10/30/2017 Morning Comments

Good Morning,

 

After taking a brief hiatus, global currencies have been on the move as of late with several having major impacts on our grain trade.  On Friday, the US Dollar rallied to the highest level since July 20th on growing speculation the Fed has enough data to indeed raise interest rates again this year.  The USD has now pulled back above its 50 and 100-day moving averages with the 200-day just overhead at 96.8794.  The Brazilian Real has also made moves, weakening to the lowest level since July 7th before reversing Friday.  Despite the softening soybean board, Brazilian farmers haven’t watched their cash prices drop as much due to the depreciation in the Real.  Likewise, the Aussie Dollar hit the lowest level since July 11th, and the Canadian Dollar the weakest since July 12th making wheat offerings from both a bit more palatable for global importers.

Snow flurries scattered across the Dakotas and Minnesota this morning with rain showing up along the KS/NE border as well as the IA/MO border.  The Northern Plains and WCB will be faced with another gusty day today as sustained winds blow 25-35mph and gust over 40mph.  There will be on-again/off-again snow and rain chances this week for the WCB and Northern Plains which will likely keep farmers dodging systems to keep harvesting.  Best shot looks like Thursday/Frida for the Dakotas and W-MN with 0.10-0.20” of moisture falling as rain/snow mix.  ECB will see their own moisture chances throughout the week with 0.50-1.20” currently being forecast for IN/OH/MI from Wed-Sat.  Extended maps keep below normal temps for the Dakotas, MN and MT while the rest of the Midwest should be normal/above.  Plains are mostly dry while the central/eastern corn belt are above normal on precip.

 

Mixed to better markets this morning led by soybeans which are attempting to bounce from their lower trend channel.  Several encouraging technical factors from Friday to support follow through buying in the soy complex including the aforementioned rising trend channel support, but also a spike in volume to the second highest since June of 2016 and the ability to hold the 200-day moving average twice last week.  Open interest did decline 43,929 contracts Friday, which is due in large part to November option expiration.  There is probably also a realization that harvest will be approaching 85% on tonight’s crop progress report and soybeans will a little more difficult to come by moving forward if they haven’t already been sold or aren’t sitting on some form of delayed pricing program at the elevator.  Corn and wheat saw large open interest increases Friday as futures closed lower, implying funds continued to add to their already large net short positions.  Corn open interest rose 9,215 contracts, SRW wheat rose 15,735 contracts and HRW wheat rose 3,950 contracts.

Lots of interesting data points in Friday’s COT data which continues to set the table for support in grains in my opinion.  In corn, large speculators added 10,659 contracts to their net short position which is now -213,806 contracts, the largest since 5/30/17.  Conversely, the commercial net position of -126,505 contracts is the smallest net short for the group since 5/30/17 as well.  The gross commercial long position jumped to 556,576 contracts, the largest since April 25th.  In soybeans, funds dumped 28,389 contracts from their net long to leave their position at just +2,065 contracts.  More importantly, the gross commercial long shot to 350,178 contracts, the largest since June 27th.  The gross commercial long position in soybeans as a percentage of total open interest is the largest for this time of year on record and is trending higher.

Several noteworthy points in wheat as well including the gross commercial long position in HRW rising to an all-time record by a wide margin.  That position of +99,394 contracts bested the previous record by 11.0%.  The large spec net short position in HRW of -16,221 contracts is the largest since April, and total open interest is now an all-time record as well.  Also interesting to note on the chart below that the gross commercial short position in HRW as a percentage of open interest is now the smallest since June among the lowest positions of the last several years.     Large spec net short in Chicago wheat of -101,110 contracts is the largest since June 13th, and gross commercial long of +129,722 contracts is the largest since April.  In Minneapolis wheat, the managed money net long of 2,627 contracts is the smallest since 4/25/17.  Rolling them all together, the aggregate fund short across the three wheat exchanges is the largest since June 6th, and the aggregate gross commercial long is the largest since April 19th, and the third largest on record.  Across the entire grain and oilseed complex, funds are net short -270,306 contracts, the largest since June 27th.

Other noteworthy news from last week was the story China was planning to cut the minimum purchase price for wheat in 2018 to help draw down excess inventories in state-owned warehouses.  This would be the first cut to the purchase price in over a decade, and while the minimum price would still be well above global prices, would certainly be a step in the right direction.  China plans to cut the minimum purchase price by 2.5% to 2,300 yuan/MT, or $346/MT ($9.41/bu).  JC Intelligence estimates there are 74MMT of wheat in state reserves, with the USDA forecasting ending stocks for 17/18 at 127.2MMT.  The current stocks/use ratio is expected to end the year at 108.95%, meaning China wouldn’t need to raise a crop next year to technically meet their wheat needs in 2018/19.  That obviously isn’t the case given China still imports high quality wheat from the US, Canada and Australia to blend with sub-par wheat in state reserves.  Nonetheless, it is the hope of many China will put in place reforms for the wheat market as they’ve done with corn as that market looks to come into relative balance over the next couple of years.

The market will be looking for corn harvest around 55% tonight vs. 38% last week and 75% average.  Soy harvest as noted above is expected around 85% vs. 70% last week and 85% average.  Winter wheat planting is expected to rise another 10% to 85% complete vs. 86% last year.  Bigger focus will be how much progress KS and OK made given more insurance plant dates to be hit today and tomorrow in KS.  Corn harvest will continue to string out, limiting harvest pressure and supporting basis further.  Likewise, soybean harvest is all but over, which will help shed light on how much coverage end users and exporters have gained over the last 30-45 days.

 

Bottom Line: Technical support helping soybeans bounce, while wheat and corn stabilize around recent lows.  COT data confirmed large short positions across the grains and larger oilseed complex with funds probably net short soybeans by now.  Difficult to want to press futures to the downside given the large short positions and harvest on the downhill slide.  Forecasts in Brazil taking on greater importance, so expect volatility to ramp up with each model change much like we saw in the US this summer.

 

Good Luck Today.

Tregg Cronin

Market Analyst

Tregg.Cronin@halocommodities.com

www.halocommodities.com

@5thWave_tcronin

 

 

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

 

10/26/2017 Morning Comments

 

Good Morning,

 

Most eyes in the upper Midwest will be on the winter weather and high winds moving into the Dakotas and MN later today.  2-3” of snow is being forecast along the SD/MN border with 30-40mph sustained winds and gusts up to 50mph which are expected to create blizzard-like conditions.  Difficult to believe Monday, today and tomorrow will qualify as “days suitable for fieldwork” in the USDA’s weekly crop progress report.  Once the precip moves out Sat/Sun, the Midwest will be devoid of moisture through mid-week next week and through the 6-10 day.  The 8-14 day turns above normal for nearly the entire Midwest which will be interesting considering the below normal temperature bias for nearly the whole corn belt.  Coldest temps will be over MT, ND and N-SD.  Same story with Brazil: major moisture deficits, but forecasts calling for better chances as the calendar flips to November.  Stay tuned.

 

Mixed markets this morning with most of our markets settling into 2c ranges overnight.  Mixed open interest changes yesterday on the reversal, making fund position a little difficult to read.  Corn open interest fell 2,534 contracts, soybeans were up 5,479 contracts, SRW was up 231 contracts and HRW was up 3,568 contracts.  That is the first open interest drop in corn in eight sessions.  Fortunately, the last several sessions have witnessed option volatility begin to climb which at least gives the faint hope we might move out of our ranges someday.  December corn vol settled yesterday at 14.37% vs. 12.86% last week, December SRW vol is essentially unchanged at 16.89% and December soybean vol is actually less than last week at 11.36% vs. 11.60%.  The soon to expire (tomorrow) November soy options settled last night at 13.01%.  Harvest continues to advance in the upper Midwest, but traders and merchants alike need to be prepared for a long, draw out affair as the temperatures drop and air drying days come to a close.

Data yesterday included weekly ethanol production which came in at 1.039 million bbls/day, up a surprising 20,000bbls/day from the week before.  This week’s production was up 4.8% from the same week a year ago, vs. the 1.5% weekly gain average needed to hit the USDA marketing year ethanol estimate.  The jump is a bit surprising considering ethanol margins have been slipping for over 2-weeks now amid stabilizing to slightly higher corn prices while ethanol prices have continued their slide.  Ethanol stocks declined sharply, down 446,000bbls to 21.034 million bbls, which is still well above year ago levels.  Weekly gasoline demand has been above the same week a year ago for the last three consecutive weeks and four out the last five.  RBOB continues to trade a healthy premium to ethanol with the 6-month strip sitting at 28.9c/gln premium RBOB this morning.  The most actively traded RBOB/Ethanol spread at 28.0c/gln is the largest premium for the spread since July 2015.

When markets are slow and quiet, it never hurts to begin looking ahead to 2018 given some of the attractive pricing still currently available.  As of this morning, CZ18 is trading at $3.96 ¼, SX18 is trading $9.97 ¾ and MWU18 settled last night at $6.37 ½.  This compares with $3.90 ¾, $10.03 ¾ and $5.51 ½, respectively on this same date a year ago for our current new crop contracts.  From this point forward a year ago, CZ17 was mainly range bound between $3.75 on the downside and $4.04 on the topside until briefly this past June and July when we poked above that $4.04 level for a couple of sessions.  With that sort of price currently available, and talking to producers in the country, it is my belief we will see more corn acres next year which begs the question of why we will go sharply above prices seen this past year if the supply/demand situation will be roughly the same.  We need to carry weather premium to be certain, but outside of a major drought in the US, or a major stumble in South America after the first of the year, one has to take a long look at CZ18 near $4.00.  In soybeans, we traded a much wider range with a low of $9.07 and a high of $10.44 ¾, both within a couple weeks of each other in June/July actually.  The midpoint of the summer range was $9.75, which is almost the exact midpoint of the current $9.23-10.28 range in SX18.  Current SX18 prices would be a full 20c higher, and here again, acres are expected to be steady to higher on soybeans given the favorable production attained and the relative ease with raising soybeans compared to wheat or corn.  Spring wheat is obviously a bit different as prices sat in a $5.32-5.77 range from October 2016 until June 2017 when we exploded on our Northern Plains drought.  Almost all believe HRS acres will be up next year, but the size of the increase has wavered considerably once MWU18 fell below $7.00 and especially below $6.50.  Nonetheless, even with an increase in acres, the HRS balance sheet does not explode and could conceivably tighten even with average yields and status quo demand.  Unlikely MWU18 will be able to relinquish much premium until next spring or risk not buying the necessary acres.  One could make the argument that current price spreads to corn and soybeans are not doing enough outside of areas which are predisposed to plant more wheat.  The point with this entire paragraph is to encourage producers to be thinking about new crop early and often, especially as price nears the psychologically important levels of $4.00 and $10.00, two price points we fail to remain above for any extended period of time.  First sales can be the most difficult, but history has shown us these are profitable levels long-term.

In the FWIW category, Tuesday was the USDA Data Users Meeting in Kansas City, a bi-annual gathering of stakeholders in USDA’s various data offerings.  The meetings are a chance for industry participants to gather and provide feedback to the USDA about current reports, reporting methods, ask questions about methodology, etc.  This year’s meeting drew a lot of criticism toward the weekly crop conditions report which seemed to miss the mark so badly relative to what the USDA was doing with national average corn and soybean yields.  A quick straw poll in the crowd found 10-20% of the respondents wanted to do away with crop conditions, 10-20% wanted to keep, and the rest were indifferent.  NASS said the weekly crop condition reports should not be expected to equate to monthly crop production estimates, raising the obvious question of what they are expected to correlate to?  NASS said crop conditions have 2500 weekly respondents, but monthly production reports are based on 25,000 respondents.  NASS also said crop conditions are one of their most popular reports, suggesting they aren’t going anywhere and aren’t likely to see any changes.  Market participants will simply have to take them for what they are: 2500 people spread out across the entire Midwest, giving a one a week-windshield hunch.  NASS also indicated they will be moving to an average farm price point instead of providing a monthly range of expected on-farm prices.  Doesn’t move the needle here.  Also, NASS has suggested they will begin to incorporate and collaborate more with RMA and FSA on acreage to provide a more accurate look, earlier in the marketing year.  Lastly, NASS said 2017 crops were a real anomaly, as they didn’t look that good “from the road” but were much better when measured.

KCBT spot floor trades were firmer again yesterday for 12.0-12.40%, up 8c from the previous day which were 2-7c higher than the day before that.  12.0% pro is now indicated at +165/180Z vs. +135/150Z a week ago.  TX-Gulf bids were also firmer by 10c for OND, now indicated at +198/208Z.  MGEX spot floor was also a tick firmer, up 5-25c for 13.5-14.0% protein.  14.0% pro indicated at +135/150Z vs. +115/160Z a week earlier.

Export sales out later this morning are expected to show 300-500TMT of wheat, 800-1,400TMT of corn, 1,200-1,800TMT of soybeans, 150-250TMT of meal and 10-30TMT of soy oil.

 

Bottom Line: Still doesn’t look like we are headed anywhere fast, and weather forecasts look to keep the last 25% of soybean harvest and the last 50%of corn harvest a slow affair.  This could limit any concentrated harvest pressure, depending on what the farmer does with the crop still in the field.  Dalian soybeans continue to trade lower, and until they bottom it is difficult to believe soybeans can trade markedly higher.  We are tied to China’s hip, plain and simple.

 

Good Luck Today.

Tregg Cronin

Market Analyst

Tregg.Cronin@halocommodities.com

www.halocommodities.com

@5thWave_tcronin

 

 

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

10/25/2017 Morning Comments

Good Morning,

 

While this space usually focuses on financials or energies, one market is having one of the best years of any commodity: Lumber.  One quick glance at a lumber price chart will show the commodity as trading to the highest level since 2004 this week, due in large part to new home construction in the United States and what had been low interest rates until the Fed started slowly raising this year.  In addition, the major hurricanes which have slammed Florida and the Gulf Coast destroyed many homes, requiring both new homes to be built and repairs to existing homes.  Lastly, the major wildfires in California, Montana and Washington are having the same effect as the hurricanes, but simply a different disaster.  Always worth paying attention to some of the more minor commodities for clues about the larger economy.

Wide open Midwest radar this morning with ideal harvest conditions across the corn belt until the wind picks up again tomorrow.  Much like Monday, tomorrow is expected to produce high sustained winds of 25-40mph with gusts over 50mph for much of the Dakotas, NE, and KS.  The difference tomorrow will be the cold front moving in which will bring with it highs in the 30’s and 40’s.  Along with it will be snow chances for the eastern Dakotas, and MN, which could create blizzard conditions.  Otherwise not much for precip in the Midwest, except for IN/OH later in the weekend.  Unfortunately, the cooler pattern doesn’t look like it’s going anywhere with below normal temps indicated by 6-10 and 8-14 day for almost the entire Midwest.  Precip turns back above normal for most of the Midwest during the 8-14 which could be an early preview of winter weather.  No change to South America.

 

Better markets this morning as we try to cling to the short-term uptrend in grains and rebound the soy complex.  Prices are being led by soybeans which traded down near the lower trend channel support at yesterday’s lows.  The short and intermediate term trends are still definitely up in soybeans, with rising open interest and still decent volume.  Yesterday saw rising open interest across the board as grains bounced and soy found support at the lows.  Corn open interest increased 11,761 contracts, soybeans were up 11,028 contracts, SRW wheat up 1,301 contracts and HRW wheat up 3,841 contracts.  Corn open interest continues to make new highs for the move, the highest since April of 2011.  SRW wheat is about 3,000 contracts from doing the same, a very interesting development considering yearly, and in some cases, multi-year lows in volatility which typically pushes participants away from markets.  Worth noting, oat futures have been on quite a tear since their Labor Day lows, trading back up to the highest level since August 10th.  Oat prices topped out very similar to MGEX wheat on July 5th at $3.05/bu, but have recovered much of that selloff, unlike HRS.

A lot of focus on the soybean market lately given the larger rally, but also for the recent selloff.  One thing many traders continue to focus on are the contract lows set daily by Dalian soybeans.  The Dalian set fresh contract lows for their most actively traded January contract again last night, third session in a row.  Front month soybeans are trading at the lowest level since October 26th, 2016 at around $14.74/bu.  The soybean stocks piling up at ports along with new crop soybeans being harvested in China are contributing to a short-term supply build.  Yet, it isn’t just China as cash values remain depressed here in the United States as farmers sell soybeans off the combine and go home with corn.  Both PNW and Gulf-ex premiums remain well below a year ago.  Part of that could be the rally in Ocean Freight with rates to China from the PNW, Gulf and Brazil all sky-rocketing YTD.  PNW-China was quoted last week at $25.36/MT which is up 53.9% YTD, Gulf-China was seen at $44.43/MT which is up 36.9% YTD and Santos, Brazil-China at $33.16/MT, up 63.6% YTD.  The overall Baltic Dry Index is up 64.6% YTD and 86.3% y/y.  Rising freight increases destination premiums and decreases origin premiums all along the supply chain.  Last, but certainly not least, the Brazilian Real hit the weakest level yesterday since July 10th.  There is plenty of supply left in Brazil, and the weaker their currency gets again the USD, the more inclined they are to price that supply, competing with new crop US bushels.  All of the aforementioned has definitely helped pull soybeans off their recent highs, and should be a reminder to US producers there is more at work than just the USDA reducing their yield slightly earlier this month.

Speaking of South America, their version of the weekly crop progress report was released yesterday regarding corn and soybean plantings.  Brazilian soybean planting was estimated at 19% complete vs. 11% last week, 26% last year and 20% average.  The largest production area, Mato Grosso, was 25% planted vs. 43% last year and 31% average.  Brazilian 1st crop corn planting was seen at 51% complete vs. 44% last week, 60% last year and 56% in 2015.  Argentine corn planting was seen at 26% vs. 21% last week, 27% last year and 25% average.  There were concerns early about excess rainfall in Argentina flooding out wheat acreage and possibly leading to a drop in planted area for row crops.  As we have seen with Argentina time and time again, excess water is never the problem too little water is.  They somehow always get things planted and harvested, so a rally on too much water is usually one to sell.

Also released yesterday was the RJ O’ Brien weekly domestic margin recap.  The rallies in livestock markets, along with bullish feed demand data coming from both Hogs and Pigs and COF reports, would certainly seem to be lending a supportive hand to the corn market.  Ethanol is a bit different story with gross ethanol margins estimated at $0.73/gln vs. $0.76/gln last week and $0.94/gln last year.  As corn prices have rallied 2-5c over the last couple weeks, ethanol has lost around 5c/gln.  Broiler crush margins were seen at 66.7c/lb vs. 66.94c/lb last week and 54.13/lb last year.  Broiler margins have been in a sharp down trend since late spring.  Hog crush margins have been on the up and up with spot margins seen at $69.28/hd vs. $66.23/hd last week and $33.85/hd last year.  Cattle margins have been the most impressive, rallying to $178.95/hd this week from $167.56/hd last week and $186.18/hd last year.  In fact, cattle feeding margins are estimated at the best values since this time a year ago.  C-IL cash crush margins for soybeans are estimated at $1.19/bu vs. $1.26/bu last week and $1.34/bu last year.

With the drop in temperature seen tomorrow for much of the upper-Midwest, and holding that way in the 6-10 and 8-14 day, think it worth paying attention to corn harvest progress in coming weeks.  Many states in the upper-Midwest are sitting near corn harvest progress levels not seen since either 2014 or 2009.  Those were exceptional years which features early winter and lack of dry-down, something which could manifest itself this year.  Like those years, corn moisture levels remain high, and with cash prices below $3.00/bu in many areas, farmers will be apt to let corn stand in the field and attempt to dry down rather than pay the propane man or the elevator to do it.  Unfortunately, this could also lead to yield loss as many of the plants in the drought-affected areas from earlier in the summer are sporting stalks with weak shanks.  Producers should definitely be making the calculation of what drying costs vs. how much yield it takes to pay for drying.  As a reminder, SD is 19% harvested, ND 17%, NE 26%, MN 14% and WI 15%.

 

Bottom Line: Better markets this morning as corn and wheat look as though they have found short term lows with export and domestic margins expanding.  Soybeans still have plenty of headwinds, but also appear to have found short-term technical buying.  While volatility has recovered slightly, it remains historically low and not indicative that prices are on the verge of running away in either direction.  Corn harvest looks as though it could drag out, limiting harvest pressure, despite the largest total supply in decades.

 

Good Luck Today.

 

Tregg Cronin

Market Analyst

Tregg.Cronin@halocommodities.com

www.halocommodities.com

@5thWave_tcronin

 

 

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

10/24/2017 Morning Comments

Good Morning,

 

China released September import/export data last evening with several interesting tidbits.  September iron ore imports totaled 102.8MMT, up 11% y/y with Jan-Sept imports of 816.7MMT up 7.1% y/y.  Sept crude oil imports totaled 37MMT, up 12% y/y while Jan-Sept imports totaled 318.1MMT, up 12% on the year.  September coal imports measured 17.4MMT, up 10% on the year with Jan-Sept coal imports of 145.5MMT, up 10% on the year.  In grains, wheat imports totaled 426,778MT, down 1.2% on the year with Jan-Sept imports totaling 3.6MMT, up 25%.  Sept corn imports were 249,944MT, down 24% y/y with Jan-Sept corn imports down the same amount.  September soybean imports measured 8.112MMT, up 12.74% on the year with YTD imports of 71.4MMT up 15.49% on the year.  Brazil accounted for 73% of all soybean imports last month while the US was second at 11.5% and Argentina third at 9.0%.

Scattered showers along the IL/WI border as well as rain in IN/MI/OH this morning, otherwise the Midwest is fairly quiet.  Outside of some rain the next couple days in IN/OH/MI, the rest of the Midwest has an excellent week of harvest weather ahead, at least in terms of precip.  The Great Plains will see no measureable precip for at least the next 7-days, and very likely the next 10-days.  The limiting factor in the west will be the temperature and the wind with well below normal temps moving in Thursday along with another round of extreme wind.  Sustained winds Thursday for much of the WCB looks to be 25-35mph with gusts over 50mph.  By the 8-14 day, the Northern Plains look to move back into above normal precip, which will not be welcome given the heat outlook.  Once the calendar flips to November, air drying has little to no effect on corn moisture for northern growing areas.  Spotty rains this week will give way to soaking rains next week for Northern Brazilian growing areas which have been the concern to date.

 

A little easier this morning after the surprisingly good start to the week yesterday which was led by the two winter wheat exchanges, and to a lesser extent corn.  There were several factors, both technical and fundamental, supporting wheat yesterday including favorable structure, firming domestic and export basis, a rejection of the 4.20/4.30 area for the third time since April and continued concern over the number of winter wheat acres which will actually be seeded.  We will dive into several below.  Open interest mostly rose on the rally yesterday despite net short fund positions, while soybeans dropped as there was undoubtedly some spread unwinding between wheat/beans and corn/beans.  Corn open interest was up 4,209 contracts, and is now the largest since April of 2011.  SRW open interest was up 5,451 contracts, which is the largest since April and the largest seasonally since 2010.  HRW open interest declined 182 contracts, but remains within spitting distance of record high while soybean open interest fell 4,666 contracts.

Starting first with the cash markets, KCBT spot floor basis firmed once again yesterday with 12.0-14.0% protein up 5-30c.  Worth noting the week-over-week changes with 12.0’s at +155/175Z vs. +125/140Z last week, 13.0’s at +215/230Z vs. +165/180Z and 14.0’s at +265/280Z vs. +215/230Z a week ago.  On the bid side, 12’s would be up 30c while 13’s and 14’s would be up 50c a bushel in the last week.  PNW premiums are also firmer with 11.5% pro indicated last night at +175Z vs. +145Z from 2-weeks ago.  Each time the futures market has retreated to the 4.20/4.30 area, we have pushed US prices into import grids for North Africa, and definitely competitive into SE-Asia with ASW, especially given their limited interest in offering wheat at the moment.  Export sales jumped to the largest in 9-weeks last week, with another strong week expected this week given futures prices.  Export projections are on the rise provided we don’t run away from the business.  Important thing to recognize is not that futures have some major upside price function at the moment, but more where futures don’t seem to have a lot of business trading below moving forward.

Data released yesterday included the weekly crop progress report which showed a major jump in soybean harvest which was expected given the open weather.  Soybean harvest was estimated at 70% complete vs. 64% expected, 49% last week and 73% average.  Many states saw progress advance 30-40% in one week.  Soybean crop conditions concluded for the season.  Corn harvest was estimated at 38% complete vs. 44% estimated, 28% last week and 59% average.  Soybeans were obviously the focus with harvest expected to advance notably this week.   However, many states are well behind average, and given the lower flat price structure this year, and farmer’s unwillingness to spend additional money on this crop, I don’t believe we will see a rapid advancement in places like the Dakotas, Minnesota and Wisconsin.  Maturity is delayed, the corn is still above desired levels to go directly into air bins, and harvest could very likely drag toward the end of November.  Plenty of years slower than this year to be sure with 2014 posting a 31% complete, 2009 posting 17% complete and 2008 showing only 29% complete on this date.  Conditions did improve 1pt to 66% G/E vs. 65% expected.

Winter wheat planting made good progress last week with national planting now 75% complete vs. 60% last week and 80% average.  The PNW and SRW states were all at or ahead of average last week, and remain so this week.  The focus has been and will continue to be HRW states, specifically KS and OK.  KS planting progress advanced to 67% complete vs. 42% last week, but remains the slowest progress for this week on record going back to 1982.  Average progress for this date in the state is 86% complete.  25% of the counties in KS have already passed their final plant date for insurance purposes on either October 15th or October 20th.  Another 40% of KS will hit that date on October 30th with the balance November 5-15th.  To be sure, this doesn’t mean farmers can’t plant past these dates in their respective counties, but simply they would lose 1% of coverage per day.  In OK, progress was pegged at 72% complete vs. 57% last week and 85% average.  This is the slowest progress since 2001 and second slowest since 1987.  Other notables were CO at 94% planted being the slowest since on record (by 1pt), and NE at 94% planted is the slowest on record (by 1pt).  National emergence was estimated at 52% vs. 37% last week and 57% average.

While sales have picked up, grain shipments remain in tough shape.  Wheat exports last week totaled 6.2mbu, a marketing year low, and well below the 17.5mbu needed weekly to hit the USDA forecast. Total wheat shipments measured 396.7mbu vs. 415.5mbu a year ago.  There were reports of soybean vessels passing wheat vessels in lineups as beans are definitely the priority at the moment.  Corn shipments were also disappointing but not all that unexpected at 24.2mbu vs. 35.9mbu needed.  Total shipments remain well below last year at 178.2mbu vs. 329.4mbu.  Soybean shipments were solid at 94.2mbu, easily the largest of the marketing year, and well above the 40.9mbu needed.  Total shipments slipped a little vs. a year again this week with this year at 360.5mbu vs. 391.4mbu last year.

A couple quick notes on the COT report related to wheat.  The gross commercial long position (end user) pushed to an all-time record high last week of 92,444 contracts, which coincided with the gross commercial short falling to -128,633 contracts, the smallest since June 6th.  Both of those corresponded with the managed fund short building to the largest (-11,842) since April 25th.  Similar trends were seen in SRW, but not to the same extremes.  GCL now the largest in 8-weeks, while the managed fund short is the largest in a month.  Structure to the wheat market certainly supportive.

 

Bottom Line: A little back and fill today after yesterday’s impressive rally.  Still lots of harvest left to complete, and it might be brought in much slower than the market thinks given changing weather patterns and the loss of drying days.  US wheat is pricing itself back into import grids, although not overwhelmingly.  Storage revenue is still competing and farmers have little interest in selling these flat price values.  The market will start gearing up for the November crop report which could show a further cut in soybean production, but cash and spreads do not indicate a shortage of beans.

 

Good Luck Today.

 

Tregg Cronin

Market Analyst

Tregg.Cronin@halocommodities.com

www.halocommodities.com

@5thWave_tcronin

 

 

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

 

10/20/2017 Morning Comments

Good Morning,

 

No measureable precip on the radar for the Midwest once again this morning.  Chances of rain do increase tomorrow evening for the Dakotas, but more seriously for SE-MN/IA/MO/E-KS/E-OK where precip totals range from 0.50” in MN to 2.25” in E-OK.  The progression works east to bring solid chances of rain for IN/OH/MI to the tune of 0.75-1.50” on Monday/Tuesday.  Otherwise the Plains and most of the WCB should be dry for the balance of the week.  The below normal precip trend continues in the 6-14 day, enveloping the entire country during that time period.  Temperatures will be much more divided, however, with the Plains and west remaining above normal while anything east of the MS-River slips below normal.

 

Mostly firmer markets this morning as we follow through on yesterday’s strength which felt like the first higher close in a month.  Open interest saw solid gains across the board which is a bit difficult to read considering open interest had been mainly rising as prices were under pressure the last several sessions.  Corn open interest jumped 18,597 contracts, soybeans were up 4,709 contracts, meal up 4,422, soy oil up 7,124, SRW wheat up 13,747 contracts and HRW wheat up 6,025 contracts.  Volume, however, was nothing to write home about which continues to point to a lack of day-to-day participation in our markets.  Volatility continues to drop vs. week ago values with December corn settling last night at 12.86% vs. 14.02% last week, SRW wheat at 16.77% vs. 17.07% and Dec soybean vol at 11.60% vs. 13.22% a week ago.  I need to ping some colleagues and find out if they’ve ever seen single digit grain vol.

Helping set the firmer tone yesterday were better than expected export sales for grains while soybeans were a bit disappointing.  Wheat sales totaled 22.6mbu vs. the 13.4mbu needed weekly to hit the USDA export forecast.  This was the largest wheat sales total in 9-weeks, and helped push total commitments for the year to 543.8mbu vs. 566.7mbu a year ago.  The USDA is calling for a 7.3% decline in y/y commitments.  Leading the charge was HRS sales which totaled 9.2mbu, nearly triple the amount needed on a weekly basis.  Total HRS sales for the year are now 153.2mbu vs. 171.8mbu a year ago and ahead of pace to meet the USDA objective.  The HRS sales included 120,000MT to China which brings them to 397,900MT of total commitments on the year.  Corn sales were also solid thanks to several daily sales to Mexico.  Sales totaled 49.4mbu vs. the 27.3mbu needed weekly.  Total commitments of 587.7mbu are still down 34% from a year ago.  Soybean sales were a bit light at 46.9mbu which is above the 28.5mbu needed weekly, but the seasonality of soybean sales and shipments is apparent to everyone.  Total commitments are now 965.9mbu vs. 1.162bbu a year ago.  We did have a 384,000MT sales announcement to China yesterday morning, so sales next week should pick back up.

Continuing on the soybean export theme, FOB basis levels paid to the farmer continue to get worse across the Northern Plains and WCB, fueling animosity on various social media platforms.  It is not uncommon to see -100X to -130X being paid in the country for anyone whose primary outlet is the PNW or quite a distance from major crush facilities.  Obviously the yields are a good deal better than was expected even a month ago, and many farmers are choosing to let soybeans fly off the combine given their relative value to corn and wheat.  The latter two are being socked away at home, but corn harvest has barely begun for most north of I-80.  What producers need to be aware of is the very real buyers’ market we are trying to push soybeans into.  Both PNW and Gulf soybean bids fell 3-5c Wednesday/Thursday, and it was not coincidence Dalian soybean contracts hit fresh contract lows pretty much throughout the curve.  China is importing a record amount of soybeans to be sure, but the stocks are piling up at ports and impacting their bid structure.  The overcapacity built to feed the PNW has finally caught up to the general market with not enough demand to take on the excess supply.

Analytics firm Informa Economics released their adjustments to 2017 acreage yesterday, but also released their first blush thoughts on 2018.  For corn, they see 2018 acreage at 90.460 million vs. 90.439 million in 2017.  Soybeans are pegged at 90.347 million vs. 90.207 million, while all wheat acreage is seen at 45.875 million vs. 46.012 million this past year.  We have several issues with their initial estimate, the first being nearly unchanged corn area.  Most anecdotal reports suggest an increase in corn acres due to the large amount of acres shifted to soybeans this year.  We would see another 1-2 million corn acres at current price differentials, even though the market arguably doesn’t “need” acres that high.  We are okay with the soybean estimate of essentially unchanged soybean acres as we believe there will be additional acres rotated out of other crops and toward soybeans.  Once again, with November ’18 futures within a pimple of $10.00, and the yields being achieved in the country, farmers will gladly sow more beans.  For wheat, we agree there will be another reduction in all wheat area, but think there will be a greater drop in HRW acres and more of an increase in HRS acres.  They see WW acres at 32.173 million vs. 32.696 million a year ago, but based on the planting pace in KS, this crop could be much larger.  Conversely, other spring wheat acreage is seen at 11.335 million vs. 11.009 million a year ago, but that increase should be much larger with spring wheat acres over 12.0 million.  Lots of time to change, obviously.

Quickly, HRW basis has been on fire this week with back-to-back jumps in high protein.  Yesterday, 12.0-14.0% protein jumped 10-20c which followed 10-45c increases the day previous.  12.0% protein is now indicated at +145/160Z vs. +140/155Z a week ago, 13.0% pro at +205/220Z vs. +165/185Z and 14.0% pro at +235/250Z vs. +215/230Z a week ago.  For reference sake, 12.0% pro a month ago was +130/145Z, 13.0% at +205/220Z and 14.0% at +255/270Z.  Cash should maintain a firm bias given the focus on shipping corn and soybeans at the moment, and especially considering we aren’t even to the winter months when movement slows seasonally.  Wheat could be especially difficult to buy from the producer without a flat price rally as, right or wrong, he remains a flat price seller.

 

 

Bottom Line:  Looks as though there is enough follow through buying to help us close firm into the weekend, but we should see a very active harvest weekend for many.  This could increase the amount of pre-hedging later today.  Option volatility continues to suggest we are going nowhere fast, and some would argue that based on current acreage ideas for 2018, prices are still too high.  Producers who are agitated with cash basis levels would do well to remember a few short years ago when soybeans were inverted for each week and month during harvest through the end of the year.  This year, we are being paid nearly full carry plus interest to store beans each week and month well into 2018.  That is a major shift in structure some are still grappling with.

 

Good Luck Today.

 

10/18/2017 Morning Comments

Good Morning,

 

Crude oil is starting off on a firm note again this morning, trying to close in positive territory for the forth session in a row.  Helping its cause is the API data from last evening showing US crude supplies dropped by 7.1 million bbls for the week ended October 13th.  Traders will now shift their focus to the EIA data out later this morning which is expected to show a 3.9 million bbls draw.  Also worth noting, the Financial Times released an article last evening discussing shale oil productivity, implying that key statistic may have begun leveling off.  Production per rig in the main shale oil formations peaked in late 2016 and has been mainly declining in 2017.  In addition, days spent to drill a well also mostly leveled off in 2016.  Lastly, the number of vertical wells had been declining since 2012 but has ow leveled off for most of 2015-2017 while horizontal wells climbed until 2015, plunged until mid-2016, rose into 2017 where it is now leveling off.  Point being, almost all new wells being drilled are horizontal, limiting the productivity leap we saw going from vertical to horizontal for much of this decade.

Another wide open harvest day for the Midwest.  The Midwest should be mainly rain free for another 3-4 days before rains begin moving in from the south Saturday/Sunday.  Rain chances are best for E-OK/E-TX/LA/AR/MO and maybe the southern tip of IA.  Otherwise the Plains and most of the ECB should remain fairly dry.  Those same rain showers will move east next week and should clip OH and most of the east coast with 0.50-1.00”.  Extended maps are beginning to show a cool off for the central/east corn belt while the west and north should retain above normal temps through the 8-14 day.  Rainfall remains especially limited, however, with the Plains showing well below normal precip during the 6-14 day outlook.  Forecasters still looking at a dry Northern Brazil this week but better chances next week as we close in on the end of the month.

 

Easier markets once again this morning as the path of least resistance clearly remains down in our space.  It feels as though left to their own devices, our markets would continue to drift lower until all selling has been exhausted.  Volatility has been dropping right along with price, keeping a lid on expectations for a dramatic price move in either direction the next 30-45 days.  December Chicago wheat ATM vol closed last night at 16.81% vs. 17.49% a week earlier.  In addition, SRW volatility was inverted Nov-Jan a week ago, but is now in a carry Nov-Sept ’18.  December corn ATM vol settled at 12.81% vs. 17.02% a week earlier, and vol for Nov-Jan all range from 12.56-12.81%.  December soybean vol closed at 11.83% vs. 14.31% a week earlier.  Said another way, there is a 68% chance soybeans remain between $9.57-10.32 the next 37 sessions, while SRW remains between $4.11-4.58 and corn between $3.42-3.57.  When one considers December corn could be in a 15c range for the rest of the year, it really begins to temper marketing expectations and decisions.  To be clear, this doesn’t mean there can’t be sharp moves, simply that the option market is not pricing one in anytime soon.

Deliverable stocks out yesterday with MGEX posting a 717,000 bushel draw between Duluth/Minneapolis.  Combined stocks now total 25.186mbu which compares with 29.647mbu a year ago.  2017/18 looks to have finally begun its seasonal decline which is starting at a lower level than each of the last two years.  Also worth noting on spring wheat, spot floor trades were a good deal firmer yesterday, albeit on 18 cars. 14.0-15.0% protein were all up 15-20c with 14.0% now indicated at +125/130Z vs. +110Z a week ago.  15.0% pro was indicated at +170Z vs. +150Z a week ago.  KC spot floor was unchanged with 12.0% pro at +125/140Z vs. +125/140Z a week ago.  Chicago deliverable supplies were down 124,000 w/w and 2.581mbu y/y to 96.896mbu.  KC stocks were up 55,000 bushels w/w and 9.502mbu y/y to 121.715mbu.

We talked briefly last week about the US sunflower situation after the USDA issued their first objective production estimate.  When combined with old crop stocks as of September 1st, this helps set the table for sunflower prices over the winter.  Old crop ending stocks of 647.9 million lbs are the second largest since 1983/84, but production in the field is estimated at the smallest since 1989/1990.  This creates the unique supply/demand situation of comfortable stocks up-front as is indicated by any bid sheet across the Midwest, but a potentially tight situation next summer.  Stocks/use is currently pegged at 10.22% which compares with 14.11% on the 5-yr average and 12.33% on the 10-yr average.  Outright ending stocks are estimated at 244.6 million pounds vs. the 5-yr average of 367.6 million.  The thing to be wary of is the severe drop in yield being projected by the USDA.  Current yield estimate is 1,338 lbs/ac vs. last year’s record 1,731 lbs/ac and the 5-yr average of 1,540 lbs/ac.  This yield would be the lowest since the other drought years of 2006/07 (1,214lbs) and 2002/03 (1,133lbs).  The anecdotal yield reports from the country are not nearly as bad as would be implied by the drought monitor or the USDA, however.  In addition, as we’ve seen with corn and soybeans, today’s genetics are a tick better than those employed in previous drought years.  As with anything, cash markets and spreads should tell the tale.

In the first paragraph, we discussed terribly low volatility and low expectations for a move to take us out of current ranges the rest of the year.  Spreads are acting a bit better, however, at least in part.  While the front month CZ/CH is still sitting just off contract lows, the CZ7/CZ8 has rebounded off the lows of -46.50c ten sessions ago to trade to -43.50c this morning.  The CH/CK hit -8.00c this morning, up from -9.00c at contract lows last week.  The CK/CN traded to -6.50c yesterday, off the contract lows of -8.00c last week as well.  None of these spread trades are implying a swift move in futures, but their strength does seem to suggest futures have gone low enough for now.

 

Bottom Line: Another session of drifting markets as producers hit the fields hard this week to get harvest progress caught up to averages.  Soybean piles are popping up all over the Northern Plains and WCB with very little to no corn harvest having even been attempted.  The worst of cash premiums might not be over yet as producers are encouraged to go home with as much supply as they possibly can.

 

Good Luck Today.

Tregg Cronin

Market Analyst

Tregg.Cronin@halocommodities.com

www.halocommodities.com

@5thWave_tcronin

 

 

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

10/17/2017 Morning Comments

 

Good Morning,

 

Completely blank Midwest radar this morning, and should remain that way through the weekend.  Next chance of rain comes Friday/Saturday with lingering chances into early next week for the central and ECB.  IA/IL/IN/OH could be looking at 0.25-0.50” totals, but the Delta and Mid-South will be looking at slightly better totals.  The Plains/WCB will be dry, allowing harvest progress to catch up where crops are mature.  More of the same in the 6-10 and 8-14 day which shows above normal temps and below normal precip for nearly the entire Midwest.  Any delays to harvest should be minimal by the time this forecast runs its course.  Still some concerns about dryness in Northern Brazil, although chances are looking better as we get closer to the end of October.  Southern Brazil remains well watered.

 

Easier markets this morning as we see follow through selling from yesterday.  Minimal changes to open interest during yesterday’s session with volume off notably from level achieved last week.  This should be a very big week for harvest progress, and futures/cash/spreads could feel the weight of the remaining 50-75% of harvest left to bring in.  In some areas, storage will be at a premium with limited options for farmers while others such as the Northern Plains should have ample storage due to light small grain harvests.  Anecdotal yield reports on corn continue to come in better than expected while soybean have turned a bit more two-sided as the later planted and even replanted crops are starting to get brought in.  So far, no reason to doubt USDA’s latest yield projections.  Focus is definitely shifting to demand, and the export sales and shipments are certainly becoming a bit of a concern.

Yesterday saw weekly export inspections which were awful for corn and wheat and okay for soybeans.  Wheat shipments totaled 11.9mbu vs. the 17.1mbu needed weekly to hit the USDA forecast.  Total shipments continue to slip behind a year ago with inspections at 390.4mbu vs. 405.7mbu in 16/17.  Corn shipments were dreadful as we await new crop bushels to get into place.  Shipments totaled 12.7mbu which is well below the 35.7mbu needed weekly to hit the USDA forecast.  Total shipments are now 153.7mbu which is a full 50.0% below year ago levels.  The USDA is only calling for a 19% decline in exports y/y, but the competition so far from South America and the Black Sea is implying the drop could be even larger.  Soybean shipments totaled 65.0mbu which was above the 42.0mbu needed weekly.  However, shipments for 17/18 just slipped below year ago levels with 17/18 inspections at 265.8mbu vs. 287.7mbu in 16/17.  This is the time of year soybean shipments need to make hay with huge shipments posted each of the next several weeks a year ago.

We also received the weekly crop progress report yesterday which continues to see a rise in corn conditions, counter-seasonally, which would suggest better yields than expected.  Corn conditions nationally were 65% G/E vs. 64% expected and 74% last year.  Largest increases were seen in SD (+5), MI (+7), CO (+22?) KS (+4) and PA (+6).  Most WCB states improved 1pt.  Corn harvest was estimated at 28% complete vs. 22% last week and 47% average.  Still very large deficits with average for most states across the Midwest as delayed maturity is pushing farmers to let crops dry in the field.  Given the forecast, this seems like a perfect opportunity to let Mother Nature do her work.  Soybean conditions were unchanged at 61% G/E vs. 61% expected and 74% last year.  Soybean harvest remains delayed as well with 49% harvested nationally vs. 49% expected, 36% last week and 60% average.  SD, IA, NE and MN are all 30-40pts behind average, but again should be of limited concern after the forecast we have.

Winter wheat planting progress remains delayed, especially in HRW areas, prompting more to cut acreage expectations.  Nationally, we are 60% seeded vs. 48% last week and 71% average.  At 60% planted for this week in October, progress is the slowest since 1999.  For the nation’s largest wheat producer KS, progress at 42% planted is the slowest on record going back to at least 1982.  This year is 10 points behind the next slowest year in 1999.  KS is not alone with NE at 86% also being the slowest on record, and CO at 84% planted would be the lowest progress for this point on record.  OK at 57% planted is the slowest since 2001.  SRW states are generally ahead of schedule which could imply a few more acres there.  The obvious concern with delayed planting would be delayed emergence as 2017 emergence at 25% is the lowest for this week since 2001.  As mentioned multiple times above, the weather does look ideal for planting/harvesting, but some states have already hit their final plant dates for insurance purposes.  In KS, six counties have already hit final plant dates in the NW part of the state.  Another 20 will hit final plant dates on October 20th, while another large tranche hits on October 31st.  Only 23 of Kansas’s 105 counties can plant until November 15th.  In addition, the later planting gets, the less emergence one can count on before dormancy which can limit winter hardiness.  The acreage implications would be the chief concern at this juncture.

A few Black Sea notes this morning included the Russian Ministry of Agriculture raising their estimate of this year’s wheat crop to 83.0MMT from 81.7MMT previously and the USDA’s latest at 82.0MMT.  If that sort of crop is confirmed, against USDA demand, ending stocks would rise to a further new record with stocks/use at 24.95% being the highest since 2010/11.  It is really beginning to feel like until Russia’s crop is threatened, this wheat market will struggle to find legs.  Winter planting progress is also off to a very swift start with an increase in acres expected.  USDA Attache to Ukraine also released his latest estimates with the 17/18 wheat crop slightly larger at 26.893MMT vs. USDA at 26.5MMT.  Exports are slightly lower at 16.0MT vs. 16.5MMT from USDA.  Corn production is slightly lower at 27.2MMT vs. 27.5MMT from USDA.  Exports are seen at 19.6MMT vs. USDA at 22.0MMT which is a notable difference.

Quickly, NOPA crush data for the month of September was also released yesterday.  Crush demand was estimated at 136.419mbu vs. estimates for 138.1mbu, 142.4mbu last month and 130.2mbu last year.  Soybean oil stocks were 1.302 billion pounds vs. estimates for 1.322 billion pounds and 1.376 billion pounds a year ago.  While too early to glean anything off of oil yield given it is probably mostly old crop, the oil yield was estimated at 11.78lbs/bu vs. 11.72lb/bu last month and 11.76lbs/bu last year.

 

Bottom Line: Strong seasonal still in place for soybeans, but a lot of corn and soybeans left to come in and demand for corn in Q1 doesn’t look like it is going to be enough to sop up the excess.  The focus for wheat in coming weeks/months will be cash markets and gauging acres which are being planted right now.  Between price and progress, doesn’t look good for a big jump in winter wheat.

 

Good Luck Today.

Tregg Cronin

Market Analyst

Tregg.Cronin@halocommodities.com

www.halocommodities.com

@5thWave_tcronin

 

 

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

10/13/2017 Morning Comments

Good Morning,

 

Some light, scattered showers in SD this morning, but also some rain/snow mix in ND.  Otherwise, the Midwest radar is quiet.  The western and central corn belt as well as the Great Lakes will be active the next 48-hours, bringing moderate to heavy totals to MO/IA/IL/S-WI/MI in addition to NE-SD/C-MN.  Totals as of this morning are putting 0.50-2.50” in the aforementioned and 0.25-0.65” in the latter.  After that, the region takes on a much drier tone with no measureable precip seen through late next week.  Above normal temps will remain in place through the 15-day time frame, with dry conditions present in the 6-10 day.  The 8-14 day precip outlook is calling for above normal moisture east of the MO-River, but below normal precip for the Plains.  This will continue to allow swift harvest progress in the WCB, but delay things in the ECB.

 

Mostly firmer markets this morning led by soybeans on follow through strength from yesterday as traders continue to digest the most recent USDA data sets.  As always, traders have immediately begun trying to guess what the changes made yesterday will mean for changes on future USDA reports.  It would seem most in the trade now believe the soybean crop is done getting larger and could/should see further cuts on subsequent reports.  Regardless, it is still difficult to assign the “bullish” moniker to yesterday’s report, or even supportive for that matter.  Supply and demand balance sheets still show ample soybean supplies in both hemispheres, and cash and spreads remain at historic lows.  One thing is for certain, the corn and wheat reports were not supportive and bordered on bearish.  Without soybeans closing up 20c+, I believe we could have seen some rather ugly grain markets yesterday even with funds already toting sizable net short positions.  The supply side of the equation is pretty much set, shifting our focus to demand which does not typically produce violent, volatile moves this late in the season.  Our markets are defining ranges for trade to take place inside for the next several months.

First, a note on volume and open interest as yesterday caused quite a stir in both.  Wheat open interest climbed despite the softer price reaction with SRW futures up 6,342 contracts and HRW up 4,021 contracts.  Volume on both was nothing to write home about.  Corn open interest surged 24,505 contracts to 1,486,916 contracts to the highest since February.  Meanwhile, soybean open interest jumped by 10,431 contracts to 734,666 contracts, the largest since April.  Volume jumped to 535,216 contracts, the largest since May of 2016.  Piggy-backing off this to spreads, thought it was interesting corn spreads hit fresh contract lows within the first few minutes of the data being released yesterday, but recovered with futures near the close.  Would still appear we have cash and spreads moving in one direction on row crops while futures move in another.  Producers should market with caution.

The focus of the report yesterday were the yield changes to corn and soybeans which saw corn raised 1.9bpa to 171.8bpa vs. the average trade estimate of 170.0bpa and nearly eclipsed the highest trade estimate of 172.0bpa.  Total production therefore rose 96mbu from last month, but would be down 868mbu from a year ago.  In addition to supply changes, USDA also made several old and new crop demand adjustments.  Old crop feed/residual was increased 39mbu to account for the smaller Sept 1 stocks, while FSI use was up 20mbu and ethanol up 3mbu.  Exports were down 2mbu, resulting in a combined increase of demand of 57mbu and ending stocks dropping by 55mbu.  For 17/18, USDA cut planted area by 500,000 acres and harvested area by 400,000 acres, mitigating the 1.9bpa increase in yield.  Feed/residual was increased 25mbu and FSI was up 10mbu.  Net change in ending stocks was just a 5mbu increase from last month, much less than it could have been without some creative math.  The world corn balance sheet saw ending stocks drop 1.5MMT from last month to 201.0MMT and would compare with 227MMT of ending stocks in 16/17.

The national soybean yield was cut 0.4bpa from last month vs. the average trade estimate of 50.0bpa and the average last year of 52.0bpa.  This, combined with a 700,000 acre increase to planted area, actually completely offset each other to leave the crop unchanged from last month.  How that happens is anyone’s guess.  Old crop demand changes included crush and exports being upped slightly while residual was increased 22mbu to drop ending stocks 44mbu.  No new crop demand changes were made which left ending stocks at 430mbu from 475mbu last month and well less than the 500mbu+ type numbers some feared.  Now, for the future report implications.  This is the first time USDA has cut yield from September to October in 5-years, and they’ve also underestimated final demand on the October report in eight of the last nine years.  It was also interesting to note USDA is still using record large pod weights in their yield assumption, but are using the lowest pod counts in four years.  This would confirm the reports from Crop Tours in August that the pods simply weren’t there.  Nonetheless, this is the third time USDA has cut soy yields from Sept to Oct in the last 15-years.  Yields in the other two years both declined in November, but were split on direction for the “final” in January.  Worth noting, the percent of objective yield plots harvested for the October report was 49%, the lowest in three years.  This could put more emphasis on later planted and replanted soybeans.  World ending stocks for soybeans fell to 96.1MMT from 97.5MMT projected last month and compare with 94.9MMT for 16/17.

Wheat balance sheet changes, for both the US and World, were pretty much uniformly bearish.  In the US, old crop ending stocks were adjusted down 3mbu to 1.184bbu.  For 17/18, feed/residual was cut 30mbu to 120mbu which carried through to ending stocks rising by 27mbu to 960mbu.  Ending stocks at that level would still be the third largest in nine years and fourth largest since 2000 despite the lowest planted acres since 1909.  Within the classes, most of the damage came at the hands of hard wheat with HRW ending stocks rising from 463mbu to 487mbu while HRS ending stocks rose to 162mbu from 146mbu thanks to the larger than expected production estimate on September 29th.  SRW ending stocks fell 8mbu, white fell 7mbu and durum rose 3mbu.  Global changes were mostly bearish as well with cuts in Australia offset by increases in Russia, Canada and Europe.  Larger production and smaller imports in India also helped the global balance sheet jump over last month.  World ending stocks of wheat are projected at 268.1MMT vs. 263.1MMT last month and 256.6MMT last year.  The Indian supply situation is much like the Chinese one in that larger production there simply means a little bit smaller imports, but India will not be doing an about-face and exporting wheat anytime soon.  Their stocks are pretty much unavailable to the world like China, pushing analysts to look at the global S&D without those two included.

Also released yesterday was the first objective look at the US sunflower crop which the USDA pegged at 1.810 billion pounds.  This would be down from last year’s 2.651 billion pounds, and the smallest production since 1989.  Analysts were pegging the crop at roughly 1.87 billion pounds going into yesterday, so the production number could probably be construed as supportive.  However, two factors would seem to prevent runaway bullishness.  One, yield assumptions being used by the USDA appear light in the Dakotas compared with anecdotal yield reports from the field.  Two, ending stocks of sunflowers on September 1st totaled 648.8 million pounds, the largest since 2006 and the second largest on record.  When we combine old crop ending stocks and USDA’s production estimate, we see total supply of 2.459 billion pounds.  This would be down from last year’s 3.063 billion pounds, and down slightly from the 5-yr average of 2.786 billion pounds, but not the runaway bullish situation implied by the smallest production in nearly 30-years.

One quick note, worth mentioning the sharp appreciation in HRW and SRW bids the last day or two.  Gulf bids for both were firmer on the selloff yesterday, and the KCBT spot floor was up 4-15c for Ord’s-12.80%.  12.0% protein HRW on the spot floor was indicated at +140/155Z vs. +110/125Z a week ago.  Wheat was already difficult to buy before the report, and the selloff in futures back down to August lows has pushed US-HRW back into the grids against French and Black Sea wheat into some destinations.  Would caution getting bearish futures prices “down here” after a bearish report while cash and spreads remain relatively firm.

 

Bottom Line:  The soybean report might be enough to keep things firm into the weekend, but would remind all of the amount of harvest yet to be brought in for both corn and soybeans across the United States.  Cash and spreads remain weak on both row crops, which will make a continuation of a futures rally difficult when the funds get their belly full.  The corn balance sheet and yield is going on the third year of practically the same supply situation.  With that in mind, it remains difficult to see how we will not resort to range bound trade for the bulk of the marketing year inside the broader 3.15-3.90 range, but more specifically inside the 3.35-3.75 range.  Supply is set with the focus shifting to demand.  Corn demand is nothing sensational and is definitely in prove it mode.

 

Good Luck Today.

 

Tregg Cronin

Market Analyst

Tregg.Cronin@halocommodities.com

www.halocommodities.com

@5thWave_tcronin

 

 

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

 

10/11/2017 Morning Comments

Good Morning,

 

Fairly clear Midwest radar this morning which should help harvest progress resume in the WCB after a rather wet two weeks.  A large area of E-NE/SE-SD/E-IA/S-MN has received 3-8” of rain over the last 2-weeks, saturating fields and disrupting an otherwise busy first part of soybean harvest.  Things will remain quiet the next 2-3 days until Saturday/Sunday when showers flare up again in IA/IL/WI with another 0.75-2.00” expected by Monday/Tuesday.  The forecast calls for warm, dry weather in the 6-10 followed by above normal precip in the 8-14 for IA/MN/IL/MO/WI.  The Plains should continue to remain below normal on precip.  Temperatures maintain their above normal bias throughout the period.  Much of the Dakotas and N-MN received a killing freeze Tuesday morning which should aid in crop dry down for the immature corn and sunflowers.

 

Easier markets this morning, adding to losses from yesterday’s session and continuing the overall weaker theme heading into tomorrow’s WASDE report.  There has been a real lack of fresh news the last several sessions, forcing traders to focus on yield reports which seem to be confirming the “better than expected” narrative as well as the USDA’s rising crop production ideas.  History is certainly on the side of the USDA raising production ideas.  The average trade estimate for tomorrow’s numbers put the average corn yield at 169.8bpa vs. 169.9bpa in September, while the trade sees soybeans at 49.9bpa, unchanged from last month.  According to RJ O’ Brien, there have been 13 years since 1990 in which the USDA raised the national average corn yield in September from their August estimate, and in eight of those years, the October yield was also raised.  On soybeans, there have been eight years when the USDA raised yields in September from August, and six of those years saw further yield increases in October.  Possibly even more impressive for bulls looking for large yield deviations still to come, over the last three years, the final corn yield in January has varied from the September estimate by only 0.9bpa with 2016 posting only a 0.2bpa change.  On Soybeans, the January yield has been higher than September each of the last seven years by an average of 1.8bpa with 2016 posting a 1.4bpa increase.  Bottom line is yields haven’t changed much on corn from September on lately, and if they change on soybeans they have been increases to production.  Widespread increases to open interest yesterday on the lower board with SRW wheat up 5,289 contracts, corn up 6,304 contracts, HRW wheat up 499 contracts and soybeans up 7,860 contracts.  Soybean open interest is now the largest since June 22nd.

We finally received this week’s Crop Progress report yesterday afternoon, delayed due to the Columbus Day holiday.  Corn conditions improved 1pt to 64% G/E vs. expectations of 62% and 73% last year.  WCB conditions mainly declined while ECB conditions improved sharply with MI up 9pts.  Corn harvest was estimated at 22% complete vs. 27% expected and 37% average.  WCB states are where the largest gaps with average exist with SD down 23pts from average, ND down 15pts, MN down 22pts, IA down 20pts and NE down 16pts.  Soybean conditions also improved 1pt to 61% vs. estimates for unchanged and compare with 74% G/E last year.  Soybean harvest was estimated at 36% complete vs. estimates for 38% complete and 43% average.  Again, largest difference from average is the WCB with SD 37pts behind average, ND down 20pts, MN down 41pts, IA down 19pts and NE down 23pts.  Winter wheat planting progress continues to lag behind average as well with 48% of expected area seeded vs. 58% average.  The 48% seeded for this week is the slowest national progress since 1999 and the second slowest on record back to 1982.  Individual state progress is also interesting with KS just 27% seeded vs. 58% average, and the slowest progress on record.  For a little perspective, the next slowest planting progress was 42% planted on this date in 1999.  NE is 77% planted vs. 88% average, and has the slowest progress on record.  OK is 42% planted vs. 57% average with the slowest pace since 2001.  CO is 70% seeded vs. 86% average, and the slowest pace on record.  Most SRW states are at or ahead of average, leading some to believe we will see a decline in HRW acres, but stable to slightly higher SRW acres.  Lots of progress left to complete in the ECB as well.

Other data yesterday included export inspections which were below needed levels for everything but soybeans.  Wheat inspections totaled 12.9bpa, down from 26.4mbu last week and below the 17.0mbu needed weekly.  Total shipments measure 378.4mbu vs. 388.6mbu at this point last year.  Corn shipments totaled 20.6mbu vs. the 35.2mbu needed weekly, and were also the lowest of the young marketing year-to-date.  Total shipments are now 138.7mbu which are 49.2% below a year ago, running the risk of the USDA downgrading the marketing year export forecast tomorrow.  Soybean shipments totaled 54.6mbu which was a marketing year high and above the 42.5mbu needed weekly.  However, inspections over the next three weeks a year ago averaged 102mbu, a tall task for loadings this year to keep pace with last year’s record breaking soy export season.  The USDA is of course calling for another 3.6% increase this year above and beyond last year with shipments currently 3.7% ahead of a year ago.

Weekly deliverable stocks showed a build in spring wheat with combined Minneapolis/Duluth supplies up 776,000 bushels to 25.903mbu which compares with 30.420mbu a year ago.  In Chicago, deliverable stocks declined 69,000 bushels w/w, and are now 2.762mbu below a year ago.  Kansas deliverable supplies declined 547,000 bushels w/w, but remain 8.969mbu above year ago levels.

Australia has certainly been in the headlines for their record breaking drought, but rains last week in some of the driest spots have helped futures relax some.  Futures on the ASX exchange, closed yesterday at A$267.80/MT, the lowest print since mid-September and off recent highs at the beginning of the month near A$300.00/MT.  ASX futures rallied as high as A$315.00/MT in mid-July.  The USDA should cut Australian wheat production from 22.5MMT to around 20.0MMT tomorrow, but as important will be how they deal with exports.  Currently, USDA has Australia exporting 18.5MMT, although few in the trade believe exports will be over 14MMT with the domestic market fighting to keep all excess bushels in-country.  Offsetting the Australian cut should be a 1-2MMT increase in Canada, and another 0.5MMT in Russia.  Worth noting, with the futures setback, US-HRW prices are moving back into the mix for major international tenders.  FOB offers last night put 12.50% protein HRW at $193.00/MT vs. Russian at $194.00/MT, German at $199/MT and Baltic at $194.00/MT.  11.0% protein French wheat was seen at $192.00/MT vs. the equivalent US-HRW at $186.00/MT.  Freight still hurting the US into MENA.

 

Bottom Line:  Open interest rises each and every day as harvest bushels get sold, volatility drops and funds become emboldened in their short positions.  The market is anxious to get tomorrow’s report out of the way, but once it does, it will essentially be the last word on corn and soybean production until January.  As the stats above point out, yields haven’t moved much from the September estimates the last several years, so don’t hinge your marketing plan on big cuts from the USDA 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.

10/10/2017 Morning Comments

Good Morning,

 

Rain in IA/NE as well as IL/IN this morning, adding to totals received in those same areas over the last 12-hours.  Rains will finish up later today in E-IA/IL/N-IN with totals expected to be around 0.50-2.15” in N-IL.  Then things dry out until the weekend when rains once again move back into IA/S-WI/N-IL with another 0.75-2.50” with heaviest totals in E-IA.  Most other areas of the Midwest should be quiet during the 7-day, although rain chances increase slightly late in the weekend for SD.  Temperatures in the 6-10 and 8-14 will remain above normal, while precip is a mixed bag with above normal in the ECB, but below normal in the Plains.

 

Mixed markets this morning as wheat markets are mostly following through to the downside, while soybeans try to claw back some of what they lost yesterday.  On the selloff yesterday, open interest was mostly higher with SRW Wheat up 3,838 contracts, corn up 104 contracts, HRW wheat up 2,792 contracts and soybeans up 5,850 contracts.  The string of steady open interest increases in corn finally came to an end Friday with O/I dropping around 5,000 contracts as price climbed slightly.  Still impressive that over 130,000 contracts of open interest have been added since August 30th between the prices of $3.44-3.62.  Corn option volatility has climbed slightly over last week at 15.95% vs. 15.24%, but remains historically very low.  That amount of fresh interest in our market added between such a tight price range isn’t likely to stay bottled up for long.  Otherwise, soybeans remain inside their rising trend channel, while wheat has found itself back with 10-12c of two month lows.

The weekly crop progress report will be delayed until today given yesterday was a government holiday.  Data Friday included the most recent Commitment of Traders data which showed funds mainly adding to recent positions.  Funds in the corn market sold another 10,772 contracts to put their net short at -170,553 contracts, the largest net short since 5/30, and about 100,000 contracts larger than the 52-week average.  Funds in soybeans bought 1,807 contracts to lighten their net short position slightly to -15,596 contracts.  This is the smallest net short for the group since 8/1/2017.  Commercials have also been buying, however, with the gross commercial long position rising to +315,993 contracts, the largest position in 6-weeks.  Data also indicative of farmer/elevator selling with the gross commercial short rising to 383,690 contracts, the largest position since April 4th.  In KC wheat, funds sold 3,511 contracts, leaving their net long at +2412 contracts, while in Chicago funds bought 7,919 contracts to put their net short at -86,679 contracts.  Small net selling by managed funds in Minneapolis with their net long down to 5,383 contracts, the smallest since May 30th.

Other data released last week included import/export data for the month of August.  Ethanol exports saw a solid month with 103.0 million gallons exported which was down from 116.6 million gallons last month but above the 91.4 million gallons from a year ago.  YTD ethanol exports total 906 million gallons vs. 708 million gallons for this same time a year ago.  Brazil’s imports declined from last month but remain above year ago totals despite the threat of tariffs.  DDGs exports for the month of August totaled 761,467MT, the smallest since May and well below the 1.137MMT from a year ago in August.  DDGs exports YTD total 7.303MMT which are down slightly from the 7.527MMT exported a year ago.  Otherwise, also thought it interesting to point out wheat imports for the month of August which totaled 366,113MT, 99.9% of which obviously came from Canada.  The total is the largest month of wheat imports since July 2014.  While there was some fear of low protein Canadian wheat finding its way across the border, most of the wheat imported was 12.9-13.9%+ according to the US Census Bureau.  Even though they are on a 2-month delay, monitoring imports from Canada will be important to the US-HRS balance sheet as 17/18 unfolds.

Fresh contract lows for many corn and soybean spreads as harvest rolls on and crops appear to be getting larger, not smaller.  CZ/CH hit fresh contract lows of -13.50c yesterday and overnight, accounting for right at 75% of full financial carry.  If farmers or elevators have not yet begun moving hedges to the March, these sort of levels are probably not a bad place to start.  CZ/CK and CZ/CN have also hit fresh contract last in the last 24-hours, while the CH/CK and CK/CN are just off contract lows.  SH/SK hit a fresh contract low overnight of -9.25c.  Barge freight has stabilized and even clawed back a bit after the big sell off last week as the river system received a fresh injection of rainfall.  Still, export premiums are nothing to write home about, despite the steady string of daily export sales announcements.  Producers needing to catch up on marketing should be looking at the available carries on the board, as well as the potential cash carry once the sloppy gutslot harvest levels are past.  The old saying is carries are rarely earned, meaning the 30c the board is currently paying to store corn until July won’t be earned if it isn’t sold.  One has to ask what is more likely, that front-month corn rallies to where the deferreds currently are, or whether the deferred months slowly work themselves to where the spot months are trading?

 

Bottom Line: Both export inspections and crop progress will be released today, providing some fresh data to chew through.  Otherwise, we are gearing up for the October 12th WASDE report which will not only give us the latest corn and soybean production estimates, but also the latest by-class wheat S&D’s based off the Sept. 29th report data.  While vol is off the lows from last week, still isn’t implying we are going anywhere fast.  Basis levels remain especially weak in the country, encouraging farmers to store as much as possible.  Don’t forget to lock in the carry if the decision makes sense.

 

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.