6/19/2018 Morning Comments

Good Morning,

 

The USD continues to exhibit strength against major and emerging market currencies alike with the basket trading 95.2660 this morning, the highest print since July 17th, 2017.  Commodity currencies are taking the brunt of the beating this morning as the Australian dollar trades lower by 0.87%, the Loonie is down 0.48%, the British Pound and Euro are off 0.60% and the Russian Ruble is down 1.12%.  Outside of a one day spike, the Russian Ruble is trading at the weakest level relative to the dollar since November of 2016.  Commodities as a whole are being plunged lower with crude oil off nearly $1.00 this morning, and the Bloomberg Commodity Index settled at a new low for the move yesterday.  The index should open to fresh lows later this morning.

Rain around the Midwest this morning with showers across Nebraska, Iowa, S-Minnesota, Wisconsin and a bit into N-Illinois.  In the last 24-hours, most of the Upper-Midwest saw rain with best totals across the northern 90% of Wisconsin as most areas there saw 1.00-3.00”.  The cold front bringing rain is also bringing a much-needed cool down in temperatures across the central and eastern corn belt.  Temps from South Dakota to Ohio will see highs in the 70’s to low 80’s through Saturday with multiple rounds of rain in between.  Nearly 80% of the corn belt has a chance at 0.50-1.00” this week with most areas in excess of 1.00”.  There will be holes, but it is incredibly difficult to find issue with corn belt weather at the moment, even if some weather shops continue to tout vanishing heat in the 11-15 day.  Extended maps show above normal temps but above normal precip along with it through July 2nd.

 

Heavy selling pressure at the open which accelerated at the Chinese opening and carried through the evening to keep CBOT prices on their lows this morning.  The selling continues recent trends but the catalyst last night was reports from the Trump Administration they were preparing another $200 billion in tariffs on Chinese goods in retaliation to China’s latest round of tariff announcement which were in response to the $50 billion in tariffs the US announced which were in response to China’s unfair trade practices.  You read that right.  All of the proposed tariffs don’t go into effect until July 6th, leaving time for things to be negotiated, but it would appear the stakes have been raised to the point at least some of these tariffs will be enforced even if others are not.  Ag prices have suffered the largest with soybeans continuing one of their largest weekly declines since the 1970’s as spot month prices hit the lowest level since the spring of 2016.  The trade-war panic selling would be one thing, but when combined with one of the highest rated crops on record and benign corn belt weather, the combination is just too much for the managed long community.  The selling has caught the majority of producers undersold, with a looming USDA report that has many anticipating bearish data adding to anxiety.  Open interest changes yesterday saw corn up 16,889 contracts, soybeans down 12,990 contracts, meal up 3,955 contracts, oil up 4,948 contracts, SRW down 10,614 contracts and HRW down 4,408 contracts.

We discussed Brazilian and US soybean price discrepancies a bit yesterday, and those spreads continue to diverge this morning.  Brazilian cash bids shot sharply higher again yesterday with spot up 5-20c while August was up 26-27c and September was up 23c.  Spot bids are now up 18c from a week ago, while August bids are up 39c.  That would put FOB offers out of Brazil at $390.97/MT vs. US-Gx at $359.72/MT.  Even if one considers a quality premium for Brazilian soybeans in the neighborhood of $10/MT, US soybeans are still $20/MT cheaper than Brazilian offers.  This shows the weight of China moving exclusively to Brazilian stem, and should also drive all other global demand to the United States.  Chinese markets were closed yesterday, but their reaction at the open last night was strong.  Dalian meal rose 3.18-4.40% to a 2-week high with the highest volume since early April.  Even though their soybean contract reflects food grade soybeans, it too rose by 2.29-3.27%.  As we noted yesterday, China cannot economically do without US soybeans, unless she claims 100% of available export capacity out of South America as well as 100% export capacity from Canada, Ukraine and Russia.  This would be a logistical nightmare, and also result in much higher prices being paid for the same soybeans.  One other tool China could utilize, however, is to draw down their reserve stocks from the rather comfortable level they’ve enjoyed the last several years.  From 2014/15-2017/18, China has carried out 16.9-20.6MMT of soybeans.  Prior to 2014/15, however, they commonly ended the year with 7.4-15.0MMT of soybeans.  If they were to draw down ending stocks to 7-10MMT, this would free up another 10-13MMT of import demand they wouldn’t have to satisfy with US soybeans.  This would put them in a precarious situation relying on a bumper South America harvest next year, but it is one avenue they could pursue.  If that course of action were chosen, US export demand would likely need to be reduced under 2.00bbu and current board prices wouldn’t look so out of place.

Data yesterday included weekly crop conditions which only added to the bearish price response overnight.  Corn conditions improved 1pt to 78% G/E vs. 67% G/E at this time last year.  Widespread gains were seen across the WCB led by ND which climbed by 8pts.  The national corn index score of 392 is now the highest since 1991.  However, the correlation between week #24 condition scores and final yields is still terrible so some caution is warranted.  We ran a regression analysis just to prove this point, and the r-squared is currently around 16.2% and implies a final yield around 150bpa off nothing but NASS crop conditions.  Multiple states enjoying the highest ratings since the early 90’s or even on record.  Soybean conditions slipped 1pt to 73% G/E vs. 67% at this time a year ago but would be the highest rated soybean crop on record.  Soybean conditions are really not worth paying attention to at this point in the marketing year, and large changes w/w shouldn’t draw too much attention.

Winter wheat conditions improved 1pt to 39% G/E vs. 49% G/E at this time a year ago.  Nebraska and South Dakota saw a seasonal decline in conditions, but improvements were witnessed in Kansas, Oklahoma and Texas.  This is likely the result of better than expected yields as harvest wraps up in TX/OK and expands in Kansas.  National winter wheat harvest progress was estimated at 27% complete vs. 19% average with Kansas at 23% harvested.  We think this is a bit understated according to anecdotal reports on the ground with yields running about at expectations and protein continuing to run 12-13% on average.  Spring wheat conditions shot higher by 8pts nationally to 78% G/E led by gains in ND and SD at 9pts a piece.  The national spring wheat condition score stands at 388 which is the highest since 2010 and near the best ratings on record.  Cool, wet weather should have conditions improving again next week.  Spring wheat in the southern tier of the spring wheat belt in South Dakota is just starting to flower, and will be in full pollination by next week.  9% of the spring wheat crop is headed with South Dakota the furthest advanced at 48% vs. 34% average.  This would put harvest mid to late July.

Export inspections yesterday saw wheat at 13.7mbu vs. 17.8mbu needed weekly.  Corn inspections were solid at 65.7mbu vs. the 46.6mbu needed weekly.  Total inspections of 1.678bbu are down just 8.5% from last year with two and half months left in the marketing year. Soybean inspections were 30.1mbu vs. the 21.4mbu needed weekly.  Total inspections were 1.775bbu vs. the 1.908bbu needed weekly.  The total was the second highest of the last 14-weeks and should give confidence in the current export forecast.

 

Bottom Line: The full weight of Wall Street money using soybeans as a macro hedge against the trade war with China is being felt across the Midwest as soybeans plunge to two-year lows.  6-months of price gains have been wiped away in 2-3 weeks, and the selling pressure will likely continue until something is resolved with China.  All of our Ag commodities currently look undervalued relative to current balance sheet forecasts, but without a weather threat and as long as tariff fears persist we will continue to bludgeon these markets.

 

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.

6/15/2018 Morning Comments

Good Morning,

 

The US Dollar Index rallied sharply yesterday, tying its 2018 high and the highest trade since October of last fall.  Several positive technical factors have occurred with the USD in recent days and weeks including two golden crosses as the 50-day moving average crossed above the 100-day on May 14th, and crossed above the 200-day on June 8th.  It is always important to remember these lagging indicators move because of the underlying price action, not the other way around, but occurrences like these crosses speak to the larger upside momentum of the security.  Sharp weakness in the Euro due to a more cautious approach by the ECB and a hawkish stance by the Fed helped exacerbate the move, but the weakness extended to emerging market currencies as well with huge moves in the Brazilian Real and Argentine Peso.  The currency strength in part helped commodity indices produce big weakness as the Bloomberg Commodity Index hit the lowest level since early May, and the Bloomberg Commodity Ag Sub-Index hit new contract lows.  Rising interest rates from the Fed, in and of itself, is also negative commodity prices as it costs more money to store physical assets.

A band of showers from N-MN to S-IL is working its way east this morning, bringing additional moisture ahead of the warm up this weekend.  Widespread 90’s will be present from E-SD to OH today through Sunday before temps finally ease to the mid-80’s for much of the corn belt next week.  The Northern Plains should be much cooler than the corn belt with highs in the 70’s and 80’s instead of 90’s and multiple rounds of moisture chances this weekend.  The 7-day forecasted pecip map shows heavy rain for KS/E-CO/NE/SD/NW-IA/MN over the next week.  If half the totals forecasted actually fall farmers would be pretty happy.  The central and eastern corn belt have chances of rain, but on average look to dry out a bit the next week.  More of the same in the 6-10 and 8-14, although below normal precip is being forecast for ND.  Temps will be above average for the entire Midwest.

 

Sharply weaker overnight, led by the soy complex with wheat a close second.  The losses this week have been severe, and a little unexpected considering the calendar still says mid-June, with so much developmental weather still in front of the corn and soybean market.  For the week, KC wheat is down 23.75c, soybeans are down 57.50c and corn is down 17.75c.  There seem to be two schools of thought about the losses this week: 1) managed funds have been selling soybeans aggressively as a hedge against equity exposure to any happenings related to the trade-war and tariffs. 2) The market is bracing itself for a bearish acreage and/or stocks report at the end of the month.  On the subject of the former, President Trump did approve $50 billion in tariffs against Chinese goods last night, which were the tariffs announced last month but not yet implemented.  They are now implemented.  Obviously the market fears retaliation against US soybeans, although we’ve seen this storyline play out before, and the response in Brazilian FOB premiums has been the same.  Brazilian cash rallies sharply, trades to a big premium over US beans, other-origin buyers come to the US to fill their needs and it all balances out.  Export sales on soybeans yesterday were an 8-week high which we will discuss below.  If the selloff is more related to point 2), then I think that is actually more bearish.  The June report over the last several years has found more acres than the March report as well as more stocks than expected.  Average trade estimates have not yet been released for the report, but those will be key for setting expectations as we close out June.  Open interest increased 7,824 contracts in corn yesterday, was up 3,885 contracts in beans, down 3,152 contracts in Chicago wheat and 2,113 in KC wheat.

Touching on the acreage point first, we wanted to take a look at the planted acreage expectations for 2018 and see if there is in fact room for corn and soybean acres to move a little bit.  As of the March prospective plantings report, USDA expected US farmers to plant a combined 224.3 million acres of corn, soybeans and all-wheat.  In addition, they see 12.319 million acres combined of oats, barley, sorghum and sunflowers.  The C/S/W combined total of 224.3 million is the smallest total since 2011 and down 2.0 million acres from last year.  The combined total of O/B/S/S of 12.3 million would be up 221,000 acres from last year but the second lowest since 2011 as well.  The entire combination of all those crop acres would be 236.6 million, the smallest since 2011 and down 1.8 million from a year ago.  There are reports of drowned out acres and prevent plant along the IA/MN border, so that will affect the total, but even without changing the acreage mix, there are 2.0 million acres from last year still available to be planted.  This would seem to be part of the narrative being used to beat down soybeans at the moment which almost everyone thinks will see an appreciable jump over March.

Export sales yesterday were a mixed bag with a poor showing in wheat once again while row crops continue to be solid.  All-wheat sales totaled 11.1mbu vs. the 15.4mbu needed weekly to hit the USDA’s export forecast.  Total commitments of 166.3mbu would be the lowest level of commitments for the first week of June since 2010.  The general theory with the USDA’s export forecast seems to be that smaller crops in the Black Sea, and a still uncertain Australian crop, will force buyers back to the US in Q3/Q4.  That remains to be seen, especially as US futures are priced to store and US cash offers remain at sharp premiums to competitor origins.  Corn export sales totaled 36.9mbu vs. the 6.7mbu needed weekly.  Total commitments of 2.213bbu are up 3% from a year ago as we work towards USDA’s recently revised 2.300bbu export projection.  Soybean sales totaled 19.1mbu vs. the 2.2mbu needed weekly and sales were an 8-week high.  As we noted above, if Brazilian FOB premiums continue to trade at huge premiums to the US as China buys her beans there, other origins will come to the US for old crop summer business.

The flat price losses, and lack of meaningful open interest drop, are concerning enough but the fact new contract lows are being set on a daily basis for corn, soybeans and wheat adds another level of bearishness.  The CN/CU, CU/CZ and CZ/CH all hit or tied contract lows this week while the CZ8/CZ9 hit -19.00c this morning, the lowest trade since January and compares to +5.00c and the end of May.  Exact same situation in soybeans with SX8/SX9 hitting -3.00c overnight, the lowest print since mid-January.  The front end of the wheat curve has held up much better, although WZ/WH hit new contract lows overnight of -20.50c, and KC spreads have given back some of their sharp gains as harvest pressure expands.  Minneapolis calendar spreads remain just off contract lows throughout the curve, appearing eager to join its HRW and SRW brethren as pricing wheat to store as opposed to consume.  If calendar spreads were bucking the trend and showing some strength in the face of the flat price selling, it might be a sign commercials are pricing and finding value here.  Hard to make that argument with forward curves being beaten down as bad as they are.  Basis is also not showing any clear signs of strength with Gulf premiums weaker for corn and soybeans yesterday and mixed for SRW & HRW.

 

Bottom Line: Soy meal is trying to close lower for the 13th session out the last 14, while soybeans are working on their 12th lower close in the last 14 sessions.  The selling pressure has been relentless and should prompt a severe correction when it happens.  However, Fridays are trend days and the trends are sharply lower in corn and soybeans.  There remains uncertainty with weather, but it would appear not enough to turn the market.  As several have noted in recent days, it is difficult to be bullish corn on a balance sheet which looks supportive 6-months from now when the crop appears to be getting larger.  A massive amount of length has been shed by the managed fund community, and now it is just a matter of whether the end user has picked up that length or not.  The natural seller, i.e. the farmer, should be pretty quiet for a while.

 

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.

6/13/2018 Morning Comments

Good Morning,

 

Some showers around in the S-Plains this morning, otherwise the Midwest is mainly quiet.  It’s difficult to argue the past 10-14 days’ worth of weather across the corn belt has been anything but beneficial.  The next 10-14 days might be somewhat of a different story.  Much of the WCB will see a blast of heat Thursday before cooling down into the weekend, but the latest 6-10 and 8-14 day maps are bringing above normal temps back for all of the Midwest, especially the Northern Plains.  In fact, the above normal bullseye is directly overtop North Dakota.  Fortunately for much of the Northern Plains, there is rain around this weekend before the heat.  The latest maps this morning put anywhere from 0.50-2.00” across most of E-MT/ND/N-MN/SD by early next week.  This would be well timed as the 8-14 day map from NOAA suggests below normal temps for all of the Northern Plains, Nebraska, Iowa, WI, N-MO and NW-IL.  Private forecasters continue to tout a return to heat as June ends and July begins, which NOAA maps are definitely pointing towards.  This should bring back some weather risk premium as we head into the pivotal July 4th holiday.

 

Lower all night across the CBOT as corn and wheat give back part of yesterday’s gains and soybeans trade the direction they probably would have had it not been for grains.  Wheat was the star of the show yesterday, rallying on the back of a larger than expected cut to Russian production and exports, as well as better forecasted demand for the US in 18/19.  However, a closer examination of the data last night, and some realistic assumptions about demand seem to take the shine off this wheat market.  In addition, the corn market responded favorably to lower than expected world carryout, lower than expected US carryout, cuts to Black Sea corn production and the fact we are still only midway through June.  As we have suggested, at $3.97 December corn, there is little to no risk premium in the market considering carryout is bring projected at a 5-year low.  Soybeans appear stuck between a rock and a hard place: old crop carryout at 500mbu+ is not bullish, while the prospect of a 350mbu new crop carryout is intriguing.  Yet, most think acres should rise on the June acreage report, and the uncertainty with where and how China will source her beans in 2018/19 still lingers.  The 2018/19 demand forecast for soybeans appears optimistic, and additional supply would take starch out of the market quickly.  Open interest changes yesterday included corn down 9,452 contracts, soybeans up 9,268 contracts, meal down 4,135, oil up 9,385 contracts, SRW down 2,374 and HRW down 287.

We are going to focus on the corn and wheat balance sheets today as well as a few global highlights, picking up the rest of the WASDE tomorrow and Friday.  On the US wheat balance sheet, exports were reduce 10mbu in the 17/18 S&D, an expected change which went straight to carryout.  Carryout rose 10mbu to a fluffy 1.080bbu, the second largest since the late 80’s.  Exports at 900mbu remain above the low-water marks of 2014/15 and 2015/16 at 775-854mbu, but are still bad.  Further, feed/residual demand of 70mbu was the lowest since 2007/08 and total demand of 1.996bbu was the second lowest since 2002/03.  When a person looks at the US balance sheet from the demand perspective, they see rather quickly why a drought in the southern plains and drought last year in the northern plains can be managed so easily,  The US has a demand problem, not a supply problem even if acres are the lowest in 100-years and production plumbs decade lows.  For 18/19, production was increased by 6mbu, and when combined with higher carry-in boosted supplies by 16mbu.  18/19 exports were increased 25mbu to 950mbu which we do not agree with at the moment.  We can see their rationale given lower Russian production and exports as well as decline in Australia.  However, there is absolutely no fundamental justification for this move at present given export commitments sit at the lowest levels for this time of year in a decade.  In order to justify an increase to exports, we have to price ourselves accordingly, which we are not anywhere close to doing at the moment.  Southern Plains elevators trying to fill up storage and acquire blending material by paying big basis levels is making this issue worse.

World changes focused on a cut of 3.5MMT to Russian wheat production which is now projected at 68.5MMT vs. 85.0MMT a year ago.  Exports were also reduced by 1.5MMT to 35.0MMT vs. 40.5MMT in 17/18, but would still be the second largest on record.  We remain cautious about reducing Russian production, and certainly don’t want to cut it any further than USDA has already as some are want to do.  Production at 68.5MMT would be the second largest on record, with the national average yield of 2.74MT/ha being the second highest ever.  Still, the 19.4% y/y decline in production would be the largest since 2012/13.  However, large swings in production are not all that uncommon for Russia with 15-30% swings occurring several times over the last 10-15 years.  Many of these big swings came before Russia was a major export powerhouse leading us to caution whether we should doubt their production potential.  USDA is certainly looking at an area decline due to the slow planting in Siberian spring wheat areas as total harvested acreage is seen at 25.0 million hectares vs. 27.343 million a year ago and would be the lowest area since 2014/15.  This is the part difficult to square for us.  If harvested area climbs to 26.0 million, production would bounce up to 70.460MMT, a much more manageable situation.  The 8.57% decline y/y in harvested acreage would be the largest since 2012/13 and top four declines of the last 15-20 years.

US corn balance sheet changes were supportive with imports dropping 5mbu and exports being raised 75mbu.  Carryout in-turn dropped 80mbu to 2.102bbu.  In 2018/19, USDA decreased feed/residual demand by 25mbu to 5.350bbu which would be a 3-yr low.  However, that was the only demand cut with ethanol use of 50mbu to 5.675bbu, a new record.  Carryout was therefore reduced from May’s 1.682bbu to 1.577bbu, the lowest since 2013/14.  In 2013/14, the average on-farm price received was $3.70 cash, much better than the $3.35-3.60 witnessed the last four years.  We continue to believe we are pricing in a better than trend yield as the market appears to be trading something closer to 178-179.  At that type of yield, and with unchanged demand, carryout would be around 1.904bbu.  Very difficult to put that kind of yield in the bag today, and that kind of complacency would be foolish on June 13th.  We feel there will be risk premium added back into the market the next 2-4 weeks with weather beyond the Fourth of July determining if that risk premium is warranted.  As we have discussed, May is not a very good candidate for putting our calendar years highs in with the market having done so only once since 1990.  This isn’t to say it can’t happen, just that it is very unlikely especially with so much weather left in front of the market.  The last three years have witnessed Dec corn highs made between June 15th and July 15th, but is this the year which breaks that cycle?

Global corn balance sheet changes focused on Russia and Brazil with the latter seeing production drop to 85MMT from 87MMT last month.  This matched CONAB’s production number from earlier in the morning but would think both firms have room to move lower in future reports.  Brazil also saw a cut to exports of 1MMT to 29MMT vs. 31.700MMT a year ago.  USDA also recognized the Black Sea dryness impacting wheat production by cutting their corn crop estimate from 19.0MMT to 15.0MMT, and cutting exports from 7.5MMT to 5.5MMT.    Yield would still be a new record at 5.55MT/ha vs. 4.89MT/ha last year, but everything about this balance sheet looks more appropriate than it did in May.  The changes have major corn exporter ending stocks down to 64.728MMT vs. 78.284MMT last year, the lowest since 2015/16.  The stocks/use ratio falls to 10.03%, the lowest since 2013/14 and over 1.0% smaller than the 10-yr average.  We feel US exports have room to grow in 2018/19 by 100-250mbu yet as lower Brazilian and possibly Russian production numbers are still to be realized.  In addition, USDA is still projecting Ukraine with the second highest corn yield on record with the production missing a record by just 900,000MT.  Exports are projected at 24MMT, a new record by 3MMT, and could easily see some downside.  If those changes occur, and the major exporter stocks/use falls further to near the 2012/13 lows, this market will need to put premium back in to appropriately price US exports.  Taking a step back to the world balance sheet, and acknowledging the Chinese stocks declines, global corn carryout is forecast to drop 19.72% this year following a 15.45% drop the year before.  This would be he largest y/y decline in global corn ending stocks since 1993/94 and second largest since 1988/89.  Global stocks/use at 12.45% would be the lowest on record, slipping below the US drought years from earlier in the decade.  This is a massive fundamental shift of the landscape, but also needs to come to fruition as well.

Otherwise we continue to be impressed by the weakness in Minneapolis wheat both on the board on in calendar spreads.  Flat price continues to make new lows for the move which are the lowest trades since early April.  Calendar spreads are also making new contract lows on a daily basis as the market looks at a growing old crop carryout and nearly ideal conditions across the Northern Plains and Canadian Prairies.  Minneapolis carries are not to the same extent as KC or Chicago, but they might be headed there as traders ponder where this massive spring wheat crop is going to find a home?  Export business will be hard fought provided Canada doesn’t stumble, and the HRW crop looks to have a better protein profile than each of the last two years.  This is a big reason for the new lows in MW/KW which is now trading at the lowest level since March 2016 on a front-month basis.  Granted, there is some heat and dryness finally being forecast in North Dakota, but without materially impacting production by mid-July, we could be looking at prices more congruent with 2016 when spot prices traded between $4.85-5.85.  HRW prices will have a lot to say about that, however.  Board prices will need to pay the farmer to store wheat if homes do not surface.  If rains continue and the protein profile of the HRS crop is lower, a lot of wheat could be headed to Duluth, which will put additional pressure on calendar spreads.

 

Bottom Line: Ugly trade today after the bounce yesterday.  Traders don’t appear blown away with yesterday’s “bullish” data, and corn belt weather is still the most important factor.  Major exporter balance sheets in both corn and wheat are supportive, but we are still determining supply at the moment with the entire marketing year left to ration or expand demand.  Days like today after yesterday’s strength should remain producers of why they need to be constantly updating and reviewing marketing levels and percent sold.

 

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.

 

6/12/2018 Morning Comments

Good Morning,

 

Rain around the Midwest this morning with a system in SE-KS/NE-OK/W-MO, a separate system in IL and rain across parts of ND.  Much of Missouri remains the last spot waiting for needed rainfall while most of the corn belt has received beneficial moisture in the last 7-days.  Temperatures cool today and tomorrow across a majority of the Midwest with most places in the Northern Plains seeing highs in the low-70’s, while IA/IL/IN see highs in the low-80’s.  Heat returns for the weekend with widespread 90’s for highs in the central belt.  The 7-day forecasted precip map has a lot of rain in the Northern Plains, but less for much of IA and the ECB.  Follow up rains once the heat returns will be key as corn inches closer to pollination in July.  Temps will be above normal during the 6-15, while precip is above normal in the first half of the period for the entire Midwest while the Northern Plains slips below in the 8-14.

 

Rebounding today ahead of the June WASDE following weaker prices yesterday as traders tabulated rainfall totals from around the corn belt.  Expanding wheat harvest in Kansas added pressure as well, although debate is lively on whether USDA should raise or cut their winter wheat production forecast later today.  Oklahoma is being described as pretty close to USDA’s current guess, although protein and test weight are much better than the last two years.  Nearly all of Kansas’ wheat crop is left to harvest, so no strong opinion should exist either way.  Based on rainfall over the last 14-days, we feel Kansas wheat production got larger than the May estimate, not smaller.  Weather remains mostly favorable across the corn belt, although private forecasters continue to warn of heat returning next week and hit-or-miss showers.  The liquidation we’ve seen the last week has been impressive, and the funds pared their exposure accordingly.  However, it is difficult to believe we’ve seen the last of market volatility with the entire pollination phase left and more than two weeks until the pivotal July 4th forecasts.  End users have been covering their summer and fall needs on the break, indicating real value at current prices, but also signaling there won’t be panic buying from the user if prices begin to move higher on weather.  It will require renewed buying from the managed fund community in our opinion.

Crop progress yesterday afternoon with everything pretty well in-line with where most thought we would be.  The one surprise across the board was South Dakota, mainly because it is our backyard and because some of the best rainfall of the spring/summer fell Sunday/Monday.  G/E ratings in SD fell 7pts w/w to 63% G/E which compares with 45% G/E a year ago.  We think this responds bigly by next week given rain in the driest parts of the state yesterday.  National ratings fell 1pt to 77% G/E, mainly due to declines in SD and a big drop in MO (-11).  Missouri is battling dryness in the northern part of the state after struggling to plant a month ago.  The national condition score this week was 390 which is tied with 2010 for the highest rating since 2007.  This year would also be the second highest since 1991 and compares to the 10-yr average of 374.  Emergence is 94% complete vs. 92% average.  Soybean conditions also fell a point to 74% G/E vs. 66% a year ago.  SD and MO led declines here also.  Winter wheat conditions improved 1pt to 38% G/E vs. 50% G/E a year ago.  Improvements sere seen in NE/SD/MT as well as most SRW states.  Harvest was pegged at 14% complete vs. 10% average with KS at 2% harvested vs. 2% average.

Spring wheat conditions were unchanged on the week at 70% G/E and vs. 45% G/E a year ago, although SD saw a huge drop in conditions of 15pts to 43% G/E vs. 13% G/E a year ago.  Here again, we think this was a bit of an over-reaction, and should improve on next week’s report.  Spring wheat prospects for much of SD remain solid, and 7-day forecast maps have rain chances around for the bulk of the belt.  The national spring wheat condition score this week was 375 vs. 325 last year and 373 on the 10-yr average.  Spring wheat emergence was pegged at 94% complete vs. 89% average, a far cry from what the delays on May 1st would have implied.

Export inspections also released yesterday showing all-wheat inspections at 13.6mbu vs. the 17.3mbu needed each week during the 18/19 marketing year to hit the USDA forecast.  Starting off the new marketing year in similar fashion to the way we ended the last one: disappointing.  Serious doubts exist about the 2018/19 all-wheat export forecast as the current export book is the smallest since the 2008/09 marketing year.  Having said that, much will depend on the finish to the Black Sea growing season as further production cuts there will almost surely force importers to come to the US during Q3-Q4 of the marketing year to cover some needs.  Stay tuned.  Corn inspections totaled 55.5mbu vs. the 42.0mbu needed weekly to hit USDA’s forecast.  Total inspections measure 1.612bbu vs. 1.787bbu a year ago.  USDA will most likely raise their export forecast by 25-50mbu later this morning.  Soybean inspections total 23.7mbu vs. the 22.2mbu needed weekly.  Total inspections of 1.743bbu are down 8.1% from a year ago vs. USDA calling for a 5.0% decline.  We feel USDA’s current soybean export forecast is appropriate at the moment.

The attention getters today will first be the CONAB estimate of Brazilian corn production early this morning.  Would say the trade is looking for something around 80-82MMT vs. 89.2MMT last month.  Anything south of that range would be considered bullish and anything north of that is probably a little pressuring.  Along those same lines, traders are also expecting reductions to the Russian corn crop and possibly the Ukrainian crop as well.  USDA has Russia pegged for record production of 19MMT and record exports of 7.500MMT, both of which could see a reduction this month.  Ukraine is seen producing the second largest corn crop on record with exports a new record of 24MMT.  Russian wheat production will also receive plenty of scrutiny as private analysts have begun pulling estimates below 70MMT.  We think anything 70-72MMT is already priced in, but a number sub-70MMT will be received bullishly by the trade.  We think it is important to recognize Russia can see production of 70MMT and still export close to current USDA ideas but would have to be willing to further draw down stocks from last year’s sizable draw down.  Complicating the matter is where these carryover stocks are located with the bulk sitting in the interior with difficult access to port.  Black Sea futures and cash should tell the tale, and so far, are not indicating huge cuts are forthcoming.

A couple tidbits worth sharing.  Chicago wheat hasn’t witnessed a positive price reaction following the June WASDE since 2010, averaging a 12c loss over that time frame.  Basis levels in Oklahoma and S-Kansas are on fire as of late with elevators continuing to pay protein premiums for the first time in history to secure bushels into storage and attain higher protein to blend with the last two years’ worth of low protein stocks.  Basis at several country elevators in Kansas has rallied 50c since the beginning of May, and +10/20KWN is not uncommon for wheat off the combine.  Higher protein grades on the KCBT spot floor have collapsed over the last 2-3 weeks with the higher protein being harvested, and elevators now appear to be paying for something they can’t sell.  Spring wheat calendar spreads remain incredibly weak, keeping it difficult to call for a bottom in the Minneapolis board.  The entire curve is sitting at contract lows as old crop gets hocked and new crop sales pickup.  If the current forecast holds, the higher protein stocks from last year’s drought-reduced crop could become more valuable.  Keep an eye on protein spreads.

 

Bottom Line: Charts look tough, and unlikely USDA is going to throw any giant curveballs at the market later this morning.  This market is all about weather, and weather the last 10-14 days has been beneficial.  The next 10-14 days are arguably more important, and there remain some concerns about heat.  The NW-Flow pattern in place will continue to provide moisture, but in sporadic fashion with some dry spots surfacing.  At $3.92 December corn, we feel the market is discounting a higher yield than USDA’s 174bpa.  It might be too early to anoint a record yield, but that’s what it feels like the market is trying to price in.  Funds have much more room to buy than they did two weeks ago should they be given a reason.

 

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.

6/11/2018 Morning Comments

Good Morning,

 

A wet weekend and additional rain fall this morning for many across the corn belt and Northern Plains.  Last week, there were major divergences between the GFS and the European weather model with the former calling for widespread rains and cooling temps while the latter was suggesting the rains would bust over the ECB with a continuation of heat.  It would appear the GFS “won,” and will keep weather Twitter especially chippy this week.  As noted, additional rains falling across South and North Dakota as well as W-MN, IA, IL and IN.  The 7-day accumulated precip map is shown below with many areas of the corn belt receiving rain.  The 2-week percent of normal precip map shows dry spots in north east South Dakota, although they are getting a nice rain this morning, with Missouri also dry and E-KS.  Dry spots in IA and W-IL should decline after the weekend.  A couple day dry out and cool down through Wednesday before the next shot at rain for Iowa in Wed/Thur with the Dakotas and most of MN seeing rain over the weekend to the tune of 0.50-0.75”.  Best shot to stay dry would appear to be Missouri.  Normal/above temps in the 6-15 day outlook while precip would also be normal/above.  Carry on.

 

A little firmer at the overnight open, especially for wheat markets, but all of the major Ag commodities are trading lower as we head toward the 7:00am hour.  As we discussed Friday, it is very difficult to fight an active radar in the middle of June when speculative funds were going into the growing season with heft amounts of length.  Everyone, and I mean everyone, knows about the constructive components to the 18/19 corn balance sheet but it only becomes bullish if yield dips below trend.  If the national corn yield outperforms trend which we’ve done several times the last 3-5 years, then carryout moves back toward 2.0bbu and higher prices will be difficult to sustain.  Can anyone claim the national average corn yield is above or below trend on June 11th?  Absolutely not, but we are off to one of the best starts in history and weather continues to look benign outside of Missouri.  Declining Russian wheat estimates, and now concern over Black Sea corn estimates, will remain supportive as should the CONAB estimate of Brazil’s corn production tomorrow morning.  Farmers have been standing pat on marketing as they await confirmation of a good start to the growing season.  That will change at some point rather soon and the natural seller will be back in the market.  Whether or not the large spec comes back in as the buyer remains to be seen.

Over the weekend, both SovEcon and IKAR updated their estimates for the Russian grain crop, slashing total production further below a year ago.  SovEcon cut their total grain crop estimate to 119.6MMT vs. 126.2MMT previously, cutting their wheat crop by 3.9MMT to 73.1MMT.  IKAR reduced their total grain estimate to 114.7MMT vs. 117MMT previously with wheat going from 73.5MMT to 71.5MMT.  USDA was 72MMT on the May WASDE but will be updating that number tomorrow.  Using the midpoint of these two on-the-ground estimates gives us 72.3MMT, essentially unchanged from USDA.  This wouldn’t change their carryout levels for 18/19, allowing the world’s largest wheat exporter to retain that title and ship 36.5MMT worth of wheat vs. 39.5MMT last year.  As the chart below shows, Russia would retain its top spot with 19.37% of all global wheat trade, down slightly from last year’s record 21.70%.  Nearly a third of all global wheat trade will be conducted with the Black Sea while the US and EU battle for second with close to 15% of global trade.  Unless the Russian wheat estimate moves meaningfully below 70MMT, I’m not sure there is enough of a story here for wheat to surge through the May highs.  Add in a vast improvement in the Northern Plains and Canadian Prairies from a year ago, and the bulls will be searching for additional feed.

Commitment of Trader data released Friday covered positions through June 5th, which would not have captured the additional down days on Wednesday and Thursday.  Managed funds sold 88,828 contracts of corn, cutting their net long nearly in half to +113,599 contracts.  Heading into the growing season, funds were carrying the fourth largest net long in corn for this time of year on record, which helps put the price decline since May 24th in perspective.  As we’ve written about before, Apr-July is the highest percentage of the calendar year for December corn to put in its highs, although May specifically is not.  Since 1990, December corn has notched its high for the year in May only one time and that was back in 2000.  We’ve put highs in April twice, highs in June four times and highs in July five times.  The four months have witnessed 43% of the highs since 1990, and about 50% of the highs since 2000.  Funds sold 34,799 contracts of soybeans to leave them net long 72,299 contracts.  Little change to wheat markets with funds buying 968 contracts of Chicago wheat to leave them net long 16,286 contracts while they added 3,894 contracts of KC wheat to put them net long 57,756 contracts.  Funds sold 3,989 contracts of Minneapolis wheat, leaving them almost flat at +840 contracts with the improving Northern Plains conditions.

This afternoon’s crop progress report is expected to show US corn ratings at 78-79% G/E vs. 78% last week and 73% average.  Soy expected around 75% G/E vs. 75% last week and 69% average.  HRS rating should be unchanged to up 1pt at 70% G/E vs. 45% last year and 69% average.  Analysts will continue to draw correlations between final yields and crop conditions, but as last year showed us, these need to be viewed with caution.

 

 

Bottom Line: Could be a quiet session as we await updated US and global balance sheets tomorrow.  Crop conditions should continue to reflect an above average start across the corn belt, and most forecasters are in agreement for mostly beneficial weather the next 10-15 days.  Based on historical performance, the corn market has about 3-4 weeks to make new highs before the music stops.  Producers need to have updated sales targets with realistic expectations for what is in the bin, in the field and attainable on the board.  Plenty of geopolitical/financial market risk on the table this week as well with the US/North Korea Summit and Federal Reserve meetings.

 

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.

 

6/8/2018 Morning Comments

Good Morning,

Another round of rain across the upper-Midwest this morning with most of South Dakota, S-MN and N-IA seeing good rains.  Rains are working into N-IL as of this writing, an area which can use the moisture.  The central corn belt will remain active this weekend with several more chances and total accumulation pushing to 1.25-2.00”.  Similar totals look likely for IL/IN/OH and N-MO as ideas are clearly shifting in favor of the GFS model which has been calling for wet and cool. When rain totals are verified Sunday night, the Midwest could look to be in pretty good shape.  Precip maps from NOAA for the 6-10 and 8-14 day show normal/above precip, especially for the ECB and Mid-South.  Temps remain above normal, but nothing threatening, and the Northern Plains fall to normal.  Over the last two weeks, the areas of largest moisture deficits would be EC-SD, E-IA, C-IN and the MO/IL border.  Let’s see what spots get filled in and which ones get missed come Sunday night.

 

Easier markets to close the week as it remains difficult to fight an active radar across the corn belt in June.  In addition, Brazilian farmers remain active sellers of soybeans as the USDBRL hit 3.97 yesterday, the weakest trade for their currency against the USD since March of 2016.  At 3.97, their currency is close to the all-time record lows of 4.11:1 set in the fall of 2015 amid the political turmoil of a president being impeached.  The currency weakness has kept farmers engaged in selling soybeans, mitigating the losses witnessed on the CBOT.  Soybean futures are now sitting at their lowest spot levels since mid-January following a record crop in Brazil, increased acreage in the United States and continued friction between the US and China.  China can’t cut the US out of its soybean import program completely, but they can take steps to minimize the tonnage accepted from the US.  Other origins will need to come to the US for their soybean needs if Brazil begins to supply China exclusively, but the change in trade flows still has the oilseed complex nervous it is obvious.  Wheat boards have been reluctant to follow corn and beans lower amid continued concern over dryness in Ukraine and S-Russia.  However, failure to mount an assault at the May highs will have specs more prone to liquidation than adding to longs.

Data yesterday included weekly export sales which were poor for wheat and beans but solid once again for corn.  All wheat export sales for the 17/18 marketing year were net cancellations of -0.7mbu. This isn’t all that surprising given it was the last week of the marketing year and sales are often rolled to new crop at this time.  Total export commitments for the 17/18 marketing year ended at 871.6mbu vs. the USDA forecast of 910mbu.  Shipments as of 5/31 totaled 823.6mbu which is all that matters when the marketing year ends, although Census shipments usually end up a bit larger and wheat flour and product shipments are also not included in that total.  All told, final exports will probably need to be reduced 10-25mbu.  New crop export sales were also poor at 9.2mbu, bringing the 18/19 total to 107.3mbu vs. 156.7mbu a year ago at this time.  When we are already trailing 17/18 by this wide of a margin, and are just finishing the discussion on how bad the 17/18 marketing year was for exports, not exactly the place you want to be in.  Lots of time for sales to pick up, but off to a concerning start with flat price at 3-yr highs.  Corn sales were 33.0mbu vs. the 3.2mbu needed weekly to hit the USDA forecast.  Total commitments are now 2.177bbu vs. 2.126bbu a year ago, which should prompt USDA to raise their export sales forecast by 50mbu next week.  This also bodes well for the 18/19 marketing year which we will touch on below.  Soybean sales totaled 6.1mbu vs. the 3.5mbu needed weekly to hit the USDA forecast.  Total commitments now stand at 2.044bbu vs. 2.153bbu a year ago.  Soybeans sales continue to look fine where they are for now and shouldn’t need revision on next week’s WASDE.

While the focus in Russia/Ukraine of late has been on their wheat crops for good reason, their corn crops remain a talker given the USDA penciled both countries in for record production and record exports.  Considering the USDA already knew about the reductions to production in Argentina and Brazil at the time of the May WASDE, and chose to lean on the Black Sea to help soften the South American deficit put the major exporters in a precarious situation.  With dryness in S-Russia, some private forecasters have begun pulling estimates down.  With Russia, USDA sees production at 19.0MMT vs. the previous record of 15.305MMT while exports would be 7.5MMT vs. 5.589MMT on the previous record.  If Informa proves accurate, Russia would end up at 15MMT, and carryout would be negative by -3.2MMT.  Some reduction of both exports and feed/residual would be likely, but pairing back 2.5MMT of exports would need to be sourced elsewhere.  Ukraine’s projected yield of 6.52MT/ha would be the second highest on record, just shy of 6.59MT/ha in 2016/17.  If yields slip to the 5-yr average of 6.08MT/ha, production would fall by just over 2.0MMT, although ending stocks could likely handle to reduction without hurting demand.  Next week we will also get CONAB’s latest estimate of the Brazilian corn crop, but Agroconsult reduced their safrinha estimate yesterday to 55MMT vs. CONAB at 62.9MMT in May.  With a main corn crop at 26.3MMT, this would put total production at 80MMT vs. USDA at 87MMT.  With USDA’s demand base, this would drop Brazil’s carryout to an untenable 2.419MMT, the lowest since 2001/02 when Brazil exported only 2.054MMT vs. the 30MMT USDA is calling on this year.  If we make these supply changes to Russia, Brazil and Ukraine without altering USDA’s demand base, the results for the major corn exporters are shown below.  Ending stocks for ARG/BRAZ/EU/RUS/SAF/UKR/US would fall to 64.432MMT which would be the smallest since 2015/16, but more importantly the stocks/use ratio of 9.95% would be the smallest since the US-drought year of 2012/13.  For these reasons, several analysts are starting to bump 18/19 US corn exports up to 2.400-2.450bbu which we don’t have a problem with at current.

 

Bottom Line:  US growing weather is benign and there should be fewer dry spots this time next week.  Forecasts look non-threatening, and funds are still long.  US corn balance sheet tightness is not going away, but the market’s focus isn’t on demand right now; it is on supply.  There will be plenty of time to ration or encourage demand later this year, but right now ideas about the crop are getting larger.  Wheat will continue to focus on dryness in S-Russia/Ukraine, but keep in mind conditions are off to a solid start in the Northern Plains/Canadian Prairies.  If global importers need to come after US wheat to fill a Black Sea supply shortfall, there will be ample time to do it JFM-2019.  As long as US-HRW remains $30-40/ton over competitors it will be difficult to make a run at new highs.

 

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.

6/7/2018 Morning Comments

Good Morning,

 

A fair amount of rain around in the Plains and WCB this morning with a system stretching from N-OK to ND.  Most areas of the Midwest have received rain in the last 7-days, and the spots which haven’t look on tap to get some this weekend.  This sort of pattern continues to fit the NW-flow type scenario in which frequent showers move in sporadically, dropping large amounts of moisture where they do in fact fall.  This sort of pattern is not congruent with wide-reaching, soaking rains, however, creating the “haves and have-nots.”  A NW-flow has been the prevailing weather pattern in the Midwest the last two years which yielding record and near-record crops.  One large area of concern remains E-IA/WC-IL, but that hole looks to receive copious amounts of moisture this weekend if forecasts verify.  A large band from E-NE to OH appears to be on tap for 1.50-3.00”.  Only W-KS looks to miss out on rain, although at this stage, they are probably preferring dry weather for harvest.  A general cool down still looks likely in the 8-14 day outlook, especially so for the Northern Plains.  Precip should remain normal/above across most of the Midwest.

 

Firmer prices this morning, led once again by wheat which is working on erasing the entire selloff from the May highs.  Spot KC wheat prices at $5.50 are now within 25c of the best levels of the spring, and 25c from the best levels in close to a year.  Further, this area from $5.50-5.75 is also the best price going back to July of 2015, which makes one believe a larger than normal amount of wheat will be sold off the combine as harvest moves north.  Having said that, basis levels have actually appreciated over the last month, but protein scales are coming in swiftly for high protein relative to lower protein.  KC spot floor closes yesterday put ORD’s at +105/120N vs. +81/96N a month ago.  12’s were indicated at +143/158N vs. +131/146N a month ago while 13’s were posted at +160/175N vs. +136/151N a month ago.  The spread between ORD’s and 12’s has gone from 50c on the bid side a month ago to 38c last night, but the spread from 12’s to 13’s has gone from 17c a month ago to 5c last night.  The higher grades of protein coming out of drought-stricken Oklahoma are definitely putting pressure on the high-pro bids, but the levels 12.0-14.0% protein hit last year were all-time records and unlikely to persist forever.  With a bit better demand for lower protein to blend with the higher protein out of the field, this should continue to support calendar spreads and keep the threat of another VSR segment being introduced at bay.  Maybe, just maybe, a little tightening of board spreads might cause commercials to actually get competitive on some export business and move some wheat but I doubt it.  Corn and soybeans have been reluctant followers, especially corn as there continues to be a fair amount of wheat/corn spreading.  Soybeans appear content to sit until more is known about US/Chinese trade negotiations.  Large surges in open interest yesterday with the higher wheat board and lower row crops.  KC wheat open interest rose 1,786 contracts, SRW wheat up 8,636 contracts, soybeans up 7,454 and corn up 20,007 contracts.

Later this morning we will get export sales and shipment data for the last week of the 2017/18 marketing year in wheat, although corrections will continue well into June.  As of 5/24, all-wheat export commitments (wheat already shipped and still on the books to ship) totaled 872.3mbu out of the 910mbu export target.  Adding up wheat plus flour exports with a little bit of estimation should put total exports a hair under 900mbu, which will likely result in USDA reducing the 17/18 export forecast by 10mbu and in-turn bumping 2018/19 carry-in a skosh higher.  The 2017/18 export sales season was dismal, but we have growing concerns about the 2018/19 export season being even worse.  As of last week’s data, new crop wheat export commitments stood at 98.0mbu which compares with 156.6mbu on this date a year ago, an export season which turned out to be incredibly disappointing.  In fact, this year’s new crop wheat book is the smallest for this date since 2009/10’s 91.9mbu which resulted in a marketing year export sales total of just 879mbu, or about par with what we did this year.  The USDA has us penciled to export 925mbu in the coming marketing year, and while it is definitely too early to be cutting the export forecast already, one gets a sense of just how much work is in front of the wheat market to keep carryout from creeping towards 1.0bbu.

Other data yesterday included weekly ethanol production which was exactly unchanged from the week before at 1.041 million bbls/day.  This is just above the needed level on a weekly basis to hit the USDA’s marketing year forecast.  The fact weekly production continues to run at such a solid pace despite moving through some plant’s seasonal downtime is encouraging.  Weekly ethanol stocks rose sharply by 634,000bbls to 21.897 million bbls and are near year ago levels.  Also released this week were April ethanol export figures which trailed off notably from the last two months’ record export totals, but remained especially solid from a historical perspective.  Total ethanol exports for the month of April measured 162.3 million gallons vs. 215.0 million last month but nearly double April ‘17’s 87.2 million gallons.  The month/month drop in ethanol exports was due in large part to Brazil backing off her torrid pace of imports in March and April, but also China taking a step back after an encouraging two months’ worth of imports.  Through the first four months of 2018, ethanol exports are currently 44% ahead of 2017, and 2017 proved to be the best ethanol export calendar year on record.  We remain impressed with ethanol exports and continue to believe it is the best opportunity for continued growth in ethanol demand as opposed to the up-hill climb higher ethanol blends face domestically in the United States.  Much consternation about counting ethanol exports towards blenders RFS obligations, which we admittedly are not as versed in as we wish we were.  However, from a practical standpoint, anything which promotes ethanol demand, especially additional exports which can be a sustainable path to more demand, should be encouraged.

A lively debate on Twitter the last several days over various Major Exporter production levels and moisture profiles.  The largest grey area in our mind if S-Russia and what kind of production she will pull in.  As the world’s largest wheat exporter, they are arguably the most important cog in global wheat trade.  Unfortunately, it doesn’t seem like we are anywhere close to consensus on how large their crop is with some analysts moving under 70MMT and some still close to 80MMT.  With the board strength this week, does fell as though trade is starting to believe USDA’s 72MMT number or slightly below.  If that proves to be the case, other origins will have to step up to the plate, namely the United States.  If we look at the current Major Exporter balance sheet, we see the lowest ending stocks since 2013/14 and the lowest stocks/use ratio since 2007/08 if USDA proves exactly correct.  We feel the United States winter wheat crop is still moving higher, which will partially offset any Black Sea losses, while their estimate of Australia at 24MMT looks high based on what we know today.  Europe and Canada also remain large question marks as Europe has areas way too wet and areas way too dry, while Canada doesn’t even have all of her wheat out of the ground yet.  With this sort of setup for the world’s major exporters, it is difficult to see a ton of downside, but we aren’t convinced the KW board needs to be above $6.00 during the middle of Northern Hemisphere harvest.  In other words, buy dips, sell rips.

 

Bottom Line:  More wheat leadership, which should be viewed with caution given the date on the calendar and the entire Kansas wheat crop left to harvest.  Farmers are seeing pretty much the best harvest-time levels in three years, which should promote heavier off-the-combine selling.  Basis and spreads should be clues, although currently elevators are paying premiums for protein and to fill up available storage.  Weather looks pretty favorable for the corn belt, which should keep the board at bay, although CZ at 4.03 is not carrying any weather premium at all with the entire summer still in front of us.  Difficult to feel confident in corn shorts at sub-4.00.

 

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.

6/6/2018 Morning Comments

Good Morning,

 

A severe, and somewhat unexpected, storm moved across the Dakotas and into MN last night, bringing with it rain and high winds.  Totals haven’t been populated on NOAA yet, but across NC-SD, 0.25-1.00” amounts have been recorded.  The moisture is well taken, but the NW flow pattern continues to produce its moisture in the form of hit and miss thundershowers instead of general rain events.  The storm is moving across MN and into WI this morning.  The Plains and WCB see several more rounds of rain in coming days with KS and NE looking at a general 1.00” rain while the entire state of IA, S-MN, W-WI look to see totals in the 1.25-3.00” range by early next week.  Temperatures continue to drift away from sharply above normal in the 6-10 and 8-14, but remain slightly above normal at the end of the period.  6-10 and 8-14 day precip maps are mainly above normal.

 

Firmer markets this morning as we continue to bounce from yesterday, led once again by the wheat boards as Black Sea values added premium yesterday and traders are still concerned about Eastern Europe.  KC wheat is showing the best technical strength after the selloff, holding the 50-day moving average at the lows the last three sessions, and also holding trendline support going back to the March lows.  On-Balance-Volume is trying to turn from negative territory, indicating volume on up days is starting to overtake volume on down days, a potential sign bulls are once again mounting an offensive.  With all that said, plenty of bearish obstacles lay in wheat’s path including expanding harvest across the southern plains, better than expected yield reports out of OK and indications this could extend into KS, solid rains for most of the central/north plains in the coming week, an excellent start to the Northern Plains/Canadian Prairie growing season, larger than expected EU old crop stocks and a dismal US new crop wheat book.  Corn getting into a value zone has helped stem the wheat decline, but traders and producers need to be realistic after the selloff and two-day bounce.  Open interest changes yesterday included corn down 5,366 contracts, soybean O/I up 4,529 contracts, SRW down 5,154 contracts and HRW up 3,651 contracts.

Data yesterday included weekly deliverable stocks which was most interesting in Minneapolis/Duluth where total supplies fell 1.513mbu after dropping 798,000 bushels last week.  The Lakes shipping season has been open for several weeks, but the push to clear room ahead of another hard red spring harvest in 45-60 days is clearly upon us.  Total wheat stocks in both locations now stands at 16.576mbu vs. 19.996mbu a year ago, and would be the lowest total wheat stocks for the first week of June since 2014.  Stocks at current are pretty middle of the road for the data going back to 2003 with about as many years having larger stocks as smaller stocks.  Considering we are coming off the worst drought in over a decade in the Northern Plains, stocks would appear more than adequate and speaks the ability of the Northern Plains farmer to hold wheat on farm.  KC deliverable stocks fell 555,000 bushels to 106.5mbu vs. 96.449mbu a year ago, while SRW stocks fell 1.377mbu to 61.603mbu vs. 63.534mbu a year ago.

Other data released yesterday included the European Commission updating their 2017/18 wheat balance sheets as well as releasing their 18/19 forecasts.  Some clear discrepancies exist between the EU balance sheets and USDA’s official balance sheets, but inferences can be drawn nonetheless.  Their revised estimates of “common wheat” 2017/18 ending stocks now stand at 18.046MMT which is up 7.944MMT, a rather remarkable upward revision.  This would compare with USDA’s current 2017/18 ending stocks of 13.074MMT.  The EU saw total supplies last year at 155.758MMT vs. USDA at 167.974MMT, but appears closer when durum wheat is added in, pushing total supplies to 169.305MMT.  Total use from the EU with common and durum combined is 148.377MMT vs. USDA at 154.9MMT.  Bottom line would appear to be larger old crop ending stocks being carried into the new crop marketing year, although of what exportable quality is not certain.  The EU saw exports swing to a 5-year low last year after damaging rains compromised quality, so with a bounce back this year, and the ability to blend, would expect the EU to be more aggressive on offerings into MENA.

Informa released both US and World crop estimates yesterday with something for everyone.  The group upped their winter wheat crop estimate by 21mbu to 1.213mbu which would be 56mbu below a year ago but above USDA’s 1.191bbu.  Their HRW estimate of 661mbu would compare to 750mbu a year ago, and USDA at 647mbu.  With the recent rains in Kansas and the better than expected yield reports in Oklahoma, we are definitely in the camp this crop is getting larger not smaller.  Conditions in Nebraska/South Dakota/Montana are also solid, so this crop could end up proving closer to 675mbu than 650mbu.  Informa also updated world numbers, pegging the Russian wheat crop at 77MMT vs. USDA’s current 72MMT and several privates in Russia at 72-74MMT.  This would definitely be the high end of the range, although confidence with Russian estimates seems to be especially lacking this year.  They also see Canada at 33MMT which would be up 3MMT from last year, but not worth much as the crop is barely out of the ground. Other notables included Brazil’s corn crop at 85MMT vs. USDA at 89MMT, and Russian corn at 15MMT vs. USDA at 19MMT.  It remains difficult to keep the 2018/19 US corn export program from closing in on 2.350-2.400bbu with all of the other major exporters suffering stock and production drawdowns.  Lots of time for Black Sea maize crops, but USDA already has record production and record exports penciled in to help alleviate a tight world balance sheet.

 

Bottom Line: Ethanol production out later this morning, although the market mover will continue to be weather maps.  At the present moment, it is difficult to have a lot of issue with current US growing weather.  Above normal temps persist, but not as hot as earlier in the week and what appears to be plenty of rain around for the central corn belt.  Various weather indicators stress the importance of receiving timely rains due to lower subsoil moisture, but that is in fact what we are currently getting.  Having said that, the US and World corn balance sheet has little to no margin for error in 2018/19, so prices at current seem low range with no risk premium incorporated.  Trade disputes will continue to drive the soy complex until July when weather starts to matter for soybeans.  Wheat can bounce, but probably not too far.  US wheat remains uncompetitive with the Northern Hemisphere harvesting wheat almost everyday from now until the end of September.

 

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.

 

6/1/2018 Morning Comments

Good Morning,

 

Rains across the majority of North Dakota this morning while the bulk of the Midwest is dry.  The system across North Dakota is badly needed and well-timed as newly planted crops emerge and spring wheat water-use begins to creep higher during the month of June.  A decent sized system will be moving across the WCB and Northern Plains later this evening, bringing with it rains to SD/MN/ND/IA/WI before moving east over the weekend.  A few days of dry before the next chance at moisture Tuesday/Wednesday across the Dakotas and N-MN.  7-day forecast maps show impressive totals, but most of these amounts are 2-3 systems each bringing 0.25-0.30” which can be hit or miss.  This is part of the reason private forecasters have been downplaying the heavy amounts suggested by the QPF model.  Extended maps from NOAA show the heat intensifying in the 6-10 and 8-14 for all of the Great Plains and some of the WCB.  Rains will be needed frequently to combat the rising moisture needs in these areas.  Precip maps are suggesting below normal temps during that time frame.

 

Firmer row crop markets but weaker wheat markets as we get set to close the week and begin a new month.  June more or less begins the silly-season with respect to row crop volatility, a time frame when traders react to each and every weather model, most of which are refreshed every 6-hours.  This usually continues through the end of July, but it should also be pointed out June and July are historically very weak months from a seasonality perspective.  This is because highs are usually set for new crop contracts, and the subsequent price weakness can be more severe than the gains made during the run up.  We follow research from www.sentimentrader.com, and according to their historical data, June is the second weakest month of the year in corn over the last 30-years with an average annualized return of -0.941% for the month.  This is second to only July which has averaged -4.457% over the last 30-years.  Again, this is not to say price strength cannot or will not occur during these months, simply once the highs are set, the subsequent weakness can erase gains and then some.  June is solid for soybeans with an average annualized return of +1.079%, but July is the second weakest month of the year at -3.009%.  July is second to September which has witnessed an average annualized return of -3.126%.  June is also weak for wheat at an average return of -1.182%, the third weakest of the calendar year, but July is the second strongest month of the year at +3.293%.

As the previous paragraph would suggest, trading a lot of weather models right now, especially in wheat.  Maps for the Black Sea are as divergent as we’ve ever seen them with some suggesting decent rainfall in S-Russia and E-Ukraine, but others positing the dry period will hang around. We’re not meteorologists, even though you don’t need to be one on Twitter anymore to have a weather opinion, so we’ll leave that to others.  What we can say is current weather is causing crop forecasts to be downgraded further.  The head of the Ukrainian state weather forecaster cut their winter wheat harvest to 24MMT from 25.4MMT in 2017 due to the extremely dry spring.  The barley crop is seen at 2.5MMT vs. 3.03MMT in 2017.  Their winter wheat yield is seen at 3.8MT/ha vs. 4.1MT/ha and would be slightly below the 5-yr average of 3.86MT/ha.  Russia’s weather group said their winter wheat crop will be 10% smaller than a year ago, although details were lacking.  Using that very vague statement, would suggest an all-wheat crop of 76MMT, although winter wheat makes up a larger percentage of the all-wheat crop so could be slightly lower.  USDA is currently at 72MMT with privates approaching 70MMT.

Weekly ethanol production was also released yesterday, coming in up 13,000bbls/day from the week before to 1.041 million bbls/day.  This was up 2.1% from the same week a year ago, and slightly above the needed y/y increase from 2016/17 to hit the USDA’s ethanol forecast.  Based on ethanol production from the last 6-weeks, we do not feel the USDA needs to adjust their current corn demand for ethanol forecast, although the April Grain Crushings report released this afternoon could shed a bit more light on the topic.  Ethanol stocks fell swiftly at -866,000bbls to 21.263 million bbls, in-keeping with seasonal declines into driving season.  Spot ethanol prices remain above their 50/100/200-day moving averages, although have sustained decent price weakness the last three days.  The spot RBOB/Ethanol spread at 68.5c/gln remains elevated, and well above major moving averages.  At its peak in mid-May, the spot month spread rallied to +80.00c/gln, the highest spread since September 2014.  Ethanol blending and export should remain strong at these sort of differentials.

Canadian crop progress continues to make strides as they make strong gains and wait for rain.  Wheat planting nationally is 93% complete which is above the 5-yr average.  Dry areas persist in southern Alberta and SW-Saskatchewan as well as a portion of Manitoba, although no one really complaining yet.  The Saskatchewan province crop report put their wheat seeding at 92% complete, with 78% of the crop in G/E condition.  98% of the SK winter wheat crop is rated G/E, while 64% of the durum crop is G/E and 76% of the barley crop.

Paris/US wheat futures spreads seeing some correction this morning with spot month spreads between PM/W up to $25.77/MT premium Paris, the highest trade since mid-May.  The PM/KW spread is up to $19.85/MT, the highest spread since mid-April.  It should be pointed out, however, Paris doesn’t have a July contract, so when running those calcs using a September Paris contract and a July US contract, the premium for Paris is a big more exaggerated.  When we run in straight September or straight December, Paris is carrying much less premium at $15.46/MT over Chicago basis September and $9.06/MT for KC.  Regardless, US is moving in the right direction but has much further to go to win back some swing export business.

 

 

Bottom Line: Could be a volatile day with closes not necessarily in-line with the open.  There is rain around for the corn belt in the next 7-days, but most will be counting on a drink ahead of what appears to be a rather warm stretch into mid-June.  Conditions are off to a fantastic start, but we are still in the first or second inning of the growing season.  There are 3-4 concern areas for major wheat producers the market is keeping track of, suggesting the board shouldn’t be in too big of hurry to extract premium.  Funds are mostly flat in wheat, which is in contrast to their usual short position, but the point being they have plenty of room to add contracts in whichever direction they see fit.  Their long positions in corn and soybeans are well-entrenched and it will take an extended period of benign weather to shake them loose before July 4th.

 

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.

5/31/2018 Morning Comments

Good Morning,

 

Showers in E-OK, E-KS and W-MO this morning, otherwise radar returns are fairly quiet across the Midwest.  Above normal temps remain the feature across the corn belt and Great Plains, which up to this point have been welcome as late planted crops play catch up.  Dryness concerns are starting to creep in, however, with two week percent of normal maps showing dry swaths across IA/IL/IN/MO/E-NE/SE-MN.  C-IL did see rain yesterday, as did some parts of IA, but more will be needed in coming weeks.  7-day forecasted precip maps this morning are putting solid rains across nearly the entire state of IA as well as most of ND, E-SD, MN and E-NE.  It should be noted, private forecasters have been warning about NOAA’s QPF maps overdoing rainfall projections in recent weeks with actual storms underwhelming.  Returns this weekend will need to be monitored.  Temps remain above normal across much of the Midwest in the 6-10 and 8-14.  Precip returns from NOAA are running normal to below normal through the 8-14 day which encompasses June 13th.  Dryness concerns remain for S-Russia and the Ukraine.

 

Small, nominal gains this morning as markets try to bounce from the heavy selling the last two days, although at the time of this writing, wheat has slipped from small gains to small losses.  The better than expected crop conditions to start the year in corn, as well as solid rains on tap for US-HRS and Canadian Prairie wheat areas seem to grease the skids for the downdraft.  All of our markets have the speculative community long, and the growing season is still early in North America, so the losses are a reminder of how the bull needs to be fed every day.  For the month of May, corn is set to close down 4.75c, Chicago wheat is up 10.75c and soybeans are down 13.25c.  Open interest rose on the rally, and continued to rise on yesterday’s two sided trade.  Corn open interest was up 13,329 contracts, soybean O/I fell 7,067 contracts, SRW wheat was up 9,741 contracts and KC wheat was up an impressive 6,069 contracts.  The steady rise in wheat open interest through the new highs made Monday suggests there is a fair amount of fresh length caught underwater.  Unlikely we’ve seen the last of the liquidation there, especially with harvest efforts ramping up in the Southern Plains.

The focus of the selling pressure yesterday was US futures, but several outlets made mention of the performance in Paris Milling Wheat.  The most actively traded December contract gapped up Tuesday to make new highs for the move and the highest level hit since July 12th.  When trade opened Wednesday, however, we gapped lower, leaving what is known in candle-sticking circles as an evening star doji.  This pattern is an especially bearish chart formation as Tuesday’s entire range was left open on charts and suggests this market could be prone to further liquidation as well even with it making small gains today.  The most actively traded Black Sea futures contract (Sept) has also back and filled after making new highs at $215.50/MT to settle at $213.00/MT yesterday.  Actual FOB cash offers show US-HRW has $41/MT over spot Black Sea offers and $40/MT over September offers.  Vs. German offers, US is carrying a $34/MT premium up front and $36/MT over Sept.  Similar spreads vs. French for like protein content as well.  Argentina remains the high offer, however, with spot indications at $280/MT and September up to $290/MT as they are effectively out of wheat.

As noted above, harvest efforts are still in their infancy, but the anecdotal reports suggest better than expected yields in Oklahoma and obviously solid quality.  Early thinking is this theme of better than expected and higher protein than last year could extend into Kansas.  Test weights in Oklahoma are running anywhere from 58-63lbs, but generally close to 60lbs despite the droughty conditions, while protein has been anywhere from 11.5-14.0%, but generally all above 11.5%.  This would be much improved from the last few years, although overall harvested area and bushels should obviously be down.  Kansas State estimated the HRW there in the dough or mature stage in SE-KS, while the central 1/3 of the crop is generally in milk to dough stage and the NW-1/3 is still flowering.  That said, much of Kansas is still 10-14 days away from seeing harvest activity.

New contract lows or contract lows tied in several corn and soybean spreads yesterday as the pre-roll takes place ahead of the larger index rolls next week.  Even new crop spreads have lost some starch this week with CZ/CZ trading down to -3.00c yesterday, the first carry since the middle of May.  SX/SX remains at a solid inverse, although at +42.00c is well off highs of +55.00c set earlier this week.  Minneapolis calendar spreads continue to get walloped as grower selling increases on both ends of the curve with the improved forecast.  Add in the fact all classes of US wheat are being undercut by competitor origins and the amount of wheat being sold just doesn’t have enough homes.  The Minneapolis spot floor traded weaker yesterday once again with 13.5’s down 20c to +95/140N while 14’s were indicated at +125/140N and 15’s at +150/175N.

Lastly, the Bureau of Meteorology in Australia released their latest 3-month climate outlooks for the country and it was certainly not what Aussie growers wanted to see.  For the June-August period, which to be clear is generally their dormancy period, suggests an 80% chance of exceeding the median maximum temperature over that time frame for the East Coast growing areas.  Western Australia also looks warmer than average, although not as egregious as the East Coast.  On precip, the East Coast has only a 20-30% chance of exceeding the median rainfall over the June-Aug time frame.  The West Coast has slightly better prospects with essentially equal chances of exceeding or falling short of the median rainfall profile.  Western Australia is the export hub, while the East Coast is the domestic market, but neither needs another year of drought taking a toll on its farmers and end users.

 

Bottom line: Claw back trade, but chart damage has been done and most in the corn belt look to see moisture in the coming 7-days.  Our markets have a fair amount of length in them at the moment, and some of this probably needs to be shook loose.  A lot of bullish farmers and marketing advisors that aren’t necessarily wrong, but need to keep expectations in check for May 31st.

 

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.