After hitting the highest levels since December 17th, the USD Index has given back ground to trade just above its 50 and 100-day moving averages. On the other hand, energy markets continue to work mostly higher with crude oil hitting the highest levels yesterday since November 20th, with RBOB and Heating Oil achieving similar feats. The Brent/WTI spread has corrected sharply after hitting the lowest levels since August on January 31. That spread catapulted to $11.91/bbl on 2/18, the highest trade June before leveling off some since.
More snow falling across the eastern Dakotas, Minnesota, Iowa, Wisconsin and Michigan this morning while rain and rain/snow mix fall in the Mid-South and Ohio. The only thing most are interested in is when this winter will come to an end, and according to NOAA, not anytime soon. 7-day forecasted precip maps show additional moisture across MN/IA/NE/WI/IL and especially further south, but that is probably in rain form. The snow across the Midwest will add to impressive totals already on the ground, but shouldn’t add to the Northern Plains where it is not needed. In looking at the Northern Plains region, 98.9% of the region is covered in snow with an average depth of 11.2”. This is the equivalent of 2.1” of water, a wet winter by most standards in the Plains. Of most concern, NOAA’s extended maps on temperature show below normal temps through March 5th. Precip does shift below normal by the 8-14, but it will be heat which is needed to slowly bring this snowpack above freezing.
Mixed markets this morning with corn bouncing back nicely by 2-3c, recovering a good portion of the losses from Tuesday. It is the additional losses in soybeans and wheat following the thrashing Tuesday which is of most concern. Between soybeans violating their vaunted trendline, and wheat markets splashing to new contract lows, there wasn’t much positive to discuss with these two markets Tuesday. In our opinion, it felt like the market had finally picked through the bullish narratives in the wheat market which have been present the last couple months. It looks increasingly unlikely we will achieve the USDA’s export forecast. Russia has not run out of wheat and will not be restricting exports in the 2018/19 marketing year. China has not, and most likely will not, buy US wheat in meaningful quantities this year. Major importers are not beating down the door for U.S. wheat as we’ve been told they would, but instead they are stretching supplies to get to the back end of the inverse. If exports do not meet the USDA forecast, then carryout could rise back to levels congruent with the last two marketing years which saw Chicago spot prices in the low 4-handle area. We are not expecting a return to those price levels, but simply to acknowledge the current state of U.S. supplies. Big increases in open interest on the selloff with corn up 18,065 contracts, soybeans up 2,758, SRW up 8,225 contracts and HRW up 5,321.
Yesterday’s export inspections seemed to kind of illustrate the problem in wheat. We’ve been writing since last fall about the monumental task facing the wheat export book. It is now mid-February, and sales and shipments need to be records to hit the 1.000bbu export forecast. Cash traders have already said we have missed the big March business which leaves April and May. Export inspections in the week ended 2/14 were 13.1mbu vs. the 25.4mbu needed weekly to hit the USDA forecast. Total inspections of 578.6mbu are down 10.4% from a year ago while the USDA is essentially calling for a 10% increase. Not much time to make a 20% swing. Only one week since the beginning of the marketing year has seen inspections hit the needed level. Corn inspections totaled 37.1mbu vs. the 45.9mbu needed weekly. Corn inspections have missed the needed level in 10 out of the last 11 weeks. Total inspections are up 44.9% from a year ago, but this gap has shrunk from 51.0% ahead two weeks ago. Soybean inspections continue to chug along at 37.9mbu vs. the 33.2mbu needed weekly. Total inspections are still down 36% from a year ago, however, while the USDA is calling for a 13.7% reduction. Soybean inspections have hit the needed level six consecutive weeks.
The Minneapolis spot floor broke back by 5-30c on Tuesday as a better run of cars finally shook loose. There were 81 cars including one train on the spot floor yesterday, although railroads are still running 10-14 days behind with car placements. To be sure, these spot floor values are still better than a week ago and some of the better levels of the season. With the MWH/MWK spread finally breaking the inverse, it is difficult to believe basis has another leg higher. While producers remain dismayed with the flat price market, they should be inquiring about basis tied to HTA’s or outright basis contracts ahead of an eventual board recovery. The ability to separate futures and basis can mean a big boost to the final cash price. The HRW domestic market and spot floor were unchanged Tuesday and have been especially quiet for the last couple of weeks. SRW and HRW cash remain above delivery equivalence, supporting their respective H/K spreads. With the bull narrative slowly coming undone in exports, it has us wondering about spreads on the back end of the curve once storage rates drop another 3c/mo. The WN/WU is trading 68% of full financial carry (LIBOR+200bp) assuming 5c/mo of storage costs. If the US is going to be relegated to the supplier of last resort in the 2019/20 marketing year, do spreads need to widen out and increase VSR rates?
Egypt’s GASC is tendering for wheat overnight, seeking boats for April 5-15 shipment. Cash traders suggest French and US-SRW should once again be competitive looking at FOB offers and assuming freight doesn’t change drastically. Continuing to compete for Egyptian business is a good sign, but French wheat will probably mop up most of the North African business still open for spring. Black Sea new crop futures settled at $197.75-199.00/MT yesterday, which is $5.38/bu at port. This would compare with spot HRW prices at the Gulf around $6.18/bushel and new crop bids around $6.30/bushel. This should illustrate the incentive global importers are being given to stretch supplies until new crop is available this summer.
Otherwise, President Trump made headlines Tuesday after saying trade talks are “going very well.” More interestingly, he said “these are not just, you know, let’s sell corn or let’s do this… it’s going to be selling corn, but a lot of it, a lot more than anyone thought possible.” Two things: 1) he mixed up corn and soybeans, or 2) there is a plan for a larger slate of U.S. ag purchases which include corn although that would seem to go in direct contrast to perceived Chinese supply levels. We aren’t likely to know what’s going on until a final deal is announced, but he does keep things interesting.
Bottom Line: The washout Tuesday was eye-opening, but not sure if it should have been all that surprising. The US export book for wheat hasn’t been good, and we are running out of time to meet the USDA objective. No exports means rising carryout levels. Plenty of wheat left for sale in the Northern Plains, although we suspect that will be carried into new crop if prices don’t recover. New crop bean prices of $9.44 don’t look nearly as appealing as the $9.60’s available a week ago, although most producers didn’t like those either. The insurance pricing period is almost done and corn appears to be the clear winner. If one is planting more corn this spring, is there a marketing plan for the extra bushels?
Good Luck Today.
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