The USD and crude oil are both showing strength this morning with the former hitting the highest level since September 4th while the latter hits the highest level since November 2014. The USD strength continues from yesterday and the agreement between Canada, Mexico and the US helped get NAFTA 2.0 done. There are still details to iron out, but the agreement does seem like a win for the countries involved. The crude strength continues to be driven by Iran and sanctions applied by the US which is curtailing production. Saudi Arabia, who has the most spare capacity of oil production in the world, stated they see no reason to intervene at the moment. Brent crude oil traded over $85/bbl this morning and is also at the highest levels since November 2014.
Quiet Midwest radar this morning and should remain that way for a couple more days. The morning’s GFS model keeps things fairly dry until Thursday/Friday when the next round of rain hits NE/IA with another 0.50-1.25”. That kicks off what will be a particularly wet 4-5 days when areas from N-TX to WI will see rain totals of 1.00-6.00”. Nearly the entire corn belt will see rain in the next 7-days which should grind harvest to a halt. Extended maps offer nothing in the way of better weather with above normal precip and below normal temps around until October 15th. The silver lining to this moisture is almost every area should go into winter with a full soil profile compared with last year when the opposite was true.
Mixed trade this morning with crops weaker and the three wheat exchanges firmer. Row crops are likely consolidating yesterday’s impressive rallies which were spurred by the agreement of NAFTA 2.0 between Mexico, Canada and the US. With trade deals done between Mexico, Canada and the EU, the focus remains on Japan and especially China. Although, President Trump has let his gaze wander to Brazil and India, calling India’s tariff situation one of the toughest in the world. Regardless of who this administration goes after next, the strategy is clear: isolate individual countries, apply pressure and renegotiate better terms for the United States. This strategy obviously flies in the face of an agreement like TPP where multiple countries all sit down at the same table and hammer out consistent rules for all parties. It is too early to tell whether the “divide and conquer” strategy is working, but the new USMCA is a step in the right direction. Open interest changes on the rally yesterday included corn open interest down 2,480 contracts, soybeans up 2,378, SRW up 4,374 contracts and HRW up 4,653.
Data released yesterday included the weekly crop progress report which saw unchanged corn conditions at 69% G/E. More importantly, corn harvest was estimated at 26% complete vs. 16% last week and 17% average. Illinois is 48% harvested vs. 25% average. Most areas north of I-90 have witnessed their first frost/freeze of the year already, but 86% of the crop is called mature vs. 71% average. Soybean conditions were also unchanged, while harvest was called 23% complete vs. 14% last week and 20% average. The Northern Plains states are all ahead of average but that could change in the coming week with widespread cold and wet conditions expected. Winter wheat planting progress was called 43% complete vs. 28% last week and 40% average. Montana continues to be a focus at 35% planted vs. 8% last week and 67% average. Earlier, Montana was called too dry to plant with producers waiting for moisture. Now, temperatures have turned colder with snow on the ground and no heat in sight. The majority of the insurance final plant dates in Montana don’t show up until November so plenty of time to plant wheat there. SRW states like IL/IN/OH also need to be watched as wet weather delaying harvest in those states could impact planting intentions there as well.
Also out yesterday were export inspections with corn continuing to impress while wheat and soybeans are lackluster. Wheat inspections totaled 13.6mbu vs. the 21.2mbu needed weekly to hit the USDA forecast. Cumulative inspections now total 254mbu vs. 366.3mbu a year ago, a deficit of 30.6% vs. the USDA looking for a 13% increase. Corn inspections totaled 52.9mbu vs. the 44.0mbu needed weekly to hit the USDA forecast. Cumulative inspections of 174.1mbu are up 47.4% from a year ago with the USDA calling for a 1.0% decline. Soybean inspections totaled 21.7mbu vs. the 39.3mbu needed. Cumulative inspections of 107.7mbu are down 26.2% from a year ago. As we’ve written about multiple times in the last couple weeks, we are concerned the current 2.060bbu export projection from the USDA does not fully reflect the tariff impact from China. The pace of shipments and sales certainly argues for a lower marketing year export figure, but the USDA may resist cutting this estimate for another month at least. If supplies get any larger on the October WASDE, and exports begin to be cut, we could be looking at a 950mbu+ carryout projection rather easily.
Industry-wide soybean crush during the month of August was also released yesterday, totaling 169.6mbu vs. the average trade guess of 169.3mbu. This crush figure was up almost 12% from a year ago and a similar amount over the previous record. Crush margins remain impressive at $1.30+ through next March, incentivizing maximum utilization rates. Annual crush for the 17/18 marketing year totaled 2.055bbu, spot on the USDA estimate on the September WASDE. Crush for the 18/19 marketing year is expected to be 15mbu, requiring record crush pretty much every month of the year. August monthly corn grind was also released, totaling 479.4mbu vs. the 481.3mbu in July and 480.2mbu a year ago. Ethanol yields rose during the summer months, allowing more ethanol to be produced from the same bushel of corn. The marketing year ethanol crush number was 5.601bbu, right in-line with the USDA’s estimate. Total DDGs production for the 17/18 marketing year measured 23.630MMT, almost unchanged from the 23.407MMT in 2016/17.
A new month and new quarter is usually a good time to check on the seasonal tendencies of our major Ag markets. October is a strong month from a seasonal perspective as corn and soybeans typically make harvest lows in early October before rallying. Soybeans have averaged an annualized return of 1.395% over the last 30-years according to data from www.sentimentrader.com. October is even better for corn, averaging a 1.805% annualized return, the best of the calendar year. Chicago Wheat also has October as its strongest month of the year, averaging a 0.504% annualized return over the last 30-years. With funds having moved back to a net short in Chicago wheat, and maintaining sizable net shorts in both corn and soybeans, the fuel for a strong month of October is definitely available. As we noted last month, corn and soybeans have set their contract lows in September before, and posted impressive rallies during the month of October. The bulk of harvest has yet to come in, however, so would be a little cautious before thinking grains are headed sharply higher.
Russian and European wheat offers continue to have our eye with Russian 12.50% (dmb) offers closing last night at $235/MT FOB vs. US-HRW at $238/MT and German at $239/MT FOB. For December, US wheat is a discount to Russian by $6/MT and $2/MT to German. Jan forward is where Russian wheat really starts pricing itself out of export business. Russian offers for Jan closed at $255/MT and February at $265/MT. US-HRW for Jan-Feb were seen at $245-246/MT. German wheat, however, is sitting at small discounts to HRW for those 2019 slots. Also noteworthy, Argentine offers continue to be priced the cheapest in the world by a fair amount. Argy offers were called $218/MT for Dec, $222 for Jan and $226/MT for Jan. Russian wheat offers are headed in the right direction and should be pretty limited in 2019, but US-HRW needs to trade $5-10/MT cheaper than German to compete for North African/Middle East business. In addition, Argentine wheat being offered at such cheap levels will compete directly with HRW at the start of the new year. Each metric tonne of business done by a country other than the US gets us one day closer to new crop harvest in 2019.
Bottom Line: Mixed trade, but the bulls seem like they are gaining a bit more control as of late. Tech patterns look a bit better, demand has been solid and harvest weather is not ideal the next two weeks. Still feels as though w are 10-15c away from levels in corn which would bring out farmer selling, and $9.00 Nov bean futures is probably needed to buy beans. US HRW farmers are well sold and will not be budging at these prices until after the first of the year. The spring wheat farmer has around 30% of his crop sold but ample room to sit on it until a basis or futures rally occurs this winter.
Good Luck Today.
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