10/2/2018 Morning Comments

Good Morning,

 

The USD and crude oil are both showing strength this morning with the former hitting the highest level since September 4th while the latter hits the highest level since November 2014.  The USD strength continues from yesterday and the agreement between Canada, Mexico and the US helped get NAFTA 2.0 done.  There are still details to iron out, but the agreement does seem like a win for the countries involved.  The crude strength continues to be driven by Iran and sanctions applied by the US which is curtailing production.  Saudi Arabia, who has the most spare capacity of oil production in the world, stated they see no reason to intervene at the moment.  Brent crude oil traded over $85/bbl this morning and is also at the highest levels since November 2014.

Quiet Midwest radar this morning and should remain that way for a couple more days.  The morning’s GFS model keeps things fairly dry until Thursday/Friday when the next round of rain hits NE/IA with another 0.50-1.25”.  That kicks off what will be a particularly wet 4-5 days when areas from N-TX to WI will see rain totals of 1.00-6.00”.  Nearly the entire corn belt will see rain in the next 7-days which should grind harvest to a halt.  Extended maps offer nothing in the way of better weather with above normal precip and below normal temps around until October 15th.  The silver lining to this moisture is almost every area should go into winter with a full soil profile compared with last year when the opposite was true.

 

Mixed trade this morning with crops weaker and the three wheat exchanges firmer.  Row crops are likely consolidating yesterday’s impressive rallies which were spurred by the agreement of NAFTA 2.0 between Mexico, Canada and the US.  With trade deals done between Mexico, Canada and the EU, the focus remains on Japan and especially China.  Although, President Trump has let his gaze wander to Brazil and India, calling India’s tariff situation one of the toughest in the world.  Regardless of who this administration goes after next, the strategy is clear: isolate individual countries, apply pressure and renegotiate better terms for the United States.  This strategy obviously flies in the face of an agreement like TPP where multiple countries all sit down at the same table and hammer out consistent rules for all parties.  It is too early to tell whether the “divide and conquer” strategy is working, but the new USMCA is a step in the right direction.  Open interest changes on the rally yesterday included corn open interest down 2,480 contracts, soybeans up 2,378, SRW up 4,374 contracts and HRW up 4,653.

Data released yesterday included the weekly crop progress report which saw unchanged corn conditions at 69% G/E.  More importantly, corn harvest was estimated at 26% complete vs. 16% last week and 17% average.  Illinois is 48% harvested vs. 25% average.  Most areas north of I-90 have witnessed their first frost/freeze of the year already, but 86% of the crop is called mature vs. 71% average.  Soybean conditions were also unchanged, while harvest was called 23% complete vs. 14% last week and 20% average.  The Northern Plains states are all ahead of average but that could change in the coming week with widespread cold and wet conditions expected.  Winter wheat planting progress was called 43% complete vs. 28% last week and 40% average.  Montana continues to be a focus at 35% planted vs. 8% last week and 67% average.  Earlier, Montana was called too dry to plant with producers waiting for moisture.  Now, temperatures have turned colder with snow on the ground and no heat in sight.  The majority of the insurance final plant dates in Montana don’t show up until November so plenty of time to plant wheat there.  SRW states like IL/IN/OH also need to be watched as wet weather delaying harvest in those states could impact planting intentions there as well.

Also out yesterday were export inspections with corn continuing to impress while wheat and soybeans are lackluster.  Wheat inspections totaled 13.6mbu vs. the 21.2mbu needed weekly to hit the USDA forecast.  Cumulative inspections now total 254mbu vs. 366.3mbu  a year ago, a deficit of 30.6% vs. the USDA looking for a 13% increase.  Corn inspections totaled 52.9mbu vs. the 44.0mbu needed weekly to hit the USDA forecast.  Cumulative inspections of 174.1mbu are up 47.4% from a year ago with the USDA calling for a 1.0% decline.  Soybean inspections totaled 21.7mbu vs. the 39.3mbu needed.  Cumulative inspections of 107.7mbu are down 26.2% from a year ago.  As we’ve written about multiple times in the last couple weeks, we are concerned the current 2.060bbu export projection from the USDA does not fully reflect the tariff impact from China.  The pace of shipments and sales certainly argues for a lower marketing year export figure, but the USDA may resist cutting this estimate for another month at least.  If supplies get any larger on the October WASDE, and exports begin to be cut, we could be looking at a 950mbu+ carryout projection rather easily.

Industry-wide soybean crush during the month of August was also released yesterday, totaling 169.6mbu vs. the average trade guess of 169.3mbu.  This crush figure was up almost 12% from a year ago and a similar amount over the previous record.  Crush margins remain impressive at $1.30+ through next March, incentivizing maximum utilization rates.  Annual crush for the 17/18 marketing year totaled 2.055bbu, spot on the USDA estimate on the September WASDE.  Crush for the 18/19 marketing year is expected to be 15mbu, requiring record crush pretty much every month of the year.  August monthly corn grind was also released, totaling 479.4mbu vs. the 481.3mbu in July and 480.2mbu a year ago.  Ethanol yields rose during the summer months, allowing more ethanol to be produced from the same bushel of corn.  The marketing year ethanol crush number was 5.601bbu, right in-line with the USDA’s estimate.  Total DDGs production for the 17/18 marketing year measured 23.630MMT, almost unchanged from the 23.407MMT in 2016/17.

A new month and new quarter is usually a good time to check on the seasonal tendencies of our major Ag markets.  October is a strong month from a seasonal perspective as corn and soybeans typically make harvest lows in early October before rallying.  Soybeans have averaged an annualized return of 1.395% over the last 30-years according to data from www.sentimentrader.com.  October is even better for corn, averaging a 1.805% annualized return, the best of the calendar year.  Chicago Wheat also has October as its strongest month of the year, averaging a 0.504% annualized return over the last 30-years.  With funds having moved back to a net short in Chicago wheat, and maintaining sizable net shorts in both corn and soybeans, the fuel for a strong month of October is definitely available.  As we noted last month, corn and soybeans have set their contract lows in September before, and posted impressive rallies during the month of October.  The bulk of harvest has yet to come in, however, so would be a little cautious before thinking grains are headed sharply higher.

Russian and European wheat offers continue to have our eye with Russian 12.50% (dmb) offers closing last night at $235/MT FOB vs. US-HRW at $238/MT and German at $239/MT FOB.  For December, US wheat is a discount to Russian by $6/MT and $2/MT to German.  Jan forward is where Russian wheat really starts pricing itself out of export business.  Russian offers for Jan closed at $255/MT and February at $265/MT.  US-HRW for Jan-Feb were seen at $245-246/MT.  German wheat, however, is sitting at small discounts to HRW for those 2019 slots.  Also noteworthy, Argentine offers continue to be priced the cheapest in the world by a fair amount.  Argy offers were called $218/MT for Dec, $222 for Jan and $226/MT for Jan.  Russian wheat offers are headed in the right direction and should be pretty limited in 2019, but US-HRW needs to trade $5-10/MT cheaper than German to compete for North African/Middle East business.  In addition, Argentine wheat being offered at such cheap levels will compete directly with HRW at the start of the new year.  Each metric tonne of business done by a country other than the US gets us one day closer to new crop harvest in 2019.

 

Bottom Line: Mixed trade, but the bulls seem like they are gaining a bit more control as of late.  Tech patterns look a bit better, demand has been solid and harvest weather is not ideal the next two weeks.  Still feels as though w are 10-15c away from levels in corn which would bring out farmer selling, and $9.00 Nov bean futures is probably needed to buy beans.  US HRW farmers are well sold and will not be budging at these prices until after the first of the year.  The spring wheat farmer has around 30% of his crop sold but ample room to sit on it until a basis or futures rally occurs this winter.

 

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.

 

9/28/2018 Morning Comments

Good Morning,

 

Frost/freeze conditions across the Northern Plains this morning, although at this stage of the growing season, more welcome than not to hasten dry down.  Snow is actually falling in the Black Hills of South Dakota this morning, a friendly reminder of how quickly the calendar can change.  Also rain showers stretched across S-SD/NE/IA which will keep harvest efforts start and stop.  Plenty of rain around the next 7-days with all of IA, WI, MN, N-IL, E-NE, E-KS seeing rain.  The entire state of Iowa is looking at 0.75-2.00” during the next week.  Complicating matters are the below normal temperatures the next 15-days with a strengthening of the cold in the 8-14.  After what looked to be a fast harvest, a much more normal fall is likely to be the case.

 

Firmer row crop markets this morning but weaker wheat as we await updated USDA data sets later this morning.  December corn is trying to close higher for the seventh session in the last eight, taking us right up to the 50-day moving average at 3.67.  Corn has had an impressive run, but with harvest progress this weekend, USDA on tap, and a managed fund short which is much more balanced, bulls might want to be careful heading into the weekend.  Soybeans also up against the 50-day moving average with spot beans at 8.55 and the indicator at 8.62.  USDA is expected to increase 17/18 ending stocks by 6mbu, so the report in general should be a non-event.  Export sales all the way around were solid yesterday which we discuss below.  We continue to monitor global wheat production threats which are ramping up considerably according to our contacts in Australia.  Open interest continues to fall in corn, down another 7,253 contracts and a cumulative 52,810 contracts since the bottom on 9/19.  Price has rallied 22c with open interest down 52,000.  Something to keep in mind.  Soybean open interest was up 6,848, SRW wheat was up 3,265 contracts and HRW was up 992.

Export sales were strong for every class with all wheat sales of 24.1mbu were above the 17.4mbu needed weekly to hit the USDA forecast.  This week’s sales were the best in six weeks and were also the first above the needed level in six weeks.  Total commitments of 399.2mbu are down 20% from a year ago vs. the USDA calling for a 13% increase from a year ago.  The 10.8MMT of commitments are the lowest for this week since 2009 but are making strides toward getting back to pace needed.  Several weeks of 1MMT+ would be great, but not sure we see those kinds of sales until later on this calendar year.  Corn sales were very strong at 67.4mbu vs. the 34.1mbu needed weekly to hit the USDA forecast.  Total commitments of 719.2mbu are up 61% from a year ago vs. the USDA calling for a 1% decline.  Soybean sales were 32.0mbu vs. the 28.8mbu needed weekly and were at the high end of trade expectations.  Sales at this level are impressive considering China remains absent, but the deficit with a year ago will continue to grow the longer than remain out of the picture.  We remain concerned the current 2.060bbu export estimate, being down only 70mbu from a year ago, does not fully reflect the impact of the trade war.  Total sales are down 16% from a year ago while the USDA is only calling for a 3.2% decline.

Speaking with our contacts in Australia, the situation there continues to deteriorate.  Production estimates are now sliding to 17MMT for a central grouping with many under that level.  Wheat is being baled for hay up and down the East Coast where it is even suitable to do so.  Some of the wheat is too thin to even make a bale.  W.A. was going to have to carry the country anyway, but after late season dryness and several rounds of frost/freeze, the 10MMT estimate is in doubt.  This all leads to the question of what available exports might be.  With a 17MMT or under type of number, exports will struggle to best 8-9MMT vs. USDA at 14MMT.  This demand has to be pushed somewhere, and this week’s US export sales could be the start of that demand with cargoes to Japan, the Philippines and a cargo to Unknown.  When will the USDA acknowledge the true supply situation in Australia remains the question.  Of course, as long as Russian offers remain as heavily discounted on the front end as they are, US wheat doesn’t have to get in a big hurry.

Yesterday also saw the Quarterly Hogs and Pigs report which continues to support feed demand.  All Hogs and Pigs were 103.0% of a year ago vs. the average trade estimate o 103.5%.  Kept for breeding was 103.5% vs. 103.2% expected, Kept for Marketing was 102.9% vs. 103.5%.  The Jun-Aug pig crop was 103.3% of a year ago vs. estimates of 103.2%.  Pigs/litter during the summer quarter also grew by 0.7% as the breeding efficiencies continue.  Sept-Nov farrowing intentions were 101.5% of a year ago while Dec-Feb intentions are 102.0%.  Our takeaway is a hog herd which continues to expand, efficiencies continue to go up and producers appear ready to continue that expansion into the winter months despite the trade war with China.  Combined with the larger cattle-on-feed numbers, one would think feed estimates are safe or even need to move higher, but as we’ve seen time and again, animal numbers and what the USDA implies for feed/residual demand rarely match up.  Would say that is a main risk in today’s data.

 

 

Bottom Line: We will all be smarter at 11:00 CDT.  Regardless of what the USDA tells us in their monthly WASDE updates, it seems like the Quarterly stocks reports have been bearish going back as far as memory serves.  Somehow, the USDA tends to overestimate feed demand early in the year and find those bushels back at the end of the year.  We’ll see if the pattern continues today.  Wheat stocks, due to poor first quarter demand, should be negative but wheat production could slip a bit.

 

 

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.

9/26/2018 Morning Comments

Good Morning,

 

Today will see the conclusion of the two-day FOMC meeting at which the Fed is expected to raise interest rates by 25bp to 2.00-2.25%.  Expectations are near 100% for the move today, so the real question is what signals the Fed gives about future interest rate hikes.  The market is discounting a total of 95.5bp worth of rate hikes through the end of 2019, or 70bp on top of today’s 25bp hike.  The expectation for continued rate hike has understandably put upward pressure on 10-yr T-note yields which hit a 4-month high of 3.111% on Tuesday.  That yield is just ticks away from May’s 3.126% yield which was the highest in over seven years.  Economic data remains strong, so there is little reason today to think the Fed won’t continue to push for gradually rising interest rates.  How consumers handle the rise in interest rates as we get into the holiday season and early 2019 remains to be seen.

A few showers in the southern/eastern corn belt, otherwise quiet this morning.  A couple more days of dry weather before rain chances fire back up by the weekend in the WCB and moving east to the Upper-Midwest by early next week.  Totals across Iowa, S-Minnesota and Wisconsin over the next 7-days look moderate to heavy with 0.50-2.00” forecast this morning.  Most of the Plains will be dry the next week, allowing winter wheat seeding to progress outside of South Dakota.  Montana seeding progress has been delayed due to dryness, and no big chances of rain the next week.  Temps remain normal/below the next 15-days with precip widely above normal for the entire Midwest.

 

Higher markets across the board this morning with corn working on its sixth higher close in a row, the longest winning streak since July.  In the process, December corn is now only 3.75c away from its 50-day moving average, a level we haven’t closed above since August 21st.  In similar fashion, November soybeans are getting closer to their 50-day moving average at 8.63 vs. spot prices at 8.53.  Price action since the 8.12 lows last week continues to give off signals seasonal lows have been made, especially if the shorter-term corrective low from yesterday at 8.3725 holds.  Wheat continues its choppy trade, trying to close in the opposite direction of the previous day’s settlement for the fifth session in a row.  Chop and slop.  All major moving averages in Kansas City wheat are 17-25c above the market.  Open interest changes during yesterday’s session included corn down 6,999 contracts, soybeans up 5,973 contracts, meal up 164, oil down 9,291 contracts, SRW up just 56 and HRW down 1,976 contracts.  Total open interest is down 26,824 contracts since prices bottomed last week, highlighting the managed fund short-covering as the reason for the firmer trade.

Deliverable stocks were released yesterday with very little movement at the three wheat exchanges.  Chicago total wheat stocks were down 120,000 bushels to 81.809mbu vs. 97.237mbu a year ago.  The large discrepancy with year ago wheat stocks continues to puzzle traders.  The WZ/WH spread is trading at -18.75c this morning after being as wide as -23.75c in the middle of August.  Last year at this time, the WZ/WH spread was trading -19.75c before rallying as high as -16.00c in early November but then collapsed back out to -27.00c into delivery.  Believe calendar spreads will work wider in coming weeks with opportunities to bullspread WZ/WH in the -20/-25 area.  VSR is not likely to change this calculation period.  KCBT stocks were up just 7,000 bushels to 126.012mbu vs. 123.225mbu a year ago.  KCBT stocks are the highest for this week in at least five years.  MGEX wheat stocks fell 737,000 bushels on the week to 21.177mbu vs. 22.193mbu a year ago.  MGEX stocks typically peak around late September/early October and decline throughout the winter.  Difficult to believe we’ve already peaked given the large supplies y/y but another week or two should tell us for certain.

Weekly ethanol production will be released later this morning with the grind expected to slow from last week’s 1.051 million bpd.  Ethanol margins have been under assault lately with gross margins as calculated by RJ ‘O Brien sitting at $0.59/gln this week vs. $0.71/gln last week and $0.94/gln a year ago.  According to their numbers, gross ethanol margins are at their weakest level since at least January 2014.  This is due almost exclusively to weak ethanol prices which are just off the lowest levels ever traded going back to 2005.  Slowing export demand from the stronger dollar and various trade spats are not helping anything.  Unfortunately, 4-year highs in crude oil prices are not translating into ethanol strength.  The spot month RBOB/Ethanol spread is trading at $0.76/gln which is 2c from the highest level since October 2014.  Discretionary blending should be at an absolute maximum right now, but unfortunately, ethanol doesn’t have the support in Washington or across the Midwest it once did.  As we’ve been suggesting for months, the real growth in ethanol needs to come from exports, not forcing higher blends on consumers which just doesn’t seem to have a lot of traction.  Exporting 1.0-1.5 billion gallons of ethanol around the globe is a way to see value added products leave the country.

More discussion about new crop prices next year, especially as December ’19 corn hit $3.98 yesterday.  November soybeans continue to trade around $9.17-9.18, creating a SX9/CZ9 ratio around 2.30.  This leans toward corn, but is not nearly the slam dunk most have been calling it.  The general belief in the trade is for corn to grab 2-4 million acres while soybeans attempt to shed 4-6 million.  Wheat acreage should be up 2-4 million with higher prices available as we seed this fall.  Nonetheless, it begs the question of whether producers should be taking a hard look at CZ19 near $4.00.  With the most bullish balance sheet in four years, the high for the marketing year so far against the CZ18 was 4.2950.  If carryout moves back toward 2.0bbu next year, how high can we expect December corn to rally without a major production issue?  These are the questions producers need to be asking now as opposed to planting time next year.

 

Bottom Line: Not much else to discuss until harvest gets rolling again or we get fresh data from the USDA Friday.  For whatever reason, quarterly stocks reports have been a bearish feature to the market for the last umpteen quarters.  We have a strong tendency to overestimate feed/residual demand and then constantly find it back as the marketing year progressed.  This is a real threat to corn, soybeans and wheat this Friday.  We will also get the final word on 17/18 crop production and whether yields were actually a bit bigger than originally anticipated.  This could have implications for the 18/19 marketing year and yield expectations moving forward.

 

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.

9/25/2018 Morning Comments

Good Morning,

 

Aside from the constant trade chatter, the story in financial markets is oil rising to fresh 2-1/2 month highs in WTI while Brent crude prices notched a fresh 3-1/2 year high.  Brent crude prices are now above $82.00/bbl vs. WTI at $72.50, and with a few more dollars will set 4-year highs.  The most recent strength seems tied to OPEC and Russia ruling out an immediate need to boost oil output in an attempt to bring prices down.  OPEC and other major oil producers watched government coffers dwindle as oil prices collapsed in 2014 and seem in no hurry to return to that environment.  The willingness of OPEC to increase production to offset oil prices stands in direct opposition to the Trump Administration which is likely to ratchet up their rhetoric further toward the Middle East conglomerate.  Just what we need, another trade spat with a different part of the world.

Shower activity over Nebraska and South Dakota this morning as well as systems in S-IL/IN/OH.  Nearly every square inch of the Midwest has witnessed rainfall in the last 7-10 days, some of it reaching the excessive category, and keeping harvest from breaking wide open.  The next 7-days will see moderate to heavy rainfall in Iowa, SE-Minnesota, Wisconsin, Illinois, Indiana, Ohio and Michigan.  Most of the Northern and Central Plains should be spared any heavy amounts, but the wet conditions the last week make every tenth feel like an inch.  This is compounded by the fact temperatures are below normal this week and most of the 6-15 day as well, providing little drying weather.  Aside from Wednesday, highs the next week fail to get much out of the 50’s.  Extended maps continue this trend which could extend what looked to be an otherwise fast harvest.

 

Mixed markets this morning with the oilseed complex showing gains while grains are a bit softer.  Strength in the soy complex is being bolstered by strong gains in Dalian markets overnight which saw soybeans up 0.79% and meal up 1.75%.  No market breaking news behind the strength but meal is almost back to 2-month highs.  Additional cases of African Swine Fever have been reported so unlikely the strength is on improved demand from the feed sector.  On-Balance-Volume in soybeans is in positive territory as bulls have taken control over the last 20-sessions.  Adding to the firmer tone in soybeans is the concern harvest could drag out longer than expected given the forecast for the next 15-days.  This wouldn’t be the worst thing from a market structure standpoint as CIF bids remain weak thanks to “no bid” off the PNW and Northern Plains’ soybeans looking elsewhere for homes.  While a pain for farmers, an extended harvest could be what this market needs to keep cash from collapsing further.  Wheat markets waiting to see if US competed in the recent Iraq tender which it should have based on available offers.  Corn open interest fell 7,490 contracts yesterday, soybeans were up 1,746, SRW was down 2,562 and HRW up 1,064 contracts.

CIF bids were softer yesterday for October with bids called -10X vs. offers of 0X.  Sept is still bid -6X against offers of -1X.  Even bids for November are just +9X vs. offers of +19X.  The PNW remains no bid which is causing commercial shippers to look to crush markets via crush or shuttle bids into St. Louis.  Many elevators plan to store soybeans and wait for bids to improve this winter which could lead to storage being zapped up quickly and country locations going to cash only.  Farmers will have to move more corn at harvest to store the soybeans they normally send out the door right off the combine.  Beans and wheat will be the priority for storage as they have the weakest cash from a historical perspective and are offering the best board carries.  Speaking of carries, most soybean calendar spreads hit fresh contract lows yesterday with SX8/SX9 trading down to -70.00c.  This is the weakest trade on record going back to at least 1990 for a November/November spread.  It is important to remember for producers staring at lucrative storage returns: a carry is not earned until it is sold.  If deferred futures prices end up coming down to spot prices by the time they roll to front month, you earn nothing for storage.

Data yesterday included weekly export inspections which were solid for corn but somewhat disappointing for wheat and beans.  Wheat export inspections totaled just 15.1mbu for the second straight week which is well below the 21.0mbu needed weekly to hit the USDA export forecast.  In fact, wheat inspections have not hit needed level a single week this marketing year going back to June 1.  Total inspections of 239.8mbu are down 29.3% despite the USDA calling for a 13% increase y/y.  Corn inspections were strong at 49.7mbu vs. the 44.3mbu needed weekly.  Total inspections three weeks into the marketing ear of 117.2mbu are up 38.8% from a year ago.  Usually, corn shipments don’t get rolling until November when fresh bushels are injected into the system.  A strong start gives confidence about a strong year of exports.  Soybean shipments were soft at 25.5mbu vs the 38.9mbu needed weekly to hit the USDA forecast.  Total inspections of 85mbu are down 24.8% from a year ago vs. the USDA calling for a 3.0% drop y/y.

Wheat prices are weaker this morning, although firmed yesterday on news US wheat offered into Iraq at $337/MT C&F matched the lowest offer from Canada.  Aussie wheat was a good deal higher, although Iraq doesn’t necessarily always buy the cheapest offer because why would they do something simple like that?  US-HRW needs this business if we have a prayer of meeting USDA’s current export forecast.  Helping wheat’s plight was the fact the Russian Ruble traded to the firmest level since August 9th against the USD.  This drops the price paid to farmers in Russia and slows the movement of wheat from the interior to the coast which are the critical bushels are Russia achieving the big export forecasts.  This is directly reflected in forecasts calling for September exports out of Russia being lower than year ago levels.  15.0% protein on the spot floor was sharply firmer in Minneapolis yesterday.

The crop progress report yesterday showed harvest ahead of schedule but that should fall closer to average in coming weeks.  National corn harvest was pegged at 16% complete vs. 9% last week and 11% average.  Soybean harvest was estimated at 14% complete vs. 6% last week and 8% average.  Of most interest to us, winter wheat planting progress is ahead of average nationally at 28% vs. 26% average.  However, Montana is a key winter wheat producer and planting progress there was just 8% complete vs. 44% average.  Progress in South Dakota could also slow appreciably in the next week which stands at 53% complete vs. 47% average.  Cool, wet conditions are hampering progress in both states and could curtail acreage expansion ideas which have been in the 10-15% increase area.  Kansas is 21% complete vs. 16% average, but Kansas has the entire month of October to finish planting while progress in MT and SD typically needs to be completed by the first ten days of October to ensure above average yields.

 

Bottom Line: Mixed markets as traders continue to field harvest reports and try to get a feel for the next change in national yields.  Weather doesn’t look real conducive to doing anything the next 7-10 days with wet, cool conditions persistent into October.  Still lots of time to get everything done, but days getting shorter makes farmers anxious.  Definitely feels as though seasonal lows have been set in corn and soybeans, but strength in spreads and cash would make this feel even more certain.

 

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.

9/21/2018 Morning Comments

Good Morning,

 

The story yesterday was most certainly the US Dollar weakness, at least as it pertains to commodities.  Obviously the record highs in equity markets were a feature, but the USD traded to the lowest level since July, moving below the 100-day moving average in the process.  USD strength, or at least lack of weakness, has been a feature for most of 2018 and in general bearish commodities.  With many folks long USD and short emerging markets, it will be interesting to see if some unwind occurs in coming days which helps weaken the USD further.  As noted, with US equities making all-time highs yesterday, it doesn’t seem as though USD weakness is a forebearer of an economic collapse waiting around the corner.  However, there is obviously fundamental justification for the weakness in the world’s reserve currency but we are just glad to have the pressure off commodities for a bit.

The Midwest is dry this morning, much to the relief of water-logged farmers everywhere.  Rains are falling in the southern plains this morning with E-KS/OK/N-TX seeing good rains.  The rainfall totals this week have been truly impressive with a huge swath of E-SD/S-MN/N-IA/SW-WI posting 2-8” totals and flooding being reported everywhere.  A broader area which included most of South Dakota, Minnesota, Nebraska and the rest of Iowa saw 1.0”+ amounts as well.  Fortunately, the Midwest will be dry until Monday/Tuesday when the eastern corn belt sees chances at rains in the 0.50-1.50” range.  The western corn belt and northern plains should remain dry through the next 7-days.  Extended maps keep temperatures well below normal with the first freeze chances coming next weekend.  Precip gradually moves toward below normal in the west and north by the 8-14 day which would be welcome.

 

Mixed trade this morning following the impressive session yesterday which saw soybeans close with 20c gains and corn up 6-7c.  Wheat markets lagged yesterday with long wheat/short row crop spreads being unwound, although wheat futures don’t really need to uncork a huge rally and move away from export business.  The strength in soybeans was predicated on a lot of rumors, none of which can really be substantiated even today.  First, we heard of Argentina buying 5-10 cargoes of US soybeans for the purpose of re-routing them to China.  Where there is smoke there is usually fire, but CIF markets traded weaker yesterday in contrast with the 10 cargo rumor floating around.  There was also chatter China was trying to cancel some US soybean boats it had previously purchased, which may have some validity considering the CIF weakness.  Analysts were also discussing Chinese plans to cut import duties on a host of goods, although the United States and soybeans were not expected to be on that list.  Certainly a lot more talk from folks suggesting China is ready and willing to deal on trade, going so far as to say they need to deal soon or risk a larger economic slowdown they can’t afford.  So, lots of conjecture and not much fact but the aforementioned was more than enough to gas a market which is structurally short in the managed fund category and also used to making lows during the next 30-days which we discuss below.   Corn open interest fell 2,242 contracts yesterday, soybeans were down 7,733 contracts, SRW was down 394 and HRW was up 375 contracts.

With the rallies yesterday, the talk of bottoms both from a contract low and seasonal basis were being discussed.  We dug up the data and found that since 1990, December corn has hit its calendar year lows in September two other times: 1998 and 2009.  In 1998, December corn set its low and proceeded to rally 17.8% to its fall high.  In 2009, December corn posted a 36% rally from its seasonal low to its fall highs.  Interestingly enough, a 17% rally from the lows made Wednesday would take us back to $4.00, a level which would buy a tremendous amount of corn from the US farmer.  As many sage traders often remark, “sometimes you gotta go to where the orders are.”  In soybeans, there have been three years since 1990 we have made our calendar year lows in September: 2006, 2014 and 2015.  Those years saw rallies of 24%, 20% and 7%, respectively.  In 2015, once the lows were set and prices rallied 7%, they actually gave up all of those gains to trade back to the lows by November expiration.  A 7% rally would take us to $8.69, while a 20% rally would take us to $9.74.  You could buy half the soybean crop from the farmer is beans were able to rally to $9.00.

Data during the session yesterday included weekly export sales which were strong for corn but middle of the road for wheat and soybeans.  Wheat sales totaled 17.2mbu vs. the 17.6mbu needed weekly to hit the USDA forecast.  Total commitments are now down 22% from a year ago vs. the USDA calling for a 13% increase.  The sales get worse the further one digs as total commitments of 10.207MMT are the lowest all-wheat commitments for this date since 2006 and the second lowest since 1990.  Worse yet, commitments as a percent of the USDA’s export forecast at 36.59% are the lowest on record going back to 1990.  The average level of sales needed each week moving forward of 17.5mbu remains the fourth largest since 2000.  With commitments similar to those of 2006/07, it is interesting to note that 2006/07’s export sales total ended up at 908mbu, very similar to last year’s 901mbu total.  This would be nearly 125mbu below USDA’s current forecast.  Also worth noting, in 2006/07, we had already sold or shipped 41.05% of the full year forecast vs. just 36.59% this year.

Corn sales totaled 54.5mbu, well above expectations and well above the 34.7mbu needed weekly to hit the USDA forecast.  Total export commitments of 651.7mbu are up 50% from a year ago while the USDA is calling for a 1% slowdown y/y.  With the short crops in Brazil and Argentina, the United States has the potential to have a record setting corn export season.  The 2.425bbu worth of exports in 17/18, which could get larger yet when official Census Shipments are released, are the second largest on record behind 2007/08’s 2.437bbu.  Based on the pace with which the US is selling and shipping corn, that record could be in jeopardy.  Soybean sales totaled 33.7mbu vs. the 28.8mbu needed weekly to hit the USDA’s export forecast.  Total commitments finally slipped below year ago levels, however, with total commitments of 658.9mbu now 7% below year ago levels.  This is likely to get worse in coming weeks as last year we sold 37-110mbu per week over the next three weeks.

US wheat is close to connecting on business, thanks in large measure to rallying global wheat values.  The most actively traded December contract for Black Sea Wheat futures is up $9/MT over the last week to trade the highest level since August 20th.  Paris futures have also rallied, up €7-8/MT over the last several sessions.  The lead needs to come from these two markets, otherwise the US risks running away from the business as we’ve done so many times before.  FOB values for the US, Black Sea and Europe using bids and futures closes shows US-HRW at $242.88/MT, Paris at $247.60/MT and Black Sea at $245.50/MT all basis December futures.  US values need to trade about $10/MT discount to the other origins to compensate for the freight disadvantage.  Also worth keeping track of Aussie values which traded to a new record high of A$450.00/MT the night before last before closing the week at A$445.00/MT.  These quotes are basis inland Victoria, while W.A. export values would be more like $275/280/MT vs. US-HRW FOB at $240ish.

 

Bottom Line: Our markets made a good effort yesterday at trying to put seasonal lows in and allow a relief rally.  Harvest will be delayed this week, keeping cash off the market a little longer.  The system is going to be taxed the way it is, so stringing harvest out a little bit isn’t going to be the worst idea.  If seasonal lows have been set, also recognize that many of the fall rallies put their highs in during October before giving back part of the rally into Nov/Dec expiration.  If a rally presents itself, make sure orders are in place.

 

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.

9/20/2018 Morning Comments

Good Morning,

 

The US Dollar Index is weaker this morning and trading at the lowest level since late July.  In the process, the USD has also moved back below the 50 and 100-day moving averages with the 200-day just below at 92.5938. From a weekly standpoint, a clear-cut bullish divergence in momentum is present and suggestive of lower prices straightaway.  A weaker USD would certainly be supportive to commodities priced in USD from a demand standpoint, especially as the S&P 500/Bloomberg Commodity Index ratio just set new record highs three days ago.

Rain across the Upper-Midwest this morning adding to totals from yesterday morning.  The Midwest will remain wet the next week, especially across Minnesota and N-Wisconsin where upwards of 2.00-3.00” are expected on top of what has already fallen.  Nearly the entire corn belt will see rain this week as will the southern plains which should keep field work of any kind limited until the beginning of next week.  Extended maps continue to suggest a cooling trend with below normal temps featured during the 6-10 and 8-14 day outlook while precip is above normal throughout.  This could keep harvest a bit slower than what it looked like a week ago.

 

Mixed to lower markets this morning as we take a breather from the solid gains posted in soybeans and wheat yesterday.  Wheat continues to garner support from the lower production and export ideas coming out of Australia in addition to the increased confidence of traders that Russia will be limited on wheat exports beyond 30MMT.  The USDA is still calling for Russia to export 35MMT and Australia to export 14MMT.  There could be as much as 9MMT of demand that needs to be either rationed or shifted to another exporter.  Time of the United States to step up.  Soybeans were also better yesterday, although sources of the strength are much less clear cut than wheat.  Export demand has picked up, but analysts continue to make note of the fact China has more room to cut imports even lower than USDA is currently forecasting.  This is discussed below.  Open interest continues to rise across the grain room with September futures now expired.  Corn open interest was up 17,242 contracts, soybeans up 3,574 contracts, SRW was down 1,027, and HRW was down 1,310.

The USDA’s update to the global S&D’s last week included cuts to soybean imports for China in both 17/18 and 18/19.  China is now expected to import 94MMT in both marketing years.  The 0.54% growth in imports from 16/17 and 17/18 is the smallest y/y growth since imports declined 20% between 2002/03 and 2003/04.  Reuters articles yesterday ran quotes from a Chinese soybean crusher who said they were committed to backing the government and weening themselves off US soybeans.  One way they could do this is by cutting soybean meal inclusion in their feed rations from 20% to 12%.  The European Union uses the 12% inclusion rate in their feed rations.  According to Reuters, this would allow them to reduce soybean imports by 27MMT, or roughly 82% of the volume of US soybean imports last year.  This would obviously require increased alternatives, and probably more corn being used from state reserves which is already expected to be down sharply this year and next.  However, also important to note they could have cut meal inclusion rates when soybeans were $13/bu, but didn’t, so why would they do it now that soybeans are the cheapest price in a decade.  They cannot produce pork in a vacuum, but they can change the ingredients which would be a major blow to US farmers.  This will start in 18/19, and by our analysis, China could reduce soybean imports to 90MMT from the current 94MMT projection rather easily.  This would fall straight to ending stocks, cutting them to 16.756MMT.  This would be the lowest level since 2013/14 but just under the 5-yr average of 18.123MMT.  In addition, it is also important to remember 2016/17 and 2017/18 had the largest ending stocks on record by a big margin.  The point here is even if a trade resolution was completed between the US and China, which does not look likely today, there is no guarantee our markets would rally anyway.  China has the ability to reduce soybean imports this marketing year, and continue swapping rations in future years.  Even with 200mbu of added export demand from China, of which there is absolutely no guarantee, ending stocks would still be over 600mbu and the largest on record.

Data yesterday included weekly ethanol production which came in at 1.051 million bpd, up 31,000 on the week and up 1.7% from the same week a year ago.  This is almost exactly the y/y increase needed each week through the 18/19 marketing year in order to hit the USDA’s ethanol production forecast.  This could be difficult to maintain in coming weeks with stories of Green Plains Renewable Energy idling two plants and slowing run rates at another.  The tighter operating environment is not exclusive to GPRE as everyone is facing constricted margins.  Ethanol prices continue to bob around 13-year lows and the lowest prices the contract has ever traded in its history.  This is despite the fact crude oil is back over $71.00/bbl on WTI and nearly over $80.00/bbl on Brent.  Part of the margin weakness is the hefty stocks and no export demand.  Exports have slowed in recent months, due in part to the trade tensions with nearly every country on the globe.  In addition, the big spread between RBOB Gasoline and Ethanol is not translating to increased demand.  The spot spread at 75c/gln is right near the largest spread since late 2014.  While feed margins and exports are still strong, now is not the time to deal a big blow to corn demand via slowing ethanol production.

Calendar spreads continue to be a focus for us, and not necessarily in a supportive manner.  Most calendar spreads continue to trade at or slightly above contract lows with the SX8/SX9 spread trading to the lowest print on record going back to 1990.  CZ8/CZ9 has also pushed out toward -40.00c which is not a new record by any stretch, but also not indicative of higher prices straightaway.  Soybean spreads are actually paying the largest carrying charges on the board with the SX/SN trading at -50.25c and nearly 80% of full financial carry vs. CZ/CN at -27.00c and 62% of full carry and WZ/WN at -32.50c and 37% of full carry.  Not difficult to see what farmers are going to part with first this year both off the combine and at year end for tax purposes.  However, as is usually the case, producers will look at the large carries on the board and think the market is paying them to store soybeans.  These carries are not earned until they are sold or locked in, however, as in large carry markets, futures often trade lower to take the carry out of the producers pocket.  This happened with nearly every contract of wheat and corn during the 17/18 marketing year.  This is not to say producers should run out and sell soybeans straightaway at these levels, but simply carries are not earned until they are sold.

 

Bottom Line: Wet weather around should keep harvest at bay this week, and with it, hedge pressure from bushels being sold off the combine.  The China/soybean narrative has not changed and it is not getting any more supportive.  Even with a trade deal, one would be hard pressed to assume futures are sitting on a $1.00 rally in soybeans.  We outgrew demand even with China back at the table.  Not enough yield reports yet to confirm USDA’s record crops yet but going to take a lot of sub-trend numbers to knock those production estimates off.

 

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.

9/17/2018 Morning Comments

Good Morning,

 

Some scattered showers around the Northern Plains, otherwise quiet across the Midwest.  The run of dry weather across the corn belt and Plains appears to be coming to an end, especially by mid-week.  This morning’s GFS model shows heavy rainfall accumulatios by the weekend across the southern plains and central/eastern corn belt.  Projections now are putting many 1.50-3.00” totals across the corn belt which will impact early harvest efforts.  The wet pattern carries into the 6-10 and 8-14 for the Midwest with widespread above normal precip expected.  Nearly every part of the corn belt and Great Plains are under the above normal bubble.  Temperatures are seen mostly above normal except for the far northern plains.  This pattern could slow down what looked to be an incredibly quick harvest.

 

Mixed markets this morning with weaker row crops and firmer wheat boards.  Wheat is adding to late week gains on news out of Australia over the weekend of frost in both W.A. and NSW.  Western Australia was the bright spot in an otherwise tough year for Aussie wheat producers, but some of the pictures out of that territory this morning are brutal.  Analysts believe it will be difficult to clear 18MMT now, which we discuss below.  Row crops continue to languish, holding recent lows but all indications are those levels could be in jeopardy once harvest gets rolling.  Weekend headlines out of Washington and Beijing are negative and do not suggest trade resolution anytime soon.  In fact, headlines from the Wall Street Journal suggested China was willing to ramp up the trade war even more by suspending the shipment of some goods to the United States.  Were this to happen, it could impact global supply chains in a significant way, possibly the most since the financial crisis when exporters/importers didn’t know who they could do business.  For all parties, let’s hope it doesn’t come to that.  Either way, farmers will probably be seeing the second round of Trump payments at the end of the year.  Lucky us.  Open interest changes from Friday’s session shows corn up 7,604 contracts, soybeans up 10,843 contracts, SRW up 7,503 and HRW up 2,347 contracts.

The USDA issues their latest production estimates last week, pegging Australia at 20.0MMT with exports of 14.0MMT.  Based on the long-term regression analysis of Aussie wheat supplies vs. marketing year exports, this looks about right to possibly a touch light.  This would leave ending stocks essentially tied for the lowest levels in a decade.  If the weekend frost and continued dryness across Victoria continue, however, production could swing down to 17-18MMT.  Using 18MMT, total Aussie Wheat supplies would be 23.5MMT and imply exports around 13MMT according to the regression.  Unfortunately, if exports are allowed at that level, ending stocks fall to 2.948MMT, the lowest since 1998/99.  It is unlikely domestic end users of wheat for both industrial and feed uses will allow exports to get that high as inter-territory wheat trade could be record high this year to satisfy livestock feeders.  Ultimately, this should ensure more second half demand pull for the United States, but more demand we can pencil in which hasn’t actually occurred isn’t what the US balance sheet needs right now.

The other major exporter constantly in the news is Russia, so we decided to build the same chart for them as well.  USDA updated Russian production to 71MMT, up 3MMT from last month and totally catching the trade off guard.  The increase in production allowed them to keep their wheat export forecast at 35MMT, a number which looked completely improbable in relation to crop size.  Even with the bump in production, it still looks high.  Using USDA’s numbers, it would imply export demand accounting for 42.4% of total supplies which is down from last year’s 43.01% but the second highest on record.  However, looking at the regression analysis since 2000 of exports to total supplies, the USDA’s export numbers are well above the trendline.  Based on the trendline, exports would be implied at 31MMT, which is much more congruent with current trade ideas.  Would actually call 31MMT a bit high based on some of the export restrictions being discussed if exports grow above 25MMT.  31MMT of exports would put the export/supply ratio at 37.59% which is just a hair above the 36.64% 5-year average.  Ending stocks would be 13.4MMT which would seem to imply more exports could be done than just 31MMT.  The trouble with historical regression analysis is it relies to heavily on years in which Russia was not the major exporter it is today.

Soybeans continue to hold pre-WASDE lows, although it looks like a matter of time before those are taken out.  More and more discussion on the 2019 balance sheet and potential acreage changes.  This has us looking at the SX8/SX9 calendar spread which hit new contract lows overnight of -62.00c. This ties the lowest trade for this date on the calendar with 2006/07 and is just barely above the lowest ever trade for a SX/SX spread in September of 2006.  The soybean market is incentivizing farmers to store soybeans as far as the eye can see, but one has to wonder if the right message is being sent for the 2019 marketing year with $8.80 beans and $3.85-3.90 corn?  The ratio is favoring corn without a doubt, but we question whether the current price spread is wide enough to encourage the shift of 4-6 million acres away from soybeans?  Winter wheat acres increasing this fall will help some of this shift but cannot take the entire share.  If all of those bean acres switch to corn, December ’19 is probably overpriced.  If they don’t switch to corn, soybeans need to be $0.80-1.00 lower.  Neither scenario makes one feel especially bullish toward new crop prices.

US wheat could have been competitive in this weekend’s Saudi tender.  Their tender process does not always lend itself to cut and dried results, however, so it could be several weeks before we know the true results.

 

Bottom Line: Wet weather will slow the harvest process but we still have too many bushels coming at the market in too short of time.  The complete lack of a PNW soybean program will be seen and felt in a big way when bean harvest kicks into gear across the Northern Plains the next 10-days.  Piles will be huge, storage charges will be high and producers will find it difficult to store their way out of these prices.  Big soybean yields being harvested in S-MN and Iowa this weekend according to anecdotal reports.  Very big.

 

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.

 

9/13/2018 Morning Comments

Good Morning,

 

Financial markets yesterday and overnight focused on the prospect of renewed trade talks between the U.S. and China which could stave off the next round of tariffs being implemented on both sides.  The next round of tariffs on the U.S. side would have amounted to another 25% on all Chinese goods, or about $200 billion with another $267 billion in the ready.  Should both of those be implemented, there would be tariffs on every dollar of Chinese goods imported into the United States.  The encouraging sign is the new trade talks are being led by Treasury Secretary Mnuchin, not by the trade hawks like USTR Lighthizer or trade advisor Navarro.  Nothing set in stone, but there must be a first step.

 

Mixed markets this morning with corn firmer but beans and wheat lower as the trade continues to digest the USDA reports from yesterday.  Most analysts were left flabbergasted at the national average corn yield put forth by NASS as the average trade estimate was looking for a smaller crop m/m.  It has caused quite a little introspection by analysts of all shapes and sizes as no method proved accurate this year from satellite firms to crop tours to weather modeling services.  While it has been said many times in recent years, it would appear everyone continues to underestimate the potential of these hybrids and the genetic packages inside them when weather conditions are conducive to growing corn.  In addition, the last two years especially has witnessed localized problems in different spots of the corn belt weigh on analyst opinions about national yields.  Last year it was poor emergence in E-IL, IN and OH.  This year it was flooding in N-IA/S-MN.  Crop tours exacerbated this problem as did the constant barrage of drone pictures and crop insurance adjuster horror stories.  The fact is, the weather was pretty darn good in 95% of the corn belt, and even in the flooded area, there was enough crop benefitting from the increased rainfall than was being impacted by localized flooding.  In other words, the trade should now consider just how extreme of a weather event is needed to materially impact the national average corn yield enough to drop things well below trend.  This isn’t to say bank on a 180 yield in May next year but going into a year expecting a crop problem to rally prices is a tough sell after three record yields in a row and four records out of the last five years.  Open interest changes were mostly higher with corn up 5,812 contracts, soybeans up 9,243, SRW up 5,962 and HRW up 1,343 contracts.

While the 181.3bpa national average yield stole the show, the demand picture was equally as impressive as record demand allowed carryout for 18/19 to only move up 90mbu which is astonishing with that kind of headline print.  The good news is these demand figures are not just inflated place holders which will be cut in futures reports.  Export demand is strong and will remain so well into 2019.  Ethanol margins have slipped recently due to ethanol prices being under pressure, but production continues to run at levels above the threshold to hit the USDA estimates.  Margin improvement will be needed in coming weeks to prevent a slowdown, obviously.  Barring a major wipeout in the Carolinas this weekend, animal numbers continue to grow with depressed grain prices rallying feeding margins yesterday.  The stocks/use ratio of 11.7% is still the lowest since 2013/14 and December corn somehow managed to avoid setting new contract lows during yesterday’s session.  While new lows might be difficult to defend against with 14.0bbu of corn coming at the market the next few weeks, price should find good demand on set backs by end users armed with ample margin.

Had the focus not been all on the corn market, and if the Trump Administration would not have announced plans for more trade talks in coming weeks, soybeans might have found themselves much lower.  About an hour before the WASDE report, the Trump Administration announced plans for renewed trade talks between China and the US, rallying soybeans 12c off its new contract lows made that morning.  This allowed prices to shrug off the supply jumps in the soybean market which could get worse in coming reports.  Production came in at a new record of 4.693bbu with a new record yield of 52.8bpa.  Total supplies are now over 5.0bbu for the first time in history.  Old crop demand was increased by 35mbu, dropping 18/19 carry-in by a like amount, otherwise the new balance sheet would have looked even worse.  18/19 crush was increased by 10mbu but USDA has basically already said they can’t increase exports until something happens with trade.  Carryout therefore was put at 845mbu which was close to trade estimates, but avoided the 900mbu+ numbers some had suggested.  I would say the 900+ numbers aren’t dead yet as soybean yields have increased from September to Final in five of the last six years, and a 1.0bpa increase in national average yield would add 90mbu, pushing carryout over 900mbu.  Chinese soybean imports were cut 1MMT each for 17/18 and 18/19 which was not as much as feared.  Unfortunately, China’s official soybean import forecast sits down at 84MMT vs. USDA’s latest at 94MMT.  Even if imports are only down half of what China is projecting, that’s still another 5MMT of global soybean import demand lost which heads right to the carryout of the major global exporters.  Read the United States.

Wheat market changes were quiet for the US balance sheet with both marketing years completely unchanged.  The trade instead focused on the surprise increases in production to Russia and India and the lack of production cuts in Canada and Australia.  Russian wheat production was increased 3MMT to 71MMT after USDA spent most of the summer cutting production along with most other analysts.  In their commentary report, USDA said the increase to production was based on two factors: 1) a 2 percent increase in harvested area for total wheat and 2) a 3 percent increase in winter wheat yield.  However, we would note the USDA also said spring wheat production prospects remain “highly favorable” in the Siberian and Ural districts.  This is in stark contrast to the reports we’ve read online in recent weeks suggesting some of that area is already under snow and quality issues will be a major factor for the bushels harvested.  It is always difficult to get an accurate read on production in area the size of the Russian wheat belt, but this year seems especially suspect.  Bottom line, however, is Russian wheat offers continue to be well under the market and until the exportable surplus is exhausted and values move above US-HRW, there is little reason for a big, sustainable rally.  The production numbers aside, most analysts took more issue with USDA refusing to cut their 35MMT Russian export forecast.  Most in the trade are around 30MMT, but again, FOB offers should tell us exactly when the surplus has been reduced.  Australian production was reduced to 20MMT vs. 19MMT expected and being used by most in the trade.  Exports were also reduced to 14MMT from 16MMT last month but are still 2MMT too high.  Canadian production was cut to 31.5MMT from 32.5MMT last month, but here again, is probably 2MMT too high.  Exports were reduced 0.5MMT to 24.5MMT but would be 2MMT above last year.  Little to cheer about in the wheat market until US exports pick up.  The selloff yesterday has US-HRW trading a $15/MT discount to EU offers up front and is back to level money with Russian wheat for December.  HRW should probably move further below these offers to account for the freight disadvantage.

 

Bottom Line: Yesterday’s reports confirmed big crops, and at this stage of the game, there just isn’t going to be a supply side shock.  Any price appreciation from this point forward needs to be demand led, and even that is going to be limited in scope once the crop is harvested and bushels can be thrown at a rally.  Producers need to be looking hard at 19/20 already even though this crop is not yet in the bin, because yesterday’s report has implications for next year.  Without a trade resolution and soybean price appreciation, one has to ponder how long CZ9 can maintain $3.90+ futures when the inevitable switch in acres happens next spring?  Even with a drop in soybean acreage, carryout will be difficult to whittle down much below 600mbu which is still too many beans.  Maybe the Trump Administration will deliver us a Christmas Miracle in regards to trade?  A guy can dream…

 

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.

 

9/12/2018 Morning Comments

Good Morning,

 

Multiple financial media outlets are picking up comments from IMF Managing Director Christine Lagarde this morning in which she warned about the US-China trade war delivering a shock to already struggling emerging markets which could spillover into the developed world.  Would be interesting to hear what Mrs. Lagarde would consider a “shock” as record lows in the Argentine Peso, Turkish Lira and Indian Rupee have already been posted this year while many other currencies like the Russian Ruble and Brazilian Real are already near record lows against the greenback.  While the Dollar has mostly rallied in 2018, it remains nearly 10% below the highs posted in 2016.  While the equity market influence will be important to everyone, the continued underperformance of these emerging market currencies will continue to undermine the appreciation of commodity prices.

Scattered showers across North Dakota and C-MN, otherwise a quiet Midwest this morning.  The dry weather will continue for the next 5-days or so until early next week when rain chances return to the Central and Northern Plains.  Rainfall chances as of this morning’s GFS run are putting 0.50-1.00” in northeast ND and N-MN with 0.25-0.50” chances in most of Nebraska and NW-IA.  With those moisture chances will come a general cold front which will knock highs down 5-15 degrees from the recent heat, but extended maps do keep things mostly above normal for temps.  Precip will be above normal for the 6-15 day outlook, especially over the southern plains which could delay harvest efforts and possibly winter wheat planting.  Still plenty early to get concerned about winter wheat planting delays.

 

WASDE day, and boy do our markets need a fresh dose of fundamental input.  The feature overnight has been the decent volume in soybeans, specifically November which has made a push at contract lows.  At the lows, November soybeans were within 0.25c of contract lows but have bounced about a penny since.  Open interest in soybeans has been rising almost every day for the last week, tacking on just over 16,000 contracts as prices have moved back to contract lows.  This would seem to suggest fresh speculative shorts being added on the opportunity for a breakout to the downside.  If bears do not get the negative data they are after today, these fresh shorts could quickly find themselves underwater on a retest of the 8.50 level.  Having said that, does look rather likely the national average soybean yield will be moving higher and there is only so much the USDA can do with demand to mitigate the impact to 18/19 carryout.  Multiple analysts are discussing the potential for a carryout print of 900mbu+ today which would seem to be enough to knock prices through contract lows.  Corn remains rangebound but likely won’t stay that way long with 3.6350 and 3.6975 tipping the directional scales.  December corn should continue to find good support in the 3.50-3.55 area.  Wheat bouncing after yesterday’s selloff as it looks more likely Russian wheat exports could be less than 30MMT vs. USDA’s ideas last month of 35MMT.  Corn open interest was up 15,188 contracts yesterday, soybeans up 3,643, SRW down just 166 contracts and HRW up 3,096.

Both Egypt’s GASC and Algeria are tendering for wheat today with the former likely to book 3-4 cargoes of Russian wheat.  Lineups were announced within the last hour and are averaging around $226.41/MT FOB with the cheapest offer at $222.70/MT FOB.  Will be interesting to see if any US wheat is offered in the Algerian tender which is the only one we’ll likely compete in.  The more salient news from Russia, however, came yesterday with rumors from exporters that phytosanitary permits were becoming more difficult to obtain as the government might be using that approval process as a way to slow shipments without enacting formal restrictions.  In addition, there is more confidence the Russian Ag Ministry did in fact mean 30MMT of total grain exports when he gave his latest update, not 30MMT of wheat exports.  This would likely mean wheat exports somewhere around 25-26MMT vs. market ideas around 32-34MMT and USDA at 35MMT last.  In addition, Russian news agencies were reporting overnight on the slow pace of harvest in Siberia where area harvested-to-date is almost five times slower than a year ago.  This is expected to hamper quality as well as total bushels harvested with snow often showing up by the end of September.  Some pictures suggest there is already area under snow which will render the crop next to useless outside of animal feed.  Black Sea cash offers and futures are not yet expressing any sense of urgency, however, trading mostly flat yesterday.

The weekly crop progress report was delayed until yesterday morning due to technical difficulties at the USDA.  Not much out of the ordinary with corn conditions up 1pt to 68% G/E vs. 61% last year.  Corn harvest was estimated at 5% complete vs. 3% average.  This number could really jump next week with the wide open harvest weather and crops drying down at a rapid rate across the Midwest.  35% of the crop is rated mature vs. 22% last week and 21% average.  Northern Plains corn crops have nearly three times the amount of corn rated mature compared with average.  Soybean conditions jumped 2pts to 68% G/E vs. 60% G/E a year ago.  Soybeans dropping leaves was 31% nationally vs. 16% last week and 19% average.  Spring wheat harvest is essentially complete at 93% vs. 77% last week and 85% average.  Winter wheat planting is 5% complete nationally vs. 5% average.

Weekly deliverable stocks data was also released yesterday with combined stocks in Minneapolis/Duluth seeing a big jump of 2.152mbu w/w.  Total wheat stocks now measure 20.714mbu vs. 22.566mbu a year ago.  Stocks are still the lowest for this week since 2014, but the upward trajectory could see levels of the last couple of years challenged, especially with spot floor and domestic basis levels trading at such historically weak levels.  Farmer selling has shut off as many face cash basis levels at local elevators of -80/-90Z for 14.0% protein with little to no premium for 15.0% protein.  It will take a flat price rally to peel spring wheat out of the grower’s hand, and with harvest coming, that could prove even more difficult.  In Chicago, wheat stocks fell 31,000 bushels on the week to 82.285mbu but remain 14.8mbu below year ago levels.  Non-deliverable grades are up 2.2mbu y/y.  Kansas City stocks fell 669,000 bushels on the week to 127.313mbu but remain above year ago levels at 124.248mbu.

On today’s WASDE, the focus will obviously be on corn and soybean yield updates.  More specifically, however, we will be interested in what USDA does with Australian and Canadian wheat crops, Russian wheat exports, Chinese soybean imports for both 17/18 and 18/19 and where the eventual 18/19 US soybean carryout ends up after all supply and demand changes are made.  USDA could punt one more month on Australian production, preferring to use ABARES October numbers as they’ve done in the past instead of the September report they just released.  In addition, doubtful USDA moves Canadian production down to 28.990MMT where StatsCan was last vs. their August number up at 32.500MMT.  USDA will probably come in somewhere around 30MMT would be our guess.  Russian export numbers probably move down 1-2MMT, but unlikely they make the move down to 30MMT on this report.  The Chinese soybean balance sheet will be a very interesting read.  On the last WASDE, they put 18/19 soybean imports at 95MMT vs. 96MMT for 17/18.  Both of these could move lower based on the pace of imports to-date.  They could make this move rather easily as 17/18 ending stocks on the last report were pegged at 23.481MMT, the largest on record and well above the 5-yr average of 18.328MMT.  18/19 ending stocks of 20.781MMT have plenty of room to move lower without threatening comfortable stocks/use levels.  Even if a drastic cut to imports of 5MMT is made, ending stocks would only fall to 15.781MMT.  This would be the lowest since 2013/14, but still the second largest since 2000 prior to the 13/14 marketing year.  The point is, if US soybean yield is raised, exports cannot be raised much if at all to offset the supply increase.  Ending stocks will move higher, and possibly appreciably so.  A supply increase inside the United States combined with a clear sign the world’s largest importer is de-stocking instead of importing will be a double whammy to price prospects.

 

Bottom Line: Let’s get the WASDE out and reassess.  As a reminder, the national average corn yield is expected to fall to 177.8bpa from 178.4bpa last month while the soybean yield is expected to increase to 52.2bpa from 51.6bpa last month.  The average trade estimate for 18/19 ending stocks is 1.639bbu for corn vs. 1.684bbu last month, soybeans at 830mbu vs. 785mbu last month and wheat at 941mbu vs. 935mbu last month.

 

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.

9/10/2018 Morning Comments

Good Morning,

 

We’ve been watching emerging market currencies rather closely as of late for good reason with most equity markets and currencies in those countries setting multi-year or record lows.  One currency which popped up on our radar last week was the Australian Dollar as it fell 1.4% on Friday to the lowest level since February 2016.  This hasn’t been all in one fail swoop as the Aussie Dollar has been in a solid downtrend dating back to the beginning of 2018.  From the January highs, the Aussie Dollar is off 12.4%.  Australia’s economy is hugely dependent upon exports to China, so anything affecting that relationship, or the Chinese economy, is likely to have negative impacts on the A$.  While maybe not directly related to President Trump’s latest round of tariff threats toward China on Friday, it certainly can’t help the situation.

Some scattered showers in the Dakotas and Nebraska as well as some showers in N-Minnesota, otherwise the Midwest is quiet.  Substantial rains fell in the central/eastern corn belt over the weekend, dumping as much as 7.0” in spots of S-IN/S-IL with a larger area seeing 3-4” and an even larger area seeing 1.3” amounts.  10-day rainfall amounts from Iowa to Wisconsin into Illinois and Indiana are impressive with many 5-10” totals recorded.  This has limited early harvest activity, although a dry week lies ahead which will be welcome news to many in the aforementioned states.  In fact, the southern eastern half of Iowa, MO, IL, IN and parts of WI and MI are not expected to see any measurable rainfall during the next week.  The Northern Plains will see several rounds of rain, especially the RRV but nothing which should impact soybean harvest too much.  The Northern Plains remains above normal for precip and slowly shifts to normal/below temps by the 8-14 day.  The rest of the Midwest is fairly normal on both precip and temps.

 

Mixed trade to start the week with corn slightly lower, but soybeans and wheat firmer after a particularly rough week in the wheat markets last week.  Kansas City wheat lost 38.5c last week, which compares with the 45c losses two weeks before that.  We’ve retraced about 84% of the entire rally from the July lows to the August highs in the span of a month which was about how long it took to put those gains on.  Whether one wants to use Elliot Wave Theory or trend channel analysis or cycle lows or some other technical indicator, all signs point toward price revisiting the harvest lows around 4.90-4.95 basis the December KC contract.  Fortunately, momentum indicators are showing a potential bullish divergence in momentum with price slowing down on the last wave lower, a tell tale sign of a potential reversal forthcoming.  Corn and soybeans remain mired inside recent ranges, awaiting fresh input from the USDA or harvest reports in order to make the next move.  There is almost nothing one can look at for bullish inputs in the soybean market, which could be a signal we are in fact near a bottom and don’t need to make new lows below 8.26.  Trade rhetoric is bearish, yield talk is bearish, exports are slowing, basis is weak, deliveries were heavy, spreads are trading at large percentages of full carry, etc.  Lots of people leaning bearish in the soybean boat which is usually what happens right before it tips over.  The only reason making us cautious about getting supportive toward soybeans with the sentiment so decidedly bearish is the fact carryout could make its way toward 900-1,000mbu on this week’s WASDE or possibly the October WASDE.  Yield is almost surely going up but the USDA cannot increase demand given the lack of Chinese demand and crush already running near capacity.  If supply goes up, it just doesn’t appear demand can eat the slack, which will force our already record carryout to a new record.  If that isn’t reason for funds to rebuild a record net short position, I’m not sure what is?

Export sales were delayed because of the Labor Day holiday and were therefore released Friday.  Wheat continued its disappointing string of export sales week with the third week in a row of failing to meet the needed level.  Sales totaled 14.0mbu vs. the 17.5mbu needed weekly.  Total commitments now stand at 343.6mbu vs. 457.8mbu last year, a 25% deficit vs. the USDA calling for a 13.7% increase.  Total commitments are the lowest for the last week in August since 2009, but total commitments as a percentage of the USDA forecast are the lowest since 2000.  The 17.5mbu needed weekly would be the largest average sales pace since 2011 and the fourth highest since 1996.  The pace is still certainly doable, and the years with higher average sales saw total commitments 60-150mbu larger than what the USDA is calling for this year.  Fortunately, US FOB prices have tightened the gap considerably with Russian and European offers which should offer some stability.  Corn sales ended the 17/18 marketing year last week with 1.2mbu of sales and total commitments of 2.384bbu vs. the USDA target of 2.400bbu.  Sales should surpass the 2.400bbu level once Census Bureau data is incorporated.  New crop sales totaled 40.7mbu, taking total commitments to 451.6mbu vs. 334.2mbu a year ago.  This is a 35% increase vs. the USDA calling for a 2.0% decline. Soybeans ended the 17/18 marketing year with 2.163bbu of commitments vs. 2.222bbu the year before.  New crop sales totaled 24.7mbu, bringing total commitments to 510.4mbu vs. 478.5mbu a year ago.  Two weeks ago, 18/19 commitments were running almost 100mbu ahead of 17/18 at this time vs. just 32mbu this week.  17/18 is likely to surpass 18/19 in the next couple of weeks unless sales really take off, and especially with no Chinese business occurring.

Still got the latest CFTC data out on Friday with funds fairly quiet in some markets and fairly active in others.  In corn, funds did almost nothing, selling 385 contracts to put their net short at -82,570 contracts.  We are still seeing the effects of the September delivery cycle, so changes are a bit difficult to interpret.  Commercials saw both their long and short positions drop for a net sell of -12,719 contracts.  In soybeans, however, funds sold aggressively, adding 14,148 contracts to their net short position which is now -111,567, the largest since January 23rd.  Commercial positions were fairly quiet actually with their net position up 10,989 contracts to put them net long 21,824.  Funds remain stubborn with their net long in KC wheat selling just 3,943 contracts to leave them net long 37,911 contracts.  Since price peaked on 8/7, funds actually added to long positions until last week on 8/28 and have only sold roughly 4,000 contracts as price is down over $1.00/bu.  These positions are undoubtedly spread against other markets, but still painful.  The gross commercial long position has been sold every week since July 24th.  Not bullish.  Funds flipped back to a net short in Chicago wheat for the first time since July 24th, although small at -5,490 contracts.  The gross commercial long in Chicago wheat of 88,593 contracts is the smallest since March 6th.  Not bullish.

As noted above, US FOB prices are finally trading even money or a discount to European and Russian offers.  Going home Friday, spot offers out of Europe for 12.5% protein (dmb) were $241-243/MT vs. US-HRW for similar protein at $231/MT out of the Gulf.  Russian offers in spot slots were $224/MT vs. US-HRW at $231/MT, never mind the extreme freight advantage of Black Sea wheat.  For December, however, both offers were at $239/MT and for January the US was a $4/MT discount.  Again, nearby, both origins are still likely cheaper on a landed basis, but Dec-forward should see US prices keeping Russian wheat out of Mexico and Latin America.  US wheat probably needs to trade at larger discounts to Russian wheat to get into the Middle East.  In addition, while US wheat is making headway against Black Sea Dec-forward, Argentine wheat is trading healthy discounts to US-HRW for those slots.  Argentina will not have a huge amount of wheat to compete for a lot of swing business, but any additional bushels the US has to compete with gets us one day closer to new crop in the Northern Hemisphere next year.  Things are starting to happen, however, so it does appear wheat is close to a bottom.

 

Bottom Line: Wheat is trying to put a foot in the ground now that export prices are closer to our competitors, but business has to be conducted first.  Corn and soybeans are going nowhere fast until USDA confirms bigger crops later this week or harvest begins in earnest.  With the wet weather out of the way, this should happen by the weekend.  Soybeans are facing a litany of bearish headwinds, but seems like much of it has been priced in.  If we get a huge carryout print this week but don’t make new lows, I think we will have our answer.

 

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.