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.

10/18/2018 Morning Comments

Good Morning,

China continues to be in focus as the trade war slogs along in month three.  The Shanghai Composite touched the lowest level this morning since Thanksgiving 2014.  Further, researchers at www.sentimentrader.com noted the current bear market in Chinese stocks is now the worst since 2008 as it’s only enjoyed 37 higher closes over the last 100 sessions.  In addition, it is suffering its worst breadth in five years and among the lowest levels of the last 15.  Almost every stock on the Shanghai Composite is trading below its 10, 50 and 200-day moving averages.  Also occurring overnight, the Chinese on-shore Renminbi rate fell to a 20-month low against the USD.  It would appear the tariffs against China are working in part, although some cyclical slowdown is probably also at work.  Regardless, additional pro-growth measures by the PRC would likely weaken the Renminbi further, pushing President Trump closer to labeling them an official currency manipulator.  Doing so would ensure this trade war is only in its infancy.

Wide open Midwest weather again this morning with the exception of scattered showers in Texas.  The southern plains will remain active the next 7-days with Texas seeing another 0.50-3.00” over the next week.  This Midwest sees little to no measurable precip anywhere the next week.  Temperatures remain above normal in the north and west and normal/below in the central/east.  Precip moves to above normal for much of the Plains and Mid-South in the 6-10 day, but is mostly normal during the 8-14 day.

 

Weaker row crops but firming wheat markets this morning with much more bearish news than bullish.  After all of our markets put forth an impressive technical performance last week and Monday, prices have eased and bearish headlines are moving to the foreground.  Brazilian corn and soybean planting continues at a fast clip with most areas looking favorable on moisture.  Weekly ethanol production slowed last week with stocks near record highs and production margins among the lowest on record.  US wheat prices are back to trading a premium over Russian, German and Baltic wheat for most of the next four months.  Despite every analyst on the planet calling for US wheat demand to improve at the expense of Russian in Q3-Q4, Russian wheat continues to trade at huge discounts and be shipped at record pace.  Negotiations between China and the US were thought to be improving with a chance at a meeting between President Xi and President Trump at the next G20 Summit in late November.  That now looks improbable with representatives on both sides saying the two remain far enough apart talks would do no good at this point.  Without a Chinese/US resolution soon, the US will miss out on the bulk of the Chinese buying season, ensuring exports won’t come anywhere near the current 2.060bbu estimate from the USDA.

Weekly ethanol production declined last week to 1.011 million bbls/day, down 29,000bpd from last week and the lowest production since May.  This week’s production was also below last year’s same week production of 1.019 million bpd.  Compounding the problem, weekly ethanol stocks rose to 24.130 million bbls, up 109,000 bbls and just a hair below the all-time record posting back in March.  Ethanol exports during the month of August recovered and were actually a record for the month, so exports aren’t completely to blame for the stock build.  Conventional gasoline/ethanol blending last week totaled 5.98 million bbls/day, which was up from the week before and the four-week average.  Blending was up around 2% from a year ago.  With exports decent and domestic demand up from a year ago, demand wouldn’t appear to be the problem, so it would stand to reason production should continue to slow, especially when margins are examined.  A simple gauge of ethanol margins is to take the price of ethanol times 2.85 (gallons of ethanol from a bushel of corn) and subtract the actual price of corn.  This gives an idea of how well the price of ethanol covers the input cost of corn.  At current, the spred is -$0.07/bu, up from yesterday’s -$0.10/bu, showing the price of ethanol is not covering the price of corn.  With storage brimming, historically poor ethanol margins should continue to slow production in coming weeks, raising doubts about USDA’s record estimate.

Delayed soybean harvest, and therefore delayed winter wheat planting in the east, remains in focus.  Many states have already passed their final plant dates for insurance purposes or will pass them in coming days.  For instance, Illinois is 60% harvested on soybeans, 36% planted on SRW and has final plant dates on October 20th and October 31st.  IN is 51% harvested and 50% planted with a final plant date of Oct 31.  Ohio is 43% harvested, 51% planted with final plant dates of Oct 20 and Oct 31.  Michigan is 23% harvested, 40% planted and has final plant dates of Oct 10, 20 and 25th.  In HRW country, Kansas is 16% harvested vs. 33% average, while planting is 62% complete with final plant dates of Oct 15, Oct 20 and Oct 31.  Farmers can plant past the final plant dates, they just lose 1% of their chosen insurance coverage level each day past the final date.  With the operating environment we are in, losing insurance coverage is not a wise decision.  Most ideas heading into the fall, mainly because of price and improved soil moisture levels, had winter wheat acreage of 10-15% y/y.  This could be tempered a bit to 5-10% which we will run scenarios for in coming weeks.

Export sales out later this morning with wheat expected at 300-550TMT, corn at 700-1,300TMT, soybeans at 600-1200TMT, meal at 85-450TMT and oil at 5-25TMT.  Should see soybean sales come back down to earth after last week’s surge.  Lots of individual countries showing up to buy US soybeans on the same week can produce a solid week, but nothing like the consistent buying of China.  Wheat sales will also be in focus as the last two weeks’ worth of sales have been poor and below the level needed to hit the USDA forecast.  Commitments as a percent of the USDA’s forecast was the lowest on record going back to 1990 on last week’s report.  Sales would do well to throw the market a bone or risk price trading back to the bottom end of the recent range.

 

Bottom Line: Feels like our markets are running out of gas following the impressive three-day rally.  Lots of harvest to bring in yet, decent weather forecast and demand indicators turning shaky in the way of ethanol production and soybean exports.  Simply put, soybean crush cannot offset the loss of Chinese exports no matter how good crush margins are.  We are setting monthly crush records every single month and can’t come close to offsetting the loss of 100-200mbu of exports.

 

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.

10/16/2018 Morning Comments

Good Morning,

 

Rain across much of Texas and parts of the Delta, otherwise another wide open Midwest radar this morning.  The 7-day GFS update this morning shows no measurable precip across the entire Midwest.  Nothing.  Frosty temps again this morning in much of the upper-Midwest, although temps gradually warm this week with 60’s widespread by the weekend north of I-80.  Extended maps look favorable for precip which below normal expected through the 10-day while the 8-14 starts to bring back some moisture for the southern plains.  The Northern Plains and most of the corn belt should remain below normal throughout.  Temps are above normal to the northwest of a line from E-CO to N-MN, but below normal on the south east side of that line.  If weather hold for the next 10-14 days, the Northern Plains should be able to take a big bite out of remaining harvest.

 

Mostly weaker markets this morning with the exception of front end winter wheat markets which are just barely higher.  The real story is the surge in prices yesterday led by soybeans and meal.  The combination of slow harvest and much stronger than expected NOPA crush seemed to support things throughout the session, although most analysts are pondering how much more upside corn and soybeans can reasonably expect with 2/3’s of harvest left to bring in?  In addition, crush is already forecast at a record, and even pushing to a new record by 20-30mbu will not offset the expected loss in exports.  If carryout does push over 900mbu, and toward 1.0bbu like some are currently carrying, the price:stocks relationships do not support November soybeans at $9+.  December corn is firmly above its $3.70 range cap, arguing for a test of corrective highs at 3.82 and 3.88 from a technical perspective.  Like soybeans, however, bulls should be questioning upside with close to 10 billion bushels left to harvest.  Wheat markets rallied reluctantly Monday, lagging on inter-market spreading which is probably the reason for the relative support this morning.  Wheat planting is easing behind average although actual y/y changes won’t be known until January.  SRW acres seem the most at risk with slow soybean harvest.  Corn open interest fell 13,438 contracts yesterday, soybeans were up 2,422, meal up 4,164 contracts, oil down 1,980, SRW wheat up 1,876 contracts and HRW up 445.

The weekly crop progress report released after the close was of interest to analysts this week with corn harvest pegged at 39% complete vs. 34% last week and 35% average.  The eastern corn belt is ahead of schedule while the northern plains is sliding just behind average pace.  With harvest slow to get going until mid to late week, progress should fall further behind next week.  Soybean harvest was estimated nationally at 38% complete vs. 32% last week and 53% average.  This is the slowest national pace since 2009 when just 23% of the crop was harvested.  Iowa soy harvest progress was just 19% complete, the slowest pace on record going back to 1981.  The Northern Plains are also facing sizable lags with ND at 37% vs. 70% average, SD at 29% vs. 65% average and MN at 38% vs. 69% average.  Winter wheat planting progress was estimated at 65% complete vs. 57% last week and 67% average.  States of note included MT at 74% planted vs. 87% average, KS at 62% planted vs. 65% average, IL at 36% planted vs. 40% average, OH at 51% planted vs. 57% average and MI at 40% planted vs. 61% average.  Many states hit final plant dates for insurance purposes between October 15th and November 1st.

Export inspections released yesterday were roundly disappointing with the exception of soybeans which even had caveats attached.  Wheat inspections were 16.6mbu vs. the 21.5mbu needed weekly.  Total inspections of 287.2mbu are down 26.6% from a year ago.  The deficit has fallen from 30.6% two weeks ago, but one must remember, even if we are gaining on last year, exports are expected to be up 13% from last year’s 901mbu.  We need to move ahead of last year and add to that lead, something we are not doing so far.  Corn inspections were 39.2mbu vs. 45.5mbu needed weekly.  This was the first week inspections have failed to meet the needed level in four weeks.  Total inspections are still up 74.7% from a year ago.  Soybean inspections of 42.5mbu were better than the 39.6mbu needed weekly but total inspections of 173.6mbu are still down 34% from a year ago.  Cargoes listed to China out of the PNW and Gulf last week grabbed headlines, but the current 2.060bbu export estimate still has a fair amount of Chinese business penciled into it which isn’t occurring.

The supportive news yesterday was September NOPA crush.  Crush came in at 160.779mbu, above the 157.4mbu expected by the trade, the 158.9mbu last month and well above the 136.4mbu from September 2017.  The 160.779mbu crush number beat the previous September record from 2007 by 21mbu, a truly astonishing number.  Aiding in crush plants’ ability to destroy the number was the fact many facilities took their seasonal maintenance downtime in August instead of their usual September.  In addition, commercial ownership was high coming into fall, thanks in large part to the plentiful carryout.  NOPA monthly crush has now set a new record for each respective month for 10 consecutive months.  The increase will keep analysts increasing their marketing year crush estimate which is already forecast at a new record by 15mbu.  It would not surprise to see their current 2.070bbu end up at 2.100bbu by next month or December provided the records keep coming.  However, even if crush does end up at 2.100bbu, an increase of 45mbu y/y, it doesn’t make up for the current 70mbu drop in exports from last year.  This is especially true when considering some analysts are using export forecasts as low as 1.900bbu, down 160mbu from 2017/18.

Front end of the soybean curve remains weak as index funds finish rolling out of the November and into the Jan.  SX/SF tied contract lows yesterday and overnight at -14.50c which is around 86% of full financial carry.  SX/SX was stronger, however, trading -60.25c overnight, the best trade in a month.  Similar story in corn with a lackluster front end but firm longer-term spreads.  CZ/CH mostly rangebound at -12.00 up to -11.75c.  CZ/CZ was firm yesterday, up to -28.50c, the strongest trade in 6-weeks.  MWZ/MWH may have seen peak squeeze after hitting -6.25c on Friday with that spread easing to -8.00c overnight.  Still firm and cash traders continuing to suggest additional export business has been done.

 

Bottom Line: A little set back today isn’t ridiculous.  Futures will find the next dime a lot more difficult than the previous one.  Weather turning favorable and harvest ramping back up will keep prices in check.  Delays allow the cash markets to handle the supply better, but doesn’t change the overall bushels the system still needs to handle.  Lots of concern about quality in soybeans after the recent snows and rains.  The futures market is not going to rally on pictures of moldy beans from Twitter.  Cash markets will take care of quality issues as they always do.

 

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.

10/15/2018 Morning Comments

Good Morning,

 

Financial market news this weekend centered around Saudi Arabia and the disappearance of journalist Jamal Khashoggi who has been critical of the kingdom.  President Trump vowed retaliation if it is found that the kingdom was responsible which brought threats from Saudi Arabia about using its economic muscle to defend itself.  In other words, Saudi Arabia thinks it could retaliate by cutting oil production and driving the price of oil up for the US and other major importers.  This would seem like a very short-sighted response and one which is likely to hurt Saudi Arabia more so than anyone else.  If oil prices rise, and importers turn to other origins to get their oil, the cost of the marginal barrel of oil goes down.  Much like the current Chinese/US spat over soybeans, it might be more expensive in the short-run for China to pursue their protein needs without the US, but if they are successful in their efforts, it is demand the US is unlikely to get back.  The same could be true with oil production as shale producers ramp up, offshore platforms become economical and Saudi Arabia spends its only true bargaining chip.  Oil prices are firmer this morning, but within recent ranges.

Rain across TX and in a band extending to KY this morning, otherwise the Midwest is quiet outside of MI.  Snow covered a broad swath of Kansas, Nebraska, Iowa, southern Minnesota and Wisconsin over the weekend with social media full of crop sunder snow.  The warmer temps this week should dispose of the snow rather quickly, but it could mean a couple more days of no harvest.  Fortunately, the majority of the Midwest is expected to see at least 7-10 days of wide open weather which should allow harvest to ramp back up quickly.  Normal to slightly above normal temps in the central/west corn belt while the entire Midwest sees below normal precip.  Field conditions are still less than ideal, but given it is only October 15th, not November 15th, there is still ample time to get the crop out of the field.  The 7 and 14-day percent of normal precip maps are truly impressive at 400-600% of normal for the Midwest.

 

Mixed markets to start the week with firmer wheat markets but softer row crops.  More than anything, futures are consolidating the impressive move from Thursday/Friday last week which seemed to definitively say fall lows have been made.  With the national average corn yield having peaked and moved slightly lower, opening the door for additional cuts in November and January, it feels as though all of the potential bearish corn news has been priced in.  Additionally, with the adverse soybean harvest conditions across much of the Midwest, we also may have seen peak soybean supply as well.  The difference with soybeans, however, is the demand component is not nearly as strong as corn and could see ending stocks rise if exports don’t pick up soon.  Wheat markets are trying to add to last week’s strength as the approval process for Russian phytosanitary certificates slows and cash traders chatter about additional business done late week.  There is still plenty of time to get back on track with the USDA’s wheat export forecast, but each week which passes is another week closer to importers having more suppliers to choose from.  Open interest changes on Friday’s surge saw corn down 12,973 contracts, soybeans up 2,036 contracts, meal down 5,685 contracts, oil down 10,164 contracts, SRW up 411 and HRW up 172.  Wheat open interest barely budging on the rally could be commercial selling to funds trying to cover shorts.

We took a closer look at export sales over the weekend with mixed results.  Wheat sales continued weak at 12.5mbu vs. the 17.6mbu needed weekly.  This is the second consecutive week of sales failing to meet the level needed, following the same pattern witnessed in August and September.  After sales surged in early August, we saw 4-5 consecutive weeks of poor sales before the impressive sales two weeks ago.  Let’s hope we don’t see 2-3 more weeks of poor sales before another solid week.  Total wheat commitments of 427.6mbu are the lowest since 2015, and the second lowest since 2009.  Commitments as a percent of the USDA forecast at 41.7% are the lowest on record for this week of the year going back to 1990.  The 17.6mbu needed weekly would be the second largest export program since 2004.  Soybean sales were also quite poor at 16.2mbu, well short of the 28.6mbu needed weekly and the lowest export sales of the new marketing year.  Total commitments of 754.9mbu are the lowest since 2011 while commitments as a percent of the forecast at 36.6% is the lowest since 2008.  The 28.4mbu needed weekly would be the largest export program from here forward on record.  Corn export sales were decent at 39.6mbu vs. the 35.1mbu needed weekly, although were the lowest in four weeks and at the bottom end of trade expectations.  Total commitments of 813.7mbu are up 51% from a year ago and the second largest since 2007.  Commitments as a percent of the USDA forecast at 32.8% are the second highest since 2012 and above the 5-yr average of 29.3%.

We were also interested in Canadian crop progress reports which were released Thursday and Friday.  Saskatchewan reported spring wheat harvest progress on Thursday at 65% complete, up 7% on the week and about 16% behind average.  Alberta is further behind with harvest at 56.7% complete vs. 41% last week.  Other crops were further behind barley at 52% vs. 45% last week, oat harvest at 34% vs. 19% last week and canola at 26% vs. 20% the week before.  The reports carried the language most thought it would with concern over sprout and cracked kernels due to freeze injury.  Cash markets will take care of any quality issues, but it does raise questions about Canada’s ability to export the second largest wheat program on record.  We also took a look through the monthly Canadian export data for the months of July and August.  Many political pundits have been remarking how the current trade spat with China is costing wheat exports from the United States as well as Mexico over the NAFTA negotiations.  US wheat exports to China have been zero, that is true, with Canadian exports to China for 2017/18 at 1.065MMT vs. 366,700MT in 2016/17.  However, the argument Mexico is avoiding US wheat because of NAFTA is shot down when considering Canadian exports to Mexico as of July were up 10.0% at 962,500MT vs. 874,600MT the year before.  Canada and Mexico trade under the same rules as the US and Mexico, meaning the decision of Mexico to buy Canadian wheat comes down to price, not policy.

The Minneapolis spring wheat market will remain in focus for us this week after the decent futures gains but the more impressive spread gains last week.  The MWZ/MWH hit -6.25c on Friday, the highest print for the spread since May 24th.  Back in May, the trade was still concerned with planted acreage after a particularly poor start to the growing season.  The surprise sale to Bangladesh last week, along with chatter about additional business done there late week, seems to be supporting ideas of tightening spring wheat carryout.  In addition, unlike HRW, the farmer still owns the vast majority of the hard red spring crop with winter weather gripping the Northern Plains.  It feels like commercials were counting on the farmer to move more spring wheat before fall harvest than he has, putting them in a difficult spot to fulfill existing and new export sales.  Spot floor bids firmed late week as well, with a slight protein premium starting to emerge.  If Canadian quality issues are real, US-HRS should benefit in a big way into LAM SE-Asia.  MWZ should find some additional resistance at $6.00, followed by $6.10-6.13.

 

Bottom Line: Wheat has the most buzz of the three major markets with traders expecting the long-awaited demand pull to finally show up.  Corn and soybeans had nice rallies last week and probably need to consolidate those gains as we await harvest to pick back up mid-week.  Still 2/3’s of the corn and soybean harvest left to bring in which will bring with it hedge pressure.  While fall lows might be in, we remain very skeptical of any soybean strength with USDA knowing they will need to cut exports on coming reports without a major trade breakthrough with China.

 

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.

10/12/2018 Morning Comments

Good Morning,

 

After a one-day respite, more moisture across the Plains and WCB this morning.  After being promised a week to ten days of dry weather, South Dakota is once again seeing snow and rain/snow mix with widespread showers across the southern plains.  7-day precip totals are adding to up to some impressive amounts.  Another cold snap for the Northern Plains and WCB hits Sunday with high temps generally in the 30’s well into N-KS and MN/IA.  Temps will return to the 60’s by Tue/Wed which will be a welcome sight for all.  The southern plains remains wet until Monday, but then the entire Midwest should dry out by Tuesday/Wednesday.  Extended maps continue to look better with drier, warmer weather for the entire Midwest.  Once things completely dry out by midweek next week, harvest should break open by the end of next week.

 

Firmer wheat and soybeans overnight while corn takes a slight breather after yesterday’s solid performance.  Lots of debate about the data received yesterday with the general consensus that the report wasn’t as bearish as feared but wasn’t exactly bullish.  The national average yield for corn came down when it was expected to go up, while soybeans went up less than expected.  The real talkers out of the report seem to be the potential for corn yield to move lower in November and January after most would have expected small but steady increases the rest of the year.  Also, the USDA punted this month on the soybean balance sheet, buying themselves some time for something to happen on the trade front.  They should have made cuts to Chinese soybean imports and US soybean exports, two changes they will not be able to run away from in November and December without a resolution.  Wheat changes were as expected but a little disappointing with USDA continuing to slow play major exporter cuts.  The lack of harvest pressure last week and this week has helped prices slowly rise, but the hedger should be back in next week with the weather turning favorable.  We still have 2/3’s of the corn and soybean harvest left to bring in with only one of those crops having an export program to speak of.  Open interest changes yesterday saw corn up 5,704 contracts, soybeans up 3,003, meal up 10,214 contracts, oil up 2,448, SRW wheat up 3,076 and HRW up 3,945 contracts.

USDA dropped the national average corn yield to 180.7bpa from 181.3bpa last month and vs. the average trade guess of 181.8bpa.  This was definitely a surprise to anyone using crop conditions to base their yield estimates, a method which proved to be incredibly flawed a year ago.  A change such as this brings out the analog year comparisons with only three years since 1990 showing a cut to the October yield after an increase in September.  Those three years were 1990, 2006 and 2007, so admittedly, nothing in the last decade.  Still, in all three of those years which featured an increase in Sept followed by a cut to October, further cuts were seen in both November and January by an average of 3.3bpa by the “final” yield estimate.  Lessening the probability that this year’s yield could prove as small as 177.4bpa is the fact 80% of the objective yield samples measured by the USDA were rated mature, the highest percentage since at least 2014.  Just for giggles, if the yield were to prove as small as 177.4bpa, it would drop another 272mbu from production, and put ending stocks at 1.541bbu before demand changes.  We put odds of a yield that small as very unlikely.  The other big change for USDA was on exports which they increased 75mbu in a justified move in our opinion.  This was especially true after CONAB released their first production estimate for Brazil yesterday morning, putting the crop at 90.4MMT vs. 81.3MMT last year and 95MMT from the USDA.

Soybean changes showed a small yield increase to 53.1bpa from 52.8bpa last month, a tick under the average trade guess.  The increase to yield was mostly offset by a 500,000 acre drop in harvested area.  This could prove even higher after the adverse weather experienced in the Northern Plains and WCB this past week.  Pictures and videos of snowed in or flattened soybeans are everywhere on social media.  With better weather, these acres should be salvaged.  With yield increases in both September and October, there is a strong precedent for a further yield increase in November and/or January.  Since 1990, there have been eight years which featured yield increases in both Sept and Oct.  In seven of those years, further increases were noted in both November and January.  Only one year, 2006, saw yields increase in November but features a small cut on the final report.  Even in that year, the final yield in January was only 0.1bpa below the October estimate.  With that in mind, analysts will be quick to add yield, grouping somewhere around 53.4-53.8bpa, so we might as well put the yield estimates out now.  Getting to that national average yield of 53.1 saw USDA reduce pod weights by quite a bit but increased pod counts to the highest on record.  USDA made the appropriate 17/18 changes, but it was the lack of changes to the 18/19 balance sheet which had us shaking our head.  Exports remain woefully behind the needed pace to hit 2.060bbu, a fact which should be further hammered home later this morning.  In addition, USDA left Chinese imports unchanged from last month and last year at 94MMT.  Internal estimates are as low as 85MMT.  Trade resolution or bust by November it would seem.

We were interested in wheat changes, which unsurprisingly, were disappointing on the global front.  USDA made small changes to 18/19 supply and demand based on the Sept 1 stocks report, cutting feed/residual demand by 10mbu but leaving exports unchanged at 1.025bbu.  This was likely as USDA wants another month of data before making cuts to US exports.  More frustrating were the changes, or lack thereof, to other major exporters.  Russian production was cut 1MMT to 70MMT, but exports were unchanged at 35MMT when almost everyone in the trade is closer to 30-31MMT.  Until Russian export slow, I guess this move is warranted.  Australian production was cut 1.5MMT to 18.5MMT, even though this probably has another 1-1.5MMT to go.  Moe disappointing was USDA’s decision to cut exports 1MMT to 13MMT when no one on the island of Australia is above 10MMT.  Further, they have not come clean on 17/18 ending stocks yet either, which are 2MMT smaller than the 5.398MMT USDA is still using.  In addition, USDA maintained Canadian production at 31.5MMT when most are closer to 30MMT.  Harvest weather is not good, but should improve, so USDA standing pat there shouldn’t have been a surprise.

Speaking of Canada, Saskatchewan released their weekly crop progress report, showing harvest at 65% complete for spring wheat, up 7% on the week.  Drier weather is expected moving forward, but temps remain below average which will keep things slow.  Barley harvest advanced only 3% to 81% complete, canola harvest was up 9% to 61% complete, flax up 3% to 36% and soybeans up only 1% to 30% complete.  Canada is one of the minor soybean producers China will be counting on to fill some of the gap from the United States.  Will be interesting to see this play out.  Alberta will release their crop progress report after the bell.  Quickly, on the subject of spring wheat, the MWZ/MWH spread continued its violent move higher, hitting -8.00c yesterday, the highest trade since May.  Rumors of more export business done to SE-Asia which we will need to see confirmation of.  US-HRS remains deeply discounted to CWRS throughout the curve.

 

Bottom Line: A little something for everyone in yesterday’s report, but by and large, it was neither a bullish or bearish report.  Plenty of changes left to make on subsequent WASDE reports from both a supply and demand perspective.  Harvest weather will improve next week, allowing producers to get back in the field and bring some hedge pressure along with it.  Shouldn’t be much hedge pressure heading into this weekend, so markets could hang on to close higher if outsides don’t pull a Crazy Ivan.

 

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.