4/4/2018 Morning Comments

Good Morning,

 

Not a great deal of change to weather maps this morning, although the Northern Plains might have seen totals for this weekend’s storm backed down slightly.  Still most areas of the Great Plains are slated for at least some moisture by the weekend, with best chances in W-NE and NE-SD.  The Delta will remain especially wet during the next week with 0.75-2.00” amounts seen for AR/LA/MS/TN/KY/NC/SC/GA/AL.  Wetness fears have been voiced, but corn planting progress is ahead of schedule.  Extended maps keep below normal temps over the Northern Plains through April 17th while the Southern Plains stays well above normal.  Midwest is above normal on precip, below normal for Southern Plains.

 

Well another boring session with absolutely nothing to talk about… Definitely don’t need to say that this morning with the long awaited, much-anticipated tariffs being slapped on US soybeans by China overnight.  According to newswires, China put tariffs on 106 US products including soybeans, automobiles, chemicals, whisky, cigars, some types of beef, corn, tobacco and a host of other things amounting to $50 billion.  The soybeans are obviously the star of the show given we export close to 50% of the soybeans we raise, and China is far-and-away the largest destination.  Yet, wheat and corn were also included.  Our first instinct was to look at Dalian futures markets to see if there had been any clues to the pending selloff.  None.  Dalian soybeans closed up 1.38% at the highest level since October, while soymeal futures closed at new contract highs and the highest spot level since October as well.  The chart damage inflicted on CBOT soybeans is incredible as front-month beans sliced through the 50 and 100-day moving averages and are just 10c above the 200-day moving average.  For reference sake, we haven’t traded below the 200-day moving average since January 8th.  Adding to the panic selling is record open interest in soybeans of 906,316 contracts, but On-Balance-Volume remains negative with bears seemingly in control.  These sort of moves are always difficult to navigate, and could last several more days, although the net effect on global trade could be minimal.

Prior to the overnight malaise, we had been looking at how badly lean hog futures had been beaten up the last month, which was probably the first Ag market to feel the brunt of Chinese tariffs.  Spot month hog futures closed at new contract lows and the lowest front-month prices since December 2016.  The lean hog/corn and lean hog/soymeal ratios are hitting some fairly extended levels.  The lean hog/meal ratio of 14.0231 is at the lowest level since October 2016, while the lean hog/corn ratio of 13.7708 is at the lowest since November 2016.  CME Hog crush spreads were calculated with last night’s closes at $77.16/hd vs. $83.61/hd last week and $81.51/hd a year ago.  Still nowhere near lows set in the fall of 2016 around $28.00/hd, but profitability is not strong in the hog sector thanks to the recent tariffs.

The moves since Thursday’s Prospective Plantings report are throwing wrenches in everyone’s carefully laid plans, and making estimates incredibly difficult to formulate.  We had been in the camp of spring wheat losing acres appreciably to soybeans, and probably corn to a lesser extent, thanks to the weather and price moves since Thursday.  Obviously the overnight moves complicate that theory slightly, although weather could still end up being the final word in the Northern Plains at least.  The SX8/MWU8 spread has corrected 50c in the last two sessions alone while MWU8/CZ8 has corrected around 12c.  We ran three different acreage scenarios for the HRS balance sheet last night including unchanged acres from the USDA, a 5% drop, a 10% drop and matching the largest March to Final drop in history (2011).  Unchanged acres would give us around 12.094 million planted acres of HRS and harvested acres of around 11.815 million.  With a national average yield of 46bpa, and our demand forecast of 545mbu, carryout would come in at 233mbu vs. 185mbu this year and 214mbu on the 5-yr average.  A 5% drop in planted acreage would be 11.4893 million planted and 11.2250 million harvested, and provides a carryout of 206mbu with 545mbu of demand.  A 10% acreage drop would be 10.8846 million planted and 10.63 million harvested (10.5 and 9.7 in 2017/18), giving us a carryout of 174mbu.  The largest ever March to Final acreage drop was 2.083 million acres in 2011, which was a 14.7% drop within the season.  The drop from the year before was 1.197 million, or 8.8%.  This sort of in-season drop would see planted acreage at 10.01 million, harvested at 9.78 million and a carryout of 140mbu with demand of 545mbu.  The spring wheat balance sheet is very much a moving target, especially with 4.0% overnight moves in soybeans.

 

Bottom Line: Not much else to talk about until the tariff situation shakes out one way or another.  Moves in the next 24-72 hours could be violent, with option volatility spiking and traders running for cover.  Protection will be expensive to buy.  Watch calendar spreads and basis for clues about the futures rout either continuing or reversing.  SN/SX tied contract lows of -5.00c overnight, and is up around 7c from those levels at this writing.  We will update global balance sheets today to see what kind of impact could be seen on the US balance sheet.

 

Good Luck Today.

4/3/2018 Morning Comments

Good Morning,

 

Be very careful talking about the weather to anyone north of I-80 this morning.  Another round of winter weather moved through the upper-Midwest overnight, dropping 3-6” of snow across a large swath of NE/SD/NW-IA/MN/ND.  Snow will continue falling into the afternoon, and along with it will be sustained winds of 15-30mph, creating blizzard like conditions.  This will prolong fieldwork delays and further roil logistics after railroads were finally getting somewhat current.  The Midwest will clear out after today, but another round of rain/snow mix moves in Friday/Saturday, bringing another 0.25-0.75” to SD/S-MN/IA/NE.  If temperatures were near normal, this system would be slightly manageable, but temps remain 10-20 degrees below normal the next 7-10 days.  Temps remain below normal through the 8-14 day for most of the Midwest, while the southern plains will be above normal throughout with few prospects for precip.  Spring is on hold for the foreseeable future.

 

Firmer markets overnight as markets reverse course from yesterday’s losses.  Impressive gains out of the gate were witnessed across the board Sunday night, but prices reversed and gave back all of the gains and some by the close.  Some ugly closes and candlesticks were posted yesterday, although this morning’s strength is helping to mitigate those bearish technical signals.  Weaker than expected condition ratings on the first crop progress report of the year helped to propel winter wheat overnight with many analysts noting the gaps above the market on the W and KW daily charts.  Both gaps are about 15-20c above the market, and could be targets given the liquidation we’ve seen, and the bullish divergences in price which are beginning to form.  New crop corn made new highs for the move yesterday but reversed course by the close.  Stabilizing near the highs this morning is important, although the fact the back end of the curve is leading the charge is not nearly as bullish as if the front-end were leading.  The CN/CZ made new lows for the move yesterday at -15.50c, the lowest trade since February 6th and a weak signal.  SN/SX remains a dumpster fire, trading down to +6.25c yesterday, the lowest trade since February 12th and compares with the +48.00c highs from March 2nd.  Open interest changes yesterday included corn up 19,797 contracts, soybeans up 10,589 contracts, SRW wheat up 6,241 contracts and HRW wheat up 2,812 contracts.

Helping propel winter wheat overnight were the first condition ratings of the year with the US winter wheat crop being called 32% Good/Excellent which compares with 51% G/E at this time last year and 50% G/E going into dormancy last fall.  Newswire estimates were not available, but chatter suggested expectations around 33-37% G/E.  The southern plains were obviously the focus, and poor conditions were certainly present across KS/OK/TX.  KS was rated 10% G/E vs. 43% last year, OK at 9% vs. 41% last year and TX 15% G/E vs. 39% last year.  That poor of rating in Oklahoma was a bit surprising considering their decent rainfall in the eastern portion of the state the last few weeks.  The entire winter wheat crop as a whole scored a condition index of 295, which is the lowest for the first week of the year since 2002 and the second lowest since 1989.  We remain very skeptical of condition ratings as a whole after last year’s debacle, and remain cognizant of the fact conditions are not reliable indicators of final yields.  Nonetheless, the trade pays attention to them, so we will as well.  Based on current forecasts, not likely to see much improvement in this score during the next 7-10 days.

The other focus of the crop progress report was corn planting in the south and Delta.  Most were looking for delays based on moisture received the last 2-3 weeks, but this was not the case.  Of the states reporting, Alabama was 17% planted vs. 14% average, Georgia was 40% planted vs. 38% average, Louisiana was 84% planted vs. 69% average, Mississippi was 50% planted vs. 34% average and Texas was 55% planted vs. 42% average.  Obviously the focus will be on the Midwest in 2-3 weeks, but the Delta and US-SE were a big reason why the US was able to achieve a new record corn yield last year despite mixed conditions in the corn belt.  The earlier this region goes into the ground, the more likely they are at achieving trend+ yields, and also providing corn to smooth the transition between the 17/18 and 18/19 export marketing years.

Otherwise, we were focused on spring wheat yesterday, and the price response since the Thursday USDA acre number.  We’ve already discussed the weather, and how that is almost certainly going to impact final acreage decisions.  It is one thing if North Dakota doesn’t get into the field until May, but if South Dakota doesn’t start until the last week of April, it will make it incredibly difficult to see a 1.6 million acre y/y increase.  As important, however, has been the price response.  The November ’18 Soybean/September ’18 SW spread hit +460.00c yesterday, vs. +411.25c the morning before the report.  For reference sake, the SX17/MWU17 spread on this date a year ago was +403.75c.  The MWU18/CZ18 spread hit +179.00c overnight vs. +210.00c the morning before the report.  On this date a year ago we were trading at +154.50c, but quickly hit +300/400 as we moved into the drought.  Since 2001, only two years have featured a new crop soybean/new crop spring wheat spread at wider levels than current.  One was 2012 and the other was 2014.  2014 was the one year with slow planting/high snow cover in which spring wheat acres saw a meaningful jump, despite the fact soybeans were trading at a meaningful premium.  Not unprecedented for spring wheat acres to steal share away from beans at these sort of premium levels, but incredibly rare to say the least.  This would seem to imply a huge incentive to plant soybeans for Northern Plains farmers.  The current new crop wheat/new crop corn spread is pretty middle of the road for the last 17 years, so not much pull either way.

Seguing to calendar spreads, Minneapolis time spreads are certainly not giving any signal of concern over acres at the moment.  The MWK/MWN and MWN/MWU remain right in the middle of their recent ranges, suggesting nothing untoward is occurring, while new crop spreads like MWU/MWZ and MWZ/MWH are at or near contract lows, which could be incredible buying opportunities if things do not straighten out.  We will update our HRS balance sheet with several acreage scenarios tonight.  The other noteworthy spread is KC calendars which remain incredibly weak and do not seem to agree with a flat price recovery.  Despite a huge expected drop in production y/y, KWK/KWN remains near 100% of full financial carry, almost assuring another VSR trigger.  The deferred portion of the curve sits at the lowest levels of the calendar year, and also do not suggest anything wrong with production.  Variable Storage Rates will continue to ration out demand until the only suitable demand center is storage.  What a great system.

Export inspections released yesterday were middle of the road.  Wheat inspections were 13.3mbu vs. the 18.8mbu needed weekly.  Total inspections are down 9.0% y/y at 730.3mbu, a bit better than the USDA forecast is calling for.  Corn inspections remain solid at 53.1mbu, the fourth week in a row of 50.0mbu+, and right at the 51.7mbu needed weekly.  Total inspections of 962.3mbu are down 26.7% from a year ago.  Soybean inspections of 19.9mbu were slightly under the 21.9mbu needed weekly to hit the USDA forecast, and were the second lowest inspections of the year.

 

Bottom Line:  Weather, conditions, market structure and the calendar are all on the bulls side at the moment.  Dips look as though they will be bought as opposed to bounces being sold which has been the trend of late.  Difficult to see much in the way of farm marketing until planters roll, and the forecast seems to suggest that will not be anytime soon.

 

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.

4/2/2018 Morning Comments

Good Morning,

 

Some scattered snow showers in the Dakotas this morning, adding to weekend returns with more set to fall this evening.  4-12” amounts fell in MN and ND over the weekend, adding to an already impressive snowpack for April 1st.  Upper-Midwest (SD/MN/W-WI/MT/N-WY) snow cover as of this morning with an average depth of 4.7”.  This is the most extensive snow pack since 2014 when we had 83.4% of the upper-Midwest covered with an average depth of 5.2”.  2018’s totals should increase by tomorrow morning with another 3-5” expected across much of South Dakota.  Multiple round of moisture in the coming 7-days with SD/S-ND/MN all expected to see 0.50-1.00” of water-equivalent moisture in the next week.  The moisture would be one thing, but the total absence of heat is compounding things, with below normal temps forecast through April 15th.  Even the week 3&4 outlook from Friday featured below normal temps through the end of April.  This will have seeding delays on the forefront and acreage switches a major talking point.

 

Firmer markets out of the gate last night and following through this morning.  Between the bullish acreage data Thursday from the USDA, and weather maps which do not signal a quick start to spring, markets are interested in adding premium and not much else.  Lots of discussion over the weekend about both the acreage and stocks reports.  Seem to be two themes emerging: 1) the acre numbers are by no means set in stone, and spring wheat acres are almost assuredly going to switch to soybeans in some capacity for the Northern Plains.  2) The stocks reports were bearish across the board and imply feed demand was not as strong as expected despite record numbers of cattle, hogs and broilers.  For the moment, markets are more interested in the acreage reports than the bearish stocks report, and with the forecast looking the way it is, it is tough to argue with.  As the commitments of traders report showed Friday, funds were not as long as expected going into the end of the month reports, allowing them even more buying room in the days ahead.  Open interest changes from report day included corn up 8,190 contracts, soybeans up 16,764 contracts, meal up 3,565 contracts, SRW up 8,508 contracts and HRW up 2,878 contracts.  Volume was probably most impressive in corn on Thursday at 811,275 contracts, the highest since February 7th.

We will focus on the acreage report today, and probably dig into the stocks report tomorrow to keep our diatribe somewhat brief.  The corn and bean acreage numbers were the surprise with corn at 88.026 million vs. 89.420 million expected and 90.167 million last year.  If confirmed, this would be the lowest planted acreage since 2015/16, but the second lowest since 2009/10.  Pretty incredible considering we planted 94.004 million just two years ago.  Analysts were quick to build balance sheets off these numbers, and even with trend-type yields, carryout figures were between 1.500-1.900bbu depending on demand estimates.  December corn has made clear it is not satisfied with that acreage number, rallying 14.50c on report day, and making new highs for the move overnight.  December corn has traded to $4.16/bu, the highest trade since August 10th.  Possibly as impressive is the CZ8/CZ9 trade which pushed that spread to +2.50c overnight, the highest trade since July.  Regardless of final acreage, an inverse in this spread is difficult to wrap one’s head around, as the last time we had a carryout under 2.0bbu in 2015/16, the CZ/CZ spread was trading at -11.00c on April 2nd.  December ’18 corn should be buying back some acres, although the SX8/CZ8 ratio of 2.55 is the highest for this point on the calendar of the last 5-years.

Soybean acres were just as big of a surprise at 88.982 million acres vs. the average trade guess of 91.056 million and 90.142 million a year ago.  Nearly 2/3’s of the acreage estimates were over 91.0 million acres with a huge portion even over 92.0 million.  The corn and soybean acre numbers had traders scrambling to figure out where the acres went.  As we will discuss, some went into spring wheat, some into cotton, and some were simply “lost.”  When analysts built their balance sheets, carryout numbers below 500mbu were easy to come by, especially with inflated demand numbers for 18/19.  I have yet to speak to anyone who believes soybean acres will be that small, especially if the current weather forecasts hold through the end of April.  Still, one does have to wonder how many acres can we realistically add?  Can we get back to 92.0+ million as the trade expected pre-report?  If that level were achieved, we would add 145mbu of supply to the balance sheet, which would be difficult to offset given demand estimates already up 5-8%.  There isn’t a lot of margin for error with these acreage estimates, but traders and producers need to be looking at more realistic acreage ideas.

In our little slice of the world, the spring wheat acreage number was probably the largest surprise, although most have admitted the risk to a big print should have been more obvious.  When the report was conducted, planting weather was not in jeopardy in the Northern Plains, Spring Wheat/Soybean and Spring Wheat/Corn spreads were not at levels they are today, and forecasts did not look as dire as they do now.  Other Spring Wheat acreage was estimated at 12.627 million acres vs. 11.500 million expected and 11.009 million a year ago.  The 12.627 million number was probably a realistic estimate a month ago, while we were expecting something around a 700,000-1,000,000 acre increase on Thursday.  A 1.6 million acre increase does not look realistic today, simply put.  The all-wheat acreage number was therefore expected higher at 47.339 million vs. 46.297 million expected and 46.012 million a year ago.  We spent the weekend looking at various metrics related to spring wheat planting in the United States and North Dakota.

Looking at snow cover, there have been three other years which featured snow cover as large or larger than this year.  As of April 1st, 71.40% of the upper-Midwest was covered by snow with 83.50% in 2014, 79.40% in 2009 and 88.20% in 2008.  In those years we saw March Planting Intentions to Final acreage changes of down 218,000 acres in 2008 to an increase of 1.016 million in 2014.  Y/Y changes ranged from a drop of 897,000 acres in 2009 to an increase of 1.419 million in 2014.  If we broaden it out a little and include 2011 and 2013 which also featured decent snow cover, those two years saw March to final drops of 1.095 million and 2.083 million in 2013 and 2011, respectively.  They featured y/y drops of 653,000 acres in 2013 and 1.197 million in 2011.  Bottom line is we’ve never increased acres y/y by 1.6 million acres going back to 2004.  The largest y/y increase of 1.4 million acres in 2014 was in fact a slow planting year with only 49% planted as of May 15th.  However, spring wheat prices were  a $1.40/bu higher than this year, and MW/S and MW/C ratios were also more favorable toward spring wheat than they are this year.  Much will come down to the forecast and how quickly drills can roll in South Dakota the next few weeks.  If North Dakota doesn’t get planting in any serious manner before May, it will be nearly impossible to hit that acreage number, placing even more focus on an already tight HRS balance sheet.  The 275-300mbu HRS carryout numbers for 2018/19 flying around this weekend seem preposterous.

 

Bottom Line: Our markets want to add more premium, and it is difficult to argue with if you believe the USDA’s data from Thursday.  If you don’t, then these prices might look like another marketing opportunity.  Having said that, I don’t believe we will run into a great deal of producer selling until planters roll, and the forecast doesn’t make that look very likely.  Similar to last year spring wheat last year, corn didn’t need a major weather issue in 2018 to make things interesting thanks to solid demand.  Lower acreage is making things interesting.  It will be difficult to keep new crop corn below $4.00 for a meaningful stretch unless the weather changes markedly.  More beans are almost a certainty, just a matter of how many.

 

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.

3/29/2018 Morning Comments

Good Morning,

 

Brief comments today as we prepare for the USDA reports later this morning.  The Quarterly Stocks reports mark one of the four most important reports of the year as this data set gives us actual physical bushel counts from which we can gauge demand.  While the Prospective Plantings report will grab headlines, it is the stocks report which probably has more applicability for the next 3-months.  This report can be volatile, given the complexity of the data presented, and looking over the last 10-years shows us we should be ready for some knee jerk reaction.  Since 2007, corn has averaged a 4c gain on this report, although 2011-2013 produced two limit up moves and one limit down move in three consecutive years.  Last year corn closed up 7c, but the previous two years saw corn close down 14c and 17c, respectively.  Interestingly enough, over the last five years, however, corn closed on report day, it closed in that same direction a week later.  Wheat has averaged a 3c loss over the last 10-years on this report, but was much more mixed a week later.  Soybeans have averaged a 2.5c loss on the March SIAP report, and like corn, typically trended in the same direction a week later as the report day close.  Open interest changes mainly saw declines as traders square ahead of the report.  Corn open interest was down 10,447 contracts, soybeans were up 2,422 contracts, SRW down 28 contracts and HRW up 214 contracts.

Data yesterday included weekly ethanol production which dropped 10,000bbls/day to 1.039 million bbls/day, which was down 1.4% from the same week a year ago.  The slower run rates of the last few weeks are beginning to get a little concerning, considering weekly ethanol production needs to be averaging about a 3.0% gain each week over last year to hit the USDA’s production forecast.  The last three weeks have been below the level needed, while six of the last nine weeks have been below the needed threshold.  Weekly ethanol stocks declined 968,000bbls to 22.790 million bbls, an impressive decline and adding to last week’s notable drop.  Stocks remain comfortable from a historical perspective, and are right in-line with the last two years at this time.  Ethanol futures have dropped about a dime from their early month highs, and are sitting right at the 50 and 200-day moving averages.

There will be plenty of time to analyze the USDA data over the long weekend, but one thing we will be focused on in the minutia of the report is the stocks of minor and specialty grains.  This will be the most important data point for crops like sunflowers, barley, oats and pulses since January, and could have a lot to say about price direction moving into summer.  We remain impressed specifically with the US and World balance sheets of barley and oats.  Starting with barley, the global balance sheet currently has ending stocks projected at 17.866MMT, the smallest ending stocks since 1983/84, with the stocks/use ratio at a similarly low level.  Drought concerns in Argentina and Australia are raising the bar for the 18/19 balance sheet as well, especially with China’s voracious appetite for NGMO feed grains.  The US barley balance sheet doesn’t look much better with ending stocks projected at 1.313MMT, the smallest since 2011/12 and second smallest on record going back to 1960.  The stocks/use ratio is actually the lowest on record.

The world oat balance sheet is even tighter with ending stocks projected at 2.292MMT, the lowest on record going back to 1960/61.  The stocks/use ratio of 8.58% is also the smallest on record, with the declining trend in global production going back to the 60’s a truly impressive graph.  In the United States, oat ending stocks are currently projected at 286,000MT with a stocks/use ratio of 10.54%, both easily the lowest on record.  Canada is the largest oat exporter in the world, so their supplies are often paramount to anything in the United States, especially considering half our supplies come from imports and almost exclusively from Canada.  Canadian ending stocks are projected at 700,000MT, which is up from last year’s 690,000MT and just below the 5-yr average of 759,000MT.  The combined US/Canadian balance sheet looks a bit different with ending stocks of 986,000MT the smallest since 2012/13, and the second smallest on record.  Stocks/use of 15.38% is the smallest on record going back to 1960/61, so looking at the combined balance sheet probably paints a better picture of the true oat market in North America.

 

Bottom Line: We remain concerned about a negative bean reaction considering the heavy amount of overhead calls open, and a complete lack of downside puts.  The market is definitely positioned for a higher move, not a lower one.  Also of interest will be ‘other spring’ wheat acres as that balance sheet needs acres and cannot afford another supply dip coming off last year’s drought.  As is usually the case, however, the most important data could come from the stocks report as that could add buffer or take it away from whatever planting projections the USDA deals out.

 

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.

3/28/2018 Morning Comments

Good Morning,

 

A band of showers stretching from E-TX all the way to W-OH this morning bringing rain to parts in between.  Rains will continue over this stretch the next 48-72 hours, dropping 1.00-3.00” totals and 0.50-1.50” on a broader area.  The Plains will see several chances at light rain, but the cumulative 7-day outlook keeps precip below 0.25” for most of KS.  The Dakotas and E-MT will also see rain/snow chances toward the weekend, which continues to heal the area from last summer’s drought, but the moisture along with cool temps is not getting seed beds prepped for sowing.  Temperature remain below to much below normal for the Northern Plains the next 14-days, with no real warm up seen for any part of the Midwest through April 10th.  The southern plains drift toward above normal precip in the 8-14, but no specifics as of this morning.  The 30-day percent of normal precip map for the Midwest and Southern Plains shows most areas outside of the far SW-HRW belt seeing solid moisture during the last month.  Drought monitor conditions should continue to improve for the corn belt.

 

Easier markets to mark our last session ahead of the USDA report tomorrow.  Weakness is being led by wheat as it resumes its anchor roll, pressured by improving moisture chances in the southern plains.  There is no doubt the HRW crop experienced poor establishment last fall, little to no snow cover for most of the winter, and a dry beginning to the growing season, but the rally to $5.48 seemed to price in a worst case scenario of it never raining in Kansas again.  With an improvement in moisture prospects, and still no real danger to another Northern Hemisphere exporter, relinquishing additional premium is probably warranted.  Worth noting, there is some head-and-shoulder chatter about the front-month KC chart out there, with the head at $5.48, and the neckline somewhere around $4.60.  If, and it’s a big if, that pattern were to confirm, it would project spot month wheat prices and new lows below $4.00.  Let’s put odds on that extremely low at this juncture.  Otherwise, corn and soybeans have laid out some very specific risk parameters for gauging tomorrow’s data.  In beans, we would be looking at $10.40 to the upside and $10.10 to the downside, while corn’s objective risk parameters would be $3.80 to the upside and $3.70 to the downside.  Trade above/below those levels would likely tip the market’s intermediate or long-term hand.  The CK375 straddle is trading at 13.875c on the ask, while the SK1020 straddle is offered 34.25c this morning.  Would guess the corn straddle has a better chance of paying off.

Data out yesterday included weekly Brazilian crop progress as of last Friday.  Soybean harvest was pegged at 65% complete vs. 56% last week, 70% last year and 66% average.  Largest producing state, Mato Grosso, was estimated at 95% complete vs. 92% average.  Brazilian 1st crop corn harvest was estimated at 56% complete vs. 51% last week, 53% last year and 58% average.  2nd crop corn planting was seen at 97% complete vs. 93% last week, 99% last year and 98% average.  Interesting to us was the fact Brazilian FOB premiums continue to hang in or even firm, despite soybean harvest having one of its biggest weeks of the season and harvest over 2/3’s complete.  During gut-slot harvest, cash markets should be at some of their weakest levels of the year, but the opposite has occurred this year.  It begs the question of whether the crop size is actually smaller than what estimates have been touting, or if Chinese demand has been stronger than expected as they attempt to “punish” the US by sourcing even more beans from Brazil?  The Brazilian farmer has been engaged with the Real falling to 3.3338 yesterday, the weakest level since Christmas, although bean prices still well off the highs set on March 5th in Real terms.  Will bet on Chinese demand being stronger than expected with private estimates still climbing.

Weekly deliverable stocks out yesterday morning with Chicago wheat stocks falling 1.302mbu to 70.094mbu which compare with 69.672mbu a year ago.  Total deliverable stocks for this week remain the second largest since 2011/12.  KC wheat stocks were up 386,000 bushels on the week to 105.771mbu which compares with 100.407mbu a year ago.  Spot floor values were firmer yesterday with 11.80-12.20% up 5c, while 13.0-14.0% was up 10c.  12’s are now indicated at +128/143K vs. +115/130K a week ago.  13’s are indicated at +165/180K vs. +155/170K a week ago.  We continue to be impressed by the KWK/KWN’s willingness to trigger a second VSR-trigger as it settled at 100% of full financial carry again yesterday.  Trading the average beyond 80% during the averaging period will push storage charges to 11c/mo.  Odd that warehousemen would be selling the spread out to full carry and beyond if they were worried about production and securing enough bushels to fill warehouse space?  Yet, it isn’t just the front-month spread as the KWN/KWU and KWU/KWZ continue to trend weaker as well.  If storage charges go to 11c/mo, the KWN/KWU as of today would be trading at 70% of full financial carry (LIBOR+200bp).  Not quite enough to trigger a third VSR segment, but plenty close.  Minneapolis deliverable stocks fell 309,000 bushels on the week to 22.145mbu and compare with 24.962mbu a year ago.  No changes on the MGEX spot floor with 14’s at +140K and 15’s at +170K.

While the focus tomorrow will be chiefly on USDA’s acreage assumptions, and March 1 stocks of corn and beans to a lesser degree, we will be interested to see the updated statistics on the sunflower market.  US sunflower balance tables haven’t been updated since January, so the March 1 stocks data will be one of the biggest data points for the last 3-months.  The sunflower market has been doggy as of late with bids mainly treading water or weakening as the focus slowly shifts to new crop.  As it stands today, sunflower should lose ground to soybeans given the price disparity and the ease at which Northern Plains farmers have been able to raise soybeans as of late.  In addition, as many are finding out this year, sunflower bids can be scant depending on the end user, creating difficulties in moving and clearing space.  There is no issue finding a bid and getting rid of soybeans, regardless of the time of year.  Add in the greater amount of on-farm storage required for sunflower vs. soybeans and the deck is certainly stacked against SFS.  The US-SFS balance sheet shows ending stocks for this year at 315.1 million pounds which would be down from last year’s 588.4 million, but near the 5-yr average of 355.7 million pounds.  The 588.4 million pound ending stocks at the end of last year were the largest since 2005/06.  The global balance sheet is tighter with ending stocks at 2.118MMT, the tightest since 2001/02 with a stocks/use ratio of just 4.37%.

 

Bottom Line: Easier trade inside ranges, but seeing both sides today wouldn’t be a surprise as positions are squared.  Pre-report estimates have been in the market for a few days, and we will discuss them a little further tomorrow morning.  As is usually the case on this report, the stocks data could be the larger market mover than the acreage assumptions considering those can and will change before planters roll.

 

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.

3/26/2018 Morning Comments

Good Morning,

 

The USD is starting the last week of March off on a weak note, trading down to 89.1640 overnight, the lowest print since February 19th.  After consolidating for most of the last month, the USD appears headed for a test of its February lows which were the lowest trades since December 2014.  The USD is trading below the 50/100/200-day moving averages, being batted around by fears of trade wars and the prospect of two more interest rate increases by the Federal Reserve in 2018.  With benchmark interest rates expected to be twice as high as current levels by the end of 2020, it will be difficult for the USD to continue trading so weakly indefinitely.

With March almost complete, we can look back at the month to see where reporting stations have been tracking relative to average in South America.  The tables compiled by RJ ‘O Brien have 17 reporting stations, of which nine ran below 100% of normal with the other eight above.  The largest deficits occurred in Cordoba at just 4% of normal precip, while Santa Fe was also dry at 6-27% of normal at its two stations.  Best precip occurred in Buenos Aires.  Brazil also had several station running below normal for the month, despite what most would call a tropical rainfall pattern in place.  The forecast from this morning calls for below normal rains in Argentina, with average returns in Brazil the next 10-days.  Argentina is expected to see rains for the coming weekend which has been the trend over the last month: dry Mon-Thur with rain chances Fri-Sun.

 

Mixed trade overnight with firmer trade out of the gates across the board, but wheat markets are hitting lows during the 6:00 hour.  Last night, KC wheat traded as much as 3-4c higher, but now finds itself down 1-2c as we see both sides of the 50-day moving average.  The far western stretches of Kansas and the rest of the HRW belt will still be hard pressed for moisture in the coming week, although eastern portions will see several rounds of moisture.  While the western parts of Kansas are crucial for their quality and protein contribution, some of the highest yielding counties in Kansas are in the central and eastern parts of the state.  These countries have received decent moisture over the last 7-10 days, and should be adding bushels at this time.  Soybeans and meal have led gains last night and this morning as Brazilian basis levels rallied hard to close last week.  Trade war fears with China had traders nervous last week, but as most have pointed out, the global soybean trade is somewhat of a zero sum game.  If China wants more from Brazil, then that is less tons available to other importers.  The balance will have to be picked up by the US given the drought shortened crop in Argentina.

Multiple private estimates were released to close the week last week on Argentina, and those are worth pointing out now.  The Buenos Aires Grain Exchange cut their soybean crop estimate to 39.5MMT from 42.0MMT previously, while their corn crop estimate was cut from 34MMT to 32MMT.  Informa economics cut their estimate of Argentina’s soybean crop to 39MMT, while their corn crop estimate fell to 31.5MMT.  The USDA earlier this month put the soybean and corn crops at 47MMT and 36MMT, respectively.  If either of these firms are close on the final crop sizes, we have likely not seen the last of the rationing that will be required.  Looking at the Argentine soybean balance sheet first, this would drop total supplies to 77.620MMT from 85.620MMT by the USDA last.  If we leave demand estimates unchanged, ending stocks fall to 23.200MMT (Oct/Sep Marketing Year), the lowest since 2012/13.  Soybean crush has averaged 50% of total supplies over the last 5-years, and in order to maintain that level with these lower crop estimates would need to see crush fall by 3.5MMT.  Crush is much more difficult to ration than exports, but exports have averaged around 10% of total supplies over the last 5-years.  One or the other is going to have to give, and we would expect exports to be pushed to Brazil before the country’s core crush business is impacted.

On the corn balance sheet for Argentina, a cut to 32MMT would drop total supplies to 37.767MMT from the USDA’s current 41.767MMT.  Without touching demand, this would drop ending stocks to 1.267MMT, the lowest since 2011/12 with a stocks/use ratio of just 3.47%, the lowest since 2003/04 when production levels were less than half of what they are now.  Exports over the last five years have averaged 62.04%, and to hit that level this year with these private estimates, exports would need to be dropped to 2-3MMT.  The Argentine corn balance sheet seems much more workable than the soybean balance sheet with excess corn available in both Brazil and the United States.  It is important to note, however, that combined Argentine and Brazilian corn supplies would be down 8MMT from last year, while production would be down 19MMT if these private estimates are accurate.  Global corn production declining by 33.4MMT from 2016/17 while demand rises 27.989MMT is a fundamentally supportive situation which will require even more reliance on a good US crop this coming season.

Due to inclement weather in D.C. last week, weekly export sales were delayed until Friday morning.  All wheat sales totaled 9.7mbu vs. the 7.2mbu needed weekly to hit the USDA’s sales objective.  Total commitments of 825.1mbu are down 13% from a year ago, but account for 89.19% of the USDA’s full year objective which is in-line with the last several weeks.  Corn sales totaled 57.9mbu which is well above the 18.5mbu required weekly to hit the USDA objective, but was the lowest sales total in eight weeks.  Since the first of the year, sales have averaged 65.9mbu each week, which continues to run at the strongest seasonal pace on record.  Actual exports over the last four weeks have averaged 50.4mbu, which will need to be maintained for quite some time to give confidence in exporters actually hitting the USDA’s lofty target.  Soybean export sales totaled 27.9mbu which was above the 10.5mbu needed weekly to hit the USDA objective.  Total export sales now measure 1.838bbu, down 7% from a year ago vs. the USDA calling for a 5.0% decline.  We’ve currently sold 89.02% of the USDA’s fully year objective, but it will come down to exports just like corn.

Not a great deal of activity on Friday’s Commitments of Traders data, with changes about as expected.  Funds sold 47,252 contracts of corn during the week ended 3/20 which saw price fall 16.5c.  If anything, the net long of 219,476 contracts held by managed funds is probably a bit larger than most were expecting.  In soybeans, funds sold 7,071 contracts, which was also lighter than expected.  Funds are net long 139,974 contracts, which is still double the six week average.  Funds sold only 1,233 contracts of HRW during the reporting week, leaving them net long 24,143 contracts which is still  60% larger than the 6-week average.  This position looks susceptible to additional liquidation, considering prices fell 50c during the reporting week with funds only shedding 1200 some contracts.  In Chicago, funds sold 12,171 contracts to bump their net short back up to -60,371 contracts.

 

Bottom Line:  This week should be about position-squaring ahead of the March 29th stocks and acreage reports.  Highs and lows are very well defined in corn, soybeans and wheat, and aren’t likely to be challenged until fresh data sets are available.  As mentioned above, the Argentine crop woes have probably not been fully accounted for and appropriately rationed, if in fact they come in as low some of these privates are suggesting.  Farmer selling has understandably slowed, and it will likely take fresh highs or lows for the next tranche to be unloaded.

 

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.

 

3/22/2018 Morning Comments

Good Morning,

 

The Federal Reserve hiked their benchmark fed funds rate by 25bp yesterday to 1.50-1.75%, as expected.  Yet, it was the forecast for additional rate increases which caught markets a little off-guard.  The fed-dot forecast median rose 20bp for 2019 to 2.9% from 2.7% previously, and it rose 30bp for 2020 to 3.4% from 3.1%.  Essentially, this calls for two more rate hikes in 2018, three rate hikes in 2019 and two rate hikes in 2020, leaving the fed funds rate at 3.40% by the end of 2020.  Longer-term expectations can and will change, but markets are discounting a 50% chance for another rate hike at the May meeting, but a 100% chance of a hike by the June meeting.  Unless economic conditions change rapidly, we will be looking at appreciably higher interest rates this year and next.

Not a lot of change to forecasts this morning, but the Midwest is in for an active 7-day period.  The updated model this morning shows forecasted precip amounts between 0.50-1.25” for the Dakotas, 0.50-2.00” for MN with heavier totals in the south, while IA/MO/IL/S-IN/KY/AR/OK/E-TX could see between 2.00-5.00” over the next week.  Aside from the panhandle of OK, the rest of the state is looking at some serious rainfall amounts between 1.00-5.00”.  The core of the HRW belt has slight chances, but as can be the case, the eastern portion of the HRW area is gaining bushels for anything being lost in the west.  Extended maps keep things wet and cool, which doesn’t look as though it will lend itself to a quick start to corn planting in the central belt.

 

Firmer markets across the board this morning, led by KC wheat of all things, as dead cats do bounce if dropped from a high enough building.  On an active-continuation basis, KC wheat is finding support at the 61.8% retracement of the 4.10-5.48 rally near $4.63 as a ton of open interest has been liquidated, and the spike in volume on the 19th could have been peak “get me out” selling.  Similar retracements are present in Chicago wheat as well near $4.51, an area the market has mainly respected this week.  Minneapolis wheat made new lows for the move yesterday, hitting the lowest levels since pre-Northern Plains drought.  Corn retraced 50% of its entire rally, finding support around the $3.80 level basis the July contract.  The downtrend in volume for both corn and soybeans during the selloff is somewhat encouraging as it would appear the selloff has been orderly.  Volume likely declines right into the March 29th reports.  Due to the winter storm gripping the east coast, a temporary government shutdown was enacted, delaying export sales until tomorrow morning.  This of course a day before what could end up being a government shutdown related to budgetary concerns.  Fun times.

Data yesterday included weekly ethanol production which jumped 24,000bbls/day to 1.049 million bbls/day.  This was up 0.5% from the same week a year ago, continuing the trend of smaller y/y increases for much of the new year.  Ethanol production needs to run appreciably above year ago levels in order to hit the USDA’s 5.575bbu ethanol for corn forecast.  As of yesterday, that increase needs to average a 2.7% y/y increase each week through the end of August.  Ethanol stocks did draw by 523,000bbls to 23.758 million bbls as gasoline demand continues to run above year ago levels.  Ethanol futures have corrected somewhat off the multi-month highs set last week.  Still, spot ethanol futures remain above the 50/100/200-day moving averages, and the upturn in crude oil prices is also supportive.

Brazilian crop progress data was released yesterday as well, with soybean harvest catching up to average with each passing week.  Soybean harvest was estimated at 56% complete vs. 46% last week, 63% last year and 59% average.  The largest production state, Mato Grosso, which accounts for 28% of national soybean production was 92% harvested vs. 88% average.  Parana which accounts for 17% of national production was within 2pts of average.  Brazilian first crop corn harvest was estimated at 51% complete vs. 45% last week, 47% last year and 52% average.  Second crop corn planting was pegged at 93% complete vs. 83% last week, 95% last year and 94% average.  While the crop was probably planted about a week later than normal, nothing egregious provided the rainy season doesn’t come to an abrupt end.  Forecasts for Brazil remain favorable.

While yesterday was light on news, one noteworthy item was India planning to drop a plan to double its wheat import tax to 40%.  This is due in large part to production estimates beginning to slip due to a short monsoon season, and the likelihood India will have to once again import meaningful quantities of wheat.  As recently as last month, production estimates for the Indian wheat crop were as high as 100MMT while the USDA estimated the crop at 98.510MMT earlier this month.  Private analysts have slashed estimates and are now looking for something between 90-94MMT.  Considering India has the strongest major-economy GDP growth in the world, it is difficult to think demand can be rationed much at all.  Therefore, in a worst-case scenario, total wheat supplies in India with a 90MMT production estimate would come in at 101.30MMT vs. USDA at 109.81MMT.  Leaving demand estimates unchanged would give us ending stocks of 2.800MMT, the smallest since 2005/06 with a stocks/use ratio of 2.84%, also the lowest since 2005/06.  This is an untenable level, and would require imports of 10-11MMT to get us back to the 5-yr average stocks/use ratio of 14.68%.  A more likely scenario would be some level of imports while also drawing down ending stocks to a level seen two years ago at 9.800MMT.  This would require imports of around 8.000MMT vs. USDA’s current estimate of 1.500MMT and vs. 5.896MMT two years ago.  Depending on where Indian wheat production actually comes in, this change to global import grids could impact major exporter offerings, especially considering Australia will not be able to contribute to those imports in any meaningful fashion until very late 2018.

One other tidbit, the USDA attaches released several updates yesterday, but the attache to China caught the most attention.  Post saw 2018/19 soybean imports rising to 100MMT from 2017/18’s 97MMT, keeping the rising tide of soybean imports on an uptrend.  The pace of increases is slowing to be sure, with a 3MMT increase for next year vs. the 5-10MMT yearly increases witnessed from 2013/14-2015/16.  Nonetheless, the upward trend remaining intact places even greater importance on China staying diversified with their suppliers.  Traders will remain on edge until President Trump releases his list of tariffs on Chinese goods which should/could prompt retaliation by China.

 

Bottom Line: Markets need to correct/consolidate the selloff just the way they needed to correct/consolidate the rally.  Export sales would have been a focus this morning, but it will have to wait until tomorrow.  It is imperative we keep selling and shipping corn and soybeans to maintain the current USDA forecasts.  Forecasts are not lending themselves to a quick start in the Midwest, but you won’t see farmers panicking unless the current weather pattern maintains itself for another 2-3 weeks.  Fund positions should be much more balanced by now, limiting downside until the USDA reports.

 

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.

3/21/2018 Morning Comments

Good Morning,

 

While the USD has been mainly treading water in a tight band between 89-91, several pairs have been on the move.  The Brazilian Real is trading at the weakest level relative to the USD since February 9th, and is only a few pips away from the weakest level since late December.  3.35:1 against the USD has more or less capped the Brazilian Real going all the way back to late 2016 when the South American currency was still on its way down from record lows posted in the fall of 2015.  Also seeing weakness against the US Dollar have been the Aussie and Canadian Dollars, with the latter at the weakest level since June of 2017 while the Aussie Dollar is trading at the weakest levels since December.  The Loonie is continuing to trend weaker despite the fact crude oil has rallied back to one month highs, highlighting the weakening correlation between the two.

No major changes to weather in either America, although eastern portions of the HRW belt continue to see improving chances at  moisture.  Over the next 7-days, 80-85% of Oklahoma is expected to see 0.50-2.50” of rain, while the eastern half of Kansas is slated for 0.50-1.25” and eastern portions of TX could be on tap for 0.25-0.50”.  The western ¼ of KS could see 0.10-0.20”, with the same outlook for E-CO, although not much more than that through March 28th.  Normal to below normal temps in the 6-10 and 8-14 for the entire Midwest, while precip chances in the south still look good in the 6-10.  The 8-14 sees normal to below normal precip for most of the Midwest, which will probably be welcomed as the calendar flips to April and farmers get anxious to get in the fields.

 

Mixed markets this morning with a firmer oilseed complex, but a slightly weaker grain market.  Really devoid of news this AM as traders await pre-report estimates for the end of the month reports, and South American weather slowly takes on less and less importance.  Weather for Brazil’s second crop corn is still important, but most private forecasters continue to suggest little if any concern.  Otherwise, we are waiting on Black Sea and European wheat crops to fully emerge from dormancy so we can assess production prospects there.  The US-HRW crop is still likely to come in trend or below, but it would probably take a crop issue in one of the aforementioned areas to really get the market upset and make a run at new highs.  The firmer oilseed complex this morning seems tied to ideas we’ve overdone things to the downside on one Argentine rain.  Momentum indicators have corrected sharply, a fair amount of fund liquidation has occurred and 2018 acreage is still up in the air.  Open interest changes yesterday included corn down 17,842 contracts, soybeans down 7,529 contracts, meal down 6,363 contracts, SRW wheat down 5,899 contracts and HRW down 4,488 contracts.

Weekly deliverable stocks in Chicago fell 1.197mbu to 76.160mbu from last week, and would be down 1.190mbu from a year ago this time.  HRW stocks rose 242,000 bushels to 105.385mbu over the week, and are up 4.729mbu from a year ago.  Deliverable stocks will be very interesting to watch once the new crop harvest is brought in.  If drought conditions persist, and the crop is of average to above average protein levels, warehousemen should have a great opportunity to blend the last two years’ worth of low protein.  However, if the crop follows the trend of the last two to three years with declining protein due in part to varieties and also to southern plains elevators not paying a premium for protein, then warehousemen will likely fill storage to the brim and earn carrying charge revenue thanks to the new VSR program in KC.  Storage is likely to compete anyway with actually handling wheat, but another year of below average protein would likely seal the fate of US-HRW exports.  No change to the KC spot floor yesterday with 12’s indicated at +115/130K vs. +125/140K a week ago.  Combined wheat stocks in Minneapolis and Duluth were 22.454mbu, down 145,000 bushels on the week and compares with 24.418mbu a year ago.  The Minneapolis spot floor saw 14’s up 5c to +140/155K and 15’s down 10-15c at +160K.  These compare with 14’s at +145/160K and 15’s at +170K a week ago.

Domestic end users of corn saw margins mainly improve over the last week according to RJ ‘O Brien.  Gross ethanol margins were calculated at $0.71/gln vs. $0.67/gln last week and $0.62/gln a year ago.  The margin improvement was due almost exclusively to corn prices declining as ethanol and DDGs values were unchanged.  Broiler crush margins also improved sharply to 79.15c/lb vs. 73.71c/lb a week ago and 78.54c/lb a year ago.  The composite broiler price was up sharply w/w as meal and corn fell slightly.  Hog board crush improved to $88.67/hd vs. $87.60/hd last week and $89.82/hd a year ago.  Cattle board rush slipped to $127.81/hd vs. $136.54/hd last week and $150.35/hd a year ago.  C-IL cash soybean crush margins fell to $1.57/bu vs. $1.70/bu last week but are over double the $0.77/bu from a year ago.  Cash soybean prices are down over 50c/bu in C-IL over the last two weeks.

Probably no better indicator of southern plains weather and northern plains acreage uncertainty than the MW/KW spread.  The May spread between the two wheat contracts hit a low of +78.75c on March 5th, which was the lowest trade since May 23rd when the drought was just getting underway.  Since early March, however, the May spread has corrected to a high of +128.00c yesterday, or a 50% rally off the lows.  Even new crop contracts have corrected sharply with the Sept up to +107.75c from lows at +60.00c while the December has rallied 46c off the lows.  Doubts about the size of increase in HRS acres as well as improved moisture prospects for the southern plains second guessing the fair value of this spread.  A more traditional spread, under normal crop production years, is probably between +60-80c/bu.  However, until assurances are had about spring planting weather in the Northern Plains, it will be difficult for HRS to relinquish that premium.  KW/W is also still in correction mode with the K hitting +15.50c/bu overnight, the lowest level since mid-Feb.  If Kansas stays wet, there isn’t going to be much to support this spread north of par given firm SRW cash, and warehouses across KS still full of wheat nobody wants.  Spot KC wheat is back down to 117% of the weight-adjusted price of corn, so even with the correction, still not at levels which would encourage a good deal of wheat feeding in the southern plains.

 

Bottom Line: Back and fill in recent ranges as we await export sales tomorrow.  The export pace of corn and soybeans is probably the most hot-button indicator for old crop, with both having a lot to prove between now and the end of May.  Otherwise, analysts will be busy guessing acres on next week’s reports.  Also can’t forget about the stocks report which has a tendency to find more corn than the market was expecting.  Even with the improved demand as of late, a 100-200mbu find back of corn adds buffer against whatever the acre number turns out to be.

 

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.

3/20/2018 Morning Comments

Good Morning,

 

President Trump’s pick to lead the Federal Reserve will get his first chance at moving markets tomorrow at the conclusion of the 2-day FOMC meeting.  According to markets, betting odds say there is a 100% chance the Fed moves to raise interest rates by 25bp to put the fed funds rate at 1.50-1.75%.  The Fed last raised rates at the December meeting, leaving rates unchanged at the January meeting.  At the last meeting, the forecast for interest rate increases during 2018 was 72-75bp, or three 25bp rate hikes with another 50bp of rate hikes in 2019 and 37bp of rate hikes in 2020.  Should that forecast hold true, we would be looking at a Fed Funds rate of 3.00% by the end of 2020, which would push regular borrow rates to consumers and businesses up by quite a margin.  For the Ag community, this is an issue participants can’t afford to leave their head in the sand over.

Yesterday morning we only had radar returns and radar projections, but this morning actual weather station readings are available for the system which moved through Kansas.  As the map below shows, a large swath received 0.50-1.50” with nearly the entire state receiving some measureable precip.  The SW-10-15% did miss out where drought conditions have been the worst, but extended maps turned a good deal wetter yesterday afternoon as well.  Well above normal precip is seen in E-TX and E-OK, and the SW-1/3 of KS should also see better precip prospects.  The bullseye is still not on the western quarter of KS, but it is undeniable the pattern is wetter than it has been since October.  Temperatures remain stubbornly below normal in the northern plains during the 6-10 and 8-14, which could keep snow cover lingering.  The central and eastern corn belt remains wet this week.

 

Stabilizing trade overnight led by KC wheat which saw limit down trade late in yesterday’s session before closing off that level at 1:15pm.  To say yesterday’s session in KC was impressive would be an understatement as total volume across all contracts hit a new all-time record of 149,921 contracts, besting the previous record of 148,457 contracts on January 30th.  It’s not just the participation which has been impressive, but the price response has been equally impressive.  After hitting highs for the move around $5.4850, we’ve dropped 79c at the lows yesterday, or nearly 60% of the entire rally from the December lows.  The move yesterday was obviously fund liquidation as open interest fell 14,149 contracts, to the lowest level since October 4th.  Back in October, we were still planting winter wheat and it was still raining in Kansas.  Price also closed at $4.36 that day vs. $4.75 this morning.  Still, the fact we just traded below the 50-day moving average yesterday, and are still above the 100 and 200-day, speaks to the strength of the previous rally.  Price should find support around the previous consolidation area from February as we assess rainfall, acres and stocks at the end of the month and other Northern Hemisphere production prospects.  Other open interest changes of note included corn down 4,393 contracts, soybeans down 3,224 contracts, meal down 3,167 contracts and SRW wheat down 11,629 contracts.

While the focus was on the HRW plunge, weakness in soybeans couldn’t be ignored either.  While Argentina got needed rainfall, and prospects for more look good this coming weekend, the threat of a trade war with China was also on traders’ minds.  Yesterday during the session, several media outlets announced President Trump was preparing to impose a package of over $60 billion in annual trade tariffs against Chinese productions, following through on promises going back to his campaign.  The nervousness in Ag markets comes due to the fact soybeans are the largest US export to China in terms of dollar value.  The US sends $15 billion in soybean exports to China followed by civilian aircraft at $8.4 billion, cotton third at $3.4 billion and copper materials fourth at $3 billion.  Corn is ninth at $1.3 billion which is just ahead of coal at $1.2 billion.  During a year in which China has already taken a much larger share of Brazilian soybeans than US soybeans, the worry is they could solidify this stance in a trade war.  Most analysts would be quick to point out there is no way Brazil can supply China with all of their soybean needs given the country is expected to import 97MMT this year, and Brazil is slated to export around 70MMT.  Still, forcing the US to diversify customers even further as opposed to supply the most reliable customer in the world would be a shift.  The package of tariffs is expected to be announced Friday.

Export inspections during the session yesterday were supportive for corn, so-so for wheat and a bit weaker than expected for soybeans.  Wheat inspections totaled 16.3mbu vs. the 17.8mbu needed weekly, but were a bit better than expected.  Total inspections of 703.1mbu compare with 761.1mbu last year, a 7.6% deficit which is a bit better than the USDA forecast.  Corn inspections were 55.5mbu, which were a new marketing year high, and better than the 51.9mbu needed weekly to hit the USDA forecast.  Total inspections of 855.6mbu still lag year ago levels by 28.2%, but are making up ground each and every week.  Soybean inspections totaled 18.0mbu, which were a marketing year low, and below the 22.0mbu needed weekly to hit the USDA forecast.  Total inspections of 1.477bbu are down 12.2% from a year ago, and slowed from the level a week ago.  Corn and soybean shipments the next 60-days will likely tell us whether the USDA export forecasts can be met.  Corn has the best shot at achieving the lofty level, while soybeans have a fair amount of doubters.

The Kansas rains were the talker yesterday, but we also saw weekly crop conditions released by Kansas, Oklahoma and Texas.  It is clear the rains were not reflected in the condition ratings, but should be next week.  Kansas wheat ratings were 11% G/E which was down 1% from last week, and are down 27% from a year ago.  TX conditions were down 3% to 10% G/E and compare with 34% G/E a year ago.  OK conditions fell 2% to 5% G/E and are well below the 40% G/E from a year ago.  US-HRW FOB offers continue to creep back toward competitiveness, but have more work to do.  On a FOB basis, US-HRW out of the Gulf for April is within $1.00-2.00/MT from being equal to other origins, but freight still has us out the money by $7-11/MT.  US wheat prices aren’t the only ones correcting as the Platts Black Sea swaps saw the most actively traded contract (September) close at $198.50/MT yesterday, down from the high-water mark of $209.00/MT on March 1st.  Paris wheat futures are trading at €162.75/MT this morning, off from their highs of €168.75/MT on 3/1.  Eastern Australia Wheat futures closed at $268.00/MT last night, off from their highs at $286.50/MT on March 7th.  The correction in Paris/KC Wheat spreads has been impressive as well.  The spread hit a low of $4.04/MT on March 5th, which was the lowest level for that spread since early July.  It is trading at $26.24/MT this morning which is back above the 50-day moving average but just below the 100 and 200-day.

The selloff did produce some fear buying on the put side of the spectrum yesterday, especially in soybeans.  For May options, volatility for 930 puts closed at close to 17.0% which is the same volatility settlement for 1090 calls.  The skew still favors call buying, but the correction has been pronounced.  A correction was also noted in KC wheat, although the skew is still heavily weighted toward calls, which suggests the selloff is more orderly than one might think.  Also thought it interesting when looking at option open interest for new crop where bets were being placed.  In December corn options, there are now close to or slightly over 20,000 call options open for the 450, 480 and 500 strike levels.  On the put side, there are over 25,000 puts open at the 350 strike.  The put/call ratio of 0.71 suggests still more folks betting on higher prices than lower.  In soybeans, we found it interesting the put/call ratio drops to 0.54, suggesting nearly 2:1 calls open to puts.  There are 25,000-1100 calls open, over 20,000-1200 calls open and over 12,000-1300 calls open.  There are more 1300 calls open ($2.77 from the money) than there are 900 puts open ($1.23 from the money).  Always good to keep track of where bets are being placed, but more importantly, where no protection or bets exist.

 

Bottom Line: Probably should see some claw-back today after the bludgeoning yesterday, although doubtful we move too far ahead of the end of the month reports.  Pre-report estimates will be out later in the week to start the fruitless effort of trying to outguess the USDA.  This correction is a great reminder of why producers cannot take a break from marketing when prices are rising.  In the span of two weeks, we’ve wiped out two months’ worth or rally.  We haven’t even begun the US growing season yet, but we’ve already seen premium erased.  Each week day closer to April puts more focus on the US and less on South America.  We’ve likely seen peak South American focus, so trying to rally markets on a dry Argentina is probably not money well spent.

 

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.

 

3/19/2018 Morning Comments

 

Good Morning,

 

Lots of weather to discuss this morning.  It is raining and snowing in Kansas.  The map below shows the current radar as of 6:05am this morning, putting a large system over nearly the entire state.  Physical rainfall estimates are not available at this writing, but models yesterday afternoon were pointing toward 0.50-1.00” across 80-90% of the state.  Traders will be watching closely as there really isn’t a good follow up system in the 7-day, and extended maps for the 6-10 and 8-14 day show normal to below normal precip out to April 1st.  One rain will not fix the Kansas wheat crop, but it is the best rainfall this area has seen since last fall.  Otherwise, a wet week ahead for the entire Midwest with almost everywhere between W-ND and S-OH seeing 0.50-2.50” by next weekend.  Unfortunately, temps remain below normal the next 15-days, and the week 3 and 4 outlooks from Friday afternoon show the same.  The entire Midwest could use some heat as the Northern Plains gets close to spring wheat planting, and IA/IL will see corn planters rolling the first week of April.  Rainfall from the weekend event in Argentina was decent with 1-2” falling in a general area and 2-4” in more isolated spots.  This week will be dry before another cold front works through this weekend with fairly soaking rains seen.  Totals for this system as of this morning as seen at 0.50-1.50” on 85% coverage.  Brazil continues to look good.

 

Sharply lower trade overnight led by KC wheat which finds itself down over 3.0% this morning on the radar returns in Kansas.  For producers in the southern plains, it might have seemed like it was never going to rain again, but as is usually the case, spring is bringing better prospects for moisture.  In addition, the best rainfall for Argentina in several weeks is also adding to the pressure, dropping meal and beans by 1.2-1.5%.  It should obviously be acknowledged that one good rain in both places isn’t going to undo the damage already inflicted, but the build-up in length by the managed fund community over the last month was not sustainable in perpetuity.  Commercials have been selling these rallies aggressively, and it was only a matter of time before one side flinched.  We are still likely to have a below trend HRW crop, Argentina will still post corn and soybean production well off last year’s levels and US corn demand should remain strong well into the summer months.  However, with the buying the last couple weeks being so one-sided, the current correction could take us lower than most were expecting even last week.  The focus will remain on weather, but also the looming March 31st reports.

Friday’s COT data does a great job illustrating our current market structure, even if it doesn’t pick up the late week selling in wheat and beans.  In corn, funds bought another 66,047 contracts to put their net long at +266,728 contracts, the largest since June 14th, 2016.  This position accounts for 71.5% of the fund’s largest net long on record.  As mentioned above, more impressive has been the consistent selling by the commercial with the gross commercial short pushing their position to 1,130,990 contracts, the largest since February 22nd, 2011.  Over the last four weeks, the gross commercial short position in corn sold 257,463 contracts, or 1.28 billion bushels of corn.  Put another way, almost 10% of the crop was sold/hedged in the last month.  It’s just difficult to consume that amount of selling and keep pushing higher, which we obviously weren’t able to sustain.  Index funds were also buying right along with managed funds, upping their net long to +367,661 contracts, the largest since March 7th, 2017.  Funds took a break from buying in soybeans, selling a net 1877 contracts to keep their net long at +147,045 contracts.  Here again, commercials sold beans heavily, upping their gross commercial short to 558,048 contracts, the largest since June 21, 2016.  Funds were fairly static in meal last week, selling 4,051 contracts to keep tem net long +111,449 contracts, just off last week’s record.  Combined fund length in meal and corn at 378,177 contracts is the largest since February 8th, 2011.

One look at the HRW positioning and it isn’t difficult to see the catalyst for the liquidation.  As of 3/13, funds were net long 25,376 contracts of HRW, the largest net long since last August when we were coming off the spring wheat drought.  The net commercial position in HRW last week was -82,778 contracts, the largest net short since mid-August as well.  The net position in Chicago wheat was -48,200 contracts, just off the smallest net short since 8/1 with much of the funds buying ammunition already spent.  KC should also have plenty of room to fall relative to Chicago given the spread between fund positions last week dropped to -64,638 contracts, the smallest spread between the two categories since June 2016.  The front-month KW/W spread hit a high last week of +38.00c, but is already trading down to +23.25c this morning.  The 50-day moving average is at +18.50c while the 100-day is at +9.00c.  Also worth noting, the combined corn/soybean/CGO wheat index net long of +680,079 contracts is the largest since November 18th, 2011.

We were out last week when export sales were released, but we updated out tables this weekend with a few tidbits worth passing along.  Corn sales were obviously massive at 98.6mbu, and were actually the largest single week sales in 23-years.  The total was expected to be large, but this blew away even the largest estimates.  With the sale, total commitments pushed to 1.714bbu which now account for 77.07% of the USDA’s marketing year forecast.  This is exactly the same level of last year, and the second largest since 2014.  With the sales, commitments moving forward need to average 21.2mbu per week through the end of August to reach the USDA estimate.  This certainly seems doable as in 2015/16, net sales averaged 32.8mbu from the middle of March forward.  Shipments will be the key with those needing to average 59.6mbu each week until August, although in 2015/16 we averaged 61.1mbu.  Last week’s sales in soybeans were also solid at 46.6mbu which is well better than the level needed.  The sales took total commitments to 1.810bbu, 87.6% of the USDA’s current forecast.  To hit the USDA’s forecast, we need to sell 10.6mbu each week through August and we need to ship 25.6mbu.  In 2015/16, the last applicable drought year in South America we sold 14.6mbu each week from mid-March through August while we shipped 19.9mbu.  Elevations will definitely be at a premium this summer.  Wheat commitments of 815.2mbu are 88.1% of the USDA forecast, spot on with the last two years.

Only other thing we wanted to bring to attention is the snow cover across the Northern Plains as additional snow falling across the Dakotas this morning.  As of this morning, the upper-Midwest had 91.9% of its area covered by snow which was just a bit below last month’s 94.8%.  The average snow depth across this region as shown in the map below is 9.8”.  We decided to take a look back to see how this compares to the last several years given spring wheat planting is just around the corner.  A person has to go back to 2013 to find a similar amount of snowfall, which saw 85.1% of the region covered in snow fall, although the average snow depth was deeper at 12.2”.  This will be a number to keep an eye on over the next couple of weeks, especially with below normal temps forecast for the upper-Plains the next two weeks.  Ideas about spring wheat plantings have been dropping over the last several weeks, and a late spring might exacerbate those ideas.

 

Bottom Line: The rallies in wheat and soybeans probably went higher than most thought they would, and likewise the corrections will probably go deeper than most think they should.  Even with the correction of 60c off the highs in KC wheat, US FOB offers remain $10-15/MT overpriced compared with German and Russian wheat, and that is without their ocean freight advantage into some key destinations.  SRW is much more competitively priced.  Follow up moisture in the southern plains should tell us how deep the correction is, but it is undeniable traders are waking up to the fact we have rationed more demand than we have lost supply.  Pre-report estimates for acres and March 1 stocks will also be out this week which will help guide price action.

 

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.