Commodities are the buzz. Yesterday, the CRB Index, which measures a basket of commodities, hit the highest level since October 2015 as crude oil and other hard assets continue to push higher. The index has been driven in large part by crude oil, which hit the highest level since the fall of 2014 yesterday. Spot month crude oil futures missed the $70/bbl mark by just 44c/bbl. Brent Crude oil futures on the other hand, missed $75/bbl by just 25c/bbl. Rising energy markets have been in response to the draw down in US crude oil stocks, as well as a fairly strict adherence to OPEC’s production caps. This rise in crude oil was met with tweets from President Trump this morning, however, as rising gasoline prices usually don’t sit well with the American Consumer. It is very difficult to have a roaring economy and cheap gasoline prices, so if given the chance I’d think he would be happy with the former.
All eyes on the southern plains rain forecast for the weekend which is still showing 0.50-1.25” for the western ½ of the state, although down from early week model runs. The system will blanket Oklahoma and most of N-TX as well. E-CO will probably be the area short changed. The heart of the corn belt looks mainly dry the next 7-days which should allow planters to roll in spots by mid-week next week. Normal/above temps in the 6-10 and 8-14, while above normal precip moves in for the entire Midwest and Southern Plains in the 8-14 day.
Easier markets to close the week with losses being led by KC wheat which has been the price leader multiple times this week. HRW is definitely in a weather market, living and dying with each model run. However, expectations should be tempered for how much recovery can take place if rains do verify. When one considers it began raining/snowing around this time last year leading to a substantial recovery in the crop by harvest, one needs to remember the vastly JFM period for 2017 vs. 2018. February 2017 was rather dry for the heart of the HRW belt, but January and March were actually rather wet with most of the state seeing 2.0-3.0” of moisture during that month. April was particularly wet for Kansas with the entire state seeing 2.0-5.0” by the turn to May. This was not the case with 2018, and while stabilization and even some recovery can occur with an up-turn in rains, I think expectations need to be tempered about returning to an average crop, even if development is behind. Today is option expiration for May options with the 1030/1040 strikes being watched closely in soybeans as well as the 3.80 strike in May corn. Soybean charts and spreads are looking tough.
Data out yesterday included weekly export sales which were decent for row crops, and disastrous for wheat. Wheat export sales featured net cancellations of old crop of 2.5mbu vs. the 11.5mbu needed weekly to hit the USDA forecast. Total commitments of 844.0mbu are down 17% from a year ago vs. a 15% deficit last week. With just six weeks left in the marketing year, it looks as though USDA will be downgrading the wheat export sales forecast next month, leading to a rise in carryout. New crop sales totaled 8.9mbu which puts total new crop commitments at 51.0mbu vs. 57.9mbu a year ago. Corn sales were solid at 43.0mbu vs. the 13.9mbu needed weekly. Total commitments are down 1.940bbu, down just 2% from a year ago, consistent with the last several weeks. Soybean export sales of 38.2mbu were much stronger than the 5.2mbu needed weekly to hit the USDA forecast. Total commitments of 1.985bbu are down just 3% from a year ago vs. the USDA calling for a 5.0% decline. Shipments of 1.557bbu are down 224mbu from a year ago, and are definitely the indicator to watch as we move into the summer months. Meal and bean oil sales were both much stronger than the level needed.
Several Chinese headlines out yesterday regarding their corn market including an article which is pegging their 2018/19 corn demand rising to 225MMT, 15MMT larger than 2017/18. There must be something being lost in translation as 2017/18 total consumption was 232MMT, and straight feed/residual demand was 162MMT while FSI consumption is 70MMT. We had been plugging 240MMT into our 2018/19 balance sheet, but this will evolve. Also on the demand front China sold 2.696MMT of the 2.958MMT offered during yesterday’s corn auction at an average price of $241.70/MT. There have been four auctions held total in 2018 which saw a combined 8.955MMT sold. For reference sake, May corn futures on the CBOT are trading at $149.34/MT. The strong demand for corn is not all that difficult to square given the recent bump in tariffs against US sorghum, a commodity which China had been consuming copious amounts of. If China’s demand continues to grow at the current pace, and to meet the additional ethanol demand, greater imports will be needed.
The other big talker in our littler corner is the Russian balance sheet and its implications for the 18/19 global wheat flow. Russia’s wheat exports in 2017/18 have absolutely blown away expectations, and are now being estimated at 40MMT vs. early season ideas which had them struggling to put through 30MMT. The open winter definitely aided these efforts, something which can’t be counted on every year. Nonetheless, if we assume 2017/18 wheat exports at 40MMT, carryout falls to 11.222MMT, which would still be the largest since 2010/11. Production ideas for 2018/19 are somewhere between 75-78MMT, so we are using 76.850MMT with an average yield of 2.90MT/ha. This would be the second largest yield on record behind last year’s 3.10MT/ha, which many have described as an outlier given the perfect growing conditions. Total supplies would therefore be down around 8MMT y/y, while we see demand easing to 82.50MMT vs. 85MMT this year thanks mainly to a 2MMT drop in exports. Russia will still be position to export a huge book, but repeating an open winter will be tough. Carryout would therefore fall to 6.072MMT if domestic demand is flat, which would be a three year low. More impressive is the stocks/use ratio at 7.36% which would be the smallest since 2000/01. When a huge demand base gets put underneath the market, even with solid supply, it raises the bar for countries relying on this country continuing to perform seamlessly throughout the year. The fact Russia will not have as large of stocks hanging over the market for an entire marketing year should help elevate global offers.
MW/KW inter-market spreads have very likely seen their highs in the near-term around $1.20 basis the July, which was resistance back in mid-March as well. Minneapolis began to exert premium over KC as planting delays mounted and rainfall prospects improved for the southern plains. As the week has progressed, rain fall totals have been dialed back in the south, and weather seems to be improving in North Dakota. Crop progress reports on Monday should still show a complete lack of progress seeding across the Northern Plains, but the following week could begin to see progress being made. How acres change on the June planted acreage report is another matter, but spring wheat will go in the ground in May in short-order if forecasts hold. Having said that Commodity Weather Group did issue a blog post yesterday suggesting the 11-15 day is turning cooler and wetter with the 16-30 day backing that prediction up as well.
Bottom Line: Easier as we await midday model runs. Opex could keep us lower today as prices try to gravitate toward a major strike. Sunday night open will be about rainfall returns in the Southern Plains and the updated outlook for corn belt weather. If the forecast holds, planters will be rolling hard in Illinois and Iowa by next weekend. As many have pointed out, we can plant 30-50 million acres of corn in a week. We are not late. Outsides remain supportive.
Good Luck Today.
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