Outside Markets as of 6:25am: Dollar Index down 0.1590 at 87.1440; Euro up 0.00250 at 1.25190; Russian Ruble is off another 1.25%; S&P’s are down 3.25 at 2007.75; Dow futures are down 17.00 at 17,268.00; 10-yr futures are up 0.20%; The Nikkei closed up 2.73% at 16,862.47; The DAX is up 0.35% at 9,283.95; The IBEX-35 is down 0.20% at 10,353.20; Gold is up $1.80 at $1171.60; Copper is down $1.20 at $305.30; Crude Oil is down $2.22 at $76.57; Heating Oil is down $0.0510 at $2.0668; Paris Milling Wheat is down €3.00 at €169.00/MT.
The focus this morning has to be on the energy sector which finds most of its components down over 2.00% after a report from Saudi Arabia said the kingdom is cutting its prices for customers in the US in an attempt to stifle shale oil development. Oil analysts have said this doesn’t bode well for OPEC as Saudi Arabia’s decision to keep prices low will hurt the economies of other countries inside the cartel, and could raise animosity towards the nation. At the lows this morning, crude oil touched $75.84/bbl, the lowest spot trade since October 4th, 2011. The chart in yesterday’s commentary highlights the breakeven price for a barrel of crude oil at various shale plays around the United States. The market is estimating today’s September US trade deficit to expand slightly to -$40.2 billion from -$40.1 billion in August.
Large band of showers stretching from W-TX to N-IN this morning, and bringing soaking rains to areas in between. The 5-day forecasted precip map is shown below with heavy rains expected the next 3-4 days across TX/OK/AR and parts of the mid-south. This may impact very late corn harvest in TX and late soybean harvest in AR/MS/TX, but shouldn’t push far enough north to really impact the central corn belt. Extended maps from NOAA suggest a cooling trend for the Midwest with well below normal temps during the 6-10 day and 8-14 day periods. Could be our first legitimate cold snap of the season. Precip looks as though it will remain on the below normal side for the majority of the Midwest.
Weaker prices again this morning as Ag markets see follow through pressure after yesterday’s whipsaw session which ultimately left row crops lower and wheat unchanged to better. Soymeal is certainly under pressure, as are soymeal calendar spreads, but soybeans and corn are weaker than meal at this hour which begs the question whether this is recently added longs puking or whether this is the meal tightness actually being resolved? Ramp up to the November WASDE begins this week with private estimates being kicked out each day, and the general consensus seems to be towards a slight bump in soybean and corn production. History is worth paying attention to as it shows USDA actual corn production coming in below the average trade guess in 7 of the last 8 years, despite the tendency for USDA to raise corn yields in November after raising them in both September and October. On soybeans the results are much more mixed with USDA soy production being higher than the average trade guess four times out the last eight years, lower three times and unchanged once. USDA’s estimate of demand for the November WASDE relative to final demand on corn has been very mixed, but they have consistently underestimated soybean demand on this month’s report. Over the last seven years, six times the USDA’s November soybean demand estimate has been too low, and this year looks like it could be as well.
Crop progress out yesterday afternoon with corn harvest coming in at 65% vs. 71% last year and 73% on the 5-year average. This was about 5% ahead of expectations, although northern tier states have plenty of crop to harvest yet. ND is 48% harvested, MI 31%, OH 52%, PA 51%, WI 33% and a host of states right around 60%. Soybean harvest was estimated at 83% complete vs. 85% last year and 83% on the 5-yr average. States with significant progress left include MO at 64%, KY at 51%, NC at 30%, OH at 72%, IN at 73% and MI at 71%. The rains this week could hinder late soybean harvest efforts. Winter wheat conditions were unchanged at 59% vs. 63% a year ago with HRW states generally seeing declines while SWW states saw improvements. SWW conditions in the PNW remain sharply below a year ago with WA at just 26% G/E vs. 80% and OR at 39% vs. 73% last year. Still the US winter wheat condition index remains above both the 5-yr and 10-yr averages thanks in large part to decent HRW conditions which have been lacking more years than not. IL/IN/MO still have a fair amount of acres left to seed at 69%, 82% and 56% planted, respectively. IL is only 36% emerged vs. 62% average.
While old news this morning, worth noting the record shattering export week for soybeans with 101.8mbu shipped in the week ended October 30th, besting both expectations of 68-77mbu and beating the single week record of 87.8mbu from last year. Shipments to China came in at 78.6mbu, and were being loaded out of every possible port of the United States including the PNW, US Gulf, Atlantic Coast, North Texas, East Gulf coast and St. Lawrence Seaway. Shipments for the marketing year to date now total 404.5mbu, up 17% from a year ago and leave ample room for the USDA to increase their soybean demand estimate. Corn and wheat shipments were below expectations, but almost had to be given the sole focus on shipping soybeans at this time.
As noted above, meal spreads are seeing weakness this morning with the SMZ/SMF off $1.60 at $14.90, and well off the 10/29 highs of $26.10. There continue to be no soybean deliveries against the November contract, and the SX/SF has kissed even money this morning in response. The SF/SH jumped to -1.75c yesterday, but has backed off to -5.00c this morning. Not much change to Gulf or PNW soybean bids yesterday, although corn bids off the PNW continue to ease lower with spot shuttles showing +82Z while December sits at +90Z and January at +102H. An 8c carry in destination export values for one month’s time isn’t bullish. HETX values remain depressed as well at +75Z spot and +80Z for December. Shuttle freight reflects same with BNSF and UP cars less than week ago values. The drop in oil price should slow demand for cars out of the Bakken and help keep freight costs lower.
Bottom line: Charts have taken on a negative tone in wheat and soybeans, while corn hasn’t done a significant amount of chart damage yet. Specs have done a large amount of buying in Ags as of late, and may have pushed the largest amount of short covering we’re going to see. Focus will shift to the USDA estimates next week, even if it isn’t going to be the final word on corn or soybean supplies and demand. Producers have been given a big marketing opportunity during gutslot harvest. Has it been used?
Good Luck Today.
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