10/19/2018 Morning Comments

Good Morning,

 

We wrote about China and their stock indices yesterday, and there is more to talk about today.  Overnight, China announced their Q3-GDP which came in at 6.5% y/y, marking the weakest quarterly growth figure since the 2008/09 financial crisis.  The figure was lower than expected, but it did keep China on-pace for its full-year growth forecast of 6.5%.  With the heavy losses witnessed this week, one would think the print would have encouraged a further selloff, but the Shanghai Composite rallied to close higher by 2.58%.  The week’s selloff did not go unnoticed by data watchers, however, as China’s main stock index is now off more than 30% from its most recent 200-day high.  This is the largest drawdown in two years.  However, when drawdowns have been this large in the past, it didn’t necessarily mean further losses going forward.  In fact, under all time frames, and especially 6-months later, the median return for the Composite was higher with the exception of 1-week later.  This likely mean the worst is over for Chinese equities, if history is any guide of course.

Rains this morning in Texas, Oklahoma, E-Kansas, Iowa, S-Minnesota and Wisconsin.  Once these showers finish up, however, the majority of the Midwest is still looking at a dry 7-day outlook.  The southern plains and Delta are the two areas which remain wet the next week with Texas seeing another 2-3”.  Oklahoma is also wet, but Kansas has only passing chances at showers which could allow the last bit of winter wheat to get in the ground.  Unfortunately, extended maps from the CPC look wet for the entire Midwest with the 8-14 day turning above normal on precip for almost everyone.  Temps will also gradually cool to normal/below for most in the corn belt.  In other words, farmers would do well to take advantage of the next 7-10 days while the good weather lasts.

 

Weaker grains but a firmer oilseed complex this morning as traders get set to put a bow on a soft week.  After the continuation of last week’s rally on Monday, trade this week has been disappointing and a bit disheartening.  Technical indicators looked good early in the week, but the waning upside momentum combined with what are surely smaller managed fund short positions are limiting upside appetite.  Harvest is back rolling in many areas, bringing with it increased hedge pressure, and when combined with a disappointing round of export sales, there isn’t much reason for bulls to throw their weight around.  In addition, put/call ratios show way more upside bets than downside bets at the moment.  Across the grain room, every commodity has more open calls than puts, with the largest spread belonging to KC wheat with 70.75% of all options open being calls vs. 29.25% being puts.  Corn has 62% of the options being calls, soybeans at 58%, Chicago wheat at 62%, Meal at 59% and Oil at 55%.  Open interest on yesterday’s selloff saw corn up 10,398 contracts, beans down 1,220, meal up 3,066, oil up 2,105, SRW up 431 and HRW up 696 contracts.

Other than the price action yesterday, the story was export sales.  The only encouraging total was found in wheat, although it says a lot when we get excited about the weekly haul just barely hitting the level needed.  All-wheat sales were 17.5mbu vs. the 17.4mbu needed weekly to hit the USDA forecast.  Total commitments of 445.1mbu are down 18% from a year ago vs. the USDA calling for a 13% y/y increase.  The commitment total is the smallest since 2015, and 17mbu above the lowest commitment total for this week on record.  Commitments as a percent of the USDA forecast at 43.4% remains the smallest on record going back to 1990.  Corn export sales were very disappointing at 15.0mbu, the smallest sales for this week since 2012 and well short of the 36.5mbu needed weekly.  Total commitments remain strong at 828.7mbu which are the second largest since 2007.  The slower sales could be a sign of more competitive Ukrainian supplies and very cheap Argentine supplies.  Soybean sales were also weak at 10.7mbu vs. the 28.7mbu needed weekly to hit the USDA forecast.  Total commitments of 765.7mbu are the smallest since 2011 while commitments as a percent of the USDA forecast at 37.1% are the smallest since 2008.  In fact, other than the 2013 government shutdown when no data was reported, this week’s export sales were the smallest on record going back to 1990.  This includes the pre-China era when sales were much more even throughout the marketing year.

Saskatchewan reported weekly crop progress last night, pegging spring wheat harvest at 72% complete, up 7% on the week but remaining well behind average.  Spring wheat harvest for this week on the calendar is the slowest since at least 2014.  Also on the report, the province reported declining crop quality due to lodging which is causing bleaching and sprouting.  The Northwest district of SK remains the problem spot with harvest advancing just 1% to 45% complete on the week and compares with average progress of 91%.  Weather forecasts are improved for the coming week which should help harvest advance.  Other harvest notes, oat harvest is 72% complete, barley harvest is 83% complete vs. 81% last week, canola harvest is 67% complete vs. 61% last week, flax harvest is 46% complete vs. 36% last week and soybean harvest is 39% complete vs. 30% last week.  Canadian FOB offers of spring wheat continue to be absent until January with capacity booked solid.  Offers of CWRS are roughly $8/MT premium to US-HRW for 13.50% protein while 13.80% is carrying a $20/MT premium.

The soybean balance sheet remains the most in focus as it has the most potential for change in coming months, in our opinion.  On the October WASDE, USDA said 2018/19 carryout will be 885mbu vs. 438mbu last year and the largest ending stocks on record.  Supplies are what they are at this point, even if small changes to national yield or harvested acres adds or subtracts a few million bushels.  It is the demand side of the ledger which is in focus, especially exports.  As we wrote about above, export sales are way behind the needed pace, and we have been arguing for a while now the USDA’s current 2.060bbu carryout has a fair amount of Chinese demand built which is not likely to show up without a major trade deal.  Looking at the situation very simply, current year exports are down 20% from a year ago, and if that pace is maintained, full year exports would be implied around 1.700bbu.  We don’t think that is likely to be the case, but splitting the difference would have exports at 1.900bbu.  That would push carryout to 1.047bbu and the stocks/use ratio to 25.5%, a new record by 7%.  It’s difficult to see how prices north of the fall lows at $8.12 can be maintained without an improvement in export demand, or South American weather begins to decline.  If drought conditions surface anywhere in South America this year, China would have little choice but to lift US soybeans, with or without the tariff situation.  A friend of ours at www.agtradertalk.com threw out the idea of what would happen if a US/China trade deal does get done.  Is China likely to take all of the soybeans they’ve bought from Brazil at +200-250X compared with US soybeans being offered at single digits over the November and January contracts?  Unlikely.  Sure, cancellations of Brazilian soybeans and purchases of US soybeans would correct the basis disparity, but Brazilian beans are likely to fall much more dramatically than US soybeans are to rise.  The point of this paragraph is to start thinking about the current US balance sheet, and the potential for larger ending stocks, but also what would likely need to happen to improve US exports from its current situation.

 

Bottom Line: Disappointing week of trade for bulls with most of last week’s rally being given back.  As harvest ramps back up, and over 50% of the corn and soybean harvest is still to be brought in, bulls will face an uphill climb.  Wheat sales were encouraging, but as we’ve seen in the past, one week of good sales doesn’t mean much.  Feels like the market is already looking forward to the South American growing season.  Alberta crop progress will be reported after the close, giving further clues about the amount of grain left to harvest.

 

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.

10/18/2018 Morning Comments

Good Morning,

China continues to be in focus as the trade war slogs along in month three.  The Shanghai Composite touched the lowest level this morning since Thanksgiving 2014.  Further, researchers at www.sentimentrader.com noted the current bear market in Chinese stocks is now the worst since 2008 as it’s only enjoyed 37 higher closes over the last 100 sessions.  In addition, it is suffering its worst breadth in five years and among the lowest levels of the last 15.  Almost every stock on the Shanghai Composite is trading below its 10, 50 and 200-day moving averages.  Also occurring overnight, the Chinese on-shore Renminbi rate fell to a 20-month low against the USD.  It would appear the tariffs against China are working in part, although some cyclical slowdown is probably also at work.  Regardless, additional pro-growth measures by the PRC would likely weaken the Renminbi further, pushing President Trump closer to labeling them an official currency manipulator.  Doing so would ensure this trade war is only in its infancy.

Wide open Midwest weather again this morning with the exception of scattered showers in Texas.  The southern plains will remain active the next 7-days with Texas seeing another 0.50-3.00” over the next week.  This Midwest sees little to no measurable precip anywhere the next week.  Temperatures remain above normal in the north and west and normal/below in the central/east.  Precip moves to above normal for much of the Plains and Mid-South in the 6-10 day, but is mostly normal during the 8-14 day.

 

Weaker row crops but firming wheat markets this morning with much more bearish news than bullish.  After all of our markets put forth an impressive technical performance last week and Monday, prices have eased and bearish headlines are moving to the foreground.  Brazilian corn and soybean planting continues at a fast clip with most areas looking favorable on moisture.  Weekly ethanol production slowed last week with stocks near record highs and production margins among the lowest on record.  US wheat prices are back to trading a premium over Russian, German and Baltic wheat for most of the next four months.  Despite every analyst on the planet calling for US wheat demand to improve at the expense of Russian in Q3-Q4, Russian wheat continues to trade at huge discounts and be shipped at record pace.  Negotiations between China and the US were thought to be improving with a chance at a meeting between President Xi and President Trump at the next G20 Summit in late November.  That now looks improbable with representatives on both sides saying the two remain far enough apart talks would do no good at this point.  Without a Chinese/US resolution soon, the US will miss out on the bulk of the Chinese buying season, ensuring exports won’t come anywhere near the current 2.060bbu estimate from the USDA.

Weekly ethanol production declined last week to 1.011 million bbls/day, down 29,000bpd from last week and the lowest production since May.  This week’s production was also below last year’s same week production of 1.019 million bpd.  Compounding the problem, weekly ethanol stocks rose to 24.130 million bbls, up 109,000 bbls and just a hair below the all-time record posting back in March.  Ethanol exports during the month of August recovered and were actually a record for the month, so exports aren’t completely to blame for the stock build.  Conventional gasoline/ethanol blending last week totaled 5.98 million bbls/day, which was up from the week before and the four-week average.  Blending was up around 2% from a year ago.  With exports decent and domestic demand up from a year ago, demand wouldn’t appear to be the problem, so it would stand to reason production should continue to slow, especially when margins are examined.  A simple gauge of ethanol margins is to take the price of ethanol times 2.85 (gallons of ethanol from a bushel of corn) and subtract the actual price of corn.  This gives an idea of how well the price of ethanol covers the input cost of corn.  At current, the spred is -$0.07/bu, up from yesterday’s -$0.10/bu, showing the price of ethanol is not covering the price of corn.  With storage brimming, historically poor ethanol margins should continue to slow production in coming weeks, raising doubts about USDA’s record estimate.

Delayed soybean harvest, and therefore delayed winter wheat planting in the east, remains in focus.  Many states have already passed their final plant dates for insurance purposes or will pass them in coming days.  For instance, Illinois is 60% harvested on soybeans, 36% planted on SRW and has final plant dates on October 20th and October 31st.  IN is 51% harvested and 50% planted with a final plant date of Oct 31.  Ohio is 43% harvested, 51% planted with final plant dates of Oct 20 and Oct 31.  Michigan is 23% harvested, 40% planted and has final plant dates of Oct 10, 20 and 25th.  In HRW country, Kansas is 16% harvested vs. 33% average, while planting is 62% complete with final plant dates of Oct 15, Oct 20 and Oct 31.  Farmers can plant past the final plant dates, they just lose 1% of their chosen insurance coverage level each day past the final date.  With the operating environment we are in, losing insurance coverage is not a wise decision.  Most ideas heading into the fall, mainly because of price and improved soil moisture levels, had winter wheat acreage of 10-15% y/y.  This could be tempered a bit to 5-10% which we will run scenarios for in coming weeks.

Export sales out later this morning with wheat expected at 300-550TMT, corn at 700-1,300TMT, soybeans at 600-1200TMT, meal at 85-450TMT and oil at 5-25TMT.  Should see soybean sales come back down to earth after last week’s surge.  Lots of individual countries showing up to buy US soybeans on the same week can produce a solid week, but nothing like the consistent buying of China.  Wheat sales will also be in focus as the last two weeks’ worth of sales have been poor and below the level needed to hit the USDA forecast.  Commitments as a percent of the USDA’s forecast was the lowest on record going back to 1990 on last week’s report.  Sales would do well to throw the market a bone or risk price trading back to the bottom end of the recent range.

 

Bottom Line: Feels like our markets are running out of gas following the impressive three-day rally.  Lots of harvest to bring in yet, decent weather forecast and demand indicators turning shaky in the way of ethanol production and soybean exports.  Simply put, soybean crush cannot offset the loss of Chinese exports no matter how good crush margins are.  We are setting monthly crush records every single month and can’t come close to offsetting the loss of 100-200mbu of exports.

 

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.

10/16/2018 Morning Comments

Good Morning,

 

Rain across much of Texas and parts of the Delta, otherwise another wide open Midwest radar this morning.  The 7-day GFS update this morning shows no measurable precip across the entire Midwest.  Nothing.  Frosty temps again this morning in much of the upper-Midwest, although temps gradually warm this week with 60’s widespread by the weekend north of I-80.  Extended maps look favorable for precip which below normal expected through the 10-day while the 8-14 starts to bring back some moisture for the southern plains.  The Northern Plains and most of the corn belt should remain below normal throughout.  Temps are above normal to the northwest of a line from E-CO to N-MN, but below normal on the south east side of that line.  If weather hold for the next 10-14 days, the Northern Plains should be able to take a big bite out of remaining harvest.

 

Mostly weaker markets this morning with the exception of front end winter wheat markets which are just barely higher.  The real story is the surge in prices yesterday led by soybeans and meal.  The combination of slow harvest and much stronger than expected NOPA crush seemed to support things throughout the session, although most analysts are pondering how much more upside corn and soybeans can reasonably expect with 2/3’s of harvest left to bring in?  In addition, crush is already forecast at a record, and even pushing to a new record by 20-30mbu will not offset the expected loss in exports.  If carryout does push over 900mbu, and toward 1.0bbu like some are currently carrying, the price:stocks relationships do not support November soybeans at $9+.  December corn is firmly above its $3.70 range cap, arguing for a test of corrective highs at 3.82 and 3.88 from a technical perspective.  Like soybeans, however, bulls should be questioning upside with close to 10 billion bushels left to harvest.  Wheat markets rallied reluctantly Monday, lagging on inter-market spreading which is probably the reason for the relative support this morning.  Wheat planting is easing behind average although actual y/y changes won’t be known until January.  SRW acres seem the most at risk with slow soybean harvest.  Corn open interest fell 13,438 contracts yesterday, soybeans were up 2,422, meal up 4,164 contracts, oil down 1,980, SRW wheat up 1,876 contracts and HRW up 445.

The weekly crop progress report released after the close was of interest to analysts this week with corn harvest pegged at 39% complete vs. 34% last week and 35% average.  The eastern corn belt is ahead of schedule while the northern plains is sliding just behind average pace.  With harvest slow to get going until mid to late week, progress should fall further behind next week.  Soybean harvest was estimated nationally at 38% complete vs. 32% last week and 53% average.  This is the slowest national pace since 2009 when just 23% of the crop was harvested.  Iowa soy harvest progress was just 19% complete, the slowest pace on record going back to 1981.  The Northern Plains are also facing sizable lags with ND at 37% vs. 70% average, SD at 29% vs. 65% average and MN at 38% vs. 69% average.  Winter wheat planting progress was estimated at 65% complete vs. 57% last week and 67% average.  States of note included MT at 74% planted vs. 87% average, KS at 62% planted vs. 65% average, IL at 36% planted vs. 40% average, OH at 51% planted vs. 57% average and MI at 40% planted vs. 61% average.  Many states hit final plant dates for insurance purposes between October 15th and November 1st.

Export inspections released yesterday were roundly disappointing with the exception of soybeans which even had caveats attached.  Wheat inspections were 16.6mbu vs. the 21.5mbu needed weekly.  Total inspections of 287.2mbu are down 26.6% from a year ago.  The deficit has fallen from 30.6% two weeks ago, but one must remember, even if we are gaining on last year, exports are expected to be up 13% from last year’s 901mbu.  We need to move ahead of last year and add to that lead, something we are not doing so far.  Corn inspections were 39.2mbu vs. 45.5mbu needed weekly.  This was the first week inspections have failed to meet the needed level in four weeks.  Total inspections are still up 74.7% from a year ago.  Soybean inspections of 42.5mbu were better than the 39.6mbu needed weekly but total inspections of 173.6mbu are still down 34% from a year ago.  Cargoes listed to China out of the PNW and Gulf last week grabbed headlines, but the current 2.060bbu export estimate still has a fair amount of Chinese business penciled into it which isn’t occurring.

The supportive news yesterday was September NOPA crush.  Crush came in at 160.779mbu, above the 157.4mbu expected by the trade, the 158.9mbu last month and well above the 136.4mbu from September 2017.  The 160.779mbu crush number beat the previous September record from 2007 by 21mbu, a truly astonishing number.  Aiding in crush plants’ ability to destroy the number was the fact many facilities took their seasonal maintenance downtime in August instead of their usual September.  In addition, commercial ownership was high coming into fall, thanks in large part to the plentiful carryout.  NOPA monthly crush has now set a new record for each respective month for 10 consecutive months.  The increase will keep analysts increasing their marketing year crush estimate which is already forecast at a new record by 15mbu.  It would not surprise to see their current 2.070bbu end up at 2.100bbu by next month or December provided the records keep coming.  However, even if crush does end up at 2.100bbu, an increase of 45mbu y/y, it doesn’t make up for the current 70mbu drop in exports from last year.  This is especially true when considering some analysts are using export forecasts as low as 1.900bbu, down 160mbu from 2017/18.

Front end of the soybean curve remains weak as index funds finish rolling out of the November and into the Jan.  SX/SF tied contract lows yesterday and overnight at -14.50c which is around 86% of full financial carry.  SX/SX was stronger, however, trading -60.25c overnight, the best trade in a month.  Similar story in corn with a lackluster front end but firm longer-term spreads.  CZ/CH mostly rangebound at -12.00 up to -11.75c.  CZ/CZ was firm yesterday, up to -28.50c, the strongest trade in 6-weeks.  MWZ/MWH may have seen peak squeeze after hitting -6.25c on Friday with that spread easing to -8.00c overnight.  Still firm and cash traders continuing to suggest additional export business has been done.

 

Bottom Line: A little set back today isn’t ridiculous.  Futures will find the next dime a lot more difficult than the previous one.  Weather turning favorable and harvest ramping back up will keep prices in check.  Delays allow the cash markets to handle the supply better, but doesn’t change the overall bushels the system still needs to handle.  Lots of concern about quality in soybeans after the recent snows and rains.  The futures market is not going to rally on pictures of moldy beans from Twitter.  Cash markets will take care of quality issues as they always do.

 

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.

10/15/2018 Morning Comments

Good Morning,

 

Financial market news this weekend centered around Saudi Arabia and the disappearance of journalist Jamal Khashoggi who has been critical of the kingdom.  President Trump vowed retaliation if it is found that the kingdom was responsible which brought threats from Saudi Arabia about using its economic muscle to defend itself.  In other words, Saudi Arabia thinks it could retaliate by cutting oil production and driving the price of oil up for the US and other major importers.  This would seem like a very short-sighted response and one which is likely to hurt Saudi Arabia more so than anyone else.  If oil prices rise, and importers turn to other origins to get their oil, the cost of the marginal barrel of oil goes down.  Much like the current Chinese/US spat over soybeans, it might be more expensive in the short-run for China to pursue their protein needs without the US, but if they are successful in their efforts, it is demand the US is unlikely to get back.  The same could be true with oil production as shale producers ramp up, offshore platforms become economical and Saudi Arabia spends its only true bargaining chip.  Oil prices are firmer this morning, but within recent ranges.

Rain across TX and in a band extending to KY this morning, otherwise the Midwest is quiet outside of MI.  Snow covered a broad swath of Kansas, Nebraska, Iowa, southern Minnesota and Wisconsin over the weekend with social media full of crop sunder snow.  The warmer temps this week should dispose of the snow rather quickly, but it could mean a couple more days of no harvest.  Fortunately, the majority of the Midwest is expected to see at least 7-10 days of wide open weather which should allow harvest to ramp back up quickly.  Normal to slightly above normal temps in the central/west corn belt while the entire Midwest sees below normal precip.  Field conditions are still less than ideal, but given it is only October 15th, not November 15th, there is still ample time to get the crop out of the field.  The 7 and 14-day percent of normal precip maps are truly impressive at 400-600% of normal for the Midwest.

 

Mixed markets to start the week with firmer wheat markets but softer row crops.  More than anything, futures are consolidating the impressive move from Thursday/Friday last week which seemed to definitively say fall lows have been made.  With the national average corn yield having peaked and moved slightly lower, opening the door for additional cuts in November and January, it feels as though all of the potential bearish corn news has been priced in.  Additionally, with the adverse soybean harvest conditions across much of the Midwest, we also may have seen peak soybean supply as well.  The difference with soybeans, however, is the demand component is not nearly as strong as corn and could see ending stocks rise if exports don’t pick up soon.  Wheat markets are trying to add to last week’s strength as the approval process for Russian phytosanitary certificates slows and cash traders chatter about additional business done late week.  There is still plenty of time to get back on track with the USDA’s wheat export forecast, but each week which passes is another week closer to importers having more suppliers to choose from.  Open interest changes on Friday’s surge saw corn down 12,973 contracts, soybeans up 2,036 contracts, meal down 5,685 contracts, oil down 10,164 contracts, SRW up 411 and HRW up 172.  Wheat open interest barely budging on the rally could be commercial selling to funds trying to cover shorts.

We took a closer look at export sales over the weekend with mixed results.  Wheat sales continued weak at 12.5mbu vs. the 17.6mbu needed weekly.  This is the second consecutive week of sales failing to meet the level needed, following the same pattern witnessed in August and September.  After sales surged in early August, we saw 4-5 consecutive weeks of poor sales before the impressive sales two weeks ago.  Let’s hope we don’t see 2-3 more weeks of poor sales before another solid week.  Total wheat commitments of 427.6mbu are the lowest since 2015, and the second lowest since 2009.  Commitments as a percent of the USDA forecast at 41.7% are the lowest on record for this week of the year going back to 1990.  The 17.6mbu needed weekly would be the second largest export program since 2004.  Soybean sales were also quite poor at 16.2mbu, well short of the 28.6mbu needed weekly and the lowest export sales of the new marketing year.  Total commitments of 754.9mbu are the lowest since 2011 while commitments as a percent of the forecast at 36.6% is the lowest since 2008.  The 28.4mbu needed weekly would be the largest export program from here forward on record.  Corn export sales were decent at 39.6mbu vs. the 35.1mbu needed weekly, although were the lowest in four weeks and at the bottom end of trade expectations.  Total commitments of 813.7mbu are up 51% from a year ago and the second largest since 2007.  Commitments as a percent of the USDA forecast at 32.8% are the second highest since 2012 and above the 5-yr average of 29.3%.

We were also interested in Canadian crop progress reports which were released Thursday and Friday.  Saskatchewan reported spring wheat harvest progress on Thursday at 65% complete, up 7% on the week and about 16% behind average.  Alberta is further behind with harvest at 56.7% complete vs. 41% last week.  Other crops were further behind barley at 52% vs. 45% last week, oat harvest at 34% vs. 19% last week and canola at 26% vs. 20% the week before.  The reports carried the language most thought it would with concern over sprout and cracked kernels due to freeze injury.  Cash markets will take care of any quality issues, but it does raise questions about Canada’s ability to export the second largest wheat program on record.  We also took a look through the monthly Canadian export data for the months of July and August.  Many political pundits have been remarking how the current trade spat with China is costing wheat exports from the United States as well as Mexico over the NAFTA negotiations.  US wheat exports to China have been zero, that is true, with Canadian exports to China for 2017/18 at 1.065MMT vs. 366,700MT in 2016/17.  However, the argument Mexico is avoiding US wheat because of NAFTA is shot down when considering Canadian exports to Mexico as of July were up 10.0% at 962,500MT vs. 874,600MT the year before.  Canada and Mexico trade under the same rules as the US and Mexico, meaning the decision of Mexico to buy Canadian wheat comes down to price, not policy.

The Minneapolis spring wheat market will remain in focus for us this week after the decent futures gains but the more impressive spread gains last week.  The MWZ/MWH hit -6.25c on Friday, the highest print for the spread since May 24th.  Back in May, the trade was still concerned with planted acreage after a particularly poor start to the growing season.  The surprise sale to Bangladesh last week, along with chatter about additional business done there late week, seems to be supporting ideas of tightening spring wheat carryout.  In addition, unlike HRW, the farmer still owns the vast majority of the hard red spring crop with winter weather gripping the Northern Plains.  It feels like commercials were counting on the farmer to move more spring wheat before fall harvest than he has, putting them in a difficult spot to fulfill existing and new export sales.  Spot floor bids firmed late week as well, with a slight protein premium starting to emerge.  If Canadian quality issues are real, US-HRS should benefit in a big way into LAM SE-Asia.  MWZ should find some additional resistance at $6.00, followed by $6.10-6.13.

 

Bottom Line: Wheat has the most buzz of the three major markets with traders expecting the long-awaited demand pull to finally show up.  Corn and soybeans had nice rallies last week and probably need to consolidate those gains as we await harvest to pick back up mid-week.  Still 2/3’s of the corn and soybean harvest left to bring in which will bring with it hedge pressure.  While fall lows might be in, we remain very skeptical of any soybean strength with USDA knowing they will need to cut exports on coming reports without a major trade breakthrough with China.

 

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.

10/12/2018 Morning Comments

Good Morning,

 

After a one-day respite, more moisture across the Plains and WCB this morning.  After being promised a week to ten days of dry weather, South Dakota is once again seeing snow and rain/snow mix with widespread showers across the southern plains.  7-day precip totals are adding to up to some impressive amounts.  Another cold snap for the Northern Plains and WCB hits Sunday with high temps generally in the 30’s well into N-KS and MN/IA.  Temps will return to the 60’s by Tue/Wed which will be a welcome sight for all.  The southern plains remains wet until Monday, but then the entire Midwest should dry out by Tuesday/Wednesday.  Extended maps continue to look better with drier, warmer weather for the entire Midwest.  Once things completely dry out by midweek next week, harvest should break open by the end of next week.

 

Firmer wheat and soybeans overnight while corn takes a slight breather after yesterday’s solid performance.  Lots of debate about the data received yesterday with the general consensus that the report wasn’t as bearish as feared but wasn’t exactly bullish.  The national average yield for corn came down when it was expected to go up, while soybeans went up less than expected.  The real talkers out of the report seem to be the potential for corn yield to move lower in November and January after most would have expected small but steady increases the rest of the year.  Also, the USDA punted this month on the soybean balance sheet, buying themselves some time for something to happen on the trade front.  They should have made cuts to Chinese soybean imports and US soybean exports, two changes they will not be able to run away from in November and December without a resolution.  Wheat changes were as expected but a little disappointing with USDA continuing to slow play major exporter cuts.  The lack of harvest pressure last week and this week has helped prices slowly rise, but the hedger should be back in next week with the weather turning favorable.  We still have 2/3’s of the corn and soybean harvest left to bring in with only one of those crops having an export program to speak of.  Open interest changes yesterday saw corn up 5,704 contracts, soybeans up 3,003, meal up 10,214 contracts, oil up 2,448, SRW wheat up 3,076 and HRW up 3,945 contracts.

USDA dropped the national average corn yield to 180.7bpa from 181.3bpa last month and vs. the average trade guess of 181.8bpa.  This was definitely a surprise to anyone using crop conditions to base their yield estimates, a method which proved to be incredibly flawed a year ago.  A change such as this brings out the analog year comparisons with only three years since 1990 showing a cut to the October yield after an increase in September.  Those three years were 1990, 2006 and 2007, so admittedly, nothing in the last decade.  Still, in all three of those years which featured an increase in Sept followed by a cut to October, further cuts were seen in both November and January by an average of 3.3bpa by the “final” yield estimate.  Lessening the probability that this year’s yield could prove as small as 177.4bpa is the fact 80% of the objective yield samples measured by the USDA were rated mature, the highest percentage since at least 2014.  Just for giggles, if the yield were to prove as small as 177.4bpa, it would drop another 272mbu from production, and put ending stocks at 1.541bbu before demand changes.  We put odds of a yield that small as very unlikely.  The other big change for USDA was on exports which they increased 75mbu in a justified move in our opinion.  This was especially true after CONAB released their first production estimate for Brazil yesterday morning, putting the crop at 90.4MMT vs. 81.3MMT last year and 95MMT from the USDA.

Soybean changes showed a small yield increase to 53.1bpa from 52.8bpa last month, a tick under the average trade guess.  The increase to yield was mostly offset by a 500,000 acre drop in harvested area.  This could prove even higher after the adverse weather experienced in the Northern Plains and WCB this past week.  Pictures and videos of snowed in or flattened soybeans are everywhere on social media.  With better weather, these acres should be salvaged.  With yield increases in both September and October, there is a strong precedent for a further yield increase in November and/or January.  Since 1990, there have been eight years which featured yield increases in both Sept and Oct.  In seven of those years, further increases were noted in both November and January.  Only one year, 2006, saw yields increase in November but features a small cut on the final report.  Even in that year, the final yield in January was only 0.1bpa below the October estimate.  With that in mind, analysts will be quick to add yield, grouping somewhere around 53.4-53.8bpa, so we might as well put the yield estimates out now.  Getting to that national average yield of 53.1 saw USDA reduce pod weights by quite a bit but increased pod counts to the highest on record.  USDA made the appropriate 17/18 changes, but it was the lack of changes to the 18/19 balance sheet which had us shaking our head.  Exports remain woefully behind the needed pace to hit 2.060bbu, a fact which should be further hammered home later this morning.  In addition, USDA left Chinese imports unchanged from last month and last year at 94MMT.  Internal estimates are as low as 85MMT.  Trade resolution or bust by November it would seem.

We were interested in wheat changes, which unsurprisingly, were disappointing on the global front.  USDA made small changes to 18/19 supply and demand based on the Sept 1 stocks report, cutting feed/residual demand by 10mbu but leaving exports unchanged at 1.025bbu.  This was likely as USDA wants another month of data before making cuts to US exports.  More frustrating were the changes, or lack thereof, to other major exporters.  Russian production was cut 1MMT to 70MMT, but exports were unchanged at 35MMT when almost everyone in the trade is closer to 30-31MMT.  Until Russian export slow, I guess this move is warranted.  Australian production was cut 1.5MMT to 18.5MMT, even though this probably has another 1-1.5MMT to go.  Moe disappointing was USDA’s decision to cut exports 1MMT to 13MMT when no one on the island of Australia is above 10MMT.  Further, they have not come clean on 17/18 ending stocks yet either, which are 2MMT smaller than the 5.398MMT USDA is still using.  In addition, USDA maintained Canadian production at 31.5MMT when most are closer to 30MMT.  Harvest weather is not good, but should improve, so USDA standing pat there shouldn’t have been a surprise.

Speaking of Canada, Saskatchewan released their weekly crop progress report, showing harvest at 65% complete for spring wheat, up 7% on the week.  Drier weather is expected moving forward, but temps remain below average which will keep things slow.  Barley harvest advanced only 3% to 81% complete, canola harvest was up 9% to 61% complete, flax up 3% to 36% and soybeans up only 1% to 30% complete.  Canada is one of the minor soybean producers China will be counting on to fill some of the gap from the United States.  Will be interesting to see this play out.  Alberta will release their crop progress report after the bell.  Quickly, on the subject of spring wheat, the MWZ/MWH spread continued its violent move higher, hitting -8.00c yesterday, the highest trade since May.  Rumors of more export business done to SE-Asia which we will need to see confirmation of.  US-HRS remains deeply discounted to CWRS throughout the curve.

 

Bottom Line: A little something for everyone in yesterday’s report, but by and large, it was neither a bullish or bearish report.  Plenty of changes left to make on subsequent WASDE reports from both a supply and demand perspective.  Harvest weather will improve next week, allowing producers to get back in the field and bring some hedge pressure along with it.  Shouldn’t be much hedge pressure heading into this weekend, so markets could hang on to close higher if outsides don’t pull a Crazy Ivan.

 

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.

10/11/2018 Morning Comments

Good Morning,

 

The global equity rout, yesterday which saw the worst stock drawdowns since the Brexit vote in 2016, looks set to continue today with sharply lower Asian and European indices.  US equity futures are signaling a 0.7-0.8% drawdown as of this writing.  It truly shows how calm things have been when a single day move in stocks has financial media writing stories with headlines such as “Why is this happening?,” and the President sends out tweets attacking the Federal Reserve for raising interest rates.  US government debt is recovering this morning after yesterday’s rally when investors headed for the safe harbor or US Treasuries.  In the good old days, a strong economy was synonymous with steadily rising interest rates, but the world since the 2008 Financial Crisis has become drunk on cheap money.  Commodities dropped less than stocks yesterday with the S&P 500/Bloomberg Commodity Index ratio closing at 32.11, the lowest level since July 9th.

A dry Midwest radar this morning in what feels like the first day in a week.  Dry weather is badly needed across the Midwest and Great Plains with 7-day Accumulated Precip maps showing pretty much everywhere from North Dakota to Indiana and Kansas to Michigan seeing 1.00” of rainfall.  A large area has witnessed 2.00”, and a sizable area from Oklahoma into E-Iowa has witnessed 5.0”+.  Spots along the KS/MO border which couldn’t buy a rain this summer have seen 6-12” in the last 5-days alone.  The southern half of the continental US will remain active the next week with heavy rain chances in TX/OK/AR/S-MO/TN/KY, but areas north of the Mason Dixon line should be mainly dry.  The heat is slow to come back with below normal temps expected the next 10-days, but turning slightly warmer by the 8-14 day.  The Northern Plains look set for an extended period of dry weather which is exactly what is needed.

 

Nothing fresh in Ag markets this morning as we await WASDE updates at 11:00am CDT.  The trade will focus on the national average yield updates for corn and soybeans, but unless the changes are a huge surprise, the market should quickly revert to harvest conditions and weekly demand indicators.  At this stage of the game, supply side changes aren’t likely to change in a big enough way to upset the apple cart.  We’ve spent the last 5-6 months establishing some semblance of a trading range with the next 5-months spent grinding inside that range as the market pulls and pushes supplies.  To be clear, we still have event risk surrounding trade negotiations (or lack thereof) as well as the run up to Brazilian planting and harvesting.  By and large, however, our row crop markets are transitioning into the period where clues will be taken from the cash and spread markets about whether supplies are needed or not.  Corn open interest was up 1,019 contracts during yesterday’s lower session, while soybeans were up 9,531 contracts, meal up 2,262, oil up 6,997 contracts, SRW wheat up 2,654 and HRW wheat up 5,151 contracts.

The average trade estimate for national average corn yield is set to rise 0.4-0.5bpa to 181.7-181.8bpa with production up around 40mbu.  USDA is also likely to update planted and harvested acreage based on reconciled data from the Farm Service Agency.  Soybean yield is expected to rise by 0.4bpa to 53.2bpa with production up around 30mbu from last month.  Again, we will be focused more on the demand side than the supply side.  Corn ending stocks are seen rising by 150-160mbu thanks to larger than expected Sept 1 stocks from lower implied feed/residual use.  The average trade estimate of 1.917bbu is down from last year’s 2.140bbu, but is well above the 1.5.1.6bbu estimates being tossed around earlier this summer.  If carryout continues to creep toward 2.0bbu, or even pokes above it, it will be difficult to make the argument December corn needs to trade back up through the range cap at 3.70, let alone 3.80-3.90.  This is also what makes us take a long look at CZ19 corn near $4.00.

On the soybean side of the equation, ending stocks are set to rise to 896mbu from 845mbu last month on a combination of higher 2017/18 ending stocks and lower demand.  We remain steadfast in our opinion exports are overstated by 100-200mbu, and 18/19 ending stocks could prove close to 1.0bbu when and if USDA decides to come clean.  That is unlikely to happen in the second month of the marketing year, but it is something producers need to keep in the back of their mind.  Anytime carryout doubles in a single marketing year, especially when we aren’t talking about doubling from 100-200mbu, you have a difficult time making the argument soybeans need to be priced higher.  Wheat ending stocks are also forecast to rise by 20mbu over last month on higher Sept 1 stocks and possibly lower exports.  Even though we have concerns about the 18/19 export book, we aren’t sure the USDA makes that cut this month.  More focus will be on changes to Australia and Russia which should both see exports come down and the former should see production drop by 2-3MMT.  With two of the world’s seven largest exporters seeing cuts to exports, the US wheat export demand probably gets a pass.

Later today we will see crop progress reports for Saskatchewan with Alberta reporting tomorrow.  Little to no progress is expected for either province, part of the reason the MWZ/MWH has been supported this week.  That spread traded up to -9.75c yesterday, and is holding -10.00c this morning.  These are the highest trades since two months, and 0.25c away from the highest trades since June.  The AB and SK crop reports should also show very slow progress on oat harvest, which has been supporting futures and the OZ/OH spread as well.  The OZ/OH spread is trading at +9.00c this morning after touching -5.50c at the end of September.  Canada is the world’s largest oat exporter, supplying the United States with 50% of total supplies.  The Minneapolis wheat market has plenty of supply to replace a Canadian production and quality shortfall, even though anecdotal reports suggest producers are confident about recovering the bushels still in the field.  Quality could suffer, but not at levels which the domestic market can’t handle.

 

Bottom Line: WASDE will be the story today, but we should quickly revert to trading harvest weather in the US and planting weather in Brazil.  Outside market influence will also be something to watch today, especially if the Dow feels like dropping another 500-1,000 point.  A little rotation out of equities and into fixed income and commodities wouldn’t hurt anyone’s feelings.  More after 11:00 CDT.

 

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.

10/10/2018 Morning Comments

Good Morning,

 

Winter is here, whether we like it or not.  The below picture comes from Gettysburg, SD but could be from anywhere in North and South Dakota after the evening snow fall.  Accumulation is somewhere between 1-4” depending on location, but the wet sloppy snow combined with the last several day’s rainfall will make for sloppy field conditions for the foreseeable future.  Fortunately, once the current moisture moves out later today, drier conditions should take hold for the next 7-10 days.  Temperatures unfortunately will not warm quickly, at least not until midweek next week.  The dry conditions do look to take hold for the 6-15 day outlook, but temps barley get back to normal for the Northern Plains and remains below normal in the corn belt.  The southern plains and eastern corn belt have more rain chances this weekend and early next week, keeping harvest and planting slow.

 

Grains are weaker across the board this morning, giving up small overnight gains in the grains with a softer soy complex throughout.  Momentum is lacking across all of our markets, especially December corn which looks to be throwing off a potential bearish divergence.  Getting married to a technical tilt the day before a WASDE report is not advised, but higher prices post-report are needed to prevent bears from taking control in our opinion.  Soybeans are grappling with the 50% retracement of the 9.22-8.12 selloff at 8.67, failing to close decisively above that level and hold it.  While we could focus solely on technical factors, the most important thing to the market is the lack of planting and harvesting progress, even if price isn’t reflecting same at this time.  Crop Progress numbers, which we discuss below, do not yet reflect the harvest and planting delays, but little to no progress should be made through next Monday’s report.  Even after the moisture quits in the Northern Plains, it could be a week before equipment will be able to get back in the fields, with loading on county roads and highways expected to be common place this fall.  Open interest changes yesterday included corn down 6,618 contracts, soybeans down 4,815 contracts, meal up 1,328, oil down 1,578, SRW wheat up 1,647 contracts and HRW up, 2,857 contracts.

The weekly crop progress report didn’t tell us much with delays expected to show up next week.  Corn conditions declined 1pt to 68% G/E vs. 64% G/E last year.  Corn harvest was pegged at 34% complete vs. 26% last week and 26% average.  IL remains ahead of schedule at 63% complete vs. 41% average.  Most ECB states are ahead of average while WCB states are right at average pace to a point or two ahead.  Soybean conditions were unchanged at 68% G/E vs. 61% last year.  Soybean harvest was estimated at 32% complete vs. 23% last week and 36% average.  Same story with corn as the ECB is ahead of schedule, but delays are already prominent in the WCB.  ND harvest was estimated at 34% complete vs. 50% average, SD at 28% complete vs. 41% average and IA at 18% complete vs. 31% average.  Expect these to get worse next week.  Winter wheat planting progress was estimated at 57% complete vs. 43% last week and 54% average.  Areas of focus include Montana at 60% complete vs. 80% average, while SRW states like IL/IN/OH are slightly behind average with that expected to get worse amid rain delays.  Kansas is 58% planted vs. 49% average although the US’s largest wheat producer saw statewide rains of 1-4” this week.

Brazilian crop progress was also released yesterday as of 10/05 with soybean planting progress continuing ahead of schedule at 10% complete vs. 5% last week and 5% average.  Progress is pretty much equal to 2016, although comparisons to anything in the past with Brazil is difficult given the record crops the last two years.  The 2016/17 crop was a record in terms of area and yield, but then so was 2017/18 on both accounts.  A swift start means beans available for export even earlier, helping China bridge the gap.  Brazilian 1st crop corn planting progress was listed at 36% complete vs. 28% last week and 36% average.

Offsetting wheat news yesterday as the USDA announced a 120,000MT sale of hard red spring wheat to Bangladesh which was not expected, but followed it up with poor weekly export inspections.  Total wheat inspected for export in the week ended 10/4 was 15.6mbu, below the 21.4mbu needed weekly to hit the USDA export forecast.  Export inspections haven’t hit the level needed a single time since the beginning of the marketing year on June 1.  As we noted yesterday, June/July/August exports were the lowest since 2009 and the second lowest since 1971 this summer.  Total inspections are down 28.9% from a year ago while the USDA is calling for a 13% increase y/y.  Unlikely they touch their estimate on tomorrow’s WASDE.  Corn inspections were 53.2mbu vs. 43.8mbu needed weekly.  Total inspections are up a whopping 62.1% from a year ago while the USDA is calling for a 1% decline y/y.  Soybean inspections continue poor at 20.9mbu vs. the 39.6mbu needed weekly.  Total inspections are down 35.2% from a year ago while the USDA is calling for just a 3% decline.  We remain very concerned the USDA is way overstating 18/19 soybean exports, possibly by 150-200mbu.  This is how many private analysts are getting carryout numbers over 1.0bbu, although we don’t feel the USDA will go there until 2019.  In our opinion, the current 2.060bbu export estimate does not fully reflect China’s absence, but another month or two of slow export inspections and sales will be difficult to dismiss.

While the Bangladesh sale caught most off-guard, the Canadian harvest and export offerings should prepare us for more.  Canada is usually the supplier of choice for Bangladesh, offering lower protein varieties at a more competitive value than US.  Cash sources suggest the sale took place around $290/MT C&F for 14% protein vs. offers from the Black Sea around $297/MT on 12.5% protein.  Exporters aren’t showing offers out of Canada until December with capacity said to be tapped out through the end of the year anyway.  For the offers listed, Canada is trading around a $24-32/MT premium to US-HRS.  A big pull off the PNW for spring wheat would be music to Northern Plains growers’ ears as basis remains weaker than normal with zero protein scales to speak of between 13.5-15.0% protein.  USDA is currently pegging HRS exports at 295mbu vs. 228mbu last year during the drought-shortened crop.  Two years ago, we saw HRS exports of 319mbu with the largest spring wheat program in recent history occurring in 2010/11 at 340mbu.  Back in the early 90’s we did 438mbu, but that sort of number is probably not applicable.  In 2010/11, Canadian exports of 16.7MMT were a three year low and around 1.0MMT below the 5-yr average.  We will have a better feel for Canadian offerings after the latest SK and AB crop progress updates tomorrow and Friday.

 

Bottom Line: More choppy trade in recent ranges until we get the WASDE behind us.  It is a bit surprising to us the market is not more concerned about the weather delays staring us down in the Northern Plains and WCB.  Perhaps we need to see confirmation next Monday.  Or, the lack of concern could be a sign of just how oversupplied our soybean market is at the moment and the lack of demand on the export front.  Cash guys are getting excited about the recent wheat interest and we can only hope it is the start of the long-awaited improvement in demand.

 

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.

 

10/9/2018 Morning Comments

Good Morning,

 

The USD Dollar Index is back over the 96-handle this morning, supported by continued weakness in US government debt.  The 10-yr Treasury yield hit a fresh 7-year low during yesterday’s session, despite expectations for Federal Reserve rate hikes declining slightly this week.  The market is still discounting slightly over three 25bp rate hikes through the end of 2019 which is above the two rate hikes expected at the end of August.  Rising expectations for rate hikes hinge on the string of strong economic news, a more hawkish Fed Chair and rising inflation expectations.  Inflation hasn’t been much of a talker since before the financial crisis more than a decade ago.  Investors continue to struggle with a strong US economy buttressed against a trade war with China and a generally slow-growth emerging market sector.  Not much for dollar-resistance until the 97-handle area.

Weather remains the focal point in agriculture markets with rain splashed all over the radar again this morning.  The southern plains are witnessing their second day in a row of heavy rain with almost 100% of the core HRW belt under rain clouds this morning.  Rains are also extending into NE and IA with snow working across ND.  More snowfall is expected across the Dakotas late tonight with winter weather advisories popping up as the snow comes with gusting winds.  Since the 1st of October, a large swath of ground from N-TX to WI is running 400-600% of normal precip with records for rainfall being shattered left and right.  The silver lining is of course that the corn belt and HRW belt will be going into winter with a full soil profile for next year.  Most of the WCB works out of the wet pattern by tomorrow evening, although another round of moisture hits the southern plains and mid-south region Friday-Monday.  Extended maps continue to suggest a warmer and drier trend by the end of the 6-10 day which will be a welcome sight.

 

Weaker markets this morning, following through on weakness from yesterday’s reversal.  Weakness in wheat was tied to midsession rumors about Russia auctioning off state reserve supplies but confirmation was lacking as was timing.  The lack of harvest progress is still the largest driver in corn and soybeans as traders await updated WASDE tables Thursday.  Average trade estimates are looking for slightly larger national average yield projections for both corn and soybeans, although there is a growing minority who believe the national corn yield could prove sub-180 by the final report in January.  Between higher abandonment from the weather and anecdotal yield reports suggesting the yield just isn’t there the way it was a year ago, bulls seem set in their convictions.  These sort of theories do little to support prices today, and nether cash nor spreads are suggesting some large bullish surprise.  President Trump is expected to announce year-round E15 at a speech in Iowa later today, but as we discuss below, this isn’t likely to be the wave of demand some are touting.  Open interest changes yesterday included corn down 7,859 contracts, soybeans up 3,545, SRW up 2,945 and HRW up 1,776 contracts.

Later today at a speech in Iowa, President Trump is expected to deliver on a long-awaited campaign promise to lift a federal ban on summer sales of higher-ethanol blends.  The EPA currently prohibits summer sales of gasoline blended with 15% ethanol (E15) due to smog concerns.  The move would be a victory for renewable fuels groups in exchange for the President adjusting rules around the trading of RINs.  Renewable Fuels groups are touting the move as a huge win, although only around 400 million gallons of the roughly 142 billion gallon US gasoline market were sold last year.  In addition, only around 1400 gas stations out of a total of 115,000-120,000 stations currently sell E15.  That means infrastructure will need to be updated before the new fuel can even be sold.  Further, E15 will not be mandated, so consumers will need to make the conscience effort to buy E15 provided the price incentive makes sense.  More availability is a good thing, but expecting this move to be a shot in the arm of either ethanol plants or corn growers needs to be tempered a bit in our opinion.

Speaking of ethanol, the US Census Bureau released official export data for the month of August last Friday.  Ethanol exports rebounded smartly to 452.4 million liters, up from last month’s 395.0 million liters and sharply above last year’s 363.0 million liters.  In fact, the August total was an all-time record for the month, getting exports back on track after a weak showing in May and July.  Exports to Brazil were the lowest in almost three years after the country was the largest importer this past spring.  Larger exports to several Middle East countries helped soften the blow.  China continues to take next to nothing.  Exports are still the clearest path to sustainable growth in our opinion if the current trade war were not in the way.  DDGs exports were also strong at 1.155MMT vs. 1.107MMT last month and 761,295MT a year ago.  This was the largest monthly total since August 2015.  Final exports of corn and soybeans were also tabulated for the 2017/18 marketing year.  USDA’s World Board already had this information on the last WASDE, so no real surprises, but interesting to note the strong export haul nonetheless.  Corn exports finished at 2.428bbu, the largest export total since 2007/08, and the second largest on record.  Soybean exports finished at 2.128bbu, just 2% below last year’s record.  Iran led August soy purchases with 15.2mbu.  We were also given first quarter wheat exports which were disappointingly low as most were expecting.  JJA wheat sales totaled 197.8mbu, the lowest total since 2009, and the second lowest total since 1971.  This raises the bar for second quarter exports if we have a prayer of hitting the USDA’s current 1.025bbu export estimate.

Selling pressure in wheat mounted yesterday as newswires began carrying stories about Russia auctioning off 1.5MMT of state reserve wheat over the next 2-3 weeks.  Details were incredibly lacking, which has become commonplace for anything coming out of Russia.  When one considers the fact Russia is expected to export 30-35MMT of wheat and consume 38MMT of wheat domestically, the 1.5MMT of wheat doesn’t really move the needle.  However, anything which allows Russia to keep exporting is not price supportive.  In addition, the longer Russia can continue exporting helps bridge the gap to Argentina which should be able to ship 2.5-3.0MMT of wheat per month once new crop comes online in December.  Argentine FOB offers are currently offered $25/MT cheaper than similar protein US-HRW.  If Argentina achieves their 3MMT/mo export target, they should be able to ship wheat until April/May, just in time for Northern Hemisphere new crop harvest.  On the other end of the spectrum, Australian crop production estimates continue to decline with one well-known brokerage dipping to 16.4MMT of production vs. USDA at 20MMT.  USDA should cut exports by 3-4MMT on Thursday.

Crop progress and export inspections are delayed until today.

 

Bottom Line: Markets seem in no hurry to go anywhere until the weather clears or the USDA reports are in hand.  Every piece of supportive news seems like it is countered by two pieces of pressuring news.  The slower pace of harvest will help support cash markets, especially as growers try to hold onto every bushel they possibly can.  Bottom line seems to be the longer this trade spat with China endures, the less likely China is to come back to the United States once it is resolved unless soybeans are made part of the bargaining process.  Agriculture isn’t likely to be high on President Trump’s list, and once China figures out how to do without us, why would they come back on their own?

 

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.

 

 

10/5/2018 Morning Comments

Good Morning,

 

The Brazilian Real is stronger again this morning, trying to close higher for the fifth session in a row and pushing passed its 100-day moving average after having taken out its 50-day four sessions ago.  The Real move is due in part to this weekend’s Brazilian presidential election in which the far-right candidate is leading in the polls.  If elected, the market obviously believes he would be the best opportunity for someone to finally tackle Brazil’s terrible pension system which is literally bleeding the country dry.  Whether the elected candidate has the stones to follow through with badly needed fiscal reforms remains to be seen, but the strengthening Real is a good thing for US soybean farmers.  The Real hit a peak just over 4.20 in mid-September but is trading around 3.85 this morning, the strongest level since mid-August.  From early 2016 until mid-2018, the Real mostly traded in a range from 3.20-3.40 which would be a boon for US soybean exports were it not for the current tariff situation with China.  At the very least, a stronger Real could possibly limit the pending acreage expansion expected in the coming year, although those planting decisions have probably already been made.

Weather is the word in North America and will continue to be for the next 5-7 days.  This morning, rains are falling in N-IL/N-IN/WI with patchy snow in parts of MT/ND/N-MN.  This week, moisture has been heaviest in S-WI/N-IL/MI with 2-3” amounts common.  Most of IA, ND, MN and W-SD have also seen 0.50-1.00” amounts.  During the next week, snow will fall in MT/W-ND/WU/W-SD/NW-NE with 6” amounts common.  Rainfall will drop from N-TX to WI with 2.00-6.00” common.  The bulk of this moisture will fall Monday-Wednesday next week.  Unfortunately, temps do not warm up anytime in the next 15-days according to the CPC maps with below normal weather expected through October 18th.  Precip also remains above normal through the 15-day outlook, although by the end of the period, the Northern Plains begins to see more normal precip.  Harvest should grind to a halt if it hasn’t already.

 

Grain markets are firmer this morning as harvest delays and a short structure with the managed money keeps traders anxious.  A solid round of export sales yesterday by corn, soybeans and wheat is also supportive, although in the case of wheat and soybeans, much more is needed.  Currency influence remains a mixed bag with the US Dollar Index trading to the highest level in a month and a half, but the Brazilian Real is also stronger.  As we noted earlier this week, October is a strong month from a seasonal perspective as grains typically hit harvest lows and rally away.  Since the September lows, corn and soybeans have already posted decent rallies, leaving traders to question how much more can be counted on considering harvest is not yet half complete.  While unfortunate for the farmer, the slow pace of soybean harvest is a good thing for cash markets as the trade doesn’t have anywhere to go with extra soybeans as the PNW remains no bid.  If harvest is slowly metered in, it lowers the odds he farmer will overwhelm an incredibly shallow bid structure.  Open interest yesterday saw corn up 6,302 contracts, soybeans down 575, meal up 2,357, oil down 1,972, SRW down 2,417 and HRW down 737 contracts.

Export sales were the focus yesterday with a solid report all the way around.  All wheat sales totaled 15.992mbu which is below the 17.4mbu needed on a weekly basis to hit the USDA forecast, but it was more the composition of the sales which were supportive.  Last week saw sales to Saudi Arabia, Iraq, Nigeria and Brazil which is exactly the kind of HRW business we need to see to give us a prayer of hitting the USDA export forecast.  Total commitments of 415.1mbu is the lowest since 2015 and the second lowest since 2009, but the commitments to forecast ratio of 40.5% is the lowest since 1992.  The average sales pace needed the rest of the year at 17.4mbu is the largest since 2010/11 and the second largest since 2002/03.  Corn sales remain impressive at 56.2mbu this week, the second largest total for this week on record.  Total commitments of 774.1mbu are the largest since 2016 and the second largest for this week since 2007.  Soybean sales were solid at 55.8mbu vs. the 27.4mbu needed weekly, but the majority of this week’s sales was already known in a daily announcement to Mexico.  In addition, the big buyers were Mexico and Germany which have bought 227% and 234% more than a year ago at this time, respectively.  Mike O’Dea from FC Stone posted a great table on these statistics to Twitter yesterday morning.  This raises the question of how much more buying we can count on from these non-Chinese destinations, especially if they are simply front-loading their purchases with cheap US soybeans as opposed to expecting massive y/y growth.  Total soybean commitments of 741.7mbu are the lowest since 2009, with the commitments/forecast ratio also the lowest since 2008.  The average sales pace needed through the end of the year at 27.4mbu is tied with last year for the largest on record.  We have to remember, the US enjoyed not only Chinese buying during the last marketing year, but also drought reduced crops in Argentina.  Can we count on the same thing again this year?

While US harvest is the chief concern at the moment, Canadian spring wheat harvest is also on the radar.  Combines are stalled thanks to snow earlier this week with more on the way.  Twitter has many pictures of lodged wheat under several inches of snow.  In the weekly Saskatchewan crop report, the province pegged wheat harvest at 58% complete, up just 5% from the week before and well behind the average pace.  Alberta releases crop progress after the close and they are expected to post little to no progress from the week before.  Alberta was just 35% harvested as of September 25th.  Yield and quality both are concerns with wheat under snow as the Northwest part of SK reported wheat quality at 7% 1-CW, 21% 2-CW, 56% 3-CW and 16% feed wheat.  The province as a whole is called 54% 1-CW, 25% 2-CW, 17% 3-CW and 4% Feed.  Probably a bit early to sharply downgrade the Canadian crop as a whole, but the bias is definitely down the longer the wet, cold weather drags on.

Informa Economics released their latest crop estimates yesterday during the session, pegging the corn yield at 182.1bpa vs. USDA at 181.3bpa.  Total production was called 14.890bbu vs. USDA at 14.827bbu.  It has become comical with private yield guesses this year as whatever the last USDA estimate was, firms just add a few tenths per bushel and hang it up.  No one wants to make waves with the USDA, and it makes us seriously question whether these firms who tout a farmer survey even conduct one?  As soon as a USDA yield estimate is released, you can almost guess what the following month will say the same day.  Almost a waste of time.  Soybean yield was put at 53.0bpa vs. USDA at 52.8bpa with production at 4.677bbu vs. USDA at 4.693bbu on lower harvested area.  FC Stones guesses earlier in the week were very similar on both accounts.

One other note, the USDA Ag Attache to Brazil released his latest report on the soybean crop yesterday.  He expects a further increase in soybean area as does everyone, putting the 2018/19 soybean crop at a new record 123.0MMT vs. USDA at 120.5MMT.  This is due in part to harvested area increasing to 36.1 million hectares vs. 35.1 million a year ago.  This is 2.1 million hectares above two years ago with the weak Real seemingly encouraging more area every single year.  When South American countries can continue increasing the area farmed every single year, it makes it very difficult to compete, even without the Chinese tariff situation.  The larger supplies are prompting larger exports with Post putting them at 75.5MMT vs. 74.775MMT a year ago although private companies in Brazil have exports as high as 79MMT thanks to the relatively weak Real.  With planting off to a fast start, Brazilian soybean could be available as early as mid-January which severely limits the need for China to reach to the US for bridge soybeans.  If China can get to January without any meaningful purchases of US soybeans, our export forecast should probably fall by another 150-250mbu and its difficult to see how futures can be supported.

 

Bottom Line: Solid gains by everything this week, and with Friday’s being trend days, probably should close higher today as well.  The short structure and terrible harvest weather is enough to support things, although hard to see an appetite for prices above $3.70 CZ or $8.60-8.65 SX without another catalyst.  The rally has pushed US-HRW offers back above Russian and EU wheat, so shouldn’t be a bunch more upside there without more fake news out of Russia.  Producers need to be keeping an eye on 2019 new crop prices.

 

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.

10/3/2018 Morning Comments

Good Morning,

 

Forex markets continue to be a focus here with the US Dollar trading at 6-weeks highs, but emerging market currencies are also strengthening.  The Brazilian Real traded to 3.90:1 against the USD overnight, the strongest since mid-August and back below its 50-day moving average.  The Russian Ruble traded up to 65.3594 on Monday before setting back slightly the last two days, which was the strongest level since August 8th.  This shows the USD is strengthening against the developed country currencies, but not against emerging markets.  This is important as grain offered from Brazil and Russia is getting more expensive than its US counterparts into key importing countries.  Strength in these two countries currencies also correlated with crude oil strength, an overall positive influence for grain markets.  Crude is slightly weaker this morning, but holding near 4-yr highs.

Weather continues to be less than ideal for harvesting across the Midwest with showers in the Dakotas, Iowa, Minnesota and Wisconsin this morning.  Where rain isn’t falling, heavy fog is present, which doesn’t allow harvest progress either.  The next several days look worse as a cold front moves from the Northwest across the corn belt, bringing with it rain, snow and cold temperatures.  Precip is expected on and off through mid-week next week, and temps will be on the cool side for much of that same period.  There is a sharp cut off in temps on a line from E-CO to N-WI with locales NW of that line struggling to get out of the 40’s while areas southeast of that line seeing 70’s.  Extended maps show below normal temps and above normal precip through the 14-day outlook which takes us out to October 16th.  What started out as a quick harvest should see progress slow markedly in the next 7-10 days.

 

Grain markets are following through to the upside this morning, led once again by the wheat markets on a percentage basis as concerns over Russian wheat exports flare up once again.  Wheat markets took off yesterday when a Reuters article hit the wires midsession claiming Russia’s agricultural safety watchdog may temporarily suspend operations at 30 in-land grain loading ports in two of Russia’s top export regions.  Precious few details were listed as to why the watchdog would do that, with most surmising it has to be quality related which some have expressed concerns about since harvest.  The article said loaders could be suspended for up to 90 days.  It appears to us the Russian government will use all means necessary to prevent exporters from running domestic supplies to perilously low levels.  Phytosanitary concerns, export licenses, inspections delays, etc. will all be used to accomplish this task and allow the government to avoid instituting an all out export ban which they will hope to avoid.  Unfortunately, Black Sea wheat futures did not see much of a response to the announcement yesterday, which could mean exporters are not concerned at the moment.  In our mind, FOB offers out of Russia will be the true indicator, and as of last night, spot offers out of Russia were indicated at $235/MT vs. US-HRW at $238/MT.  This is as tight of a FOB spread as we’ve seen all season and Jan forward has Russian at a premium to the Gulf.  Open interest changes were interesting on the rally yesterday with corn down 147 contracts, soybeans down 5,740 contracts, meal up 534, bean oil down 361, SRW wheat up 7,006 contracts and HRW up 1,497 contracts.

Russia and Australia continue to be the focal point of the wheat market in our opinion as we try to figure out when Russia will stop exporting and how much Australia can export.  Looking at Australia first, we fully expect USDA to adjust the Australian balance sheet in a big way on next week’s WASDE.  One large change needs to come from smaller carry-in from the 2017/18 marketing year as boots-on-the-ground suggest exports and feed/residual demand was higher than USDA has it pegged.  Carryout probably closer to 3.0MMT than the 5.3MMT they are currently carrying.  In addition, USDA will be forced to cut production to at least 17.5-18.0MMT, although sub-17MMT numbers are being discussed.  They will most likely wait until November to make that move, but regardless, 2-3MMT needs to come off production.  Along with minimal imports, this would put total supplies around 20MMT.  Australia has a pretty consistent exports/support ratio of around 59-61% over the last 5-10 years.  Using that ratio would imply exports of around 12MMT vs. USDA’s current 14MMT number.  There is no one on the island of Australia who thinks exports will be that high, however, as feed/residual demand will be large this year to offset the lack of hay and pasture due to the drought.  Looking at the last two drought years of 2006/07 and 2007/08, the export/support ratio fell to 42-43%.  Using that ratio, exports would be implied around 8.5-9.0MMT which is much closer to domestic estimates.  This means USDA needs to cut 4-5MMT of export demand off Australia and move it elsewhere.  As has been the case for most of this year, the US is the most logical destination, but the demand has yet to show up.

Looking at the same idea for Russia yields similar results.  Unfortunately, the history of exports/supplies and exports/demand doesn’t have near the consistency because Russia has only become a major exporter in the last 5-7 years.  This obviously skews the results a bit.  The 5-yr average for exports/supplies is 36.64% while the USDA is currently using a ratio of 42.4% with exports at 35MMT and total supplies at 82.3MMT.  Dropping the ratio to 37.5% yields exports of 31MMT and would put exports/supplies exactly on the trend line over the last 25-years.  If exports of only 31MMT are used, however, ending stocks would jump to 13.4MMT if feed/residual demand isn’t changed, which would be the largest ending stocks since 2010/11.  Something obviously looks off in the Russian balance sheet with production either proving smaller, or demand larger.  With the rhetoric mentioned in the first paragraph, it is difficult to believe the supplies are available, or if they are, that is it all quality wheat.  These two countries are the two most important as we move into 2019.

Data yesterday included deliverable stocks for the week ended 9/28 in Chicago and Kansas City.  Little movement in Chicago with stocks falling by 126,000 bushels to 81.683mbu vs. 97.089mbu a year ago.  While not alarming yet, the amount of deliverable stocks in Chicago bears watching if export demand does pick up this winter.  The amount of deliverable grade supplies will have an influence on calendar spreads and VSR levels.  HRW stocks fell 568,000 bushels to 125.444mbu vs. 122.207mbu a year ago.  HRW stocks remain the largest of the last 6-years for this week.  HRS stocks rose by 1.880mbu last week after falling the week before with total stocks of 23.057mbu compared to 25.127mbu a year ago.  It looked as though HRS stocks may have hit their seasonal peak last week, but the sharp gain this week suggests more wheat may be headed at Duluth and Minneapolis.

Brazilian planting progress remains strong and ahead of schedule which could allow the Chinese off the hook earlier than imagined.  Soybean planting progress was estimated at 5% complete vs. 2% last week and 2% average.  Parana, the second largest soybean producing province, is 21% planted vs. 8% average.  1st crop corn planting is also off to a good start at 28% complete vs. 19% last week and 24% average.  We remain concerned the current 2.060bbu export estimate for the US is overstated and does not fully reflect the current tariff situation.  If Brazil has beans available for export by the end of January instead of mid to late February, this will make it even easier for China to do without US soybeans.  Combined with lower meal inclusions in feed rations, destocking of state-owned reserves and relying on minor soybean producers will all allow the PRC to take less US beans.  If this occurs, it is not unreasonable to think US exports could fall below 2.0bbu or even 1.900bbu.  This would push carryout to 905mbu-1.005bbu.  Doubtful it all happens in one month, but lower soybean exports is the largest threat to current prices.

 

Bottom Line: Firmer markets this morning as money flow does appear to be coming back into the grains and commodities as a whole.  While President Trump and most US consumers do not want to see higher crude, and therefore gasoline, prices, it is a good thing for commodities in general and grains specifically.  Harvest looks like it will be a much more drawn out affair if current weather models are accurate.  This should support cash and also bring “big crops get bigger” into doubt.

 

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.