12/29/2017 Morning Comments

Good Morning,

 

Crude oil has nudged back over the $60.00/bbl mark for WTI this morning, bolstered by a continued tightening in the US market.  Weekly energy inventories from yesterday showed a 4.61 million bbl draw in stocks, slightly more than the 4.00 million bbl estimate.  What’s more, not only are crude supplies of 431.88 million bbls well below last year’s 486.06 million bbl level, they are also below the 3-yr average of 432.03 million bbls.  In fact, crude supplies at the 431.88 million bbl level are just above the middle of the 5-yr average as well.  Brent crude oil is trading at $66.38/bbl this morning, and the Brent/WTI spread has come in $0.07/bbl to $6.25/bbl premium Brent.  The spread had a spike high of $7.27/bbl on December 12th, with a recent low of $4.90/bbl in late November.

Moderate to heavy snow is falling across the Dakotas, MT and SW-MN this morning, helping to fill in any remaining gaps without snow cover.  Most of the area currently receiving snow should see anywhere from 1-5” throughout today with another chance at lighter amounts tomorrow.  This is welcome news for any upper Plains winter wheat which hadn’t yet received protective snow cover amid the coldest temperatures of the season.  Over the next week, a band from SE-MT to C-IL will continue to see light snow chances, adding to recent moisture.  Temperatures will remain below normal until Tuesday at which time most areas claw back toward “normal.”  Extended maps keep temps normal/below, while precip moves from below normal in the 6-10 to above normal for the Midwest in the 8-14.  Forecasts for Argentina continue to provide moisture in the heart of their belt the next 7-days.

 

Quiet overnight markets with lightly mixed trade as we get set for another 3-day weekend.  Desks haven’t been fully staffed this entire week, so no one should be expecting earth-shattering trade on either the futures or cash side today.  The big story yesterday was the second reversal in soybeans in as many days as more anxiety over US soybean shipments to China began to surface.  A Reuters article hit the wire yesterday morning stating that according to their analysis, half of US soybean shipments would be held up or rejected based on the new quality requirements from China.  The new quality rules issued by China state shipments from the US with greater than 1% foreign material could be held for additional screening and inspection.  This would require #1 YSB to meet this new rule when most soybean shipments leaving the US are #2 YSB.  In order to hit the new specs, it would likely cost elevators and exporters more money, requiring a premium for the soybeans, and potentially taking the US out of the grids vs. South America.  This is especially troubling considering Brazil is not subject to these same stringent rules, despite their cargoes on average containing higher FM than their US counterparts.  The true motive behind the move from China isn’t 100% clear, but it is fair to say it has traders on edge considering we are already staring at the highest carryout levels in over a decade before we start cutting exports.  Another day of liquidation in soybeans as Jan beans get closed out without opening new positions in March or deferreds.  Soybean open interest was down 26,459 contracts, meal was down 8,998 contracts, soy oil down 2,170 contacts, corn was up 5,597 contracts, SRW wheat was up 1,240 contracts and HRW wheat was up 813 contracts.

Plenty of other balls in the air with regards to the soybeans and oilseed markets worth keeping track of.  Paris Rapeseed hit fresh contract lows this morning at €346.00/MT, which was also the lowest spot trade since March 3rd, 2016.  The pressure in CBOT soybeans undoubtedly had a pressuring affect, but canola futures have also been under pressure with spot prices there hitting the lowest level since September 13th.  In addition, the Argentine peso fell another 4.03% yesterday to 19.18:1 against the USD.  Since the beginning of December, the currency is down 11.3%, which would be the equivalent of the USD trading around 82.00 vs. the current spot level of 92.2940.  A currency that weak encourages producer selling as they get paid more pesos for every bushel of corn, wheat or soybeans they sell.  With a fair amount of grain at Argentine elevators needing to be priced before 2018, the currency weakness has probably exacerbated the selling pressure from the farmer there.

Data yesterday included weekly ethanol production which came in at 1.090 million bbls/day, up 13,000 bbls on the week, and was the second highest level on record.  Production at that level remains nearly 5.0% higher than the level needed to hit the USDA’s ethanol production forecast, and could argue for a further bump in their estimate on the January WASDE.  Each of the last nine weeks have run better than the level needed, with the last four hitting 4.0-5.0% better than the level needed.  In addition, the last 11-weeks have all been weekly records for their respective weeks on the calendar.  Weekly stocks saw a sizable draw at 289,000 bbls to 22.031 million bbls.  Despite the draw, ethanol stocks remain at record seasonal levels with every week of the marketing year hitting a weekly record for the respective week.  Ethanol prices have recovered around $0.09/gln from the lows in mid-December, but remain just 7% off all-time record low prices.

Canadian grain export data for the month of November was released yesterday with wheat exports coming in at 1.464MMT vs. 1.233MMT in October and 1.289MMT in November 2016.  MYTD exports now total 5.350MMT vs. 4.956MMT the previous year.  Canada sent China 60,400MT last month, bringing the marketing year total to 262,500MT vs. 141,800MT a year ago.  China also sent Brazil a panamax of wheat last month, bringing the MYTD total to 90,100MT vs. 72,500MT.  Canada should be trying to capture this business the entire marketing year given their lower protein profile of the 2017 crop vs. normal.  The bulk of Canadian wheat exports (63%) have been No. 2 CWRS, with 14% being sent as No. 1 CWRS.  Other tidbits worth noting, barley exports have also been much stronger than a year ago at 206,500MT for November vs. 154,700MT last month and 105,100MT in November 2016.  MYTD barley exports stand at 618,800MT vs. 273,400MT in 2016.  China is responsible for 95.8% of these barley exports.  Canola exports are steady y/y, pea and lentil exports are down sharply, and oat exports are up 20%.

Lastly, PNW corn premiums continue to hold firm, a sign of continued interest as South America moves its focus to soybeans.  Spot shuttle premiums are indicated around +91H vs. offers at +96H which compares with +88H/+92H a week ago.  This compares with bids/offers of +80/85H at the beginning of December, with BNSF equipment still at +/- $100/car vs. tariff at the beginning of the month.  Basis levels paid in the country should be improving, and producers should take a long look at corn either already in the elevator or making offers on grain to move.  Social media has also been abuzz with elevators beginning to offer free delayed pricing programs to get grain to move either before year end or shortly after the first of the year.  Producers taking advantage of the room at country locations need to be aware of the basis strength and what the prospects are for additional strength by the time they might decide to price this grain.  The programs are being offered because of the basis strength, not the other way around.

 

Bottom line: Export sales later this morning shouldn’t be anything too special given the holiday shortened week.  The soybean market needs a weather issue in Argentina to prevent additional losses, because the US market simply has too much supply without the needed export demand to mop up the excess.  Acreage discussions for 2018 are already taking place, and it looks likely corn acreage could be up 1-2 million from 2017.  With that in mind, producers need to be looking hard at New crop corn prices $3.90 and above when they present themselves.

 

Good Luck Today and Have a Happy New Year!

 

 

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.

 

12/28/2017 Morning Comments

Good Morning,

 

Commodities as an asset class have been one of the worst performing sectors of 2017, but one commodity is bucking that trend as we bring the calendar year to a close.  Copper prices rallied earlier today, hitting their best level in nearly four years, and helping notch the best year-to-date for metal since 2010.  Provided no massive selloff today and tomorrow, copper should finish the year up nearly 30% thanks in large part to solid demand from China as well as forecasts by some of the largest mining companies that deficits of the metal will occur by the end of the decade.  In addition, the surge in electric vehicles to-date, but especially the expected growth in the next ten years for charging networks will require an ever increasing supply of the red metal.  Last night saw China release import/export data for the month of November with scrap copper imports totaling 271,045MT which is down 17% from a year ago, but the Jan-Nov total of 3.292MMT is up 9.09% on 2016.  Copper concentrate imports totaled 1.776MMT in November, up 1% y/y while Jan-Nov imports of 15.698MMT are up 2.65% y/y.  Refined copper imports totaled 329,168MT, up 18.95% y/y with Jan-Nov imports of 2.915MMT down 10.83% y/y.

Scattered snow showers across the upper-Midwest this morning, with additional snow fall expected through the weekend.  The 7-day forecast shows solid snowfall potential over the western half of South Dakota, with IA also looking at 0.10-0.20” of water-equivalent moisture.  The real story in the Midwest, however, is the frigid cold which is expected to persist through New Year’s Day at least.  Highs in the single digits are seen today across the Dakotas, with 20’s in NE and 30’s to 40’s in KS.  Temperatures Saturday/Sunday are the ones to watch with high temps in the Dakotas anywhere from -3* F to -17* F across North Dakota.  South Dakota could be looking at its longest sustained temperature below zero since 2004.  Temps in NE this weekend are seen down to the single digits for highs with KS sporting highs of 13-20* this weekend  Little snow cover exists in the Plains outside of NE.  In South America, the focus remains on Argentina with dry weather occurring over most of growing areas yesterday.  Dry weather is expected the next 5-days in Argy, with light amounts currently being shown in the 6-10 day period.  Totals are seen at 0.50” or less over 65% by the end of the next week.  While weather of late has sounded quite dire in Argentina, the 15-day precip anomaly map shown below paints a bit different picture at least over the last two weeks.  The heart of the Argentine production belt has been normal to above normal, but that picture could change by the end of next week.  Brazil remains in good shape.

 

Weaker markets this morning as the soy complex shows follow through weakness after yesterday’s ugly reversal.  As is commonly seen in the US during June/July, our markets are reacting to each weather model change for South America, as well as trying to square steady/lower production estimates from Argentina with rising estimates in Brazil.  Technically, soybeans remain in tough shape with just two higher closes over the last nine sessions and three higher closes over the last fifteen sessions.  Spot month prices remains below all major moving averages, and on-balance volume is just off the lowest level since April, highlighting which camp remains firmly in control.  Liquidations was mainly seen ahead of year-end and as Jan futures move into delivery.  Corn open interest fell 6,484 contracts with price closing up 1c.  Soybean open interest fell 13,741 contracts, SRW wheat fell 1237 contracts, and KC -165.  Grain trade remains quiet with Russian FOB values, winter temps across the Plains and the pace of US corn exports over the coming weeks being some of the largest inputs.  Wheat has its sights set squarely on the January 12th winter wheat seedings and Dec 1 stocks report.

Very little for data published yesterday with ethanol production and stocks delayed until today and export sales delayed until Friday due to the Christmas holiday.  Weekly deliverable stocks reports rose just 4,000 bushels in Duluth/Minneapolis, with essentially unchanged stocks during the month of December.  Combined stocks of 21.9mbu compare with 21.675mbu a year ago and 28.714mbu two years ago.  The spring wheat spot market remains dead with just 5 cars available.  15.0% protein cars did trade up 20c on the bid side to +170/200H.  The cold weather this week and next should impact logistics across the Dakotas, MN and MT which could begin to see pipelines whittled down.  In Chicago, SRW stocks fell another 1.564mbu to 87.092mbu which continues to draw down relative to a year ago at 91.326mbu.  HRW stocks fell 116,000 bushel to 113.219mbu vs. 107.722mbu a year ago.  The KCBT spot floor was unchanged, while SRW barge bids began the week on a firm note.

Other wheat news this morning included a story from Bloomberg saying one of Russia’s largest grain ports added a third shift to deal with the incredible pace of exports to-date.  Novorossyisk port is now running 24-hours a day, and has shipped around 50% more than regular capacity in recent months.  This should not come as a complete surprise given the almost exclusive nature of Russian wheat in GASC tenders, as well as Russian wheat working into new destinations for the first time ever.  Russian FOB prices have seemingly been stuck at $190/MT for the better part of a month, and having any chance of a continued wheat rally will probably mean those offers working higher.  GASC receive six Russian offers in yesterday’s tender ranging from $192.35-200.35/MT FOB with one Romanian at $200.90/MT.  GASC bought 180,000MTof Russian wheat with a landed price of $207.05-209.60/MT C&F.  The delivery slot was February 1-10th with the cumulative total for the marketing year at 4.615MMT, of which 80.7% is Russian.

A couple quick notes from the latest COT data, covering positions through December 19th.  Funds hit the soybean market with near record selling last week, selling a net 48,254 contracts, the second largest single week of selling on record.  The reporting week ended three days ahead of option expiration for January futures, so some of the selling was undoubtedly related to that.  Still, an impressive week of selling, and makes the price drop more understandable.  Funds are now net short -56,838 contracts, the largest net short in soybeans since August 29th.  Funds finally sold some meal as well, dropping their net long from 67,716 contracts last week to 48,469 contracts.  This position still seems large considering the trashy meal basis in the US, and the ambiguous weather in Argentina at the moment.  The combined grain and oilseed net positions for managed funds ballooned to -456,325 contracts last week, the largest net short since June 6th, and getting into rarified air for net short positions.

 

Bottom Line: Wheat futures bounced yesterday on some of the cold air forecasts for Northern Hemisphere producers, but assessing winterkill damage before spring is usually a waste of time.  The 18/19 balance sheet is going to be much more constructive than the 17/18 balance sheet, and the January 12th reports should help to refocus toward next year.  Funds are sitting on large net short positions across the Ag room, and some additional short-covering into year-end is possible.  Corn probably needs to move toward $3.60 to give wheat a chance at hanging on above $4.30.

 

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.

12/22/2017 Morning Comments

Good Morning

 

Rains fell across 45% of the Argentine growing region yesterday to the tune of 0.25-0.45”, but once those rains finish up tonight, dry weather will take hold through most of the next week.  The next shot at rain for the heart of the Argentine growing region will be the tail end of next week.  To be clear, the rains which have fallen during the last 5-7 days were very beneficial, and should allow planting pace to surge in the coming days.  No extreme heat is seen either, so conditions can’t really be called dire as their crops work on emergence.  Rain will fall across southern Brazil through much of the weekend and early next week.  Northern Brazil too remains in good shape, with very little for concern anywhere in the Brazilian Ag belt.  Temps will be running close to average for most of the next 7-10 days.

 

Mixed markets this morning in quiet overnight trade.  It feels repetitive to keep mentioning the losing streak taking place in soybeans right now, but one can’t deny the impressive downward trend.  Soybeans closed lower for the sixth straight session yesterday as well as the eleventh lower close out of the last twelve sessions.  For people who like to use momentum indicators to claim a market is “overbought” or “oversold,” soybeans would have given you an “oversold” signal eight sessions ago.  Momentum indicators do not indicate “overbought” or “oversold,” but instead the strength of the current uptrend or downtrend, and right now momentum indicators aren’t even hinting at a divergence which would be the first signal we might be nearing a bottom.  Not helping the soybean plight were Dalian soybeans, which closed down 1.29% overnight, pushing the May contract to fresh contract lows.  On a front-month continuation basis, Dalian soybeans are at the lowest levels since February 2016.  As mentioned earlier this week, the front-month SF/SH spread has been firmer on the selloff, but the SH/SK, SK/SN and SN/SQ all hit or tied fresh contract lows, indicating the front-month spread is probably related to liquidation ahead of FND.  The SN/SX spread, which is usually a decent indicator of final carryout, hit a fresh contract low overnight of +8.50c.  Soybeans are looking high and low, but nothing supportive is coming to the surface.

Data yesterday included weekly export sales which were supportive all the way around.  Wheat sales were especially strong at 29.3mbu vs. the 12.2mbu needed weekly, although 120,000MT of HRW to Algeria and 130,000MT of SRW to unknown was previously known through the daily reporting system.  Nonetheless, total export sales made up ground on last year, pushing to 693.4mbu, down just 7% from a year ago.  Sales were led by 12.2mbu of HRW which is well more than the 5.0mbu per week needed.  Second place went to white wheat with 7.2mbu, followed by SRW at 7.0mbu and a disappointing 2.8mbu worth of HRS.  Corn sales were also strong at 61.3mbu vs. the 24.9mbu needed weekly.  Total commitments now stand at 997.0mbu vs. 1.352bbu a year ago.  There is good reason to believe this deficit will continue to shrink as we’ll discuss next.  Soybean sales were also solid at 64.0mbu vs. the 21.5mbu needed weekly.  Total commitments continue to run 16% behind a year ago at 1.452bbu which should prompt another cut to the export forecast by the USDA on the January WASDE.  Soy product sales were decent.

Corn exports should continue to make up ground with 16/17 as US FOB corn is now the lowest priced corn from major exporters, and should be on a landed base as well.  Going home last night, US-Gulf ex was quoted for Jan at $157.96/MT FOB and $158.36/MT FOB for Feb.  This would compare with the PNW at $173.71/MT FOB for both slots, and Argentina at $163.87/MT FOB for February.  Brazil is not even listing FOB offers as the program has turned exclusively toward soybeans.  Brazil will likely be out of the export market until April/May sometime, and by then we will have a much better handle on the size of their corn crop and how many excess bushels they will be trying to ship out of the country.  While corn is the focus, US Gulf ex soybeans are also running cheaper than Brazilian soybeans at the moment.  FOB quotes for Feb from the US went home last night at $367.80/MT vs. $376.64/MT FOB for Brazil.  Whether the premium/discount has anything to do with the recently announced FM discounts for US soybeans isn’t clear, but cash markets always sort out quality issues.

Sticking with the export theme, SovEcon raised their estimate of Russian wheat exports yesterday, bumping the full year estimate to 35.5MMT, up 500,000MT from their last estimate.  This would compare with USDA at 33.5MMT.  According to their figures, December wheat exports should end up around 3.7MMT, and things actually need to slow JFM to only ship 35.5MMT this marketing year.  It is pretty incredible a few months ago analysts thought Russian export capacity for wheat would be around 32-33MMT, when their current pace is pointing to something closer to 38-40MMT.  Add on the fact media outlets are reporting Russia plans to ramp up infrastructure spending in 2018 to increase export capacity, and the sky feels like the limit for Russian grain exports.  A lot can change with a cold blast, but barring their own version of a Polar Vortex, Russian wheat exports are arguably one of the most important facets to the global wheat market.

Switching back to Argentina, the Buenos Aires Grain Exchange reported weekly crop progress yesterday.  Corn planting progress was estimated at 61% complete vs. 45% last week and 63% last year.  Soybean planting was seen at 70.9%, up from 63.5% last week, but still behind 2016’s pace by around 5%.  Crop ratings for the soybean crop which is out of the ground were put at 58% good, 34% fair and 8% poor.  BAGE put the country’s wheat harvest at 72.5% complete, up 14% on the week.  They said 11.56MMT have been harvested to-date.  If yields were left unchanged through the rest of harvest, the crop would be implied below 16MMT vs. BAGE’s estimate at 17MMT, the Ag Minister at 18MMT and USDA at 17.5MMT.  Yields should improve slightly in the higher yielding areas of the south, but looks likely their wheat crop is being overestimated, just like Australia’s, which will further tighten the southern hemisphere exporter supply situation.

 

Bottom Line: Jan option expiration at noon today, which is also when futures markets close for the long holiday.  Futures will remain closed from noon today until 8:30am Tuesday December 26th.  Next week’s volume and participation is likely to be light as many continue an extended vacation.  South American weather, especially for Argentina, will be the big driver when markets reopen Tuesday.  From everyone at Halo Commodities, Have a very Merry Christmas and Happy New 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.

12/21/2017 Morning Comments

Good Morning,

 

We try to monitor the USD fairly closely, but overall, the index remains in a long-term downtrend stemming from the December 2016 highs.  There is one forex pair which the USD has been especially strong against, however, and that is the Argentine Peso.  The pair hit an all-time record low for the Argentine peso yesterday at 17.8853 pesos to one USD.  This came on the heels of President Macri’s pro-business government announcing pension reform, which brought protests and riots.  The effect on agriculture markets is readily apparent as Argentine farmers receive more pesos for each bushel of corn or soybeans or wheat they sell.  Adding to this incentive to sell are reports Argentine farmers have around 1.0-1.5MMT of soybeans delivered to commercial elevators which need to be priced before the end of the calendar year.  The combination could show up in US soybean premiums or flat price pressure.

Snow across the Dakotas and S-MN as temperatures drop and the first real shot of winter weather hits the upper-Midwest.  Plenty of snow around in the 7-day with most areas north of I-70 expected to be white for Christmas.  Below normal temperatures and above normal precip forecasted in both the 6-10 and 8-14 day outlook, with most areas in the Midwest hurting for moisture so the snow should come as welcome news outside of livestock operations.  Dry weather across most Argentine growing regions yesterday, although rains were observed in southern Cordoba.  Rains finish up in Argentine the next day or two with below average precip seen for the rest of this week, weekend and most of next week.  Next chances for rain in Argentina are being shown 7-8 days out, so little confidence at this point.  Brazil should see tropical rainfall in the average to above average category, maintaining good conditions.

 

Weaker markets across the board this morning as soybeans follow through from yesterday, while corn and wheat take a step back from yesterday’s gains.  Soybeans continue their losing ways with lower closes in 10 of the last 11 session, and would be working on 11 of the last 12 with a lower close today.  In that span, front-month soybeans have lost 63c/bu, or 6.2%.  Despite the lower board closes, the front-month soybean spread continues to firm, trading to -10.25c overnight, the highest trade since November 8th as positions continue to be rolled out ahead of FND next week.  January option expiration comes tomorrow with the largest call open interest in Jan beans at the $10.00 strike with 10,468 calls open.  Largest put interest is at the $9.90 strike with 10,243 open.  Unlikely either of those levels are at risk of being pinned, but the $9.60 puts could be in play with 7,975 open.  Soybean ATM option volatility is higher than week ago levels with Jan at 12.18% vs. 10.73% a week ago, and March at 11.03% vs. 10.60% a week ago.  To be clear, these are still incredibly depressed levels from which vol is bouncing mildly.

Possibly adding to the soybean weakness yesterday were reports China was planning to institute new foreign material requirements for all US soybean shipments as of January 1.  Shipments of US soybeans will now be required to have less than 1% foreign material, which would then be expedited through customs clearing, while shipments containing more than 1% could be held back for additional testing.  Quality specs for #2 YSB, the most common specs for US soybeans, allow up to 2% FM when sent to US exporters.  The increased scrutiny is said to be because of concern over weed seeds in US soybeans, which is rather comical considering on average Brazilian cargoes are often “dirtier” than their US counterparts.  As is usually the case, watch what the Chinese do, not what they say.  The increased quality scrutiny is almost surely congestion at port related, or because of the higher protein content in Brazilian beans, or some other price incentive.  The issue for US soybeans is the smaller Chinese crushers cannot afford to take the risk of US soybeans being held at port longer than expected, and in-turn have to slow down or halt operations as they wait.  Price spreads should take care of this problem as the US still has soybeans to ship, while Brazil won’t be at full capacity until at least the end of January.

As we mentioned earlier this week, Informa Economics released their latest acreage assumptions last week for winter wheat and spring planted grains.  We discussed the HRW balance sheet with their acreage assumptions plugged in, but thought it worth taking a look at the HRS balance sheet at this time.  Informa sees ‘other spring’ wheat acres at 11.335 million acres, which would compare with 11.009 million a year ago.  This would imply HRS acres around 10.882 million vs. 10.3 million a year ago, or an increase of around 5.6%.  Most in the industry, including us, are looking for more acres than that, but worth going down this road to see where we would end up.  The 5-yr average yield is 44bpa, which would include this year’s drought-stricken yield of 37bpa.  For the sake of this discussion, we will use 46.1bpa, which is the 5-yr average taking out this past year.  This gives us total production of 489mbu, and total supplies of 706mbu vs. 693mbu in 17/18.  For demand, we have domestic use up 19mbu to 290mbu, and exports up 20mbu to 275mbu as consumers are able to source more of the spring wheat specs they want.  This gives us a carryout of 141mbu, which is down 26mbu from the current year.  Stocks/use would be 24.99%, the tightest since 2007/08.  The point here is to show carryout tightening despite more acres and a bounce back in yield next year.  If demand is unchanged carryout would rise by 13mbu, but still remain below 200mbu.  If acres are closer to our ideas of a 10% increase (+1.0 million), total production would be 724mbu, and carryout at 159mbu with the increased demand estimates.  Unchanged demand would yield a carryout of 198mbu.  Spring wheat bears close watching as we flip to 2018, especially if new crop prices remain below $6.50 or close to $6.00 which might not provide the price incentive to plant wheat as it did just a couple of months ago.

Data yesterday included weekly ethanol production which came in at 1.077 million bbls/day vs. 1.089 million bbls/day the week before, and was 4% higher than the same week a year ago.  Production through the first 15-weeks of the new marketing year is averaging an annualized pace of 5.630bbu vs. the USDA’s current ethanol production estimate requiring 5.525bbu for the 17/18 marketing year.  It is clear the pace of ethanol production remains stronger than needed and the USDA is probably in need of a bump in their estimate in January, but ethanol stocks remain record high for this point in December.  The hope is an improved ethanol export program will help alleviate this issue after the first of the year.  Ethanol futures prices remain near record lows dating back to 2005.

The USDA Cattle-on-Feed as well as the Dec 1 Quarterly Hogs and Pigs report will be released tomorrow afternoon.  We will include pre-report estimates in tomorrow’s report.  Export sales out later this morning are expected at 300-600TMT for wheat, 800-1,300TMT for corn, 1,000-2,150TMT for soybeans, 175-350TMT for meal and 5-20TMT for soy oil.

 

Bottom Line:  Soybeans have certainly priced in improved conditions in Argentina and stellar conditions in Brazil.  To keep prices under pressure, it will be incumbent upon favorable weather moving forward, and rains showing up at the end of next week for Argentina.  To put things into perspective, Brazil is just starting to see the first soybeans blooming, while Argentina is trying to finish the last 25% of planting.  Plenty of time for crops to get bigger or smaller.

 

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.

12/20/2017 Morning Comments

Good Morning,

 

We’ve been watching the equity/commodity ratio for quite some time as the pair has moved into all-time record highs seemingly on a daily basis.  Since setting its most recent high on December 13th at 31.96, however, the ratio seems to be losing momentum.  This would coincide with a host of factors which might give pause to the equity bull/commodity bear argument.  For starters, it looks increasingly likely the Republican tax bill will be signed by the President sometime in the next 10-days after markets have been trying to price this information in for most of 2017.  In addition, scores of industry media have been remarking on the number of commodity hedge funds going out of business due to poor returns and a lack of volatility.  Further, as the chart below from www.finviz.com points out, of the top ten best performing futures markets-to-date, six of the top ten are tied to equity indices while the bottom ten contain seven traditional commodity markets like soybeans, coffee and natural gas.  This is by no means meant to encourage selling equities and buying commodities for 2018, but simply to continue watching this ratio for signs of either a commodity bottom or a more lengthy equity correction.

Snow across MT/ND/SW-MN this morning, while the rest of the Midwest is quiet.  Several states should see a white Christmas, including all of ND, NE, IA, WI and most likely IN/OH.  A system moves through the region tomorrow and into Friday with heaviest chances for snow around the Great Lakes.  Temperature models remain below to well-below normal through the 14-day period which gets us out to January 2nd.  Precip models slowly shift towards above normal precip by the end of the 14-day outlook for all but N-MN/N-WI/N-MI.  The Delta and E-TX should see very good chances for moisture.  South America looks to see rains the next 2-days in Argentina before turning dry once again.  Overnight models put below normal precip over much of Argentina for the rest of the week and most of next week.  We will most likely be talking about conditions drying out when we come back from Christmas unless models flip once again.  Brazil remains in very good shape with the forecast calling for at least average rains over much of the country the next 10-days.  No oppressive heat for either country in the next 10-days.

 

Firmer row crop markets this morning with wheat taking a breather, but generally narrow ranges once again.  Regardless of price direction, it seems as though money is flowing into row crops with corn open interest up another 11,503 contracts yesterday alone.  Since hitting an interim high on 12/4, corn open interest is up 67,682 contracts as price has fallen 12.5c on a net basis.  Soybean open interest is up 25,861 contracts since 12/12 while price is down 27.75c, but price is down 56.5c since the highs on 12/5.  Trade back above $9.80 basis SF futures would most likely put most of the fresh shorts underwater.  Chicago wheat open interest is up 42,848 contracts since peak open interest on 12/4 while price is down a net 24c, but 9c off the lows from 12/12.  We haven’t seen “official” estimates of index fund rebalancing expected after the first of the year, but rumblings say funds are intending to buy KC wheat and sugar while selling corn among smaller rebalances.  Of the major Ag commodities, feeder cattle were the best performing of 2017 at +11.10%, followed by cotton at 6.55%, live cattle at 3.75% and Chicago wheat at 2.75%.  Worst performing were ethanol at -20.92%, soybeans -3.44% and bean oil at -3.38%.

Data yesterday included weekly deliverable stocks which saw hard red spring stocks up 244,000 bushels to 21.896mbu.  This would compare with 22.177mbu a year ago and 28.561mbu two years ago.  Spot floor trades in Minneapolis were mixed yesterday with 14.0% pro up 5-10c at +125H, while 15.0% was down 15c on the bid and up 5c on the offer to +160/180H.  These quotes would compare with +140/160Z for 14.0% a month ago, and +175/210Z for 15.0%.  The chatter from the domestic market continues to be about pluggy mills and full pipelines.  If forecasts verify with snow and cold across North Dakota, it would seem we would see a slowdown in rail performance and mills getting a little more current after the first of the year.  At the CBOT, SRW stocks were down a net 2.202mbu w/w to 88.656mbu which compare with 92.763mbu a year ago.  It feels like we have Chicago wheat stocks below year ago levels for the first time in a couple years, and fortunately, less non-deliverable/ungraded stocks which are down 519,000 bushels to 6.622mbu.  KCBT stocks were down 1.592mbu w/w to 113.335mbu but remain 5.634mbu above year ago levels.  Non-deliverable grades of 4.068mbu compare with 2.210mbu a year ago as the wheat with protein less than 10.5% remains abundant.

Lots of chatter about South American crop estimates this week, but an interesting dichotomy is emerging.  Corn production estimates seem to be uniformly below USDA’s latest estimates for both countries, while Brazilian soybean estimates are surging amid conditions which have been described as “better than a year ago,” which produced an all-time record.  Safras and Mercado pegged this year’s Brazilian soybean crop estimate at a record 114.6MMT, slightly besting last year’s record 114.1MMT with soybean planted area said to be up 5% y/y.  CONAB’s last official estimate was 109.2MMT vs. the USDA’s 108.0MMT.  Conversely, in recent days we’ve seen estimates for Brazilian corn production at 90.0MMT vs. USDA at 95.0MMT, thanks mainly to lower planted area.  Conditions are optimal, so we could see yield estimates moving higher, but let’s take the recent estimates at their word.  For Argentina, we saw the first sub-40MMT estimate at 39MMT yesterday vs. USDA’s official at 42MMT.  If we take these production estimates along with USDA’s current demand ideas, we see combined ARG/BRAZ production of 129MMT vs. USDA at 137MMT with total supplies at 144.4MMT vs. 152.3MMT.  Ending stocks would be implied at 7.440MMT vs. 15.340MMT from the USDA and 15.035MMT last year.  These would be the lowest ending stocks for the two countries since 2006/07, and the lowest stocks/use ratio (5.43%) since 2001/02.  We do not expect demand to remain static if production estimates do indeed come down, simply to point out the amount of demand which would need to be met somewhere else to allow South American stocks to end the year at a comfortable level.  LH-2018/FH-2019 US corn exports could see a pickup in demand should the aforementioned play out as described.

Other news is light, but worth noting the US was the lowest offer in Iraq’s tender for a nominal 50,000MT of hard wheat from the US/CAN/AUS.  The US offer was $283.74/MT C&F vs. Australia at $288.80/MT C&F and Canada at $295.00/MT C&F.  No purchase details have been announced, and offers need to remain valid until Christmas Eve.  One discussion topic floating around lately is the idea of what the US-HRW crop will contain for protein next year.  While obviously this is a completely hypothetical conversation, it is interesting when you think about the last two years being below average on protein, and the low flat price of wheat not encouraging farmers to spend any extra money on nitrogen.  While protein spreads for HRW in the northern end of the belt have been quite generous for some time, in the southern plains, protein spreads from 12.0-13.0% can be as low as 3c per 1/5th vs. 10c per 1/5th in the northern tier.  Even if drier, warmer weather encourages protein in the southern plains, the drop in acres being forecast could limit the number of bushels available anyway.  Looking at this in aggregate, it seems reasonable to suggest firmer than historical basis and protein spreads look likely to hang around into 2018.  This isn’t to suggest premiums need to go higher in the near-term, but simply firmer than historical could hang around in 2018.

 

 

Bottom Line: More of the same.  Watching South American weather, export interest and gauging producer selling interest at year-end and after the 1st of the 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.

12/19/2017 Morning Comments

Good Morning,

 

Relatively open Midwest radar this morning, but a major pattern change is coming to the region Thursday, bringing with it the coldest temperatures of the season to-date as well as solid chances for snowfall.  Most of the upper-Midwest will have a chance of snow on Thursday with most forecast maps showing 0.10-0.40” of water-equivalent moisture, which could be anywhere from 1-4” of snow.  On Thursday, however, temps will drop to the high 20’s for highs before highs slip to the mid-teens on Saturday for the Dakotas, MN, NE and as far south as KS.  Lows are seen below zero in ND and as low as 10* in NW-KS.  Winter-kill threats will obviously be a concern for areas without adequate snow cover, and especially areas in the southern plains without sufficient establishment.  The below normal temps look to hang around through the 14-day outlook, while precip chances are normal/below.  FWIW, 27.1% of the continental US has measureable snow cover which compares with 15.1% last month, 54.0% in 2016 and 36.1% in 2015.  In fact, snow cover as measured by NOAA is the lowest for December 19th since 2011’s 20.9%.  In South America, most of the Argentine growing regions will be dry through the middle of this week with another round of rain seen Wednesday/Thursday before drying out for the balance of the 10-day.  This will be worth monitoring as the rain over the weekend and the system mid-week will not be enough to sustain crops if dry weather moves back in.  Brazil remains in excellent shape.

 

Holiday-trade is officially here with a 1.25c range in corn overnight, 1.75c in Chicago wheat and a 4.0c range in soybeans.  Wheat got off to a solid start this week with the performance out of the gate Sunday night, although the weakness in row crops helped drag wheat off its highs.  Support came from the incoming cold weather seen for the US Plains amid a lack of snow cover, as well as a supportive COT report showing much larger than expected managed fund short positions.  In addition, commercials added to longs near the lows put in last week, hinting at the idea futures have gone low enough for now.  Further, the pickup in export sales and inspections as well as the daily sales announcement of SRW last Friday were all supportive inputs.  The same could not be said for row crops with corn tying contract lows each of the last three sessions with no hint at bottoming from momentum indicators, while soybeans have closed lower eight of the last nine sessions and would be working on nine out of the last ten with a lower close today.  Across the board open interest increases yesterday which likely means funds were adding to their net shorts in row crops.  Corn open interest rose 9,402 contracts, soybeans were up 10,397 contracts, SRW wheat was up 4,375 contracts and KC wheat was up 2,795 contracts.

Worth noting, Black Sea Wheat futures began trading on the CME yesterday with 40 contracts traded for the August-2018 slot.  The initial trades took place at $184.50/MT, which covers Russian 12.5% protein cargo-sized wheat lots.  Prices are averaged daily over the month or half-month, with Platt’s nearby quote for Monday down $0.50/MT at $191.00/MT.  The key to this contract gaining legitimacy will be volume and liquidity, two things which have been issues with previous attempts at bringing the world’s largest wheat export hub into the price discovery process.  At the very least, additional transparency for Russian wheat prices will be a good thing for price discovery on the CBOT.

Data yesterday included weekly export inspections which were solid for wheat and soybeans but a little light on the corn side.  Wheat exports totaled 21.5mbu vs. the 18.7mbu needed weekly to hit the USDA export forecast.  This was the first week in 11-weeks in which the export pace hit the level needed to achieve USDA’s marketing year total.  Total inspections now measure 503.3mbu which are down 6.1% from a year ago vs. the USDA calling for a 7.2% y/y decline.  USDA’s website did not update properly to provide destination info.  Corn shipments measured 23.4mbu vs. the 40.8mbu needed weekly, making this week the 15th week in a row in which weekly shipments did not hit the level needed to reach the USDA forecast.  Not a single week this marketing year has seen shipments hit the level needed.  Total shipments measure 361.8mbu vs. 607.4mbu a year ago, a 40.4% decline.  Most expect shipments to pick up to near 40mbu a week in January when South America shifts its focus to soybeans.  Let’s hope so.  Soybean shipments were stronger than expectations at 65.2mbu vs. the 33.3mbu needed weekly.  Total shipments of 950.4mbu are down 12.9% from a year ago, which is still a concern as we head into South American shipping season at the end of January.

On Friday, Informa Economics released their latest estimates for corn, soybean and wheat acreage for the 2018/19 growing season.  The row crop acreage was not that important to us as those estimates will change a hundred times before spring, but their winter wheat estimate was a bit more interesting.  The firm saw winter wheat acreage, based on farmer surveys, down 1.603 million acres from a year ago at 31.093 million.  This would represent a 4.9% decrease from the year before, which is probably more accurate than what they had previously been using.  Their total spring wheat acreage number was 11.335 million, up from 11.009 million a year ago.  This would put HRS acreage at something around 10.65 million, give or take a hundred thousand acres, which is up from 10.3 million in 2017/18.  If we use these acreage numbers, some interesting observations appear.  For HRW, the firm is using 22.264 million acres, which would be down 1.551 million from a year ago.  They use a 78.8% harvested percentage, which is a bit above the 5-yr average.  Nonetheless, a 40.0bpa average yield (5-yr average 39.4), produces a crop of 701mbu with a total supply of 1.177bbu.  We have domestic use 10mbu smaller than 17/18 and exports 5mbu smaller for total demand of 860mbu vs. 875mbu in 17/18.  This gives us a carryout of 317mbu, and a stocks/use ratio of 36.83% vs. 470mbu and 53.71% in 17/18, respectively.  Would not view this as an immediate call to action for bulls, but carryout sinking 150mbu y/y and moving closer to the 300mbu level is certainly supportive.  Should acres prove smaller, or yields come in under the 5-yr average, carryout can tighten quickly.  The aforementioned also doesn’t address the fact we’ve had back-to-back low protein HRW crops, which has supported domestic and export basis levels mightily.  Should this happen again in 18/19, basis levels might be strong enough to finally rally calendar spreads, which in-turn would support flat price.  A lot of grass between the ball and the hole at this date, but ground work is certainly being laid for a second year in a row of tightening carryout.  We will take a look at the spring wheat balance sheet tomorrow, which is arguably more supportive if one uses Informa’s numbers.

Do not want to rehash the entire COT report, but worth noting the heavy selling in soybeans by the managed fund community.  Funds sold 39,145 contracts, which was among the 10 largest single weeks of selling on record.  This flipped their position from a net long of +30,561 contracts to a net short of 8,585 contracts.  The gross commercial long position jumped and is now the highest for this time of year on record as a percentage of open interest.  What’s interesting is that despite the funds selling a huge amount of soybeans last week, they actually added to their soymeal net long position which is now the largest since 2/28/2017.  Commercials gladly sold the meal to the funds, helping their net short rise to -199,531 contracts, which is also the largest since February.  These positions don’t seem to jive, and given the wetter forecast in Argentina, the world’s largest soymeal exporter, coupled with the doggy domestic meal market in the US, would appear we are waiting for the other shoe to drop.  The combined grain and oilseed net short held by the managed fund crowd at -366,909 contracts is the largest since 6/6/17.

 

Bottom Line: The next two weeks are the quietest of the entire marketing year, so would not expect any undue volatility.  Traders will continue to monitor cash markets as we get close to year-end to see if there are any farmer sales to generate cash, with the same applying after the first of the year.  Otherwise, the cold temps rolling into the Great Plains this week and next will be monitored, but hopefully traders have learned their lesson about trying to kill an HRW crop in December.  South American weather will remain a focal point through the end of January.

 

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.

12/15/2017 Morning Comments

Good Morning,

 

There has been a lot of discussion in recent days about the continued rally in equities, and how “cheap” commodities have gotten to the major equity indices.  We track the S&P 500/Bloomberg Commodity Index for our ratio, which hit a new, all-time record high Wednesday at 31.96 before trading off slightly yesterday.  Along with the ratio trading to new record highs, there have also been stories about traders leaving commodity funds, and commodity funds closing altogether.  The Wall Street Journal reported Wednesday commodity hedge fund closures outnumbered launches for the first time on record this year going back to 2000.  There were eight new commodity hedge funds launched compared with 130 in 2011.  Goldman Sachs reported their daily value at risk in commodities hit the lowest level since the year 2000.  It remains to be seen if this kind of environment is the beginning of a turnaround in the space as weaker players have been shook from the market, or if this is simply the beginning of the end with more pain to come.  At some point, owning physical assets instead of equity paper or bitcoin will become in vogue again, but that day is not today.

Snow showers across North Dakota and Michigan, but not much else on the radar.  Next concentrated system looks to move in December 20th-22nd which looks to bring a fairly decent winter storm with notable accumulation across the Northern Plains.  0.10-0.40” of water equivalent moisture is being forecast, which could mean several inches of snow.  Extended maps turn colder in the 6-10 and colder still in the 8-14 with widespread below normal temps.  Precip chances also increase with nearly the entire central Midwest under above normal moisture chances, especially the southern and western plains, which would bring badly needed relief in the form of snow pack.  In South America, waiting on this weekend’s rain showers in Argentina which are expected to bring 0.40-1.00” over the next 24-36 hours on 85% of their growing region.  Things will quiet down until another 0.50-1.00” is seen on 85% of the growing region at the end of next week.  Both rains will be critical for allowing planting progress to continue and sustaining recently planted crops as well.

 

Slightly better markets to close the week, although it will be difficult to shake yesterday’s soy complex selloff on the Argentine rain chances.  January soybeans fell 11.50c yesterday, putting the contract down 18.75c on the week.  Soybean open interest had mainly been in liquidation mode since December 5th, losing 37,141 contracts before gaining 7,017 contracts the past two days.  This might suggest funds liquidated their net long position during the previous week and started adding to a net short position the last two sessions.  Corn has attempted to put forth stabilizing and basing price action the past several sessions, but it remains to be seen if this is the spot from which it makes its stand.  Open interest in corn has been trendless as of late, remaining in a narrow band of losing one day and gaining another.  Wheat has witnessed a general trend of declining volume going back to the peak on 11/9, while open interest has mainly been on the rise since December 4th.  During that time frame, funds have undoubtedly added to their net short position despite flat price knocking on 52-week lows.  Fortunately, most of the Ag space turned in solid exports for the week, giving a hint demand may be picking up.

Export sales for the week ended 12/7 included wheat at 21.6mbu vs. the 12.9mbu needed weekly to hit the USDA’s recently revised export forecast.  Total commitments now stand at 664.1mbu, which are down 9% from a year ago.  By-class sales were led by HRW at 9.4mbu vs. the 5.3mbu it needs per week, and featured 90,000MT to Morocco which was rumored to have traded.  Next week’s sales should also be solid given the minimum 120,000MT of business conducted to Algeria this week.  HRS sales were also solid at 7.6mbu vs. the 3.5mbu needed weekly.  Corn sales were decent at 34.1mbu vs. the 25.9mbu needed weekly.  Total commitments stand at 935.6mbu vs. the 1.302bbu at this time a year ago, a 28% deficit.  China showed for 65,900MT of corn this week, taking them to 160,900MT on the year.  This is a far cry from the 700-1,000TMT rumored in November by Reuters.  Soybean sales were decent at 53.4mbu vs. the 22.7mbu needed.  Total sales are now 1.388bbu vs. 1.657bbu a year ago, a 16% deficit while the USDA is still calling for a 51mbu increase y/y.  Meal sales were especially impressive at 455,400MT, a marketing year high, and well above the 133,700MT needed weekly.  Total sales are up 7% y/y.

The Buenos Aires Grain Exchange published their weekly progress report yesterday, showing corn planting at 45.3% vs. 40.4% last week and 57.4% last year.  BAGE continues to forecast planted area at 5.4 million hectares, which would be up 5.9% from a year ago, although the forecast could be a big driver of the ultimate area.  BAGE reported soybean planting at 63.5% this week, up from 53.2% last week but behind 66.5% from a year ago.  According to Reuters, soy planting pace for this week would be the slowest on record going back to 1995.  BAGE maintains a planted area forecast of 18.1 million hectares, much of which will depend on the pending forecast.  BAGE also reported wheat harvest at 58% complete, up 14% on the week.  8.66MMT has been harvested from 3.10 million hectares for an average yield of 2.79MT/ha compared with 3.09MT/ha at this same time a year ago.  Yields would obviously be expected to get better on the second half of harvest to reach the USDA’s current 3.15MT/ha, but if they didn’t, a total production number closer to 15.6MMT might be more realistic than the current 17.5MMT.  A production number like 15.6MMT would tighten the southern hemisphere exporter balance sheets further, and probably open up markets like Brazil to either Russia or the US sooner.

Now that December contracts are off the board, we can take a closer look to see where they expired relative to recent history.  December ’17 corn expired at $3.36 ¼ which compares with $3.51 ¾ in 2016 and $3.81 ¾ in 2015.  In general, 2015 and 2016 recovered during the delivery period while 2017 mainly sold off until the final tick.  December 2017 Chicago wheat went off the board at $3.95, which was actually slightly better than where 2016 went off the board at $3.91 ½, but both were well below the $4.87 ¾ posted in 2015.  December KC Wheat expired at $4.02 ½ vs. $4.00 ½ the year before and $4.72 ½ in 2015.  Minneapolis December bucked the trend, closing at $5.99 ¾ vs. $5.41 ¾ in 2016 and $4.95 ¼ in 2015, but remains a far cry from the $8.00 levels traded in June and July.  December soymeal closed at $321.20/ST vs. $311.10/ST last year and $277.80/ST in 2015.  Difficult to argue with any of the expirations considering corn supplies are larger than each of the previous two years by a notable margin, SRW supplies remain burdensome, HRW ending stocks are forecast down 120mbu y/y but still plentiful, and HRS ending stocks are forecast at the lowest since 2012/13.  Worth keeping these prices close at hand, as large carry markets often lend themselves to seeing deferred contracts target the previous expiration settlement.  That was certainly the roadmap for December targeting December.  Another reminder for producers to lock in carry if they want to earn it.

 

Bottom Line: A little bounce back is probably warranted, but if the rains fall as forecast, South America should be in good shape to the end of the month.  January is the critical month in Brazil while Argentina is a bit later into February.  Still plenty of time for a weather issue to develop, but one has to remember US exports are running behind schedule even with South American production uncertainty.  If we don’t see business roll back to the US for whatever reason, we could be facing another cut to the export forecast either next month or in February.  Still feels like there is plenty of grain for sale by the US farmer, especially corn which could be priced either before year end or shortly after.  Keep an eye on cash markets which have been steady/better as of late.

 

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.

12/14/2017 Morning Comments

Good Morning,

 

The big news yesterday in financial markets was the Federal Reserve raising short-term interest rates for the third time this calendar year, as expected.  In addition, according to the Fed’s “dot plot,” the board of governors expect to raise interest rates three more times in 2018 amid Janet Yellen ceding the thrown to Trump’s handpicked successor.  There were two dissenting votes against raising rates, which turned out to be the policymakers from Chicago and Minneapolis, both citing concerns about sluggish inflation.  it is difficult to argue with a rising rate mentality considering the US economy is at or beyond full employment, US and global growth is solid and according to the Fed, asset prices remain at lofty valuations.  The midpoint for interest rates for 2018 is 2.1% and 2.7% for 2019 according to the Fed’s forecast, and will hit 3.1% in 2020 which is just above their long-range forecast.

Snow showers across the Plains this morning which are expected to move east and leave a dusting across most of the Dakotas.  More chances of rain/snow mix this weekend with temperatures remaining normal/above for much of the Midwest for the next week, but gradually cools into the 8-14 day with almost everyone seeing below normal temps as we hit Christmas.  Precip models also turn more decidedly above normal in the 8-14 day period, so winter storm activity looks to settle in and provide a White Christmas.  Welcomed rains are seen this weekend and again next week for dry areas of Argentina, but are not necessarily indicative of a pattern change.  Fortunately, temperatures remain mostly normal to below during the next 10-days.  Brazil still seems to be experiencing adequate growing conditions.

 

Mixed markets this morning with firmer wheat markets, but softer row crops led by the soy complex, and especially soy products.  Soybeans did manage a higher close yesterday, but if it closes lower today, will still have put in lower closes in six of the last seven sessions.  With respect to the January contract, prices have moved below trend channel support which held going back to the August lows.  Soybeans still have price support at the November lows near $9.67-9.70, but the contract is also trading through the 100 and 200-day moving averages this morning.  If there is one thing managed funds like, it is moving averages.  Interestingly enough, as futures prices rose much of the last couple months in beans, calendar spreads traded one way lower.  The opposite has been true since futures have broke recently with the SF/SH trading up to -11.00c this morning, off the -12.25c lows from 12/6-12/8 and the highest trade since 11/24.  Worth noting, however, the back end of the soy curve is still weak with the SH/SK, SK/SN and SN/SX all at contract lows or within a 0.25c.  If the entire curve were strengthening together, it would be more of a definitive sign to not press the futures weakness.

While still on soybeans, one of the lesser reported things in the soybean market has been the rise of minor producers over the last couple of years.  To be clear, the market is still dominated by the three main players: US, Brazil and Argentina and will continue to be for the foreseeable future.  But just like high corn and wheat prices encouraged production elsewhere, so too has high soybean prices.  When talking minor soybean producers, we are referring to Canada, the European Union, Paraguay, Russia, Ukraine and Uruguay.  These producers have increased their harvested area from 3.3 million hectares in 2000/01 to 12.7 million hectares in 2017/18.  Production has ramped up from 17.4MMT in 2010/11 to 29.9MMT this year after hitting a high of 30.2MMT last year.  The important thing is the share of exports relative to what this group produces is quite high.  This year, they are expected to export 16.950MMT vs. 10.9MMT in 2010/11.  Of the entire world total exports, they now account for 11.12% which is stable from 2010/11 but almost double the 5.97% from 2000/01.  The average soybean yield for the minor producers is 2.41MT/ha vs. the world average of 2.76MT/ha but has risen sharply from the 2.05MT/ha in 2000/01 when the world average was 2.33MT/ha.  I don’t think we will see the aforementioned group take over for the US/BRAZ/ARGY anytime soon, but ancillary bushels always make a difference, especially if the countries have adequate infrastructure.

We continue to monitor the supply/demand situation of the major exporters in the wheat market as often there can be two very different pictures between this group and the world a total.  67.3% of the world’s ending stocks lie in China, India, Russia and the United States, with the entire rest of the world holding the other 32.6%.  The major exporter stocks look relatively stable considering such high balances are held in Russia and the US.  Remove those two and things look a bit different.  Separate the major exporters into Northern and Southern hemispheres and one really gets a distinct picture. Our chart below shows just that dichotomy with Argentina/Australia combined stocks/use ratios estimated at 11.45% for the end of 17/18 which would be the lowest since 1998/99.  Given the drought conditions in Australia, and what is likely a smaller crop in Argentina, things could look a bit tighter still when the USDA updates data sets on their next WASDE.  To prevent supplies from getting too tight, it is likely Australia prices itself out of the export market to satiate their domestic feed demand, which will in-turn leave a hole for 10.5-12.5% hard wheat.  The US balance sheet is counting on this demand, and should lead to a counter-seasonal demand pull as we get close to closing out another marketing year.

While on the wheat topic quickly, it is interesting to note, that while calendar spreads on the front-end have been steady/better the last couple of sessions, the back end of the curve is rallying noticeably.  If one looks out to the WN/WU, it traded up to -13.0c yesterday, the highest print since August 14th.  The same is true for the KWN/KWU which traded to the strongest level since 7/25 yesterday, while the KWU/KWZ was up to the strongest level since 9/28.  While the strength on the back end of the curve could be any number of things, it is most likely concern over droughty conditions in the southern plains as well as a concern over a lack of acres which we’ve been hearing about since planting.  The combination of slow planting, slow corn harvest in the ECB and poor economics relative to row crops all combine to suggest winter wheat acres could/should be down meaningfully in 2018/19 once again.  We won’t get a real sense of the acreage drop until the January 12th USDA report, which will also provide December 1 Quarterly wheat stocks.

Data yesterday included weekly ethanol production which came in at 1.089 million bbls/day, off 19,000bbls/day from the previous week’s record, but would still be the second highest on record.  Production at that level is 4.7% above the same week from a year ago, and well above the USDA’s “needed” level to hit their recently revised ethanol demand for corn number.  As we discussed yesterday, the effect on flat price and spreads from the huge production numbers is readily apparent, and should be encouraging max discretionary blending given the RBOB/Ethanol spread.  Ethanol stocks declined by 170,000 bbls to 22.374 million bbls, but remain record high for this time of year.  Ethanol stocks typically build from now until March, and if that overall trend does indeed take place, we should be talking about record ethanol stocks in coming months.  The market is really counting on a strong export market.

 

Bottom Line:   Weekly export sales will be a focus later this morning, especially for wheat as the market hopes demand has picked up with prices sitting at contract lows.  Volume is in the death-spiral from now through New Year’s, so a major trend change in any of our markets is probably not very likely.  We should be seeing index fund rebalancing estimates in coming days which always provide some year-end fodder.  Otherwise, still watching South American weather.  Just enough uncertainty around the future pattern in Argentina to keep things from selling off too hard.

 

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.

 

12/13/2017 Morning Comments

Good Morning,

Dry weather continued to dominate Argentina and S-Brazil with light amounts falling across the north Brazilian growing region.  Little relief in store for Argentina until the weekend and the end of next week, placing a lot of emphasis on these rains actually falling before a true pattern change can take place.  Southern Brazil too will remain dry until an upturn in shower activity early next week.  Temps will be running above normal for Argentina today before cooling as the week progresses, while the 6-10 day period sees highs in the 80’s.  Brazil will remain in good shape temperature wise for the next 7-10 days.  December 18th-22nd look like the best rains for the dry areas in South America.

 

Slightly firmer markets this morning following the negative reaction to the USDA report yesterday morning.  Our markets saw both sides before realizing a growing carryout in US soybeans and wheat was difficult to construe as supportive.  Corn carryout did drop, but enough concerns remain about a future cut to exports, which would offset the increase to ethanol yesterday, that price remained subdued.  Chicago wheat has now closed lower for the seventh session in a row, which appears to be the longest losing streak of 2017, and could be the longest losing streak going back much further.  Since December 4th, Chicago wheat open interest has risen 35,482 contracts while price has dropped 27c/bu.  Corn open interest is up 39,483 contracts since 12/4 while price is down 10.75c.  Conversely, soybean open interest has dropped 36,564 contracts since its recent peak on 12/5 while price is down 19.75c.  Should see managed funds adding to their net short positions in wheat and corn, while liquidating their net long in soybeans when the next COT data is released on Friday.

As noted above, US corn carryout fell by 50mbu yesterday as the USDA increased corn demand for ethanol by 50mbu thanks to the record production rates achieved the last several weeks.  A further ethanol discussion will follow below, but no one can argue with the increase.  Exports were left unchanged, and that is probably the right move at this juncture, given most are expecting a seasonal increase in corn sales and shipments as the calendar flips to 2018.  If an increase to both is not seen in early January, then USDA may have grounds to cut the 1.925bbu export forecast.  The US soybean carryout increased by 20mbu thanks to a 25mbu cut to US exports and a 5mbu increase to seed use.  The end result was in line with trade estimates, and should provide a little breathing room for US exports.  However, even at the reduced pace, exports are still expected to grow by 51mbu, despite the fact commitments and shipments are behind last year’s pace.  This needs to be monitored closely over the next 6-weeks.  US wheat carryout also rose thanks to a 25mbu cut to exports, which was mostly justified.  Commitments and shipments had also fallen well behind a year ago, but second half exports are still expected to be solid, and the business announced to Algeria yesterday could be the start of that program.

South American estimates were left completely unchanged for both Brazil and Argentina on corn and soybeans.  There were some rumblings Brazilian soybean production could be increased as CONAB had done earlier in the morning, but an unchanged estimate is completely understandable.  Brazilian corn estimates are decidedly under the market, however, with the USDA remaining at 95MMT vs. 98.5MMT a year ago.  Acreage is declining, but weather has been good enough to keep yield ideas on the up and up.  Argentina estimates were unchanged as the trade was expecting, considering the planting campaign is not even complete there.  Other big world changes would include Canadian wheat production being bumped to 30MMT from 27MMT last month and StatsCan at 29.98MMT last week.  Oddly, Australian wheat production was not touched at 21.5MMT, despite ABARES moving to 20.3MMT earlier this month.  In addition, Australian exports of 17.5MMT were maintained, but no one on the ground in Australia would subscribe to a number that large.  Thanks to the aforementioned, world carryout rose for corn, soybeans and wheat again this month.  Also worth noting, however, world demand rose to a new record 740.5MMT, which is 5MMT larger than where WASDE began the marketing year back in June.  Based on normal growth rates over the last 10-20 years, world demand for 18/19 would be projected anywhere from a conservative 749.9MMT to an aggressive 753.6MMT.

The other big news yesterday was the HRW business to Algeria with 120,000MT announced, and another 60,000MT said to be in the works or conducted but not announced.  Cash traders also said some Moroccan business under their preferential-duty program could also be conducted in coming days.  HRW at the Gulf for January is as cheap as any other origin on a FOB basis, although freight spreads change things depending on destination.  Yesterday also saw Egypt’s GASC tender and buy 295,000MT of wheat for January 21-31 shipment.  This amounted to 235,000MT of Russian wheat and 60,000MT of Romanian wheat at an average FOB price of $193.27/MT and an average landed price of $208.37/MT.  Interestingly, US-SRW would have been competitive on a landed basis, but could not make GASC protein specs.  Point here being, US-SRW is now the cheapest priced feed wheat in the world as well, although getting commercials to give up lucrative storage returns to hit feed business isn’t all that likely.  Lastly, MATIF/KW spreads hit the highest premium yesterday since August 2016 around $38.12/MT.  Similar price spreads are true for MATIF/W.

Weekly ethanol production will be the focus for the Ag space later this morning given the record run rates of the last several weeks.  Traders will also be watching given spot ethanol prices dropped to the lowest price in 12 years yesterday, the fourth month ethanol futures were traded back in June of 2005.  It isn’t just spot futures prices trading weakly as calendar spreads are also at contract lows and paying as much as 2.5c/gln to store ethanol for as little as 30-days.  Encouragingly, RBOB/Ethanol spreads are also trading at huge premiums with the spot month spread at the highest premium since July 2015.  This should be encouraging max blending as well as higher inclusion of discretionary blending and use for higher ethanol blends. Helping support ethanol grind rates despite overflowing storage is solid demand for DDGs which are up $8-10/MT on a FOB basis at the Gulf since the beginning of the month.  While storage tanks are overflowing with ethanol, DDGs storage is said to be scraping out the corners at many plants.  Higher priced meal is forcing domestic feeders as well as importers to seek alternatives.

 

Bottom Line: Nothing in yesterday’s data to change the overall narrative, but without a higher close today, soybeans will be looking to put in their sixth lower close in a row and wheat its eighth.  Our markets are technically and fundamentally weak at a time in which volumes will be declining into the holidays, and the only volatility will come by way of South American weather.  Producers would do well to identify the top and bottom ends of our ranges when they develop and place marketing targets accordingly.  In addition, new crops prices need to be tracked early and often this year while they still provide margin.

 

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.

 

12/12/2017 Morning Comments

Good Morning,

 

 

A few snow showers over the Great Lakes and ECB, but otherwise an empty Midwest radar.  Will be on again/off again chances of moisture over the next 3-4 days for the upper-Midwest and Great Lakes, while the southern plains continue to receive dry/warm weather as the feature.  Temperatures remain uniformly above normal during the 6-10 day, but moderate slightly for the 8-14 day.  The Northern Plains continue to be features in the above normal precip category, but the rest of the Midwest and especially southern plains see below normal precip the next 15-days.  The 30-day percent of normal precip map below accurately depicts the dryness being experienced.  Limited precip in Argentina most of this week with chances increasing during the 6-10 in which both Argentina and S-Brazil are expected to see above average rains fall.  These rains will be important as both areas have seen below average rainfall the last 3-4 weeks.  Central and northern Brazil continue to see benign weather.

 

Quietly mixed markets this morning with grains slightly better and soybeans slightly lower.  While December is typically a strong month seasonally for both corn and wheat, the opposite has been true through the first 12 days.  Both winter wheat exchanges have closed lower the previous six sessions in a row, the longest streak since the beginning of November.  Minneapolis is lower this morning for the sixth session out of the last seven.  Corn has been a bit more split with lower closes in four of the last seven sessions, but since the beginning of the month has still lost 5.75c.  The heavier than expected deliveries with no strong commercial stoppers have really weighed on the futures board, especially as traders look ahead to the rest of the delivery periods this marketing year and expect more of the same.  Wheat has no technical or fundamental support, and export interest is only now starting to trickle in  Analysts universally agree 18/19 should see tightening wheat supplies amid lower acres in the US and abroad.  However, until we get to the January 12th WASDE report when the first USDA winter wheat acreage projection is released, it is tough to shake the mentality of burdensome supplies and an ultra-competitive export market.  With December essentially off the board, March corn has taken up its $3.50 magnet roll rather well, despite hitting fresh contract lows yesterday.  Soybeans are testing support once again, although spreads have perked up.  The COT structure in the soy complex is concerning.

Starting with Friday’s COT report, the things which jumped out were the structure of the soymeal and soybean market specifically.  In meal, funds bought 25,207 contracts during the reporting week, to push their net long to +63,907 contracts, the largest net long since 2/28/17.  Any position in excess of +60,000 contracts net long would be considered large going back to 2007.  As interesting as the fund position would be commercials selling a net -35,082 contracts to put their net short at -190,197 contracts.  This is the largest net short since 2/28 as well, but is just 10,000 contracts from the all-time record net short of -200,782 contracts set on 2/21/17.  The 35,082 contracts commercials sold on a net basis was the third largest week of selling on record.  The gross commercial long position as a percentage of open interest at 21.0% is the smallest for this time of year since 2013 and the second smallest on record.  Similar positioning was seen in soybeans, although the outright positions aren’t nearly as exaggerated with funds long just 30,561 contracts.  As many people have pointed out on social media, corn didn’t have a great COT week either considering funds bought 28,474 contracts during the reporting week of 11/29-12/5, over which time corn rallied from $3.4950 to a high of $3.60 before closing the reporting week at $3.5375.  In other words, funds bought back 12% of their position and the market only managed a net change of 4c, which is probably why we are right back down at contract lows.

While corn has been weak, wheat has been weaker, pushing wheat/corn spreads back down to levels not seen in several months.  The spot month W/C spread settled last night at +51.25c, the lowest trade since 4/26/17.  From an active-continuation basis, W/C is trading at +65.00c this morning, the lowest since August.  KW/C is trading at +65.00c this morning as well.  On a weight-adjusted basis, W/C and KW/C are trading at 111% of the price of corn, which on its face is probably not low enough to entice widespread switching by feedlots.  On a cash basis, however, HRW is trading at 93.0% of the weight-adjusted price of corn in the Triangle Area of TX, which is much closer to working in on paper, especially if lower protein wheat can be secured at a discount.  In Rose Hill, NC, SRW is trading at 92.3% of the weight-adjusted price of corn, also leading to inquiries.  This isn’t to say the flat price levels of both can’t trade lower, but simply wheat is getting down toward value areas relative to the price of corn.

Export inspections were also released yesterday and continued the theme of disappointing grains and ho-hum soybeans.  Wheat inspections were 11.6mbu vs. the 19.9mbu needed weekly to hit the USDA export forecast.  Total exports now stand at 480.4mbu which are now down 7.3% from a year ago.  The USDA could make a downward adjustment in their export forecast later this morning, but odds are better they wait until January.  Corn inspections were 25.9mbu vs. the 40.4mbu needed weekly to hit the USDA forecast.  Exports continue to lag last year by about 41.6%, but if exports pick up seasonally JFM to around that 40mbu level, a downward adjustment might not be needed at this time.  This would be especially true if USDA follows private estimates on Brazilian corn production lower.  Soybean shipments totaled 45.2mbu vs. the 34.8mbu needed weekly, but were the lowest shipments in 10-weeks.  The deficit with a year ago continues to grow and now stands at -13.8% despite the USDA calling for a 76mbu increase in exports y/y.

The USDA will release their latest WASDE projections later this morning, and it should a relatively quiet report all things considered.  Corn carryout could drop as ethanol demand is increased, soybean carryout should go up on a cut to exports and wheat carryout probably remains unchanged until Dec 1 stocks data can be incorporated for next month.  World changes should see USDA adopt ABARE’s estimate for Australian wheat production, which would be a small cut, while they should also adopt StatsCan numbers for Canada which would be a sizable increase to production and ending stocks.

Quickly, CONAB released their latest Brazilian crop estimates early this morning, increasing their soybean estimate to 109.2MMT vs. its November forecast average of 107.5MMT and the USDA at 108.0MMT.  Corn production is seen at 92.2MMT vs. their previous estimate of 92.35MMT and the USDA at 95MMT.  Some private estimates are already sub-90MMT on simply acres, but weather to-date has been ideal so estimates could be scooting back higher already.

 

Bottom Line: Another USDA report, but very unlikely to change the overall narrative of global grain surpluses.  While corn basis has been firming up at both export hubs, and domestic demand remains strong from feed lots and ethanol, the US farmer remains undersold as we near year-end and the 1st of the new year, both of which can bring selling which isn’t price-sensitive.  Wheat markets need to get to January 12th as quickly as possible to try to change the narrative.  Protein will remain in the driver’s seat for the foreseeable future.

 

Good Luck Today.

 

Tregg Cronin

Market Analyst

Tregg.Cronin@halocommodities.com

www.halocommodities.com

@5thWave_tcronin

 

 

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