1/11/2019 Morning Comments

Good Morning,

 

The government is shutdown and it is looking likely it will never open again.  The end.  In all seriousness, the shutdown doesn’t look like it is going to end anytime soon.  After today, this will be the longest government shutdown in history, eclipsing the mark President Bill Clinton and the Republican-led Congress achieved back in the mid-1990’s.  The US Dollar Index still has our attention as the downtrend remains firmly in place and next level of support is down at the corrective lows from 10/16 at 94.7870.  After that, the September lows around 93.8140 would be expected to lend support.  In broad terms, a weak US Dollar is supportive to commodities priced in US Dollars, but specifically, the link between a weak dollar and higher grain prices is soft at best.  Too many folks blame the US Dollar for any and all price action when other news is lacking.

Extended maps for Brazil continue to paint a picture of above normal temps and below normal precip for much of the northern half of the country.  It is easy to see why crop production estimates are falling, although the herd mentality is usually at fault in such situations.  On the other end of the spectrum, Argentina continues to receive above normal precip and normal to below normal temps.  Crop production ideas are rising, and the reports of localized flooding are almost always overblown in such situations.  In the US, rains across the southern plains this morning as soil moisture profiles such be brimming in KS/OK/TX.  There is barely a stitch of drought conditions across this region, far different than last year.

 

Grains are higher this morning, bouncing after yesterday’s drubbing across the Ag room.  There as no abrupt change in the weather for South America yesterday, so it felt like traders tired of the narrative China was going to buy substantial amounts of US Ag products without confirmation.  Until the government reopens, we aren’t going to see confirmation of any of the rumored buying.  Cash and spread activity would certainly not suggest there has been a great “Chinese grain robbery” while the government was sleeping, so the larger risk would be the government reopens and export commitments fall well short of the rumored totals.  In addition, while Brazilian crop estimates are falling, we feel Argentina is rising and could be largely offsetting the losses to the north.  Add in the fact Chinese imports are still be called well lower than USDA’s last estimate and South American total supplies could be well larger than needed for current flat prices.  Also felt like traders were waking up to the fact new crop soybeans at $9.50-9.60 are too high to shed acres to corn and wheat, especially as the latter battles weak basis levels and soft demand.  Open interest changes yesterday saw corn up 4,497 contracts, soybeans up 5,844 contracts, meal down 3,108 contracts, oil up 10,441 contracts, SRW up 606 contracts and HRW down 5,265 contracts.

The big news yesterday was CONAB releasing their latest Brazilian soybean production figure which they cut to 118.8MMT vs. 120.2MMT previously and 119.3MMT last season.  Plugging this figure into our balance sheet does look as though it would require some level of rationing on exports, although only around 2MMT as it stands today.  Brazil carries out almost nothing, shipping every available bushel they can with storage infrastructure lacking.  With that in mind, we could see exports falling to 79MMT or so on a USDA marketing year or 73.5MMT on a local marketing year.  Both figures would still be a record level of exports by a fair margin while still allowing crush to be just 2MMT below last year’s record.  On the other side of the spectrum, we think there is no reason to not be raising Argentina’s soybean yields to near the record levels of 2014/15 or 2016/17.  If that is done, production could rise around 3MMT from the last USDA estimate with carryout rising to 44.449MMT on a USDA marketing year basis, a new record by almost 10MMT. On a local marketing year basis, which more accurately reflects carryout at the end of the season, Argentina would have over 21MMT of stocks, or 771 million bushels.  That is just 200mbu below the U.S. which is a new record.  Argentina would obviously be able to supply more exports than the 8.750MMT the USDA currently has pegged.  In fact, exports could nearly double and still provide an adequate level of carryout, easily covering any deficit out of Brazil.  In total, the South American production situation does not look all that dire to us, especially if the fire and brimstone in southern Brazil doesn’t persist into spring.

While still on soybeans, China’s government was out overnight reiterating their estimate for marketing year soybean imports at 83.65MMT vs. 94.13MMT last year and USDA at 90MMT.  Obviously, China has a vested interest in making it appear as though soybean demand is down and stocks are plentiful.  On the off chance they are correct, however, and Chinese imports are almost 7MMT below USDA, South America will have way too many soybeans left over to compete with the US to other destinations.  As noted above, Brazil will not store soybeans because they do not have the infrastructure.  Their prices will go to a level which clears inventory and that will almost assuredly be below US offers.  Argentina can and will store soybeans, but they will also crush at capacity which will compete directly with US meal supplies into Europe and Asia.  Even if we split the difference, and Chinese imports are 86MMT, that’s still another 3MMT of supplies they don’t need and 7MMT lower than last year while record production is achieved in both hemispheres.  Not difficult to see the resistance at current soybean prices with these narratives in mind.

The results of the recent GASC tender has us rethinking our stance on Russian supplies.  The narrative for the last couple months has been Russia would run out of exportable surplus by Dec/Jan, and the extraordinary business into MENA would show up.  That is not happening, and Russia continues to sweep up on these high profile tenders.  The pace of US wheat exports had picked up before the government shutdown, but it was still too slow to justify a 1.00bbu export program.  It is much more likely to be 950-975mbu if the demand remains constant into May/June.  Therefore, carryout is still likely to climb on subsequent WASDE reports, whenever they start to be issued again.  Either Russian production was higher than estimated, or carry-in stocks were larger than anyone gave them credit for.  Regardless, Russia continue to dominate the world wheat market as their quality and reliability improve.

 

Bottom Line: A bounce into the weekend as we absorb yesterday’s selloff.  Grains were on a nice bounce, running into farm gate selling and bulls running out of buyable narratives.  We can’t go up on rumors every day, especially when cash markets aren’t justifying the rumor buying.  It is likely China has bought US grains, but probably not to the level spoken.  We are also shifting focus to new crop where soybeans are not priced to shed acres, corn prices above 4.00 are profitable for most and no one knows what actual winter wheat plantings are.

 

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.

 

1/9/2019 Morning Comments

Good Morning,

 

Trade negotiations between the US and China re progressing smoothly with media outlets reporting the discussions have been extended into an unplanned third day.  The news was accompanied by a tweet from the President which read trade talks were “going very well.”  China seems more eager to reach a trade deal as economic data as of late has confirmed the world’s second largest economy is slowing.  US job growth remains strong, but key gauges of manufacturing and service activity both missed expectations last month.  What remains to be seen is how China addresses the issues of intellectual property theft and forced transfer of technology in Chinese companies.  Until those two issues are addressed, everything else is just window dressing which will go back to how things were before.

More rain in Argentina the last couple days and additional rainfall this week in Argentina as localized flooding in the northeast becomes a concern.  Temperatures are seen average to below for the next 7-10 days, so other than some localized flooding, Argentina continues to be in very good shape.  Brazil is much more subjective.  Dryness remains a concern in southern and eastern growing regions while elsewhere conditions seem favorable.  The 6-10 day outlook this morning is currently putting 0.50-1.50” in most of the growing regions, which is an improvement for MGDS, Sao Paulo and Goias.  Only Minas Gerais and the eastern 1/3 of Goais look to see totals of less than 0.50” with worsening dryness in those states.  Minas Gerais accounts for around 5% of total soybean production while Goias consists of around 12% of total production.

 

Higher prices across the Ag room this morning as trade optimism reigns supreme.  The market has been feasting on a steady diet of rumors for the last week to ten days, but with media outlets reporting the trade talks are progressing well, it seems like there may be some teeth to some of these rumors.  If China does come in a purchase some of the rumored totals (5-8MMT of corn, 6MMT of wheat, 5-8MMT of soybeans), flat price would have no choice but to rally, especially wheat as there is no Chinese demand penciled into trade grids at this time.  Until that happens, however, we need to treat these rumors with a grain of salt until cash markets begin to appreciate.  Spread activity is certainly not suggesting any extraordinary demand.  Corn prices are getting into territory which have found selling pressure in the past, and it feels like there is a fair amount for sale above $3.85.  Each day closer to February gets us one day closer to spring crop insurance pricing.  As we discussed yesterday, we do not believe there will be near the shift in acreage away from soybeans if prices remain near current levels and near current differentials with other crops.  Open interest changes yesterday included corn up 8,922 contracts, soybeans up 10,264 contracts, meal up 4,809, oil up 4,152 contracts, SRW down 4,261 and HRW up 1,769 contracts.

Lots of wheat business around this week, so no wonder that market has had good support underneath it.  Algeria bought wheat below replacement costs yesterday at around $260-262/MT C&F but origins and exact tonnages were not available.  US-HRW should have been competitive, or at least competitive enough to keep a foot in the door until shipment time when origin actually gets assigned.  Egypt’ GASC is tendering overnight with offers coming mainly from France, U.S. and Argentina.  No Russian offers were listed as most remain out for Orthodox Christmas.  If US-HRW was able to sneak out a few cargoes here, that would be a victory.  Traders didn’t think SRW would be offered as quality and hitting specs becomes an issue.  This is part of the reason why US-SRW to China in the tonnages spoken doesn’t fit as finding that amount of SRW to meet stringent Chinese specs would be difficult.  China could have all the HRS and HRW they want, but finding 3MMT of SRW and SWW would be a challenge.  Also on China, there is some concern about hitting China’s ergot spec on HRS with the ergot conditions across North Dakota this year.  China’s ergot tolerance is 0.01% while milling specs in the U.S. are 0.05%.  Still think it is doable if the price is right.  Minneapolis spot floor values shot higher for 15.0% protein yesterday with the bid side up 70c to +150H.  The cars were said to be good west coast spreaders, so will wait for more volume to get excited.

Elsewhere in wheat, we got deliverable stocks reports yesterday, one of the only data sets we are still receiving.  Chicago area wheat deliverable stocks fell 838,000 bushels on the week to 68.788mbu which compares with 85.929mbu a year ago.  Our attention was brought to the Chicago-specific wheat stocks which fell to 7.898mbu last week compared with 10.059mbu a year ago and would be the lowest stocks in Chicago proper since at least 2009/10.  By the end of the marketing year, assuming calendar spreads remain relatively tight and encouraging movement, stocks could be at some historically low levels.  KCBT stocks fell 967,000 bushels to 112.766mbu, but are still 693,000 bushels larger than a year ago.  Minneapolis/Duluth stocks rose 578,000 bushels last week to 16.411mbu, the third straight week of increases but remain well below the 22.026mbu from a year ago.  To begin the year, deliverable supplies are the lowest since 2012.

We remain impressed by the delivery activity in soybeans this cycle.  Overnight, there were another 1,142 contracts delivered which brings the month-to-date total to 7,454 contracts.  This is now over 37 million bushels which have been delivered against the January, marking one of the largest delivery cycles in recent memory.  If the demand were surging at the Gulf, which would in-turn support cash basis, we wouldn’t be seeing this heavy of delivery activity.  The fact no strong commercial stopper has surfaced whatsoever isn’t a good sign for cash moving forward.  Calendar spreads remain near 75% of full financial carry through July, so again, no call to action for bulls from a physical standpoint.

 

Bottom Line: We will get weekly ethanol production out later this morning, but that is likely to continue the recent slowdown due to poor margins.  Corn needs to be careful at current prices and higher as there is plenty of farmer corn for sale and domestic demand remains less than stellar.  Exports have been the bright spot, and are still well ahead of the pace needed, but South American competition will be much stronger April-August this year.  We need some confirmation of the Chinese buying rumors, but until the government reopens, not sure how that is going to happen.  Basis remains volatile across the Midwest, and producers need to be paying attention to both basis and futures, not just flat price.  Most contracts are in the middle of well-established ranges making the next move somewhat of a coin flip.

 

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.

1/9/2019 Morning Comments

Good Morning,

 

Trade talks will dominate headlines today, but we are more interested in what the US Dollar Index is doing and saying as a result.  Yesterday, the USD traded sharply lower, continuing the downtrend which began on 12/14.  Momentum indicators are sharply lower, suggesting the move is showing no signs of slowing down.  From a longer-term, weekly perspective, the US Dollar index is showing a textbook bearish divergence in momentum stemming from the highs August and the highs made in December.  The entire fall and early winter rally was done on declining momentum, an early sign the move was running out of steam.  There really isn’t a lot of support for this market between spot levels and the October lows.  Throwing this against the larger back drop of the current trade war and Fed policy, is the weakness in the US Dollar Index signaling a breakdown in trade talks or a move to easier monetary policy?

 

Grain markets are higher this morning, led by corn and SRW wheat as the latest round of trade rumors suggested China will be in the market for not only US soybeans but also corn and wheat.  At this point, and with no government to confirm, almost all of these rumors need to be treated with a grain of salt until cash markets respond in kind of the government reopens.  The tonnages being spoken are intriguing with 1-2MMT of corn and 3.0MMT each of HRS and SRW.  If those sort of numbers were traded, we would see a sharp response to cash off the PNW and at the Gulf for SRW.  The spring wheat market could probably handle such a purchase, but the SRW balance sheet would be hard pressed given China’s stringent requirement on test weight.  Still, where there is smoke, there is often fire.  If trade talks have a breakthrough, and additional good will purchases are made for strategic reserve, wheat would benefit mightily.  Otherwise, we are trading South American weather which is ambiguous enough to keep premium in the market.  With the USDA closed, CONAB’s update of Brazilian production on Thursday will be one of the more important figures during January.  Open interest changes yesterday saw corn up 6,333 contracts, soybeans up 1,191 contracts, meal up 3,631 contracts, oil down 3,290 contracts, SRW up 3,959 and HRW up 1,633 contracts.

Data remains light, although we did see weekly export inspections as the FGIS still has funding.  Wheat inspections totaled 9.6mbu vs. the 23.0mbu needed weekly to hit the USDA’s objective.  Total inspections of 475.3mbu are down 12.5% from a year ago.  Last week’s inspections were the lowest of the marketing year which is not unusual given the holiday break.  Corn inspections of 19.7mbu were low vs. the 45.9mbu needed weekly.  Total inspections remain 61.3% ahead of last year, although that gap has narrowed from 72.3% two weeks ago.  Soybean inspections totaled 24.7mbu vs. the 35.1mbu needed weekly to hit the USDA objective.  Total inspections remain 41.6% behind a year ago a consistent gap over the last month.  The 1.3bbu worth of export shipments remaining for soybeans look daunting without a large-scale purchase from China in the next few weeks.  There is not threat of the USDA cutting the soybean export forecast as long as they remain closed, but when they reopen, that number will be ripe for a cut without a pickup in business.

Lots of tender business for wheat this week including Syria, Algeria, Bangladesh, CCC in for Yemen, Taiwan, Jordan and Morocco.  The most focus will be on Algeria as US, Baltic and German offers are all within a few dollars per tonne of one another.  Argentine offers would also be competitive, but difficult to believe they will be considered after the rejection last week.  The tender is for a nominal 50,000MT, but Algeria often buys 400-600,000MT at a time which might be difficult for any one European country to supply.  EU wheat exports through January 7th remain 25% behind a year ago, but many have made mention of the fact their data sets are likely lagging actual performance.  Even if they are 10% better, however, EU exports would still be down 17.5% from a year ago while the USDA’s latest estimate is calling for basically unchanged exports.  Difficult to project full-year EU wheat exports above 18MMT vs. USDA last at 22-23MMT.  With that in mind, hard to imagine Europe competing heavily for the Algerian business.  The USD weakness this week also isn’t hurting a thing.

As we near February 1, we remain mindful of new crop prices as December ’19 corn trades near $4.04, November ’19 soybeans trade near $9.60 and September ’19 spring wheat trades at $5.86.  The current new crop soybean/new crop spring wheat spread is trading at $3.74/bu this morning, the strongest level since April of 2018.  Similarly, new crop spring wheat/new crop corn spreads are within 5-10c of the weakest levels for the contracts, meaning spring wheat is soft relative to corn.  Both of those spreads are not arguing for higher spring wheat acreage across the Northern Plains as has been the talk most of the fall.  Add in the fact nitrogen costs will be up almost across the board, and the economics of spring wheat vs. corn and soybeans gets even worse.  So we must ask the question, what will the soybean balance sheet look like if we don’t see 5-6 million acres shifted away from beans to other crops?  If we see only a 3.1 million acre drop in soybean acreage, along with trend line yields, our carryout grows to 1.050bbu vs. 957mbu this year, and that is assuming 70mbu of additional crush demand and 100mbu of additional soybean export demand.  An argument could be made exports need to be higher if a trade deal is done, but we will cross that bridge when we get there.  Even with record soybean exports of 2.200bbu, carryout would still be around 850mbu.  This also begs the question of what the corn balance sheet looks like with only two million additional acres instead of four?  With two million additional acres and a record yield of 179.0bpa, our carryout grows to 1.825bbu vs. 1.787bbu this year but would remain below the psychologically important 2.0bbu mark.  We also have feed demand higher, ethanol demand higher and exports down by 150 million bushels.  Ethanol profitability remains a major sticking point until current economics turn around.

 

Bottom Line:  Feels like there is enough trade-talk optimism and Chinese purchase rumors to keep us higher in the near-term.  If negotiations yield guaranteed purchases of US commodities, then we’ve probably got more rally left in these markets.  If we get another continuance, and South American weather doesn’t get worse, difficult to see another leg higher.  Lots of inputs being purchased and planting decisions being made ahead of the spring insurance pricing.  We don’t think acreage is going to move as much as some would like it to.

 

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.

1/4/2019 Morning Comments

Good Morning,

 

Global equities are surging this morning, supported by optimism toward trade talks next week between China and the U.S. as well as moves by the PBoC overnight.  China’s central bank cut the required reserve ratio for commercial banks by 0.5 percentage point effective January 15th with a similar amount to be cut on January 25th.  This is to encourage commercial banks to lend more or their funds and in-turn stimulate the Chinese economy.  Later this morning, we will see the December employment situation report which is expected to show 177,000 jobs created in December.  The unemployment rate is expected to stabilize at its recent low of 3.7%.

No big updates to South American weather with rains expected to keep soil moisture in decent shape in Argentina and most of Brazil the next 10-days.  Most are still expressing concern about dryness rebuilding in southern Brazil by mid-month, however.  6-10 and 8-14 day maps show below normal precip and above normal temps over a large swath of Brazilian production areas which we are going to go with until proven otherwise.

 

Grains are higher across the board this morning with most contracts working on their first higher weekly close since the first week in December.  Wheat has been one of the strongest legs this week on ideas of better export demand which we have no confirmation of with the government closed.  Still, FOB offers and freight spread assumptions certainly suggest US-HRW is competitive into many major importers, and even China got thrown into the rumor mill this week regarding spring wheat.  As we discuss below, China’s demand for spring wheat is certainly alive and well, so the fact they’d be interested in diversifying suppliers isn’t unreasonable.  Still Chinese soy purchase rumors around, but we remain unimpressed with the tonnage, especially when held up to delivery activity.  Corn news is quiet and not all that supportive as ethanol plants continue to be idled amid poor operating margins.  Open interest changes on the rally saw corn up 7,982 contracts, soybeans down 4,693 contracts, meal down 917, oil down 2,420 contracts, SRW down 4,439 contracts and HRW up 255 contracts.

Canadian export data for the month of November was released in the last week or so with wheat shipments for the month at 1.591MMT vs. 1.671MMT in October.  Exports were above the 1.464MMT from November 2017, however.  Crop-year-to-date exports of 6.423MMT are up 20% from a year ago, while durum exports are down about 19.7%.  Of interest to us were exports to China which came in at 155,000MT for the month and are at 552,100MT for the year-to-date.  The November exports were up 156% from November a year ago, and YTD exports to China are up 110% from the same period a year ago.  Cumulative exports are over double the next largest export total to China at this point in a marketing year.  China has taken a bit more No.2 CWRS than No.1 CWRS, but the split is pretty close.  CWRS has been carrying a healthy premium to US-HRS most of the marketing year, so China reaching for some spring what, provided the tariff situation is squared away, would not be all that unreasonable.  August-November exports of oats, barley, soybeans and lentils are all ahead of a year ago while canola and pea exports are lagging 2017/18.

FC Stone issued their latest guess on Brazilian soybean production, cutting their estimate to 116.25MMT.  This would be the lowest estimate we’ve seen in print by anyone who actually has a presence in the country.  This seems aggressive but would be just below a lot of other estimates grouping around 117MMT.  A number of 117MMT or below would require export estimates to be pared back based on our read of the balance sheet.  We prefer to look at the Brazilian balance sheet from a local marketing year basis which begins Feb 1 and ends Jan 31.  This gives a more representative feel of Brazilian supplies left over before new crop.  Based on a production number of 116.25MMT, and unchanged USDA demand, Brazilian soybean carryout would actually go negative by 4.075MMT.  This is obviously untenable and would require exports to be cut.  That said, Argentine exports could easily be 3-4MMT larger than current USDA estimates as their projected ending stocks on a local basis are up around 18.5MMT, the second largest on record.  It would take extra incentive to get those bushels to export given taxes, inflation and farmers who prefer to store well into the next marketing year.  The supplies are there would be the point.

There were another 1,100 re-deliveries of January soybeans overnight, bringing the month-to-date total to 4,021 contracts.  There has been no good commercial stopper yet, so these should continue circulating until last trade date.  Month-to-date deliveries are over 20mbu which is around 1/3 of the rumored Chinese purchases of soybeans this week.  Puts their buying into perspective.

 

Bottom Line: Firmer across the board and finally putting in a solid week of trade.  I believe we should get weekly ethanol production as that agency still has funding, but exports will continue to be a no-show.  Wheat got cheap enough for long enough to get some business done, we just don’t know to whom.  Soybeans are in the discovery phase for South American production with ideas being tweaked lower.  We aren’t ready to subscribe to some of these low-ball estimates, but they need to be monitored.  If the lost demand from Brazil gets made up in Argentina, then there isn’t anything to rally about.  The boats need to leave our shores to matter.

 

Good Luck Today.

 

 

Tregg Cronin

Market Analyst

Tregg.Cronin@halocommodities.com

www.halocommodities.com

@5thWave_tcronin

1/3/2018 Morning Comments

Good Morning and Happy New Year,

 

Before taking our holiday break, the U.S. government had shutdown due to an inability to pass a budget.  The U.S. government is still shutdown and the world has not ended.  If too much time goes by, people might realize the world can survive without Washington D.C.  At any rate, we continue to watch the USD Index which is stronger again today following Wednesday’s surge higher.  Looking at charts while markets were closed, we actually thought the USD had a particularly bearish technical tilt, especially from a weekly standpoint.  The USD violated long-term trend line support on Monday before recovering above that level yesterday, but momentum studies from a weekly perspective are showing a textbook bearish divergence in momentum.  Forex, Federal Reserve Interest Rate policy and trade policy will be the driving forces in 2019 in our opinion and if given the choice, we can envision more scenarios where the USD breaks sharply from current levels than ones where it rallies appreciably higher than current levels.

Quite a mix of rain and snow in the southern plains this morning which also stretches across the Delta and up the Mid-Atlantic.  Following a particularly nasty winter storm in the Northern Plains over the weekend and earlier this week, weather looks mostly favorable for the Midwest the next 10-15 days with limited precip and mostly above normal temps.  The US Drought Monitor looks substantially better than it did a year ago at this time and the soil moisture profile is brimming almost everywhere.  In South America, most growing areas of Brazil and Argentina have seen rain the last 7-days but it is the forecast for the next 10-15 days which is a concern, particularly in Brazil.  Dry areas have been reduced to 15% of total production areas, but dryness is expected to rebuild by mid-month as above normal temps and mostly below normal precip is the norm. With how early soybeans started to be harvested this year, making generalizations about the weather in Brazil this year will be difficult.

 

Mixed markets this morning with grains higher and the soy complex a bit weaker.  Strength in soybeans Wednesday caught the attention of most as dry forecasts for Brazil as well as chatter about China beginning to purchase U.S. soybeans again supported.  Cash traders suggested the tonnage was in the 1-2MMT range, which would push total purchases up around 5MMT.  5MMT was the number alluded to when China said they would allow Sinograin to refill strategic reserves.  This could mean the 5MMT will be all the purchase made until a larger trade deal is completed.  If that is indeed the case, it is tough to view the purchases as bullish given 150-180mbu isn’t going to get us up to even the current 1.900bbu export forecast held by the USDA, in our opinion.  Still, purchases of any kind are good, and with Brazilian weather turning at least two-sided, it is enough to halt sell pressure for the time being.  In grains, cash sources continue to talk about U.S. wheat being competitive into Egypt, Algeria, Saudi Arabia and several other major destinations.  This is being offset by fears over the implementation of the Trans Pacific Partnership which goes into effect Sunday.  This will see tariffs reduced for Australian and Canadian wheat into Japan but nothing done with tariffs on U.S. wheat.  According to U.S. Wheat Associates, Australia and Canada will see an immediate 7% drop in tariffs which will go to 12% by April and after nine years of the partnership the cut will be as large as $70/MT.  Very unlikely we will see the present situation persist forever, but Japan does not seem high on the list of priorities with trade tensions in China raging.  Taking it a step further, even if Japan is addressed, agriculture isn’t likely to be on the front-burner.  Beef will be the other commodity hit hardest by the lack of participation in TPP.

Has been a lot of chatter lately about soybean acres across the Northern Plains switching to spring wheat among other crops.  In the last week or so, NDSU released their preliminary 2019 crop budgets for a host of crops including soybeans and spring wheat.  We pulled the budgets for the south-central, south-west, northern-valley and north-west crop districts to see what the profitability looked like between the two crops.  In south-central North Dakota, spring wheat is projected to return -$6.96/acre assuming a yield of 43bpa and a market price of $5.62/bu.  Soybeans see a return of +$13.15/ac assuming 31bpa yields and $8.05 cash.  Spring wheat is profitable in southwest-ND a +$6.36/ac at 38bpa yields and $5.53 cash but soybeans are returning $29.29/ac assuming 29bpa soybeans and $7.95 cash.  In the northern valley, spring wheat is showing returns of +$4.09/ac vs. soybeans at +$13.46/ac.  Northwest ND sees spring wheat at a -$7.48/ac with 37bpa yields and $5.52 cash vs. soybeans at +$18.84/ac.  So despite the historically terrible basis levels across North Dakota, it doesn’t look nearly as cut and dried for acres to switch from soybeans to spring wheat.  Until the futures board pushes new crop back over $6.00/bu, we could see a status quo on acres, although there is likely to be some switching from soybeans to minor and specialty crops.  This should be somewhat of a relief considering 5-10% more spring wheat acres as most have been assuming would result in one of the heaviest spring wheat balance sheets in 30-years.

Very light on data with the government still closed, although we did see weekly deliverable stocks.  In Chicago, total wheat stocks fell another 1.416mbu to 69.262mbu which compares with 86.426mbu a year ago.  The lower weekly stocks levels combined with improved export demand and stronger basis levels are definitely supporting stronger calendar spreads.  As the VSR calculation period continues to average, the WH/WK is currently trading an average of 35% of full financial carry which would reduce storage rates further to 5c/mo.  In Kansas City, wheat stocks fell 1.272mbu to 113.737mbu but are still above last year’s 111.827mbu.  In Minneapolis/Duluth, stocks rose by another 1.147mbu after rising by 488,000 bushels last week.  The last two weeks broke a streak which went back to the first week in November of weekly stock draws.  Total wheat stocks of 15.833mbu are still sharply below last year’s 21.900mbu and are the lowest for year-end since 2011.  There have been almost no shipments from either Duluth or Minneapolis since the holiday break according to the daily status reports, so it will be interesting to see what stocks do once we get a full week of business under our belts.

Jumping back to acreage discussion for a moment, one other thing to consider with respect to cropping rotations is the higher cost of nitrogen vs. last year and the last several years.  Across the Northern Plains, urea prices are anywhere from $25-75/ton higher than a year ago while 28% UAN prices are up $15-30/ton but expected to be as much as $50/ton higher by spring.  Very few people can offer justification for the higher N costs but even fewer expect them to fall by spring either.  Considering spring wheat takes nearly as much nitrogen as corn does to produce an adequate yield goal, this could impact planting decisions if producers haven’t locked in inputs already.  As the chart below shows, spot UREA swaps at the Gulf have corrected over $40/ton since the highs put in this fall but spot prices remain above the high end of the range which capped prices dating back to the summer of 2015.

 

Bottom Line: Grains trying to add premium this morning but still well inside recent ranges for corn and wheat consolidating just above recent contract lows.  Without the government, unfortunately we don’t have a good handle on what we are selling or who we are selling it too outside of cash market activity.  Wheat spreads remain firm, so doesn’t feel as though futures need to retest contract lows in our opinion.  Corn’s range looks iron clad for the foreseeable future between 3.67-3.87.  Soybeans likely cling close to $9.00, waiting on more SAM weather and Chinese purchase announcements.

 

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.

 

12/28/2018 Morning Comments

Good Morning,

 

A few lingering snow showers this morning in the Plains, otherwise the Midwest has mainly cleared out from yesterday’s winter weather.  Mostly dry weather the next 72-hours before the Northern Plains sees additional snow chances.  Temps will be well below normal the next couple days before a one-day reprieve and more below normal temps next week.  Extended maps are mainly dry the next 10-14 days while temps are mostly normal across the Midwest.  In South America, soaking rains will keep soil moisture in decent shape for both Argentina and Brazil the next 10-days.  There are some concerns about too heavy of rainfall in Argentina as well as some dry patches in west-central and south-central Brazil.  Overall, it seems like one has to get nitpicky to find a major issue with South American growing weather outside of Paraguay.

 

Grain markets are firmer this morning across the board, being led higher by soybeans and wheat which are both up around 0.50%.  Never a great deal of news the week between Christmas and New Year’s, and even less so this year with the USDA closed.  Several in the trade reported yesterday weekly export sales would not be reported but EIA weekly ethanol production would be later this morning.  Weekly ethanol data isn’t likely to be supportive given the still difficult margin structure across the industry.  Normally, we would get Census export/import data for the month of November next week but the FAS website says it will not be updated until funding has been restored.  That report would have provided key information on whether ethanol exports have slowed further amid the trade war and energy market collapse.  More ambiguity coming to South American soybean production estimates.  Feels like the range of ideas is drifting lower for Brazil with most between 117-122MMT vs. 125-130MMT a couple weeks back.  Still should be more than enough soybeans to meet global demand, especially with demand concerns out of China related to ASF.  Open interest changes yesterday saw corn up 515 contracts, soybeans down 13,265 contracts, meal down 1,232 contracts, oil up 3,821, SRW up 3,058 and HRW up 960 contracts.

A couple other production estimates worth noting, Rosstat increased their estimate of Russian wheat production to 72MMT vs. 70MMT previously and the USDA at 70MMT.  Using this updated production forecast, the USDA’s current export estimate of 36.5MMT looks much more comfortable.  This would put ending stocks for Russia at 7.468MMT which is just below the 5-yr average of 7.953MMT.  It would also put exports at 43.2% of total supplies which is still a new record but only marginally above last year’s 43.02%.  Looking ahead to 2019/20, if we plug in a bit higher acreage and a production figure of 75MMT with unchanged demand, ending stocks would come in at 5.968MMT.  Our view is these are adequate ending stocks levels but doesn’t leave a great deal of room for a weather issue.  In addition, a 36.5MMT export figure would likely require another year of global importers looking to either the U.S., Argentina or other major exporter to fill in supply gaps if global demand sees its usual increase.  European and Australian production should be higher in 2019/20 but the current Russian balance sheet doesn’t appear to have an immediate call-to-action for bulls in our opinion.

The other crop estimate of note yesterday was the European Commission upping their view of the 2018/19 EU corn estimate.  They increased the figure to 67.5MMT which was up 5MMT from last month and compares with the USDA at 60.4MMT.  Leaving USDA’s demand estimates unchanged, this would boost EU corn ending stocks to 13.863MMT which would be the largest on record.  The EU will not carry out that much corn, instead dropping imports from the current 21MMT figure which is the largest since 1981/82.  The increase in production undoubtedly comes from the Eastern European countries like Romania and Bulgaria.  Lower imports into the European Union should mean more Ukrainian corn available to compete with U.S. and South American supplies into the Middle East and Southeast Asia.  Depending on the size of the drop in imports, it could also mean the EU moves back to a net exporter of wheat and corn after being projected to be a net importer of grains for the first time since 2007/08.

Several in the trade talking about index fund rebalancing which would include selling Kansas City and Chicago wheat.  We go through this exercise every year and it rarely amounts to much other than some slight influence on calendar spreads.  More salient is the current VSR calculation period in Kansas and Chicago which is pricing both markets to drop storage rates by 3c/mo.  Once Chicago storage rates have been dropped to 5c/mo, they can go no lower although it is interesting to note the WK/WN calendar spread using 5c/mo for storage costs is still only trading 55% of full financial carry.  Hopefully, this tighter carrying charge environment prompts continued SRW exports and allows warehouses to flip inventories which have been on-hand for multiple years.  Combine this with the potential for smaller winter wheat acres and the wheat market continues to build a case for support underneath current prices.

 

Bottom Line: Just not a lot to discuss and difficult to take anything away from price action this week given the lack of participation.  Once the calendar flips to 2019, focus will be solely on Chinese purchases of U.S. Ag products and South American weather.  Without a significant weather event in either Argentine or Brazil which shaves production meaningfully, it’s hard to justify spot soybean prices above $9.00 and corn prices above $3.90.  Lots of reluctance for producers to look at 2019 new crop prices with so much unpriced 2018/19 grain but that doesn’t mean it’s not worth discussing.  Inputs have shown a great deal of movement vs. a year ago with diesel prices sharply lower, fertilizer sharply higher, seed mainly cheaper and chemical all over the board.  Rents in general seem to still be coming down and a recalculation of ROI might show some surprises.

 

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.

12/27/2018 Morning Comments

Good Morning,

 

Equity futures are back on the defensive this morning, trading off nearly 400 points on the DJIA following the single largest nominal gain in the index’s history.  At the close, the DJIA was up 1,086 points, or nearly 5.0%.  After two weeks of sharp losses, all of which were attributed to the current administration, it seemed as few bothered to note the large surge.  Energies also came surging back with crude oil closing up $3.69/bbl for its largest percentage gain in almost a decade.  It remains to be seen whether yesterday’s gains were the aberration or a near-term bottom.  For all the fanfare, the USD Index remained inside the range present for the last several weeks.  We continue to watch the Brazilian Real which is trading at 3.93:1 against the USD this morning, inching back toward 4.00:1.  In addition, the Russian Ruble is back over 70:1, just ticks away from the September lows at 70.62 which was the weakest trade since March of 2016.  Weakness in these two currencies specifically will make competing against their grain exports more difficult.

As the kids would say, the U.S. radar is lit fam.  Huge swaths of snow and rain are blanketing the Midwest and Plains this morning, impacting travel and adding stress to livestock.  The worst hit areas are or have received rain in the last 24-hours which is switching to snow amid freezing temperatures.  The precip will be accompanied by high winds today with gusts across the Dakotas pushing past 40mph.  The snow map below shows snow cover across most of the Northern Plains after having been largely dry the last 30-days.  Once the current system moves out tomorrow morning, the rest of the 7-day period will be largely dry for the Midwest.  The Delta and Mid-South will remain especially wet with 2-5” expected by this time next week.  Extended maps are mainly dry in the 6-10 and 8-14 day with temps near normal.  Watching developing heat across southern Brazil in the extended forecast while northern Brazil looks below normal on precip.  No pressing issues, but these two themes need to be monitored closely.

 

Higher grain markets across the board this morning as we bounce from yesterday’s bloodbath.  The selloff was led on a nominal basis by beans and wheat, but the percentage losses were largest in Minneapolis wheat.  Many traders pointed to a Wall Street Journal article published in the last few days outlining some of the outcomes of the Trans Pacific Partnership which are set to be implemented in 2019.  Among these are tariff reductions for Australia and Canada which the U.S. will not enjoy.  More on this below.  The selling pushed March Minneapolis to new contract lows, and little exists in the way of support between spot levels and the $5.23 lows from July.  Very little corn and soybean news yesterday outside of posturing about Chinese purchases.  Most traders are confused whether daily export sales announcements would happen with the government closed?  Export inspections were released yesterday, but it isn’t clear if export sales will be published this week or EIA ethanol production data.  We have seen government shutdowns last 12-18 days before over the last several decades, so it isn’t unreasonable to think the government could remain closed up to the January WASDE.

Regarding the TPP, multiple articles cited a figure of roughly $67-68/MT as the tariff reduction Canada and Australia would enjoy on their wheat exports the U.S. would not.  The 11-member TPP will begin on December 30th, which will result in tariff reductions for Canada, Australia, New Zealand and Chile.  The Japanese wheat market is one of the most coveted in the world because of their consistency in purchases.  Japan buys regularly, regardless of price, unlike many of the Middle Eastern importers who try to time their purchases with lows in the market.  The U.S. is trying to negotiate a bilateral trade deal with Japan directly which could limit the impact of the TPP tariff reductions, but nothing has been done on that front.  With Chinese trade negotiations and the border wall front and center, highly unlikely U.S. wheat exports are very high on the totem poll at the Whitehouse.  Spring wheat exports off the PNW would probably be hardest hit as those supplies compete directly with Canadian Western Red Spring wheat.

Export inspections were released yesterday despite the government shutdown.  Wheat export inspections dropped back below the needed level after having hit the level for the first time all season last week.  Wheat inspections totaled 20.0mbu vs. the 22.1mbu needed weekly to hit the USDA export estimate.  Total inspections are now 450.5mbu, down 14.1% from a year ago vs. the USDA calling for a 10.5% increase.  Sales have improved, which needs to occur before shipments can pick up, but the marketing year is now half over with more than 50% of the export estimate left to ship.  Corn inspections were 39.2mbu vs. the 44.9mbu needed weekly.  Corn inspections haven’t achieved the level needed in four weeks.  Total inspections of 668.8mbu are still up 72.3% from a year ago, providing quite a bit of breathing room.  Soybean inspections of 23.9mbu were below the 34.7mbu needed weekly and the lowest since early October.  Inspections of 581.3mbu are down 41.8% from a year ago while the USDA is only calling for a 12.6% reduction.  Another export reduction is surely forthcoming without a pickup in export demand.

We are now five sessions into the variable storage rate calculation period for the H/K spreads in Chicago and Kansas City.  Chicago is averaging around 34-35% of full financial carry while Kansas City is averaging around 44-45% of full financial carry.  As it stands today, both spreads would lead to a reduction in storage rates with Chicago dropping from 8c/mo to 5c/mo while KC would drop from 11c/mo to 8c/mo.  When it looked likely Chicago would reduce storage rates from 11c/mo to 8c/mo back in November, this led to a surge in buying on the front-end of the curve as managed funds realized the easy carry game was coming to a close.  It remains to be seen whether this could happen again in Kansas City if it indeed looks likely storage rates will drop.  Part of the reason wheat exports have been so slow are the lucrative carrying charges in KC.  The first step in getting commercials to part with hedged inventory is taking away the incentive to store wheat.  A reduction in storage rates will be a good first step.  Quickly, after having declined for the last two months, deliverable stocks of spring wheat in Duluth and Minneapolis finally rose last week by 488,000 bushels.  Total wheat stocks of 14.686mbu compare with 21.900mbu a year ago and remain the smallest for this week since 2011.  Will be interesting to see if a seasonal low spot has been hit or if this is simply related to reduced movement around the holidays.

 

Bottom Line: Turnaround Tuesday on a Thursday because Tuesday wasn’t Tuesday and Thursday is like Wednesday.  Makes sense right?  Remains to be seen what government reports we get this week and how much impact they’ll have with trading desks half-staffed and the government partially open.  Bullish headlines are fleeting and without more Chinese purchases, not sure what props this market up.  Even if China buys, we’re not sure we would know about it with the government closed.  Continue to watch basis and spreads or short-term direction.

 

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.

12/21/2018 Morning Comments

Good Morning,

 

Today is the last session before Christmas Eve and Christmas Day, so it provides an opportunity to look at a few financial markets and their price action into year end.  The US Dollar Index is firmer this morning but trading weakly the last week or so as it slips below the 50-day moving average and remains just above the 100-day.  Commodity currencies such as the Loonie, the Aussie and the Ruble had all been making new lows for the move and in some cases the lowest trades in a couple years prior to the late week bounce.  This certainly fits with the Bloomberg Commodity Index hitting the lowest level on Thursday since April of 2016.  The BCI hitting fresh lows came in large part to crude oil making fresh lows for the move and touching the lowest level since July 2017.  Momentum indicators such as stochastics are producing values below 4.00 which is about as low as we’ve ever seen.  The selling pressure remains strong and the term “oversold” means absolutely nothing in technical trading.  As we noted earlier this week, the energy selloff is dragging Heating Oil lower and in-turn producing some of the cheapest diesel prices in a year and a half.

Quiet weather in the U.S. through Christmas, although a fairly large winter storm will be hitting much of the Plains and Midwest Dec 26-28th.  This storm is expected to produce heavy snow and rain as well as the first real cold shot of the winter.  Weather to-date has been better than ideal, so a little moisture and a cool off shouldn’t be cause for concern.  The wetter pattern should remain in place through the 6-10 and somewhat into the 8-14 day while temps are mainly normal/below except in the far east.  Not too much changed in our view of South American weather.  Better rains are still seen for dry areas of south-central Brazil this weekend and early next week.  Provided they verify, should largely allay fears about shrinking production.  Crop estimates which are already making drastic cuts to Parana and MGSD seem premature in our opinion.

 

Mixed to weaker markets to close the week ahead of the lowest volume week of the year.  What traders haven’t already abandoned their trade desks will do so tonight and most will remain empty through New Year’s.  Corn is posting a modest little bounce after a very weak session Thursday which finally saw its daily chart gap closed.  It felt like the market could no longer ignore the current state of the ethanol market which has been bleeding red ink for weeks if not months.  Negative profitability by the largest user of corn is much more important than 3MMT of potential exports to China which may or may not happen.  Losses are being led by wheat, however, with news leaking out of the meeting between the Russian Ag Ministry and Russian exporters.  The latest headlines we’ve seen suggest no export curbs are being planned at this time while the Russian Ag Ministry sees Russian grain exports at 14MMT from January-June.  This would suggest full year wheat exports somewhere around 35MMT which is just shy of USDA’s current 36.5MMT estimate.  What’s 1.5MMT between friends? Soybeans remain underwhelmed with the size and rate pf Chinese purchases so far.  Open interest changes yesterday saw corn up 7,965 contracts, soybeans down 5,189 contracts, meal up 3,673 contracts, oil up 2,555, SRW wheat up 298 contracts and HRW up 829 contracts.

Export sales were the feature yesterday with solid postings by corn and soybeans while wheat was especially disappointing.  All wheat sales totaled 11.5mbu vs. the 15.7mbu needed weekly and were the lowest weekly commitments in 17-weeks.  This followed the largest weekly export sales last week since the middle of August and accurately reflects what happens when KC Wheat rallies above $5.20 and Chicago above $5.30.  KC wheat is caught between a rock and a hard place as the vast majority of wheat is owned by the commercial, is hedged and locked away against a pretty lucrative carry.  Flat price rallies will not entice him to sell.  Basis rallies will, but basis rallies take U.S. wheat out of contention in major export tenders.  If the basis doesn’t rally enough to warrant a sale, calendar spreads are still offering good enough carries to roll hedges further out the curve and sit on the wheat.  Basis and spreads need to rally to force wheat movement but that in-turn will rally the board and make U.S. wheat uncompetitive.  So here we sit, at least until exportable surpluses are exhausted in Russia and Europe which doesn’t appear to be the case yet.

Corn sales were strong at 77.7mbu, the largest of the marketing year and well better than the 34.1mbu needed weekly to hit the USDA forecast.  Total commitments of 1.166bbu are 17% ahead of last year while the USDA is looking for unchanged exports.  Soybean exports totaled 104.2mbu as they included 55.1mbu of sales to China.  More sales will be featured next week and should help exports make up ground on the needed level.  Total commitments are down 30% from a year ago at 1.011bbu.  Soybean meal sales were also strong at 300,000MT vs. the 141,000MT needed weekly.  Meal sales are 11% ahead of last year’s pace.  Bean oil sales were the second largest of the marketing year at 35,700MT vs. the 14,100MT needed weekly.  Total commitments are up 43% from the same point last year.  Yesterday morning saw the announcement from the USDA via the daily export sales reporting system that 204,000MT of soybeans had been sold to China, 257,000MT sold to unknown destinations, 100,000MT of meal to Columbia and 426,800MT of corn sold to Mexico.  The Mexico sale saw 373,455MT for 2018/19 and 53,345MT for 2019/20.

Two livestock reports released yesterday including the December cattle-on-feed report which showed on-feed at 101.9% of last year vs. estimates for 101.8%.  Placements in November totaled 95.1% vs. estimates for 93.8% while marketings were 101.4% vs. estimates for 101.0%.  Total cattle-on-feed as of December 1st were the largest Dec 1 numbers since 2011 and second largest since 2007.  Quarterly hog and pigs report was bearish feed demand but bullish hog prices in a relative sense.  All hogs and pigs as of Dec 1 were 101.9% of last year vs. estimates for 102.7%.  Kept for breeding were 102.4% and kept for marketing were 101.9%.  All hogs and pigs as of Dec 1 were a new all-time record by a fair margin over last year.  There were 74.55 million hogs and pigs in the U.S. as of Dec 1 vs. a shade under 65 million head just five years ago.

 

Bottom Line: Difficult to be inspired by the performance of any of our Ag contracts this week.  Corn and soybeans finally broke down and filled their gaps.  Wheat contracts have rejected retracement and moving averages.  Spring wheat contracts are trading at the lowest levels since mid-July.  Ethanol profitability remains rubbish, pace of Chinese soybean buying isn’t strong enough to make a dent in our balance sheet and South American weather doesn’t look ominous enough to threaten global soy supplies.  The holiday break coming up should offer a chance to examine weather more closely.  The U.S. farmer sold grain on the rally, but we’re not sure it was enough to get caught up to average.  Still a lot of grain to price in the country which can and will blunt rallies as we’ve seen.

 

Good Luck Today and Have a Merry Christmas!

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.

 

 

12/19/2018 Morning Comments

Good Morning,

 

While focus today will be on the Federal Reserve decision toward short-term lending rates, it is difficult to believe anything is more salient than the energy market meltdown of late.  Yesterday and overnight, crude oil futures fell below $46.00/bbl before recovering.  These are the lowest prices since August of 2017 as energy inventories in the U.S. continue to grow and OPEC+ production cuts remain less than a sure thing. The energy washout continues to pressure commodities as a whole with the Bloomberg Commodity Index falling to the lowest levels since June of 2017.  This is pressuring the entire energy complex, but of interest to producers would be some of the cheapest dyed diesel prices since September of 2017. While nitrogen and phosphorous prices are expected to be higher next year, diesel prices could be a quiet benefit to break evens in 2019.

Generally favorable weather forecast in Argentina through the weekend and into early next week.  Favorable drier weather is seen moving in after the current system which should aid in continued planting efforts.  In Brazil, 0.25-0.75” fell across most of RGDS, Santa Catarina and Parana yesterday with dry conditions elsewhere.  The forecast this morning sees soaking rains in the aforementioned three provinces over the next 7-10 days.  Limited rains will be the feature elsewhere.  The dry areas of interest in Parana and MGDS look to see average to above average rains early next week which should limit additional stress.

 

Mixed markets this morning with soybeans firmer and grains mostly weaker as wheat prices trade off 1.0%.  The 40-55c rally in wheat prices since October has run into fairly stiff overhead resistance as Chicago wheat prices butt up against the 50% retracement of the 5.93-4.85 selloff at 5.39, while KC wheat has been blunted by the 23.6% retracement of the 6.44-4.82 selloff at 5.20.  Major moving averages are also banding trade at current prices with the 100 and 200-day moving averages stopping advances in KC and Minneapolis wheat.  Global wheat prices have been rallying of late, led by Russian and Argentine advances although the sharp weakness in the Russian Ruble helped offset some of this wheat strength.  The issue with a continued rally in either SRW or HRW is the fact the commercial already owns the vast majority of stocks and flat price rallies are not going to encourage him to move it.  Basis and spread rallies will be needed to coax commercials into moving their hedged inventories, with basis actually trading weaker with the board advancing.  Much less spring wheat is owned by the commercial than winter wheat, so flat price advances in Minneapolis will still be needed to buy wheat from the farmer.  Chatter in the market yesterday suggested China bought another 300-600,000MT of soybeans from the Gulf and PNW.  Most will be watching the wires for any daily sales announcements at 8:00am CST. Corn open interest was up 2,724 contracts, soybeans down 4,213, SRW down 1,175 and HRW down 1,884.

News was light yesterday but we took interest in the deliverable stocks data on wheat from the three exchanges.  Spring wheat stocks fell another 1.946mbu last week to 14.198mbu which compares with 21.652mbu a year ago.  These are the lowest stocks levels for this week in December since 2011 and just 2.5mbu above the lowest stocks levels on record for this week in 2008.  Since November 1st, spring wheat stocks have been drawn down by a combined 8.4mbu.  Part of this has been the great weather which has allowed movement to continue without delay.  Farm gate selling has been heavier the last couple weeks ahead of year-end but has slowed with prices failing above $5.80.  In our opinion, a 6-handle on the board will be needed to buy the next round of spring wheat from the farmer as current futures and basis levels are below $5.50 cash in the country for 14.0% protein.  With stocks levels dropping to this degree, we would be careful about being short the MWH/MWK spread with the MWZ/MWH going inverted with more supplies still available.  At the other exchanges, Chicago wheat stocks fell 1.408mbu to 72.443mbu which compares with 88.656mbu a year ago.  Similar to Minneapolis, stocks at these levels should continue to support calendar spreads.  In KC, stocks fell by 1.281mbu to 115.816mbu but remain above year ago levels at 113.335mbu.  Commercials are still getting paid too much in cash carry to part with stocks in-house.

The other big talker Tuesday were the social media reports on ethanol producers.  The poor profitability in this sector is no secret to anyone but it seemed like the chatter picked up yesterday with share prices hitting multi-month and multi-year lows.  Pacific Ethanol shares fell 9% yesterday, trading to $1.20/share and approaching the “penny stock” level as one reported noted.  Green Plains Renewable Energy shares hit multi-year lows at $12.92/share, down 8% on the day.  GPRE shares were trading near $30/share at the end of 2016.  Additional plant closures and slowdowns were also announced by multiple companies as the threshold of not wanting to slow the plant and hurt efficiency is finally being overcome by too poor of margins.  It is clear the small refinery exemptions are having a large impact on the domestic demand for ethanol as stocks remain at record levels.  No ethanol exports to China is also having an impact, although exports to other counties are still keeping demand from that sector at respectable levels.  It also can’t be overstated that March corn prices are 30-35c above each of the last two years at this time while ethanol prices sit at 13-yr lows.  With ethanol accounting for the largest share of demand on the corn balance sheet, it is difficult to make the argument higher prices are needed when plant slowdowns and closures are occurring amid the equity bloodbath by producers.

 

Bottom Line: Weekly ethanol production out later this morning but its difficult to see how a big rebound is coming.  Otherwise, most will be focused on any additional Chinese purchase announcements.  We need much more buying by China to justify higher prices from current levels in our opinion as 2.0MMT isn’t going to phase a 1.0bbu carryout.  With MFP payments out the door, and 2018/19 soybean profitability not really an issue anymore, the discussion is growing louder about how this could effect planting intentions next spring.  A 2.36 soy/con ratio is not pushing acres to corn the way one would imagine, especially with higher nitrogen prices vs. a year ago.  Lotta ins, lotta outs, lotta what-have-you’s. Lotta strands in old duder’s head.

 

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.

12/18/2018 Morning Comments

Good Morning,

 

Crude oil is sharply weaker again this morning, dropping below the $50.00/bbl level and trading to the lowest level since September 2017.  This washed out the Bloomberg Commodity Index yesterday which hit the lowest level since June 2017.  When trading opens later this morning, the BCI should hit fresh lows for the move once again.  Last week, crude oil inventories in the United States eclipsed year ago levels for the first time this year.  Despite the planned OPEC+ cuts to production, U.S. shale driller are under no such mandate and are only now getting the price signal to slow pumping.  Weak energy markets are obviously not a bullish input for grains or the larger economy, at least not in the short-term.  Crude should find support near the 45-handle area, otherwise more stable support exists in the 42-handle area.

Weather forecasters over the weekend and yesterday were touting dryness in S-Brazil, specifically in Parana and Mato Grosso do Sul.  This area has been trending dry the last couple of weeks, but 6-10 day maps are putting fairly soaking rains over this region after above normal heat blankets the states.  If the forecasted rains fall, it should end concerns in the near-term, but the rains do need to verify to prevent yield loss.  Social media discussed the first soybeans coming off fields in Mato Grosso which would be about 2-4 weeks ahead of schedule.  With beans already coming off, and many areas comfortable with double crop soybeans, the harvest in Brazil and Argentina is going to seem as though it will never end this year.

 

Mixed markets this morning with soybeans and corn firmer and wheat markets taking a step back.  The feature yesterday was optimism regarding additional Chinese purchases, including corn and wheat but announcements were lacking yesterday.  Media outlets suggested China will become a much more measured buyer moving forward so as to not run the market up on themselves.  If tariffs on soybeans are removed, Brazilian and U.S. soybeans will be locked in a dog fight February through June which does not portend higher prices.  In addition, market participants seem to be realizing that unless China buys more than 8-10MMT, their purchases just aren’t going to be enough to materially change the 900mbu+ carryout projected by the USDA.  U.S. wheat remains in a fairly competitive position relative to other global exporters as export inspections notched the best week of the marketing year by a country mile.  The question now becomes if there is enough time to take advantage of being the only game in town before importers can make the transition to Northern Hemisphere new crop.  Corn open interest was up 5,621 contracts yesterday, soybeans were down 2,352, SRW was down 388 and HRW was down 498.

Export inspections released yesterday saw wheat surge to 25.1mbu, the largest of the marketing year and the first time this season we’ve hit the needed level of inspections.  The 25.1mbu was better than the 22.0mbu needed weekly but total inspections are still down 14.9% from a year ago while USDA is calling for a 12% increase.   Corn inspections were disappointing at 34.8mbu, essentially unchanged from the previous week and below the 44.8mbu needed weekly to hit the USDA’s objective.  Total inspections are up 73% from a year ago at 629.5mbu, providing a huge buffer for a few weeks of light inspections as exporters focus on soybeans and wheat.  Soybean inspections were decent at 35.8mbu vs. the 34.4mbu needed weekly.  Total inspections remain down 41.5% from a year ago vs. USDA calling for an 8% drop y/y.  With only a month left until soybean harvest really picks up in Brazil, it remains difficult to see how we will hit the USDA export objective as it stands today.

Yesterday also saw November NOPA crush released which came in at 166.959mbu vs. the average trade estimate of 168.4mbu, 172.3mbu last month and 163.5mbu last year.  Despite missing estimates, the total was a record for the month of November, and the daily crush rate of 5.56 million bushels per day was a new all-time record daily crush rate.  Soybean oil stocks were reported at 1.484 billion pounds vs. 1.504 billion expected and 1.326 billion a year ago.  Oil yields remain well above a year ago at 11.64lbs/bu vs. 11.46lbs/bu last year, speaking to higher quality soybeans this harvest.  By the end of November, crush margins had slipped below $1.00/bu which is where they are trading today, which could cast some doubt on crush rates continuing to run at record levels the rest of the marketing year.  U.S. crushers have made hay the last 8-12 months in response to the Argentine drought, but barring another disaster, Argentina should provide 15-20MMT of additional supply to the global crush market this year.

Several outlets making note of the fact the European Union will be a net grain importer this marketing year for the first time since 2007/08.  We took a look at the USDA’s most recent WASDE data for combined wheat and corn trade, opting to leave out barley and oats.  Combined wheat and corn imports this season are forecast at 27.5MMT which would be the largest on record going back to 2007/08.  Combined wheat and corn exports are forecast at 23.5MMT, which would be the lowest total since 2011/12.  These two figures produce a net trade deficit in wheat+corn of 4MMT which is the second largest deficit on record going back to 1986/87 and jus the third deficit ever.  Traditionally, the European Union is an export powerhouse but a drought-damaged crop along with some variable quality is going to curtail shipments this marketing year.  This is going to limit wheat offerings into the Middle East and North Africa later this year while corn imports should be strong the entire marketing year.  The record corn production in Ukraine and Romania should be aimed at the European Union this marketing year, leaving the U.S. to clean up most other global importers until South American supplies come online next spring/summer.

Weather forecasts remain ideal through the end of the year, providing farmers still harvesting an open window and allowing grain movement to remain fluid.  Wheat has been moving, especially in the Northern Plains as the unseasonably warm weather is keeping trucks and trains rolling, especially as producers move grain ahead of year-end cash and tax needs.  48 cars and one train on the spot floor which was unchanged from a year earlier.  Spot floor and to-arrive bids are pretty much equal after the spot had been trading decent premiums, especially for higher protein wheat.  It’s difficult to get too bearish wheat basis from current levels considering the weather will not be this good all winter, exports are much stronger than a year ago, especially off the PNW, and once the grain which needs to move at year end does, producers will most likely wait for higher prices into the new year.  Longer-term, it is easier to get bearish spring wheat basis and futures is spring planting intentions shape up like they appear to be.  However, in the near-term, we should continue to see deliverable stocks draw down through year end which will leave supplies in Duluth/Minneapolis at 7-year lows.

 

Bottom Line: The market wants more announcements from the USDA on Chinese purchases, but remains to be seen if we will get them before the export sales report on Thursday.  Producers got their second half MFP payment as announced via tweet from the President yesterday.  This is going to provide some liquidity, and probably some resolve to not market, even though January is not a bullish month from a seasonal perspective, especially if the dryness in S-Brazil does not materialize into something bigger than it is today.  Momentum indicators are slowing and downside gaps remain open.

 

Good Luck Today.

Tregg Cronin

Market Analyst

Tregg.Cronin@halocommodities.com

www.halocommodities.com

@5thWave_tcronin

 

 

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