afternoon’s crop progress report expected to show at least 10% left to plant.  All areas of Kansas will have hit final plant dates for winter wheat on Thursday.  Around 70% of Kansas already hit last plant dates on November 5th.

We used this opportunity to do a little by-class balance sheet work for 19/20.  For our HRW balance sheet, we are using USDA’s numbers for 18/19 but put the winter wheat acreage change at up 3% from the current year.  This gives us 23.924 million planted acres and harvested acres of 18.182 million using a 5-yr average for harvested percentage.  We plugged in a yield of 42bpa as the slow pace of planting and higher chance of winterkill only gives us confidence in an average yield at the moment as opposed to above average.  Total supplies would then be at 1.196bbu vs. 1.246bbu this year.  We had domestic demand up 7mbu from the current marketing year and exports down 10mbu with all of this subject to change.  Carryout would be estimated at 379mbu vs. 426mbu last year and the lowest carryout since 2014/15.  A stocks/use ratio of 46.33% is not bullish, but it is not egregiously bearish like we’ve seen at times over the last five years.  If anything, we feel it makes a compelling argument for spot month futures remaining over $5.00 and probably closer to the premiums being carried by deferred contracts in new crop slots.  We also ran a way-too-early balance sheet for HRS assuming average in the Northern Plains up 5% from the current year based on a shift away from soybeans.  This would give us planted acreage of 13.344 million vs. 12.709 million this year and would be the largest spring wheat planted area since 2008/09.  A yield of 47bpa and a harvested acreage percentage of 97% would give us production of 608mbu vs. 587mbu this year.  Demand is pretty much unchanged from this year, although we did take exports down 15mbu to 280mbu which is still up 6mbu from the 5-yr average.  Carryout would be projected at 353mbu vs. 260mbu this year and would be the largest carryout going all the way back to 1987/88.  Stocks/use of 61.23% would dwarf the 5-yr average of 41.77% and has us contemplating hard what should be done with new crop futures at $6.08-6.20.  If supplies are indeed that large, it will be tough to justify spring wheat over $6.00.  The largest question is how hard the shift away from soybeans will be at $9.30 SX9, and whether the shift will be into HRS for the most part?  Time will tell, but also has us curious about the current spread between Kansas City and Minneapolis.

Other news included Ukraine reporting crop progress with harvest at 84% complete and 28.4MMT collected so far.  Using USDA’s yield estimate of 7.4MT/ha pushes that crop size to 33.8MMT if yields hold the rest of the way which is slightly larger than USDA’s production estimate of 33.5MMT.  The yield and production estimates would shatter the previous records in Ukraine of 6.89MT/ha and 31.906MMT.  it will also keep Ukrainian supplies competitive into Europe and the Middle East.  Spot offers out of the Gulf last night were $166.63/MT FOB vs. Ukrainian offers at $166.00/MT.  Brazil’s nearest offer was $168.99/MT for December and Argentina didn’t have any available offers.

 

Bottom Line: Remains to be seen whether the last of the fund blow out is over yet.  Today should see the final day of the Goldman Roll which could allow front-month spreads to relax a bit.  This will prove a long winter for bears in the wheat market if calendar spreads are already tightening and cash is above delivery equivalence at all three wheat exchanges.  Export sales have improved and should hopefully hold for the next several months.  Russia still rolling out wheat is going to keep the market in check, as is ideas for record winter wheat acreage there.  Corn and soybeans need some fresh inputs.

 

Good Luck Today.

Tregg Cronin

Market Analyst

Tregg.Cronin@halocommodities.com

www.halocommodities.com

@5thWave_tcronin

 

 

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

 

11/9/2018 Morning Comments

Good Morning,

WTI crude oil is trading below $60.00/bbl this morning while Brent crude has slipped below $70.00/bbl, both instances the first since February and April, respectively.  Adding to the selling pressure the last couple of weeks was the news last night Iraq is close to a deal with Kurdistan Regional Government to restart oil exports from the disputed territory of Kirkuk.  The Trump Administration has ramped up pressure to restart crude oil operations, in part to offset the expected decline in Iran from US-imposed sanctions.  If WTI closes lower on the day, it will mark the tenth consecutive lower close pushing crude further into a bear market now that it is more than 20% off its 52-week high.  Spot prices are looking to the Feb lows for support, but if those don’t hold, next support would probably be the May 2017 highs around $54.00.

 

Weaker prices across the board this morning as we see follow through selling post-WASDE report.  To be fair, however, grains recovered quite nicely into the close yesterday considering the cavalcade of bearish news dumped on the market.  The big talker, as we alluded to yesterday morning, was the risk USDA decided to update their global S&D’s to reflect the recent Chinese Census statistics.  They did, and the resultant 150MMT added to global corn ending stocks was an eye-opener.  The USDA also added 6MMT to global wheat ending stocks for the same reason.  By the closing bell, however, it felt like most traders and analysts realized these supplies did not just appear overnight.  The bushels had been there the entire time, they just hadn’t been accounted for properly, so cash markets were already aware they existed.  None of these bushels were available to the market before the November WASDE, and none of them are available now, it just might move the goalposts for China’s ambitious ethanol production plans.  The Chinese data helped defer attention away from what was a particularly bearish soybean report which we will cover below.  Open interest changes yesterday saw corn up 17,942 contracts, soybeans up 998 contracts, oil up 1,520 contracts, SRW down 15,942 contracts and HRW down 6,601 contracts.  Index rolls have commenced for the December futures which helped drop December open interest sharply.

We aren’t going to rehash all of the Chinese data as we did that fairly well yesterday with differences only amounting to a few million tonnes.  Still laughable to see world corn carryout at 307.5MMT vs. 159.4MMT last month.  In the US corn balance sheet, USDA reduced the national average corn yield by 1.8bpa to 178.9bpa which was over 1.0bpa more than the average trade guess.  As the analyst community is want to do, the average trade guess for December/January should be another 0.50-1.0bpa lower because original thought is discouraged among most in that group.  The yield cut took 152mbu off production which was tempered somewhat by a 50mbu cut to feed/residual and a 25mbu cut to exports.  Interesting to see USDA reduce exports this month after a couple poor weeks of sales when soybean sales have been abysmal for 3-months and the Department just now reduced exports.  Carryout for 18/19 at 1.736bbu is the lowest in four years and should support prices.  USDA increased the low end of their average farm price by 20c/bu to $3.20-4.00.  USDA made no changes to the US wheat balance sheet outside of a 7mbu increase to seed demand.  Yawn.  Globally, USDA cut Australian wheat production by 1MMT to 17.5MMT which is still 1.0MMT while they cut Aussie exports by 1.5MMT to 11.5MMT which is still 2.0MMT too high.  At least they are headed in the right direction.  No changes were made to Russia or Canada, punting on those until next month.

The soybean balance sheet revisions garnered a lot of attention, as they should have.   USDA cut yield by 1.0bpa to 52.1.bpa which was a bit more than expected.  This slashed 90mbu off total supplies, but this was more than offset by a 160mbu cut to exports, a 7mbu cut to seed use and 2mbu cut to residual.  Crush was increased 10mbu.  Therefore, carryout rose by 70mbu to 955mbu which was more than the average trade guess but will below some estimates over 1.0bbu.  Anyone with a carryout over 1.0bbu is carrying exports even lower than USDA’s revised 1.900bbu forecast.  We applaud USDA for making the severe cut, although based on export sales to date, this is not enough which we touch on below.  The USDA was forced to cut US soybean exports that much because of the 4MMT cut to Chinese imports.  USDA is now at 90MMT for 18/19 Chinese imports vs. 94MMT last month and 94.1MMT last year.

While USDA made a step in the right direction, we fear it is not enough unless something happens at the G20 Summit at the end of the month. Weekly soybean export sales last week totaled 14.3mb vs. the 26.8mbu needed weekly to hit the USDA forecast.  Total soybean commitments of 802.4mbu are down 31% from a year ago with the deficit increasing over the last two weeks by 5%.  The commitment total is the lowest since 2011 while the commitments/forecast ratio of 42.23% is the lowest since 2007.  As we noted yesterday, for the commitments/forecast ratio to fall in line with even last year, which was the lowest for this week since 2008, the export forecast would need to drop another 400mbu.  If the trade war drags on, and China never does buy US soybeans, but the rest of the world comes to us for their needs, there should be larger second half purchases.  I hope.  The other category I wanted to note in the export sales report was sorghum.  Sorghum sales last week were actually a net negative -2,656MT.  Total commitments are down 9.781mbu, the lowest on record by an incredible margin.  The next lowest commitment level for this week was 2011 at 23.4mbu.  The USDA slashed its sorghum export forecast yesterday by 50mbu to 100.0mbu.  Even doing that, we’ve sold just 9.7% of the USDA’s forecast almost 2.5 months into the new marketing year.  This lack of demand should impact domestic demand for corn and wheat where applicable.

 

Bottom Line: Disheartening price action, although not sure what we should expect after a report like we received yesterday.  For every supportive point (yield cuts), there was a negative point (weaker demand).  December corn likely settles into its 3.60-3.80 range until FND at the end of the month.  Still like the look of grains more so than oilseeds unless something is done on the trade front.  A little too much harvest left out for comfort considering the snow and cold temps across the upper-Midwest.  This could point to lower corn yields and should help basis recover even faster.  That said, the producer has plenty of ammunition to throw at any rally.  In our opinion, producers should be eyeing new crop sales as we move toward year end as the shift in focus to next spring should not be bullish corn prices if acres jump as much as expected.

 

Good Luck Today.

Tregg Cronin

Market Analyst

Tregg.Cronin@halocommodities.com

www.halocommodities.com

@5thWave_tcronin

 

 

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

 

11/8/2018 Morning Comments

Good Morning,

 

China released import/export data for the month of October last night, showing stronger than expected exports, even to the United States.  Chinese exports to all countries grew at 15.6% from a year earlier, while imports rose 24.1% according to the customs data.  Both figures exceeded expectations, while exports to the United States rose 13.2 from a year earlier.  The stronger than expected exports come despite the US-imposed tariffs which most thought would curtail US demand for Chinese goods.  As most analysts are pointing out, this could strengthen China’s resolve in the trade war if the US penalties are not having the desired effect.  Some of the strength is undoubtedly due to importers front-loading purchases ahead of the second and possibly third round of tariffs.  As the trade war drags on, hopefully not for long, we will get a truer sense of the tariff impacts.

Wonderful, glorious snow is falling across the Plains this morning much to the delight of farmers everywhere who still have crops in the field.  In Kansas, both snow and rain are falling, creating a wonderful mix of slop to keep farmers from finishing the tail end of winter wheat planting.  The moisture moves out of the Plains later today, bringing dry weather until Sunday/Monday when another light shower/snow mix will move over Oklahoma, N-Texas and Kansas.  The Northern Plains and WCB should be mainly dry the rest of the seven-day period.  The 6-10 day period will remain cold across the midsection of the US but by the 8-14 day the Plains and WCB move to above normal temps.  Fortunately, precip appears to shift below normal for the entire country during the 6-10 and 8-14 day.  Bitter cold through the weekend.

 

WASDE day today and we are higher heading into the report.  Most contracts were riding two to three day losing streaks heading into today, so a little bounce is warranted.  There are several themes analysts will be watching closely on today’s report: 1) changes to corn and soybean yields; 2) changes to Australian/Canadian/Russian wheat S&D’s; 3) changes to Chinese soybean imports and US exports; 4) changes to Chinese corn stocks from the last several years.  We will discuss the last point below as it is garnering a lot of attention on the newswires.  In our opinion, any change to US soybean and corn production should be minor at this stage of the game.  Harvest is dragging out longer than expected but a huge loss of bushels is not expected in any one area except maybe soybeans in the very far north of the Midwest.  Cash and spreads would not suggest harvest supplies are sharply smaller than estimates.  How aggressive USDA gets with cuts to Canada and Australia will also be in focus with the USDA likely adopting ABARES estimate of Australian production t 16.7MMT.  With harvest wrapping up in Canada, production cuts there also might be less severe than originally thought.  Corn open interest down 1,662 contracts, soybeans down 5,027 contracts, meal down 1,431, oil up 2,881, SRW wheat down 13,093 contracts and HRW down 5,78 contracts.

Last week, the Chinese Census was completed for the first time since 2008.  In it, they updated grain stocks for the last ten years, making substantial revisions to corn production and ending stocks.  Newswire services began picking the details up over the weekend and earlier this week after the Chinese National Grain and Oilseeds Information Center made sweeping revisions to its S&D’s.  In it, they increased Chinese corn production in 2017 to 259MMT vs. USDA at 215.9MMT, 2016’s crop up to 263MMT vs. USDA at 219.6MMT and 2015’s crop at 265MMT vs. 224.6MMT.  They also hinted at ideas the 2018 corn crop was near 259MMT vs. USDA at 225MMT and sharply above China’s official estimate of 213MMT.  Somehow, they reason they were understating corn area by close to 6 million acres, which would be nearly 15 million acres.  That would be missing the entire corn area in Minnesota, South Dakota and North Dakota combined.  Not exactly sure how you could miss by that amount, but I digress.  The important question is whether the USDA adopts these numbers this month, or at all, in coming months.  If they do, the global corn balance sheet will look drastically different.

If the USDA were to adopt these new supply statistics, without adjusting demand which isn’t likely, ending stocks in China would skyrocket to levels congruent to their wheat balance sheet.  Ending stocks for the 2018/19 marketing year would be projected at 219.4MMT which is more than double the level estimated at the end of the 2014/15 marketing year.  The supply situation would look something like that projected in the bar graph below.  Compare the first chart using CNGOIC updated numbers with the USDA’s current estimates from the last WASDE report in October.  Using the USDA data, China’s corn balance sheet was finally taking on a supportive look with ending stocks falling to the lowest since 2010/11 and a stocks/use ratio at one of the lowest levels of the last 30-years.  Looking at things a little differently, it is unlikely area was missed by that large of a margin, but instead demand was probably not as strong as originally thought while the crude storage methods in China allowed a massive amount of slippage from the last Census.  Global consumption of corn is still growing, and Chinese stocks are not available to the market in any capacity anyway, so it isn’t clear whether these new data figures will have a great deal of impact on the market anyway.  If USDA adopts the numbers, funds and algos could have a selling spree for a few days, but the market should work out of that once it realizes global corn trade doesn’t really involve China anyway.  With China’s ambitious ethanol production plans the next several years, it could mean imports will not be needed as quickly as originally thought, but we’re not sure it SHOULD have any more impact than that.

CONAB will be out later this morning with their latest estimate of Brazilian corn and soybean production.  On their last report, they were 116.8MMT vs. 119.3MMT in 2017/18 on soybeans while they see this year’s corn crop at 90-91MMT vs. 81.4MMT last year.  USDA sees Brazilian corn production at 94MMT and soybean production at around 123MMT.  Soybean exports are the other area of focus on today’s report for us.  We’ve only sold 38.2% of the USDA’s current soybean export forecast which is the lowest since 2005.  A sobering take on the export forecast, to bring the current commitments/forecast ratio in-line with last year (52%), the USDA would need to cut their forecast by 560mbu.  We do not believe they will do that, but this gives an idea of how bad our exports currently are.

 

Bottom Line: Let’s get the WASDE behind us and we will all be smarter.  Focus for us is outlined above.  China’s updated data is just headline risk, but that doesn’t mean funds and algos can’t have fun with it for a while.  More after the report.

 

Good Luck Today.

Tregg Cronin

Market Analyst

Tregg.Cronin@halocommodities.com

www.halocommodities.com

@5thWave_tcronin

 

 

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

 

11/7/2018 Morning Comments

Good Morning,

 

Well.  The Midterms are finally over and the experts were mostly wrong again.  There was no “Blue Wave,” although Democrats did manage to take back control of the House of Representatives.  However, Republicans strengthened their lead in the Senate, including taking down several prominent Senators which could have implications in the next election.  Democrats needed 23 seats to secure 219 in total and have a simple majority and they got 216.  This was well short of the 30-40 some analysts were forecasting, but should ensure gridlock for the next two years regardless.  Of most importance will be trade policy with China in our opinion which President Trump can largely conduct without Congressional approval as we’ve seen with his tariff implementation.  Any formal trade deal does need to go through Congress, however, setting the table for an interesting two years.

Scattered rain showers across Kansas, scattered snow shower across Nebraska with rain in Arkansas and flurries around the Great Lakes.  We will be watching the next 24-48 hours in Kansas as another 0.25” is forecast to fall with high temps mainly in the 30’s and 40’s through the weekend. All counties in Kansas have hit final plant dates for insurance purposes except the southeast 23 counties which have until November 15th.  Otherwise a mainly dry week will occur across the Midwest, although temps remain bitterly cold, especially across the Northern Plains.  High temps into the 20’s will be common place to close the week.  Well below normal temps hold in the 6-10 but start to moderate in the 8-14 while precip moves to well below normal by the 8-14 day.

 

Mixed markets with wheat and soybeans higher but corn weaker.  Grains are waiting on tomorrow’s WASDE report and fresh data tables before taking on fresh direction.  Of most importance on tomorrow’s WASDE will be changes in national average corn and soybean yields, what USDA elects to do with Chinese soybean imports and therefore US soybean exports and finally if they will finally make the necessary changes to Australia and Canada.  Like the Midterm elections with equities, our markets will be happy once the report is behind us so we can move the focus back to weekly demand indicators, estimating actual winter wheat planted area and gauging the eventual slowdown in Russian wheat exports.  Open interest changes in yesterday’s session saw corn up 555 contracts, soybeans down 124, meal down 2,614 contracts, oil up 1,291, SRW down 3,461 and HRW up 769 contracts.

Deliverable stocks out yesterday with a continued draw down in Chicago are warehouses.  Total wheat stocks in Chicago fell by 647,000 bushels to 77.786mbu vs. 95.836mbu a year ago.  That marks an 18.8% drawdown in stocks from a year ago, a pretty impressive feat considering similar carry-in and production sizes.  In Kansas City, stocks totaled 123.877mbu vs. 123.809mbu a week ago and also above the 119.794mbu a year ago.  HRS stocks fell 680,000 bushels from the week before to 21.975mbu and compares with 24.057mbu a year earlier.  The move in the MWZ/MWH spread yesterday garnered a lot of attention as it shot up to -3.00c, the highest trade since February.  Traders couldn’t point to a specific reason for the move, although there is the general expectation Canada will see a cut to production and exports on tomorrow’s WASDE.  In addition, if the quality issue are worse than feared, that could also make Duluth stocks more valuable.  Domestic bids also said to be better which would be supportive.  WZ/WH also in focus as the VSR calculation period rolls on.  That spread is trading at -14.75c this morning, which accounts for around 39% of full financial carry.  The rolling average for this spread is 49.8% of full financial carry which would be under the threshold to reduced variable storage rates from 11c/mo to 8c/mo.  To us, this would mark a major fundamental shift for managed funds who have gotten used to the solid roll yields provided by being short Chicago wheat.  Doubt it leads to an outright liquidation of their entire short position but could shift more contracts to KC where storage rates are not at risk of being reduced.

Also out yesterday was South American planting progress which showed Brail at 55% complete vs. 44% last week and 41% average.  Largest soybean province Mato Grosso is 90% seeded vs. 74% last week and 62% average.  It looks like a near certainty Brazil will have early beans ready for export in January, cutting the window of when US soybeans have a chance to make inroads into China.  Brazilian 1st crop corn planting progress was 75% complete vs. 67% last week and 69% average.  With the USDA Attache cutting hit estimate of Chinese soybean imports to 85MMT this week, we remain very concerned the USDA could finally make their needed cut.  Unlikely the Department makes a straight road cut to 85MMT from 94MMT, but even reducing 4MMT this month would signal more cuts to come.  4MMT worth of cuts would equal 146mbu which would pretty much go straight to US export and eventually ending stocks.  This is how many private estimates have been projecting carryout over 1.0bbu for much of the last month.  And if we needed more bearish information, officials from Argentina said if the trade spat between China and the US continues, Argentina could export up to 16MMT of whole soybeans to China vs. 7-8MMT average and 3MMT this year.  If Brazil is able to export 75MMT to China, add in 16MMT from Argentina, and 3-4MMT from other minor producers, China can import their 94-95MMT.  Definitely not what the US producer needs to see/hear right now but it is reality.

Ethanol production will be in focus later this morning after stocks finally broke last week and production rebounded from multi-month lows.  Ethanol margins have continued to deteriorate, however, with estimated gross ethanol margins from RJO at $0.47/gln vs. $0.56/gln last week and $0.74/gln last year.  According to their chart, these are the worst margins in at least four years.  RBOB/Ethanol spreads continue to downtrend, although have rallied 1-2c the last day or so.  At 37-40c/gln premium RBOB over Ethanol, these are the tightest spreads since March.  Further illustrating this point is the ethanol/corn spread which helps paint a picture of ethanol profitability by seeing how well the price of ethanol covers the input cost of corn.  At current, the spread is trading at -$0.04/bu highlighting the fact ethanol does not cover the input cost of corn on a futures basis.

 

Bottom Line:  More chop until tomorrow.  Wheat arguably has the best fundamentals at the moment with improving demand, concerns about winter wheat acres and declining prospects in Australia/Canada.  Soybeans easily have the worst fundamentals in the grain room, but it’s a matter of how aggressive USDA wants to get.  Corn is somewhere in the middle with supportive carryout projections but demand indicators a little shaky.

 

Good Luck Today.

Tregg Cronin

Market Analyst

Tregg.Cronin@halocommodities.com

www.halocommodities.com

@5thWave_tcronin

 

 

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

 

11/5/2018 Morning Comments

Good Morning,

 

Equities a little unsettled this morning but the weakness in the energy market is grabbing attention.  Crude oil is lower for the sixth session in a row, trading below $63/bbl in WTI and below $73/bbl in Brent.  We are close to trading the lowest level in 7-months as US crude oil stocks rise seasonally into the winter months.  In addition, despite the US sanctions on Iran, Russia has vowed to help Iran get their oil to market.  Secretly, this is probably a win for the US in President Trump’s mind as his sanctions remain in full force, but rather than losing Iran’s oil supplies and driving prices up, Russia is going to help keep the supply on the market and prices under pressure.  In addition, President Trump announced there are eight countries which can continue purchasing Iranian crude as long as they make progress cutting their purchases.  Whatever than means.

Wet weather across the Plains this morning from North Dakota to Oklahoma which should work into the western/central corn belt later today.  Once this system passes, the Plains and WCB should be looking at a fairly dry week, allowing harvest to resume.  Unfortunately, the heat doesn’t come back for the foreseeable future.  High temps this week will be mainly in the 30’s for the Dakotas and Minnesota with highs in the 20’s by the end of the week.  This shouldn’t hinder corn harvest, but could slow any remaining sunflower or soybean combining.  Kansas sees several rounds of light rain at the end of the week which should hinder planting.  No warmup in sight as below normal temps dominate for the next 14-days.  Precip slides to normal/below by the end of the period.

 

Easier markets following last week’s impressive rally on optimism toward a trade deal.  It seems as though that optimism has faded a bit with analysts and traders alike realizing diplomacy requires more than a couple tweets.  There are several things which need to occur before anyone should have confidence a trade deal is imminent.  1) Brazilian FOB soybean basis needs to weaken substantially, and not just for new crop slots.  2) the PNW should see a bid put back into the market for the first time in 3-4 months.  3) Dalian soybean and meal markets should remain under pressure as available supplies grow.  Until one of the three things occurs, we shouldn’t get too far ahead of ourselves.  Wheat markets are trading lower in sympathy with row crops, but wheat probably has the best reasons for strength given continued delays to winter wheat planting and the long-awaited improvement in export demand.  We came across some interesting statistics on winter wheat planting in slow harvest years.  Corn doesn’t seem to have a story at the moment outside of a small yield reduction expected on this week’s WASDE.  Corn open interest fell 4,388 contracts on Friday, soybeans down 6,236, SRW down 1,208 and HRW up 1,994 contracts.

Beginning with the winter wheat delays, national planting progress last week was 78% complete vs. 85% average, the slowest progress since 2010 and the second slowest on record.  Kansas was 76% planted as of last Monday, the slowest progress on record.  In addition, soybean harvest was 72% complete vs. 81% average.  Since crop progress began, we were able to identify 11 years in which soybean harvest was 75% or slower as of week 43.  Of those 11 years, nine saw national winter wheat plantings decline from the year earlier while two saw plantings increase.  Worth noting, the two years of increases were 1993 and 1984, so we haven’t had this slow of soybean harvest and an increase in winter wheat plantings in 25 years.  Running a regression analysis over the last 34 years, 72% soybean harvest translates to a decline in winter wheat plantings of -3.530 million acres with an R-squared of 42%.  Admittedly, that is not the strongest correlation we have ever seen.  The average change over the eleven years in which soybean harvest was this slow produces a change of -2.708 million acres.  We aren’t comfortable forecasting a decline in winter wheat acres of that magnitude just yet, but we’ve also never had Kansas planting this slow before either.  Were it any other area of the US so far behind, one might be able to make the argument plantings could still end up near unchanged or higher.  However, given it is Kansas, the data points to a decline.  Since 1970, the direction of change in national winter wheat plantings has been the same as the direction in Kansas 73% of the time.  “As goes Kansas, so goes the US.”  We still aren’t sure a huge decline will be seen, but even unchanged acres from a year ago would be a major downgrade from the 10-15% increase many were expecting based on the higher insurance guarantee prices.

The other encouraging thing in the wheat market came via Friday’s COT data.  In KC wheat, the gross commercial long (end user) increased his position to +98,500 contracts, the largest since January 23rd.  The same is true in Chicago with the GCL pushing to +136,076 contracts, the largest since 1/23.  Further, managed funds finally liquidated their long in KC wheat, holding a net long of just 164 contracts as of 10/30. This is the smallest net long since funds were net short at the end of January.  Same is true in Chicago as funds are now net short the most since April 24th.  Not to be left out, commercials were also buying in Minneapolis with the GCL up to 40,682 contracts, the largest position since October 24th, 2017.  Very little activity in corn last week while funds sold beans to put their net short at -132,548 contracts, the largest since January 16th.  Overall, the commercial buying in wheat is a supportive point while funds being much more balanced should provide fuel to the fire.  In addition, funds being so heavily short soybeans should provide fuel to the fire should any trade deal headlines sneak out.

Multiple cash sources made note of the stronger PNW HRW basis going home Friday with bids said to be up 20c for nearby slots.  Saudi Arabia tendered for barley last week, which has preceded a tender for wheat on more than one occasion.  Commercials likely trying to test the market and see where they can get HRW bought should they need to compete for a major tender.  Both KC and Chicago saw more delivery receipts canceled on Friday with 20 axed in KC and 36 in Chicago.  There are 232 left open in KC and 142 left open in Chicago.  Not a lot of certs available for the supply of last resort.  This year should prove a good example of why producers should attack the market with either hedges in their futures account or HTA’s at their local elevator.  Selling the board allows a producer to lock in carry while keeping the basis open to appreciate this winter when wheat movement slows but export demand picks up.  Alberta reported spring wheat harvest at 96.1% on Friday, while Saskatchewan was 92% harvested.  Looks as though producers will get everything out the field, although the quality remains a question mark.  Some trying to draw conclusions from the Alberta crop progress report yields and final yields from StatsCan.  Does look as though StatsCan yields could prove a little high, and Informa Economics did cut their Canadian wheat estimate to 28.4MMT vs. USDA at 31.5MMT last.  Both Canada and Australia should see production/exports cut on this week’s WASDE report.

 

Bottom Line: Bulls need to play poker and jump rope every day or however the old saying goes.  We can’t continue to rally markets on a trade deal until it actually happens.  Wheat continues to have a story on delayed plantings and improving exports.  Here again, prices would do well not to rally away from the business, keeping Russia and Europe exporting longer than they should.  Fund positions are much more manageable now, however, so there shouldn’t be the anchor around price the way there was much of October.

 

Good Luck Today.

Tregg Cronin

Market Analyst

Tregg.Cronin@halocommodities.com

www.halocommodities.com

@5thWave_tcronin

 

 

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

11/2/2018 Morning Commitments

Good Morning,

 

A tweet yesterday and overnight chatter have global equities rallying and currencies trying to price in varying outcomes.  After President Trump announced on Twitter he and China’s President Xi had a very good phone conversation yesterday, reports from Bloomberg overnight suggest the president has ordered his cabinet to draft a possible trade proposal and cease fire in the trade war for potential signing at the G20 Summit in Argentina at the end of the month.  The Chinese Yuan rallied sharply, trading to 6.90 this morning the strongest trade in two weeks.  Equity markets from Beijing to London are also rallying sharply.  As is always the case, the devil will be in the details as to whether any potential trade deal rights the wrongs the current Administration has accused China of, or whether this is just a cease fire without anything changing from the pre-trade war environment.  In our opinion, the only way China agrees to major concessions about intellectual property theft and various other trade sticking points is if they are truly feeling the heat economically.  Otherwise, President Xi does not seem like the type who will take the risk of appearing to concede the upper hand.

Scattered showers across the central Midwest this morning ahead of an active weekend in the western corn belt and Northern Plains.  The next 24-72 hours will bring winter-weather to the Northern Plains which will slowly build into more widespread precip across the central/eastern corn belt.  Totals are impressive off this morning’s GFS model with 0.25-0.50” for the Northern Plains and 0.50-2.50” across the central/eastern corn belt.  The Mid-South will also be active.  More than the precip, the temps are turning colder without any real relief in sight.  Below normal temps are ushered in this weekend with expectations they hang around at least the next 15-days.  Above normal precip will be with us until the 6-10 while more below normal precip works in during the 8-14 day.

 

What a difference a day makes.  After early week moves, disappointing data and very little reason for optimism, President Trump turned the soybean market on its ear with a tweet and an order to his cabinet to draft a trade-deal proposal with China.  Details are incredibly lacking, and absolutely nothing is concrete at this point, other than a meeting between the two leaders at the end of the month.  Confirmation will need to come in the way of Chinese purchases, a bid for soybeans off the PNW or sharply weaker Brazilian FOB basis.  The sneaky thing to remember here is we’ve already lost the month of October, and we aren’t likely to see exports to China ramp up this month either until a trade deal is done.  October and November are the two most important months to the soybean export program.  By December/January, South America will be in charge and the US will only be used for stop-gap purchases.  That will leave us to supply the rest of the world Jan-Jun, which will result in demand, just not the sort of demand China can provide.  Therefore, bulls need to be very careful about getting out over their skis, as the rug can be quickly pulled out from underneath as we’ve seen all too often with this Administration.  Open interest changes on the rally yesterday saw corn up 11,720, soybeans down 1,806 contracts, meal down 5,103, oil up 5,265, SRW down 7,995 contracts and HRW down 3,073.

There really isn’t much else to say on the soybean front as there is more we don’t know than that which we do.  Therefore, we will stick to the data we did get.  Export sales were solid for wheat and terrible for corn and soybeans.  All wheat sales were 21.4mbu vs. the 17.2mbu needed weekly and the highest sales total in 6-weeks.  This is the sort of tonnage we need to be doing on a consistent basis to achieve the USDA’s lofty export goal.  Total commitments of 481.5mbu are down 16% from a year ago vs. the USDA calling for a 13% increase.  Total commitments remain at a 4-year low, and commitments as a percent of the USDA’s forecast at 46.97% is the lowest on record.  We need to sell 17.5mbu per week, every week, through the end of May which would be the largest program since 2010 and second largest since 2003.  Corn sales totaled 15.5mbu vs. the 36.5mbu needed weekly, marking the third straight week we failed to do the needed tonnage.  Total commitments of 859.5mbu are up 28% from a year ago, and are the second largest since 2007.  Soybean sales were bad at 14.5mbu vs. the 29.8mbu needed weekly.  This was the fourth week in a row to miss the needed level.  Total commitments are down 29% from a year ago, while the USDA is still only calling for a 3% decline y/y.  Total commitments of 788.1mbu are the lowest since 2011, while the commitments as a percent of forecast at 38.2% are the lowest since 2005.  Lots of work left to do.

Wanted to note sorghum exports separately as they’re bad enough to warrant their own paragraph.  The commodity which should react most favorably to a potential trade deal would be sorghum as it has been hit even harder than soybean exports.  Export sales last week for sorghum were just 12,080MT, or 532,486 bushels.  This was the weakest for this week of the calendar since the 2012 drought.    Total export commitments of 9.898mbu are the lowest on record by a huge margin with the second lowest total in 2011 at 23.2mbu, or over double.  We’ve sold just 6.6% of the USDA’s forecast with 10-months left to go.  The chart below puts this year’s sorghum campaign in perspective.

Other data released yesterday included the September Oilseed and Grain Crushing report which showed soy crush at 169.3mbu vs. expectations for 171.0mbu and August crush of 169.6mbu.  While below expectations, Sept crush was sharply above last year’s September total of 145.4mbu and blew away the previous record of 147.3mbu set in September 2007.  Every month from October 2017 through September 2018 has set a monthly record for oilseed crushing.  On the ethanol side, USDA reported 449.3mbu of corn was used for ethanol production during September, slightly above last year’s 445.5mbu and 483.4mbu in August.  USDA also reported 6.3mbu of sorghum used for ethanol production which was little changed from August and slightly above last year’s total.  Should be more sorghum getting crushed for ethanol based on how terrible sorghum exports are as mentioned above.

One other note on the potential trade deal, if we are looking for signs this story might be real, the Dalian markets might be giving it to us.  Dalian soybeans and meal futures were sharply lower overnight with the former off 2.3% and the latter off 3.55%.  On a continuous basis, Dalian soybeans fell to their lowest level since early 2016.  Meal sold off even worse, dropping to the lowest level since August.  It would appear Chinese traders are at least entertaining the idea of more available supply in the weeks and months ahead.  Otherwise, FC Stone was out with their latest yield guesses, increasing their corn yield to 181.4 vs. USDA at 180.7 while beans were 53.2 vs. USDA at 53.1.  Russia’s safety watchdog was reportedly going to halt operations at five inland grain loading facilities.  No details were given, but this could be a tactic to slow grain exports “naturally.”  LDC stopped 287 November soybean certs overnight with over 600 being redelivered.

 

Bottom Line:  All about China, Trump and soybeans today.  The market is going to want confirmation of something in coming days/weeks, or else this premium will be difficult to maintain.  A rising tide lifts all boats, so wheat and corn will trade higher in sympathy, but just like soybeans fell the hardest, they too should rally the hardest.  In other words, don’t buy your soybeans in the wheat and corn pits, and farmers should also not have rose-colored lenses on in regards to this trade deal.  We have a massive oversupply of soybeans in this country, with or without a trade deal.  A couple tweets does not mean $10 is the next stop for soybeans.  Have orders in for old crop.  Have orders in for new crop.  Have realistic basis targets in mind for pricing DP and HTA’s.  Don’t use the rally as an excuse to do even less marketing than what has been done to-date.

 

Good Luck Today.

Tregg Cronin

Market Analyst

Tregg.Cronin@halocommodities.com

www.halocommodities.com

@5thWave_tcronin

 

 

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

10/31/2018 Morning Comments

Good Morning,

 

While most are focusing on the sharp equity gains yesterday the opportunity to put the month of October behind us, the weakness in the Chinese Yuan has our attention.  Yesterday, the Yuan fell to a 10-1/2 year low of 6.9741, nearing the psychologically important 7.00:1.00 level against the USD.  It is likely the PBoC would try to defend the 7.00:1.00 level, but if hedge funds and algos smell blood in the water, there may be only so much the PBoC can do.  If the 7.00:1.00 level is breached, it would be expected to yield even sharper losses.  The weakness in the Yuan is tied to US Dollar strength and slowing growth tied to the trade war.  In this sense, one could argue the US is “winning” the trade war if it is believed one can actually “win” a trade war.  More likely, the slowing caused in China will eventually bleed into the US and cause growth to slow here, leaving us limited options to boost growth short of a trade resolution.  However, the current party in Washington is likely to view the aforementioned as further ammo to tighten the screws on the PRC as opposed to making concessions ahead of a potential meeting between President Trump and President Xi next month.

 

Markets set to close the month of October on a softer note, although most ready to tie a bow on this month.  For the month, December corn is up 7.50c, KC Wheat is down 20.0c and November soybeans are down 10.75c.  October is traditionally a strong month for Ag commodities as seasonal or even contract lows are usually set during the month with appreciable rallies thereafter.  Corn is the only contract who has benefited this month, even if the other two did not make fresh fall lows.  The month of November turns more mixed from a seasonal perspective as the 30-yr annualized return for corn shows a -0.699% drawdown, soybeans show a 1.395% gain and Chicago Wheat sees an average drawdown of -0.759%.  Chicago wheat is very weak from a seasonal perspective through year end which does not bode well for current prices.  The about-face and selloff yesterday in the wheat market was tied to weakness in Russian cash and futures as well as European prices.  It would appear Mother Russia was none too pleased with US-SRW sneaking into the latest GASC tender and they appear ready to defend that market share.  As we’ve been stating for weeks, until Russian and European wheat prices trade a consistent premium to US, there is little reason for US futures to put together a sustained rally.  Many traders will be looking forward to a strong export sales report tomorrow morning based on cash chatter the last several days.  If the expected tonnage is not met, weakness will be forthcoming.

The Russian selloff was the story with Black Sea wheat futures down $2.50-5.00/MT through February.  Volume was active, and the most heavily traded December contract was down $4.50/MT at $235.00/MT.  This is the lowest trade for the contract since July and pushed the contract down $15/MT for the month of October, or 40c/bu.  Compare this with the December KC wheat futures which only fell 20c/bu during October.  Actual cash offers out of Russia vs. two weeks ago are not off nearly as much with November down only $2/MT while December is down around $7/MT.  Paris futures have also been weak, off around €7/MT since the middle of the month, or about 22c/bu.  MATIF/KC spreads have been mostly steady and rangebound.  Besides US wheat competing with Russian into Egypt, the recent rainfall and data showing a sizable increase in winter planted area in Russia is likely weighing there as well.  US wheat needs to be a $5-10/MT discount on a FOB basis to offset the freight disadvantage into MENA vs. the $2-4/MT premium we are currently carrying.  On the other hand, US-SRW is the reserve wheat to the world so one does have to ask the question of how much of this kind of business we actually need to do?  US wheat needs to clean up on Latin America, South America and win back some SE-Asian business, but doing a huge amount of Middle East business doesn’t necessarily have to be transacted to justify our current export forecast.

Light on data yesterday, although we did see weekly deliverable stocks with Chicago wheat total stocks falling 1.109mbu on the week to 78.433mbu.  This compares with 96.172mbu a year ago, a sizable decrease and one which is still confounding cash traders.  Carry-in and production were nearly identical with year ago levels, so it would stand to reason deliverable quantities should be similar.  It is not clear why the wheat is not being held at delivery warehouses, or if the supplies are simply not there?  The share of deliverable vs. non-deliverable stocks is slightly lower on deliverable grades vs. a year ago, but nothing material.  KCBT stocks were up a tick on the week to 123.809mbu vs. 121.316mbu a year ago and remain record large for the week.  HRS deliverable stocks were up 88,000 on the week, the second straight increase.  Total wheat stocks measure 22.655mbu vs. 25.504mbu a year ago.  HRS deliverable stocks typically peak somewhere during late September/early October and fall throughout the winter months.  So far, the seasonal peak looks to have been set on September 30th at 23.057mbu.

The other topic we’ve been discussing lately has been Argentina.  Export demand for US soybeans has been abysmal this season without China, although it has picked the last two weeks.  Still, crush demand has been the stalwart, setting monthly crush records each month for the last year.  This has been predicated on incredible crush margins which still exist at $1.18-$1.45/bu through next May.  However, part of those solid crush margins and crush pace is because of the drought in Argentina last year and the sharply reduced supplies available.  It almost feels like many in the trade have forgotten about the incredible drought last year which helped propel us to $10.60 futures basis November.  Argentina’s soybean production of 37.8MMT last year was the lowest total since the massive drought in 2008/09.  This saw exports fall by 5MMT from the year before and crush down 6MMT.  In 2018/19, current estimates have Argentina at 57MMT worth of production, up nearly 20MMT y/y.  If that occurs, it would be a 50.7% increase in y/y production, the largest since the 70.3% increase in 2009/10 and the second largest since 1997/98.  It would stand to reason Argentina will be selling meal and oil at incredibly discounted levels to win back market share which should in-turn crimp board crush margins.  If crush slows in Q2-2019, and there is still no trade resolution with China, both pillars of demand in the soybean market will be impacted.  Even with an Argentine-shortened crop, futures managed to selloff $2.00+ this summer as export demand faltered and supplies in the US increased.  What could futures do if we start to slow crush from the record pace we’ve seen the last 13-months?  Trade resolution becomes paramount in 2019 if South American production is not threatened.

 

Bottom Line: Wheat markets leading the charge lower to close the month, continuing their leadership role, only to the downside.  We need several weeks of consistent export demand for US wheat before ideas of trading back to the high $5 area can be entertained.  Otherwise, we simply encourage Black Sea and European stocks to keep hitting the market.  Soybeans remain in their solid downtrend, and we worry what price might do if South American production is not threatened in the next 60-days while crush begins to slow next year.

 

Good Luck Today.

Tregg Cronin

Market Analyst

Tregg.Cronin@halocommodities.com

www.halocommodities.com

@5thWave_tcronin

 

 

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

10/30/2018 Morning Comments

Good Morning,

 

Mostly clear Midwest radar this morning with the exception of Northeast MN and Northwest WI.  The Midwest has enjoyed a mostly dry week, although the Plains continue to be hit with on/off showers.  Most of Kansas, E-CO, Oklahoma and Texas have seen 0.50-1.00” over the last week, slowing harvest and planting of wheat.  Aside from a stray shower or two, the southern plains should be mainly dry the next week.  That can be said for the rest of the plains and WCB as well which should allow harvest to surge ahead where it is still lagging.  The eastern corn belt, mid-south and Delta will all be wet this week, however, with another 0.50-3.00” expected mainly tomorrow with another round Sunday/Monday.  6-10 and 8-14 day maps from NOAA continue to point toward normal temps with above normal precip, especially in the eastern corn belt.

 

Quietly mixed markets overnight as corn tries to claw back following yesterday’s reversal and wheat consolidates inside yesterday’s range.  While the Friday rally of 8-18c was impressive, it is encouraging to see wheat futures hold in check following the recent string of business.  All too often the last 3-4 months, the US would do a piece of business which was followed by short-covering and running futures to a level which priced the US out of any swing destination.  Basis has firmed and futures are higher, but this response seems to be more measured.  However, worth noting, the US Dollar Index is strong this morning and within a few pips of 14-month highs.  As if wheat needed another reason to make itself uncompetitive.  Corn rejected the 3.70 area yesterday while soybeans remain firmly entrenched in their downtrend.  Momentum indicators look awful and On-Balance-Volume hit -326,721 contracts yesterday, the lowest level since August 28th.  We did sell 120,000MT of soybeans to unknown destinations yesterday, which follows the string of sales to unknown last week, but otherwise soybeans can’t seem to get out of their own way.  Open interest changes yesterday included 2,290 contracts, soybeans down 13,518 contracts, meal up 2,191, oil up 9,807, SRW up 5,568 contracts and HRW up 1,457 contracts.

Crop progress was released yesterday afternoon with USDA putting corn harvest at 63% complete vs. 49% last week and 63% average.  As has been the case all fall, delays persist in the west while the east is ahead of schedule.  With the current week of weather forecast, big time progress should be made between now and next Monday.  Soybean harvest remains delayed at 72% nationally vs. 53% last week and 81% average, although 19% in one week is impressive.  As with corn, soybean harvest should be big this week as producers make it their focus before the calendar flips to November.  The Plains contain the largest deficits with 14-28% from North Dakota to Kansas.  Nationally, progress is around the third slowest of the last 25 years.  Considering the delays, imagine what a big time export program would be faced with this year?  The soybean delays are spilling over to winter wheat planting which was estimated at 78% nationally vs. 85% average.  Of chief importance, Kansas is just 76% planted vs. 89% average.  Kansas was expected to plant around 9 million acres according to several outlets, leaving roughly 2.0-2.25 million acres left to seed.  At this stage, producers are throwing in the towel, or seeding knowing they are beyond optimal plant dates with very little emergence before dormancy expected.  Texas is also behind schedule at 67% complete vs. 75% average.  SRW states mainly caught up to average.  Wheat is 63% emerged nationally vs. 67% average.

Sunflower harvest is also in focus as major delays exist in South Dakota after the three weeks of inclement weather in late September/early October.  The nation’s largest sunflower producer was just 16% harvested vs. 8% last week and 48% average.  This producer can attest, the sunflowers are bone dry where they are still in the field, so it is just a matter of getting them out.  North Dakota is 49% harvested vs. 43% average, MN is 58% harvested vs. 69% average, KS is 40% harvested vs. 42% average, CO at 31% harvested vs. 48% average and TX is right at average of 73% harvested.  According to the National Sunflower Association testing data, seed quality in the high plains is similar to better than last year with oil at 41.35% vs. 41.3% last year, FM at 4.7% vs. 5.8% last year, and test weight at 29.4lbs vs. 29.4lbs last year.  Northern plains quality is better than last year with oil content at 43.7% vs. 43.4% a year ago, FM at 3.5% vs. 4.8% last year and test weight at 31.0lbs vs. 30.8lbs last year.  In general, sunflower prices are weaker than a year ago by $10-50/cwt.

AgRural estimated Brazilian soybean planting at 46% complete as of Friday which is well ahead of 28% average and 30% a year ago.  Total soybean production ideas continue to come in north of 120MMT, and with planting off to such a fast start, little reason to think 2018/19 soybean exports won’t best last year’s record 76.1MMT.  Other progress of note included Ukrainian corn harvest at 66% complete with yields continuing to improve the deeper harvest goes.  USDA is currently estimating production at a new record 31MMT with record exports of 25MMT.  It is possible we see both creep higher.  The Russian Ag Minister said roughly 17.5 million hectares of winter grains have been sown so far, exceeding initial expectations of 17.2 million in total and well ahead of last year’s 16.6 million at this time.  Alberta and Saskatchewan reported harvest progress of spring wheat late last week with Alberta now 81.6% harvested vs. 59% the week before, and Saskatchewan at 92% complete after a good week of harvest.  Weather looks mostly favorable for finishing harvest in the coming 7-10 days.

Export inspections released yesterday were disappointing for grains but solid for soybeans.  All-wheat inspections totaled 14.4mbu vs. the 22.0mbu needed weekly and continuing the streak of not having a single week this marketing year achieve the needed level.  Total inspections are down 22.8% from a year ago at 316.2mbu.  Corn inspections totaled 25.7mbu vs. the 46.0mbu needed weekly.  Total inspections of 338.3mbu are up 68.6% from a year ago, but the slower sales and shipments due to improved Ukrainian and Argentine competitiveness is being felt.  Soybean inspections totaled 47.9mbu, a marketing year high and well better than the 39.2mbu needed weekly.  Total inspections of 268.9mbu are still down 40.9% from a year ago while the USDA is only looking for a 3.2% decline.  With the weaker price action the last couple weeks, hopefully the market is bracing itself for the USDA to cut export demand solidly in coming WASDE reports, otherwise the market will be in for a major bearish surprise as carryout rises toward 1.0bbu.

 

Bottom Line: Encouraging to see improved interest in US wheat, but the current rally is already on the verge of pricing us out of sensitive destinations.  Still a fair amount of harvest to reap in the Northern Plains with storage filling up quickly.  Corn demand has turned shaky the last few weeks which may make it difficult to hold the 3.70 area basis December futures.  Soybean techs and fundamentals still look soft with declining yield ideas about the only supportive input.  Producers should continue to sell carries while they’re available.

 

Good Luck Today.

 

 

Tregg Cronin

Market Analyst

Tregg.Cronin@halocommodities.com

www.halocommodities.com

@5thWave_tcronin

 

 

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

 

10/25/2018 Morning Comments

Good Morning,

 

Global stocks are recovering this morning in Europe and the United States after yesterday’s bloodbath spilled over into Asia.  Yesterday’s rout saw the NASDAQ drop the most in one session since August 2011 while the S&P 500 closed lower for the sixth consecutive session.  Analysts continue to want to put a finger on the exact reason for the selloff, but it seems like a new indicator of slowing global momentum is found every day.  For example, in John Kemp’s daily energy note, he writes that 3M Corporation (based out of St. Paul, MN) has watched its share price fall by more than 19% over the last 12-months.  As he notes, in the past, changes in 3M’s share price are closely correlated with the ISM Composite Manufacturing Activity Index.  The selloff in 3M suggests the ISM Index will begin to soften, another signal the US economic expansion is slowing and should lose momentum into 2019.  If anyone would like to receive John’s free daily email, they can subscribe by following this link: http://eepurl.com/dxTcl1

Rains from the Delta to North Dakota this morning, stalling winter wheat planting and row crop harvest.  Once the current system finishes up later today, several days of dry weather will be the feature until the next round of rain in the Delta and Mid-South.  The WCB and Northern Plains are mainly dry the next 7-days with the exception of Minnesota which sees 0.50-0.75” totals for most of the state.  The Plains will be mainly dry, although extended maps featuring cooler and wetter weather in the 6-10 and 8-14 day are showing up from NOAA.  This sort of pattern is not needed as farmers try to finish planting and harvesting before November hits.

 

Weaker markets this morning with follow through selling noted across the Ag room.  The washout in wheat was particularly noteworthy as the lows overnight saw Kansas City December wheat hit the lowest level since January.  Traders wanted to know the exact reason for the selloff yesterday, but when we’ve been writing about poor US exports and the premium to Europe and Russian wheat for so long, it gets lost amid the shuffle.  Yes, Russian exporters are meeting with the Ministry of Ag tomorrow, but nothing of substance is expected.  Yes, IKAR and the Russian Ag Ministry raised their estimates of wheat and all-grain crops yesterday, but that merely brings them in-line with where the USDA has been for months on the export front.  Russia should still exhaust most of their exportable surplus by the beginning of January, so the question becomes whether the United States can get enough wheat out the door January-May to hit the USDA mark?  Open interest changes yesterday saw corn open interest up 12,808 contracts, soybeans down 18,105, meal down 2600, oil up 3791, SRW wheat up 14,690 contracts and KC wheat up 8,801.  After steady increases, KC wheat open interest is now the largest since February while Chicago wheat open interest is the largest since mid-June.

Weekly ethanol production was released yesterday morning, bouncing back slightly from last week’s production level.  Weekly ethanol production was estimated at 1.024 million bbls/day, up 13,000 on the week but still below the roughly 1.068 million bbls/day needed to achieve the USDA’s marketing year forecast.  Ethanol production margins have been under pressure for quite some time, and the slower grind rates seem to be reflecting that.  The ethanol/corn spread, which is calculated by multiplying the ethanol price by 2.85 (conversion rate), and subtracting the spot price of corn, traded to a new 5-1/2 yr low on Wednesday.  This simple spread gives an idea of ethanol’s ability to cover the input price of corn, which at -3.05c/bu is not exactly doing that.  Ethanol stocks fell 233,000bbls to 23.897 million bbls, but remains record high for the end of August.  With the Quarterly Stocks report from September 28th confirming slower feed demand ideas via larger Sept 1 stocks, along with slowing exports the last two weeks, weak ethanol production and margins are not what the corn market needs at the moment.  Unlikely to drive corn out of its recent range, but difficult to rally with this sort of baggage.

MWZ/KWZ hit +84.50c overnight, the highest trade since May 25th.  At the end of May, we were concerned with spring wheat planted acres actually declining from a year ago due to the late spring.  The MWZ/MWH has also recovered nicely, trading to -7.50c overnight which is below the -6.25c highs from early October but well above the correction levels of -10.25c last week.  Both spreads seem to be supported by the concerns over Canadian production and quality.  The reports from Canada are all over the map with some calling the quality better than expected and blendable, to others suggesting exports will be materially impacted as these supplies head to the domestic market.  Informa Economics cut their estimate of the Canadian wheat crop to 28.4MMT which would be 3.1MMT below the USDA’s latest in early October,  This is an aggressive cut, although probably not unwarranted.  Both Alberta and Saskatchewan have ¼-1/3 of their spring wheat left to harvest, although weather does look improved this week and into the weekend.  Seasonals and value levels suggest Minneapolis doesn’t need to trade at much more of a premium over KC than it currently is.  If the long-awaited export demand ever surfaces, this spread could see a swift correction to the downside.

In addition to the new lows for flat price, Kansas City spreads are also weak with the KWZ/KWH trading to new contract lows of -26.25c overnight.  This accounts for 68.4% of full financial carry (LIBOR+200bp), but there isn’t a lot of reason to think spreads won’t keep working wider until export demand pull shows up at the Gulf.  Deferred spreads are weak, but not at contract lows as KWK/KWN hit -8.00c overnight, the lowest trade since late June.  As we’ve said, either export demand needs to pick up to justify KWK/KWN trading at 29% of full financial carry, or spreads need to work wider to reflect the true carryout situation.  Chicago spreads are weak, but not as weak as KC, although the WK/WN is sitting a 26% of full carry.  The front end of the Minneapolis curve remains firm, but deferred spreads are much softer.  Back to KC for a moment, futures trade is showing a textbook example of taking the carry out of the market for all the producers who don’t understand why carries aren’t earned until they are sold.  September KC futures went off the board at $4.79 while KWZ8 closed at $5.18 with a KWU/KWZ carry at -39.00c.  Most would say, the market is paying me 39c to store my wheat until December, why would I sell now?  However, as we’ve seen the last 7-10 days, KC futures have dropped from $5.30 to $4.92 this morning with nothing between spot levels and where September went off the board at $4.79.  So while the theoretical carry of 39c was there for the taking, the board has now erased 26c of that carry with futures deterioration.  If December has to go where September went off the board which is all too common, we will erase the entire 39c.  The farmer or elevator will have carried his wheat for 2-months for free.  Carries are not earned until they are sold.

 

Bottom Line: Weaker markets as there doesn’t seem to be an asset class safe from the volatility of October.  Grains are grasping at straws, looking for a bullish headline anywhere they can find one.  Soybean demand is weak with carryout projections rising, wheat export demand has failed to show up yet and the solid corn demand has begun to weak in both exports and ethanol.  Difficult to grasp on to ideas of yields declining today, even though more producers are noting their early bean yields were the best as weather has cut later maturing varieties.

 

Good Luck Today.

Tregg Cronin

Market Analyst

Tregg.Cronin@halocommodities.com

www.halocommodities.com

@5thWave_tcronin

 

 

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

10/19/2018 Morning Comments

Good Morning,

 

We wrote about China and their stock indices yesterday, and there is more to talk about today.  Overnight, China announced their Q3-GDP which came in at 6.5% y/y, marking the weakest quarterly growth figure since the 2008/09 financial crisis.  The figure was lower than expected, but it did keep China on-pace for its full-year growth forecast of 6.5%.  With the heavy losses witnessed this week, one would think the print would have encouraged a further selloff, but the Shanghai Composite rallied to close higher by 2.58%.  The week’s selloff did not go unnoticed by data watchers, however, as China’s main stock index is now off more than 30% from its most recent 200-day high.  This is the largest drawdown in two years.  However, when drawdowns have been this large in the past, it didn’t necessarily mean further losses going forward.  In fact, under all time frames, and especially 6-months later, the median return for the Composite was higher with the exception of 1-week later.  This likely mean the worst is over for Chinese equities, if history is any guide of course.

Rains this morning in Texas, Oklahoma, E-Kansas, Iowa, S-Minnesota and Wisconsin.  Once these showers finish up, however, the majority of the Midwest is still looking at a dry 7-day outlook.  The southern plains and Delta are the two areas which remain wet the next week with Texas seeing another 2-3”.  Oklahoma is also wet, but Kansas has only passing chances at showers which could allow the last bit of winter wheat to get in the ground.  Unfortunately, extended maps from the CPC look wet for the entire Midwest with the 8-14 day turning above normal on precip for almost everyone.  Temps will also gradually cool to normal/below for most in the corn belt.  In other words, farmers would do well to take advantage of the next 7-10 days while the good weather lasts.

 

Weaker grains but a firmer oilseed complex this morning as traders get set to put a bow on a soft week.  After the continuation of last week’s rally on Monday, trade this week has been disappointing and a bit disheartening.  Technical indicators looked good early in the week, but the waning upside momentum combined with what are surely smaller managed fund short positions are limiting upside appetite.  Harvest is back rolling in many areas, bringing with it increased hedge pressure, and when combined with a disappointing round of export sales, there isn’t much reason for bulls to throw their weight around.  In addition, put/call ratios show way more upside bets than downside bets at the moment.  Across the grain room, every commodity has more open calls than puts, with the largest spread belonging to KC wheat with 70.75% of all options open being calls vs. 29.25% being puts.  Corn has 62% of the options being calls, soybeans at 58%, Chicago wheat at 62%, Meal at 59% and Oil at 55%.  Open interest on yesterday’s selloff saw corn up 10,398 contracts, beans down 1,220, meal up 3,066, oil up 2,105, SRW up 431 and HRW up 696 contracts.

Other than the price action yesterday, the story was export sales.  The only encouraging total was found in wheat, although it says a lot when we get excited about the weekly haul just barely hitting the level needed.  All-wheat sales were 17.5mbu vs. the 17.4mbu needed weekly to hit the USDA forecast.  Total commitments of 445.1mbu are down 18% from a year ago vs. the USDA calling for a 13% y/y increase.  The commitment total is the smallest since 2015, and 17mbu above the lowest commitment total for this week on record.  Commitments as a percent of the USDA forecast at 43.4% remains the smallest on record going back to 1990.  Corn export sales were very disappointing at 15.0mbu, the smallest sales for this week since 2012 and well short of the 36.5mbu needed weekly.  Total commitments remain strong at 828.7mbu which are the second largest since 2007.  The slower sales could be a sign of more competitive Ukrainian supplies and very cheap Argentine supplies.  Soybean sales were also weak at 10.7mbu vs. the 28.7mbu needed weekly to hit the USDA forecast.  Total commitments of 765.7mbu are the smallest since 2011 while commitments as a percent of the USDA forecast at 37.1% are the smallest since 2008.  In fact, other than the 2013 government shutdown when no data was reported, this week’s export sales were the smallest on record going back to 1990.  This includes the pre-China era when sales were much more even throughout the marketing year.

Saskatchewan reported weekly crop progress last night, pegging spring wheat harvest at 72% complete, up 7% on the week but remaining well behind average.  Spring wheat harvest for this week on the calendar is the slowest since at least 2014.  Also on the report, the province reported declining crop quality due to lodging which is causing bleaching and sprouting.  The Northwest district of SK remains the problem spot with harvest advancing just 1% to 45% complete on the week and compares with average progress of 91%.  Weather forecasts are improved for the coming week which should help harvest advance.  Other harvest notes, oat harvest is 72% complete, barley harvest is 83% complete vs. 81% last week, canola harvest is 67% complete vs. 61% last week, flax harvest is 46% complete vs. 36% last week and soybean harvest is 39% complete vs. 30% last week.  Canadian FOB offers of spring wheat continue to be absent until January with capacity booked solid.  Offers of CWRS are roughly $8/MT premium to US-HRW for 13.50% protein while 13.80% is carrying a $20/MT premium.

The soybean balance sheet remains the most in focus as it has the most potential for change in coming months, in our opinion.  On the October WASDE, USDA said 2018/19 carryout will be 885mbu vs. 438mbu last year and the largest ending stocks on record.  Supplies are what they are at this point, even if small changes to national yield or harvested acres adds or subtracts a few million bushels.  It is the demand side of the ledger which is in focus, especially exports.  As we wrote about above, export sales are way behind the needed pace, and we have been arguing for a while now the USDA’s current 2.060bbu carryout has a fair amount of Chinese demand built which is not likely to show up without a major trade deal.  Looking at the situation very simply, current year exports are down 20% from a year ago, and if that pace is maintained, full year exports would be implied around 1.700bbu.  We don’t think that is likely to be the case, but splitting the difference would have exports at 1.900bbu.  That would push carryout to 1.047bbu and the stocks/use ratio to 25.5%, a new record by 7%.  It’s difficult to see how prices north of the fall lows at $8.12 can be maintained without an improvement in export demand, or South American weather begins to decline.  If drought conditions surface anywhere in South America this year, China would have little choice but to lift US soybeans, with or without the tariff situation.  A friend of ours at www.agtradertalk.com threw out the idea of what would happen if a US/China trade deal does get done.  Is China likely to take all of the soybeans they’ve bought from Brazil at +200-250X compared with US soybeans being offered at single digits over the November and January contracts?  Unlikely.  Sure, cancellations of Brazilian soybeans and purchases of US soybeans would correct the basis disparity, but Brazilian beans are likely to fall much more dramatically than US soybeans are to rise.  The point of this paragraph is to start thinking about the current US balance sheet, and the potential for larger ending stocks, but also what would likely need to happen to improve US exports from its current situation.

 

Bottom Line: Disappointing week of trade for bulls with most of last week’s rally being given back.  As harvest ramps back up, and over 50% of the corn and soybean harvest is still to be brought in, bulls will face an uphill climb.  Wheat sales were encouraging, but as we’ve seen in the past, one week of good sales doesn’t mean much.  Feels like the market is already looking forward to the South American growing season.  Alberta crop progress will be reported after the close, giving further clues about the amount of grain left to harvest.

 

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.