2/23/2018 Morning Comments

Good Morning,

 

A particularly wet week for areas east of the MS-River ahead, and this follows what has been a wet 7-day period up to today.  Over the last 7-days, precip in NE-TX/E-OK/AR/MO/IL/IN/OH/S-MI/KY/W-TN has been in the 1.5-5.00” range, causing major flooding in areas tributary to the MS-River.  These flooding issues look to be exacerbated during the next week with an additional 1.50-4.00” expected over pretty much the same areas.  The National Weather Service river level map at Caruthersville, MO is already at the action level, and is expected to move into minor flooding by tomorrow morning and close in on moderate flooding by next week.  Memphis looks the same.  The above normal precip for the Midwest hangs around through the 6-10 day, but moderates to normal for the 8-14.  Temps will be normal/below, and moving solidly below normal in the 8-14, especially north.

 

Firmer markets this morning as row crops attempt to close higher another week while wheat tries to end its winning streak at five consecutive higher weekly closes.  Corn is flirting with a lower weekly close at the moment, down 0.25c on the week, which would also end its streak of five higher weekly closes.  Soybeans are up 14.25c on the week to the highest levels since February a year ago, and should post a solid candlestick on weekly charts to prevent any sour looking chart formations.  Soymeal has led the rally without any doubt, but after the early week strength, meal has stalled out around the 61.8% retracement of the 432.50-292.0 selloff.  Volume is declining, open interest is rising and momentum is beginning to diverge which would suggest soymeal needs to make new highs relatively soon in order to prevent a setback which could be decent in scope given the uninterrupted nature of the rally.  Open interest yesterday saw corn down 7,004 contracts, soybeans up 1,599 contracts, meal up 434 contracts, soybean oil down 996 contracts, SRW wheat down 5,418 contracts and KC wheat up 1,374 contracts.  Today is March option expiration.

The chatter in the market yesterday was related to the acreage tables released by the USDA at their annual Outlook Forum in D.C.  The office saw corn and soybean acreage at par, both with 90.0 million acres, while all-wheat acreage was essentially unchanged at 46.5 million.  Early this morning, the USDA released their first blush ideas at the 18/19 supply and demand based on those acreage ideas and trend line yields.  On soybeans, with a 48.5bpa yield vs. 49.1bpa last year, and harvested acreage of 89.1 million, production would total 4.320bbu vs. 4.392bbu this past year.  Total supplies are slightly larger with the bigger carry-in, and demand is up thanks to a 30mbu bump in crush and a 200mbu bump to exports.  Carryout would total 460mbu vs. 530mbu in 17/18.  If anything looks suspect it would probably be their export estimate, although the ongoing South American weather situation makes any guess legitimate at this point.  In the corn balance sheet, the USDA used 82.7 million harvested acres, unchanged on the year, but plugged in a 174bpa national average yield compared with last year’s record 176.6bpa.  This would be above trend, with our calculation indicating a 172bpa trend line yield.  Nonetheless, total supplies would be 16.792bbu vs. 16.947bbu in 17/18.  Interestingly, the USDA sees feed/residual demand declining 75mbu next year to 5.475bbu from 5.550bbu which seems hard to justify considering a large crop, still growing animal numbers and solid livestock margin structure.  Ethanol demand is seen leaping to 5.650bbu vs. 5.525bbu this year, which could be part of the lower feed number given higher expected DDGs production.  Exports are seen at 1.900bbu vs. 2.050bbu which makes absolutely no sense in our estimation.  With still declining South American crops, the US should see export demand come back in a big way for 18/19.  We estimate exports should be all of this year’s 2.050bbu if not in the 16/17 area.

The USDA sees the all wheat balance sheet with 500,000 more acres, harvested acres up 1.2 million to 38.8 million, and the national average yield at 47.4bpa vs. 46.3bpa last year.  Total supplies of 2.983bbu would be under last year’s 3.076bbu.  In the demand column, feed/residual bounces back by 10mbu to 110mbu, while food/seed is unchanged at 1.017bbu.  Exports fall 25mbu to 925mbu, which one can take or leave considering this will be contingent on Northern Hemisphere growing weather and quality.  Ending stocks of 931mbu falls from this year’s 1.009bbu, while the stocks/use ratio drops to 45.4% from 48.8%.  The average farm price inches up to $4.70/bu from $4.60/bu this year and would be the highest since 2015/16.  Happy days are here at last.

Besides the USDA Outlook Forum, we also have March option expiration today.  In corn, the largest call open interest is below the market at 360 with 32,714 calls open, while the put open interest is largest at the 350 level with 30,694 options open.  The 370 strike also has a lot of calls open at 28,779 contracts, and could be at risk for pinning given we are only 3.0c away this morning.  In soybeans, the largest call open interest is well below the market at 1000 with 15,366 contracts open, while largest puts are at 980 with 10,040 contracts open.  Doesn’t look like any strike is real vulnerable for acting as a magnet today.  In Chicago wheat, largest call open interest would be the 470’s at 7,619 contracts open, while the 440 puts have 8,726 contracts open.  Here again, nothing huge in terms of pin risk with the market firmly centered between these two strike levels/

Data yesterday included weekly ethanol production which jumped 52,000bbls/day to 1.068 million bbls/day, which was the highest weekly production figure in eight weeks.  This production number was also well above the “needed” level, and up 3.3% from the same week a year ago.  Ethanol stocks also declined by 132,000bbls, despite the solid jump in production.  Total stocks of 22.753 million bbls compare with 22.885 million the week before.  Ethanol prices have maintained their uptrend, still trading above the 50/100/200-day moving averages by a solid margin.

Export sales later this morning are expected at 275-425TMT for wheat, 1,000-2,050TMT for corn, 500-1,250TMT for soybeans, 200-450TMT for meal and 10-35TMT for soy oil.

 

Bottom Line: South American production estimates still in focus as privates continue to cut their figures based on current weather forecasts.  Today’s Outlook Forum will stoke the 18/19 acreage debate and balance sheet discussion, but to be honest I’m rather disappointed in their numbers released this morning.  All signs point to a tightening 18/19 corn balance sheet with demand expected to be ramped up in a big way by all three sectors.  Time will tell.

 

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.

2/22/2018 Morning Comments

Good Morning,

 

Dalian futures markets reopened for the first time since February 14th last night, concluding their week long break for the Chinese New Year.  As would be expected, futures opened sharply higher, led by soymeal futures as China plays catch up to the moves posted on the CBOT.  Dalian soymeal futures opened up with a bang, gapping up by 2.4% and closing up 3.05% at the highest level since October 31st.  Dalian soybeans also gapped higher, closing up 1.01% to the highest level since mid-January.  Corn futures in China closed up 0.78%, reversing a trend of four lower closes in a row, but has a fair amount of resistance overhead on its way to the January 5th highs.  The Chinese Yuan has generally been on a firming trend since late 2017, trading around the 6.30 area against the USD which is more or less the strongest levels since August 2015.

No major changes to the South American outlook with limited rains to fall across Argentine growing areas the next 5-days.  Totals are generally seen under 0.30” with coverage of around 40%.  What rains do fall should be in far western and southern growing areas, avoiding the heart of the belt in the central part of the country.  The 6-10 also sees limited rains for Argentina with totals of 0.50” or less on 30-40% coverage with rains mainly north.  Fortunately, temps will continue to be mild, with highs in the 80’s and lows in the 50’s.  Dryness concerns are also creeping into S-Brazil, with moisture supplies being drawn down over the next 5-days.  The 6-10 sees a bit better chances of rain, while the northern growing region will continue to experience average rainfall.  Temps are not seen as threatening the next 10-days.

 

Weaker across the board this morning with mostly equal losses in the three major grain contracts.  The focus remains on South American weather, and how the US balance sheet could benefit from either increased corn exports or increased meal demand.  A real mixed bag at the CBOT yesterday in terms of money flow with corn open interest up 3,141 contracts as that market ended with a near doji.  Soybean open interest rose 8,847 contracts with the push to new highs, while soybean meal fell 1,770 contracts though it has failed to take out the early week highs.  Open interest fell on SRW wheat, down 6,097 contracts, and HRW wheat which was down 2,677 contracts.  Both winter wheat contracts look and feel as though highs are in for the foreseeable future, and spring wheat futures made new lows for the move and flirts with the $6.00-handle for the first time since June 2017.  Speaking of spring wheat, the new crop soybean/spring wheat spread hit new highs for the move overnight at $4.0250, the highest trade since March 2017, and compares to low point of the trough at $2.8050 on June 29th.  On the front end, the SH/MWH spread hit $4.31 overnight, the highest level since May 17th.

We took a look at the combined Argentine/Brazilian corn balance sheet earlier this week as we feel that is the more important story at the moment, but it doesn’t hurt to take a look at the soybean balance sheet as well.  In Argentina, the USDA is currently using 54MMT as their estimate while the Buenos Aires Grain Exchange is around 50MMT and some private estimates have slipped lower.  For discussion’s sake, we are going to plug a 49MMT production number in, assuming weather patterns don’t change much the next two weeks.  Fortunately, Argentina will be carrying in a healthy supply of old crop soybeans, which is softening the blow to some degree.  There is obviously the issue of local marketing year vs. USDA’s marketing year, but for this exercise we will be using USDA number.  Total Argentine supplies would be 86.920MMT vs. 91.074MMT the year before, but still above the 5-yr average of 81.327MMT.  Over the last 10-years, Argentina has consistently crushed 50% of their soybean supply, regardless of big or small crops.  Should that hold true, Argentina’s crush estimate of 44.5MMT looks about appropriate at 51.2% of total supplies, but could come down slightly.  Over the last 5-10 years, exports have averaged around 10% of total supply, with this year’s 8.50MMT constituting 9.78% of total supply, and looking appropriate.  This gives us a carryout of 30.0MMT vs. 36.220MMT last year and 29.306MMT on the 5-yr average.  When viewed under this lens, even a 5MMT cut from the USDA’s current production estimate doesn’t look like a complete failure.  Argentina would still be able to meet crush obligations (record at that), and contribute 8-9MMT of whole bean exports.  If production slips to 45-46MMT as some private analysts are suggesting, then demand cuts would be needed.  One last note, a 49MMT production estimate on current acreage would produce a national average yield of 2.64MT/ha, or 15.9% below last year.  That would be the third largest y/y yield drop of the last 15-years and the largest since 2008/09.

For Brazil, we have a 116MMT production number plugged in vs. USDA’s 112MMT number.  Total supplies would be 141.063MMT vs. last year’s 132.552MMT.  Over the last 5-years, exports have averaged 45.7% of total soybean supplies, but the current USDA export estimate of 69MMT would be 48.9%.  Crush as a percentage of total soybean supplies has been on a steady decline since 2011/12, constituting just 29.77% of total supplies vs. 42.19% 6-years ago.  Total carryout as it stands with our production estimate would 26.413MMT vs. 24.863MMT, and would be the largest on record.  If we switch to Brazil’s local marketing year, we see they rarely carryout more than a few million tonnes, meaning any excesses would likely be crushed or exported.  With that in mind, it looks rather clear there is plenty of excess for Brazil to offset any losses from Argentina, provided logistical constraints don’t get in the way.  The chart below shows the combined production and anticipated ending stocks of both Argentina and Brazil which puts into perspective current supply vs. demand.  While the carryout levels would still be the second highest for the two South American powerhouses on record, it goes without saying we need more soybeans each and every year to meet the ever increasing demand from China and other SE-Asian countries.

Weekly ethanol production will be delayed until today and exports until tomorrow due to the President’s Day Holiday.  We did get deliverable stocks yesterday, however, which kept the declining trends in place for winter wheat, but saw a continued increase in spring wheat stocks.  Chicago delivery stocks declined 693,000 bushels from the week before to 79.739mbu vs. 83.456mbu a year ago.  Northern spring stocks actually increased 313,000 bushels to 867,000 bushels in total, thanks to an increase in STL.  Total Northern Spring stocks of 867,000 bushels compare with 313,000 bushels a year ago.  KC wheat stocks fell 654,000 bushels w/w to 108.065mbu but remain well above the 101.728mbu a year ago.  Minneapolis/Duluth stocks increased 231,000 bushels to 22.664mbu, the third straight weekly increase in a row.  Current stocks are almost identical to the 22.179mbu from a year ago.

One last note, the first ice measurements from Lake Pepin in Minnesota were taken by the Corps of Engineers yesterday.  Early ice measurements can sometimes provide clues about when the navigation season on the Upper-Mississippi river might begin.  The Corps found five measurements out of 16 at 29” deep, which would be some of the highest ice measurements of the last 10-years.  They would certainly be the deepest since 2014 and comparable to those of 2008.  While a rapid temperature increase could certainly change things, these early readings don’t imply a swift start to barge loadings this spring.  With the ramp up in the US corn export program, this could be somewhat problematic in March/April.

 

Bottom Line: Corn and Chicago wheat have clawed into positive territory, and the resilience corn has shown is nothing short of impressive.  The question remains whether the unfolding South American corn story is something which can be bought today, or whether that strength will come down the road?  Tomorrow, the USDA Outlook Forum will be in focus as the department offers their first blush on 2018/19 balance sheets.  The acreage mix will probably be of most interest, even though that will undoubtedly change before April/May.

 

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.

2/21/2018 Morning Comments

Good Morning,

 

One market which has been somewhat lost amid the equity market correction, volatility spike, crude oil run up and US Dollar weakness has been lumber.  Random Length Lumber futures hit a new all-time record high on Tuesday at $517.80 before settling at $516.80.  This is a new record going back to when futures started trading in 1994, and bests the previous record from November 1996.  Lumber futures have been trending higher along with the overall equity market as the US housing market continues to enjoy its resurgence, and got an added boost from the demand for rebuilding after a particularly nasty hurricane season along the US East Coast.  Demand for raw materials like lumber should speak to the overall economic activity in the United States, allaying fears about the beginning of a major bear market with the correction in equities at the beginning of the month.

A major band of moisture stretching from TX to MI is moving east over the US heartland this morning.  The system is expected to bring moderate to heavy moisture to AR/MO/IL/IN over the next 5-7 days.  Models this morning are showing another 1.00-5.00” on top of what has already fallen in the last 24-hours.  This should all but eradicate any drought conditions currently present in MO/IL/AR and the ECB.  Mostly above normal precip in the Midwest during the 6-14 day, while the southern plains remains normal/below.  Temps are cooler than average in the west and north, and warmer than average in the east and south.  No big changes to the South American forecast with limited rains expected in Argentina for most of the next 7-10 days.  S-Brazil will also be trending drier with the need for better follow up moisture while N-Brazil remains in excellent shape.

 

Mixed markets overnight with corn firmer while soybeans and wheat set back, although wheat has recovered well off the lows set shortly after the overnight session open.  In fact, at one point last night, March KC wheat futures were down over 8.0c but have recovered to post just 3.25c losses at this writing.  The unexpected moisture in parts of TX/OK/E-KS seemed to add pressure to futures during the session yesterday, and additional precip will fall in those areas the next couple days.  Add in the fact US wheat remains incredibly overpriced vs. competitor origins, and managed funds are now noticeably net long in KC and the ground work for a correction has been laid.  The resilience of corn overnight despite the weakness in wheat and soybeans is somewhat impressive, and speaks to the changing dynamics in that market for the summer months as well as the 18/19 marketing year.  Interestingly, with five sessions left in the spring insurance pricing period, this year’s prices are surprisingly close to 2017 while HRS is well above.  So far, the insurance price for corn is $3.95/bu vs. $3.96 last year, soybeans are $10.11/bu vs. $10.19/bu last year and HRS is $6.31/bu vs. $5.65/bu last year.  The chatter continues to be more soybean acres due to the lower cost of production, even though most would posit the return on investment is still better in most locations for corn.  We expect a meaningful increase in hard red spring wheat acres based on last year’s yields, rotational concerns and less winter wheat acres in MT/SD.

Data yesterday included weekly export inspections which were as expected but still below needed levels for corn and wheat.  Wheat inspections were 15.5mbu vs. the 18.3mbu needed weekly, and the lowest weekly total five weeks.  Total wheat inspections are down 4.6% from a year ago at 644.7mbu, which is actually a bit better than the deficit needed to hit the USDA estimate.  Corn inspections totaled 36.9mbu vs. the 46.2mbu needed weekly, but were still the third largest of the marketing year.  Total inspections are now 655.3mbu vs. 962.5mbu a year ago, a 31.9% deficit and still behind the level needed to hit the USDA estimate.  Soybean inspections totaled 35.3mbu vs. the 23.8mbu needed, bringing total inspections to 1.359bbu vs. 1.569bbu a year ago.  From a seasonal standpoint, soybeans remain a concern as the Brazilian export program really gets ramped up next month.

Brazilian crop progress data was released yesterday as of February 16th.  Soybean harvest was estimated at 16% complete vs. 9% last week, 25% last year and 20% average.  The country’s largest soybean province, Mato Grosso, is 45% harvested vs. 52% last year and 35% average.  That state accounts for 28% of total Brazilian soybean production.  1st crop corn harvest was pegged at 25% complete vs. 17% last week, 24% last year and 23% in 2016.  Brazilian 2nd crop corn planting was seen at 33% vs. 19% last week, 50% last year and 51% in 2016.  The delay in corn planting is obviously due to the delay in soybean harvest, which will be an important data point this spring.  CONAB is already estimating Brazilian corn production at 88MMT vs. the USDA at 95MMT based on less acres.  If rains persist, and planting delays grow, an even smaller acreage estimate might be in order.

Egypt’s GASC is tendering overnight for wheat for a March 22nd-April 1 delivery slot.  There were nine offers in total from seven different suppliers.  The cheapest offers were of course Russian at $223.58/MT C&F, followed by Romanian at $225.19-226.92/MT with an additional two offers of Russian wheat at $227.45-228.98/MT C&F.  Tender results should be available later this morning.  Speaking of wheat offers, it is pretty incredible to look at the rundown of global wheat offers in relation to US offers at the close last night.  US offers for 12.50% protein (dmb) were around $225/MT FOB, which is above the landed price of Russian wheat into Egypt.  Argentine wheat for 11.50% (dmb) was $187/MT FOB, Baltic 12.50% at $205/MT FOB and German at $209/MT.  While concerns persist about new crop production prospects in the United States, I’m not sure we need to be rationing export demand to this degree before the calendar even rolls to March.  HRW and SRW have enough issues supplying the domestic market with wheat thanks to the inflated carries via VSR, let alone trying to be competitive on exports.

Speaking of SRW, we have five sessions until first notice day with many trying to determine whether there will be deliveries on day one.  Last Friday, there were 64 registrations canceled in Maumee, OH, bringing total outstanding registrations down to 60 vs. the 2,000 put out on the street against the December.  The cancellation of registrations was presumably The Anderson’s, which would suggest they won’t be delivering a large lot on FND like last cycle.  Of course, most thought the same thing against the December with cash wheat at Ohio mills well above delivery equivalence, so don’t rule anything out.  There are 468 outstanding registrations in Kansas City, and with 10.5% protein wheat still well below delivery equivalence, would imagine most of those get put out.  1,281 outstanding certs in Minneapolis and Duluth, and would also imagine most of those get re-delivered.

Friday will see the Cattle-on-Feed report as of February 1.  January net placements are seen at 100.6%, January marketings are seen at 106.2% and total cattle-on-feed as of Feb 1 are seen at 107.3%.

 

Bottom Line: Soybeans are turning higher at the 7:00 hour, and Chicago wheat is almost back to unchanged.  Domestic demand of corn and soybeans remains incredibly strong with a solid margin structure.  Corn exports are ramping up in a big way, and could have an even bigger year in 2018/19 if relief doesn’t come to South America soon.  Wheat is the odd man out right now with shaky demand, plenty of wheat available globally and the calendar not yet at the point of no return for the southern plains.

 

 

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.

 

2/20/2018 Morning Comments

Good Morning,

 

A bit heavier rainfall in spots, but a bit less than expected in others was the theme of the weekend rains in Argentina.  All in all, not a bad event, but it is the forecast futures markets are concerned with this morning.  Limited rainfall is expected across most Argentine growing areas in the next 7-10 days, especially in the central growing belt, exacerbating dryness concerns.  What rains are expected to fall will generally be under 0.30” on about 40% coverage, favoring far western and southern parts of the belt.  The 6-10 is pretty much a mirror image of the 1-5 day.  Fortunately, temps will be mild with highs generally in the 70’s and 80’s.  Brazil appears to keep the tropical rainfall pattern in place with little to no threats seen.  In Argentina, the corn crop is finishing silking and moving into grain fill with the earliest harvest efforts beginning in early March.  Soybeans are still flowering, but will begin pod set and fill next month.

 

The aforementioned paragraph on weather pretty much sums up the overnight strength at the CBOT, being led once again by soymeal which is up 2.50% this morning.  Soymeal once again featured a gap up at the beginning of the overnight session, and is trading on the highs as we close out evening trade.  Soymeal failed to break through resistance at the 61.8% retracement of the 432.50-292.0 selloff on Friday, potentially setting up a weaker trade this week without the weather forecast the market wanted to see.  That obviously wasn’t an issue, and in trading through resistance has opened upside to the 400-handle area or even the 2016 highs around $432.50.  Soybeans have also pushed through resistance at the 10.2775 mark, and now has the 10.60 and 10.80 highs from January and February 2017.  There is no Fib retracement resistance left in the way between spot and the 10.80 highs.  Corn and wheat are trading higher in sympathy with corn making new highs for the move overnight, but Chicago wheat needs to trade up another 6.0c to do the same.  March KC wheat did put in new highs overnight by 1.0c.  The question now becomes whether funds want to be substantially long grains after being net short for most of the last year.  The COT data discussion below sheds additional light on that topic.

The Commitment of Traders data released Friday offered plenty to digest, but most impressive might have been the commercial/producer selling.  In corn, the gross commercial short position jumped 43,661 contracts in the last week to 871,292 contracts.  This is the largest position for this group since June 28th, 2016.  Even more impressive is over the last five weeks, their position has grown by 203,022 contracts, or just over 1.0 billion bushels.  By contrast, the gross commercial long slipped to the lowest in five weeks.  A tremendous amount of corn has moved from the producer’s hands to the commercials as they catch up on sales and start taking a stab at new crop.  Funds bought 269,094 contracts over the last month, completely covering their massive short to move net long by 11,010 contracts.  The question now becomes whether funds will want to add to their small net long or stay more neutral?  If they do buy 25-40,000 contracts, how much higher can we move?  In soybeans, the gross commercial short position pushed to 438,214 contracts, up 42,175 contracts on the week and up 127,691 contracts over the last six weeks.  Mirroring their position in corn, funds bought 57,658 contracts of soybeans to leave them net long 11,129 contracts.  In the last three weeks, funds have had two of the six largest weeks of buying on record going back to 2007.  In Chicago wheat, funds bought 30,796 contracts to cut their net short to -75,906 contracts.  This is the smallest net short since August 15th, 2017.  The commercial short position is now the largest since August 22nd, while the gross commercial long is the smallest since October 3rd.  The trend as a whole in grains is growing commercial short positions and surge buying by the funds who are now net long in corn and beans.

With the mixed rain coverage over the weekend, crop estimates are once again being trimmed in Argentina.  While the rally is being led by meal given Argentina’s place as the globe’s number one soymeal exporter, we think the situation could be more serious for the global corn balance sheet as 2018 progresses.  With the weekend’s weather behind us, corn crop estimates in Argentina as low as 35MMT are being thrown around vs. the USDA’s latest estimate of 39MMT.  If we take that estimate at face value, it gives us total supplies of 40.767MMT vs. 42.462MMT the year previous.  As I typically like to do, I left USDA’s demand estimates unchanged to give us a sense of what level of rationing would be needed at a supply level like that.  If we do that, carryout falls to 1.267MMT vs. the USDA’s current 5.267MMT.  This would be the smallest carryout since 2011/12’s 896,000MT.  The stocks/use ratio of 3.21% would be the smallest since 2003/04.  In order to get carryout back to the USDA’s current level, 4MMT would need to be cut from exports, assuming domestic consumption is maintained.  Over the last 10-yrs, exports have accounted for 62.8% of total supply.  If that relationship were to hold in 2017/18, Argentina could export 25MMT, but domestic consumption would obviously need to be curtailed.

Brazil’s balance sheet using CONAB’s latest production estimate is no bed of roses.  Using CONAB’s production estimate and USDA’s demand, we see a carryout of 3.619MMT, which would be the smallest since 2006/07.  The stocks/use ratio of 3.75% would be the smallest since 1990/91.  Here again, to hit USDA’s current ending stocks estimate, 7MMT would need to be cut from exports.  Combining both Brazil and Argentina into one balance sheet gives us a better picture of the South American supply situation as a whole. Combined, production would be 123MMT vs. the USDA at 134MMT.  Combined carryout would be 4.886MMT vs. USDA’s current 15.886MMT.  If that carryout were true, that would be just 192 million bushels spread out over nearly the entire continent of South America.  I think Iowa spills that much in a year.  This exercise illustrates how critically tight the South American balance sheet can be at updated supply estimates and USDA’s demand, also highlighting how much rationing could be at hand if weather doesn’t improve.  To get carryout to a level which represents the current stocks/use ratio from the USDA, 9.5MMT of corn exports would need to be rationed from these two countries.  That would be an additional 370mbu of corn which needs to be sourced from somewhere else with the most likely origin obviously being the United States.  Lopping even 250mbu off the 2018/19 balance sheet makes the US supply situation all the more interesting.  Plenty of balls in the air.

With soymeal leading the charge, board crush margins have obviously performed rather well, making new highs for the move overnight at $1.5339.  The last several session on spot crush have been the best trades since May 2016, but this area over $1.50 is some especially rarified air.  By our count, spot month board crush on a rolling front-month basis has only traded better than current levels 13 weeks going all the way back to 1988.  The bulk of those trades took place between August and December of 2014 when board crush notched all-time record highs at $2.68/bu.  With that in mind, crush demand from both US and foreign crushers should be incredibly strong as they have the option to “lock in” $1.20/bu plus crush margins all the way out to March of 2019.  Soymeal’s strength has also come at the expense of soy oil which has watched oilshare trade down to 29.1% this morning, the lowest trade since July 2016.  It should be noted 28.0% oilshare has supported soy oil relative to soymeal on almost every occasion going back to 2000.  If oilshare did dip below 28.0%, it was never for more than a week, if not a couple sessions.  Soy meal bulls would do well to keep that level on their radar.

 

Bottom Line:  It still feels as though we are in the realization phase on South American weather and production.  There is no doubt Brazil is offsetting some of the Argentine crops as private estimates for the northern neighbor crept higher over the weekend.  However, it is Argentina’s contribution to global soy meal and corn trade which will have the largest impact, not whole bean exports.  Crush margins should remain supported for the foreseeable future as global importers seek to mitigate risk and extend coverage before existing stem becomes extinguished.  With each million tonnes cut from the Argentine crop, the 2018/19 US corn balance sheet looks that much more supportive.

 

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.

2/16/2018 Morning Comments

Good Morning,

 

Dry weather has been the feature in Argentina most of this week, although the next round of showers this weekend still looks on tap.  About 1/3 of the southwestern corn and soy belt will see rainfall chances, although totals should mainly be between 0.25-1.00”.  90* temps will expand after the rains before a brief cool down, and additional 90’s late next week.  There are rain chances again the 11-15 day, which would be centered on the southwestern ½ of the belt with totals between 0.25-1.50”.  In total, around 2/3’s of the Argentine growing region will be under stress by the end of the 6-10 day.  The 15-day rainfall anomaly for Argentina shows the heart of the growing regions around 2-4” behind average.

 

Easier markets this morning as we get set to tie a bow on a rather positive week across the grain room, especially for the oilseed complex.  At this writing, soybeans are up 40.75c on the week, boosted by the Argentine weather forecasts and shrinking crop production forecasts.  Spot soybeans are now at the highest levels since mid-July when the US had its own production concerns.  While the focus is currently on shrinking Argentine forecasts, Brazilian soy crop prospects are still growing and have all the makings of another record.  Mixed bag on money flow with corn open interest down 2,059 contracts yesterday, while soybeans were up 3,570 contracts, meal up 5,179 contracts, Chicago wheat down 4,886 contracts and KC wheat up 4,814 contracts.  While Chicago wheat made new highs this week, KC wheat did not, and most winter wheat charts have diverging momentum, suggesting the move has run out of steam for now and could be susceptible to a larger degree correction.

Adding to the grain strength yesterday was a solid round of export sales which were led by row crops.  Corn sales totaled 77.7mbu, well above the 21.6mbu needed weekly, and were also the second largest sales total of the marketing year.  Total commitments are down 14% from a year ago at 1.417bbu, but have made up serious ground over the last five weeks, cutting the deficit from 20% to 14%.  Sales over the last five weeks have averaged 70.0mbu, and should remain strong until the summer when South American supplies become available.  Soybean sales totaled 23.5mbu vs. the 16.5mbu needed weekly.  Total commitments are now 1.646bbu, down 13% from a year ago and down from the 3.4% y/y decline the USDA is forecasting.  Despite continuing to meet the level needed, sales usually slow through summer, raising further doubt about meeting the USDA’s estimate.  Wheat sales totaled 11.4mbu vs. the 9.6mbu needed weekly, but were in line with estimates.  Total commitments are down 12% from a year ago at 775.8mbu, a bit more than the 9.6% decline currently being forecasted by the USDA.

Other data released yesterday included January NOPA member crush which was less than trade estimates.  NOPA members crushed 163.111mbu of soybeans during January, below the 165.5mbu floated in the trade, below last month’s 166.4mbu but above the 160.6mbu from a year ago.  Using recent month’s relationship, this should put industry wide crush around 173.1mbu, and would put Sep-Jan crush around 844mbu.  This would leave 1.106bbu left to crush Feb-Aug to hit the USDA’s 1.950bbu crush estimate.  Soybean oil stocks totaled 1.728 billion pounds which were up sharply from the average trade guess of 1.603 billion, well above last month’s 1.518 billion and above last year’s 1.655 billion pounds.  Soybean oil yield continues to run below last year’s, keeping the quality concerns alive and well.  Oil yield was 11.51lbs/bu vs. 11.55 last month and 11.65lbs/bu last year.

PNW corn premiums continue to sky rocket thanks to surging rail equipment costs thanks to inclement weather along the high-line and in the PNW.  BNSF equipment was quoted $2000 vs. $2750/car last night for February which compares with $500/bids a week ago.  Using the bid side, this would equate to about 37c/bu.  Corn premiums have rallied in tandem with spot bids now indicated at +125/130H vs. offers of +145H and would compare with +97H a week ago.  CIF bids look mostly unchanged on the week.  HRW protein premiums were weaker on the session with the higher board as 11.40-12.20% fell 5-15c.  12.0% protein is now indicated at +145/160H vs. +160/175H a week ago.  The Minneapolis spot floor was up 10c for 14.0% pro at +120/135H vs. +100/127H a week ago.  Not much for relief in the southern plains in either the 7-day outlook or the 6-15 day time period.

Minneapolis wheat has been the weak leg of the wheat complex on the rally, having failed to take out any upside resistance candidates while the winter boards have surged.  However, Minneapolis wheat continues to have a coiling look to it with a potential bullish divergence in momentum flashing while the declining wedge pattern remains intact.  Encouragingly, on yesterday’s rally, the MWH/MWK jumped sharply to -10.00c at the highs, the highest print since the end of January after trading weaker consistently in 2018.  Deferred spreads have not rallied in-kind, which could indicate the front end strength is just short hedges being rolled deeper out the curve.  To be clear, Minneapolis hasn’t done anything yet to get excited about a rally, but there are plenty of signs it could be getting ready for one.  With the February insurance pricing period taking place right now, sub-$6.40 MWU futures vs. $10.20 soybean futures is no slam dunk HRS will get the acres it needs.  One needs to remember without a meaningful jump in acreage, the hard red spring balance sheet could decline even with normal yields and average demand.

 

Bottom Line: Impressive week for grains probably needs some consolidation, although charts still look solid for row crops.  Soy meal has been the leader, and is working on its ninth consecutive higher close today, besting the eight session streak from mid-January.  After breaking through $350/ST resistance, spot meal has upside to the $432 highs from the spring of 2016.  If Argentina is truly in jeopardy, it will be meal which continues to benefit and needs to perform.  Oilshare is feeling the brunt of that, trading down to 29.6% this morning, the lowest level since July 14th, 2016.

 

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.

2/9/2018 Morning Comments

Good Morning,

 

While the focus has been on the equity market selloff as of late, crude oil has quietly sunk to the lowest levels of 2018, dropping below its 50-day moving average for the first time since October during yesterday’s session.  The correlation between a growing economy, strong stock market and higher energy markets is not a newfound idea, but the spotlight has been off the bull crude oil market thanks to the turbulence in stocks.  Unfortunately, crude doesn’t have much for support until the $58.00/bbl area if the 60-handle gives way.  Some correction in the Brent/WTI spread also looks likely as it had dropped to near $3.00/bbl, the tightest spread since August as managed funds built a record net long position in WTI.

A good round of snow fall blanketed the upper-Midwest in the last 24-hours, providing the best snowfall of the year in many locations as evidenced by the map below.  This has provided a good layer of insulation to the winter wheat in South Dakota and Nebraska which had been lacking for much of the last two months.  There isn’t much snow cover across KS, and nothing in CO/OK/TX, but that isn’t an uncommon phenomenon either.  The southern plains do have a couple of chances for moisture during the 7-day outlook with a combined 0.10-0.50” possible between the two shots.  The ECB stays wet with another 0.50-1.25” possible of water-equivalent moisture.  The southern plains should make these two chances count as both the 6-10 and 8-14 day outlooks show below normal precip for the region.  Temps start out normal for the Midwest before shifting to below normal in the 8-14.  South America still hinges on the weekend rains for Argentina and the follow up rains next weekend.  Sunday night’s open should be an indicator of rainfall received.

 

Easier markets this morning as we continue to digest yesterday’s WASDE report, but also the CONAB numbers from Brazil which are arguably more important for future price direction than what WASDE provided.  Money flowed out of commodities in a big way yesterday with corn and soybeans closing higher and wheat lower.  Corn open interest dropped 31,178 contracts after what had been a one-way train higher for most of the last 2-months.  Soybean open interest fell 18,269 contracts, meal was up 10,067 contracts, SRW wheat was down 5,347 contracts and KC wheat was down 1,960 contracts.  This afternoon’s COT data will be rather interesting for the trade to figure out what kind and what size of positions the managed funds are holding given the higher trending markets as of late.  The risk for the current up-moves in our space is once the managed positions have been covered, both the funds and the farmer will be long, potentially leaving a void of buyers.  Having said that, corn demand remains robust for exports, ethanol and feed with basis holding together rather well for the uptrend.  Crush demand remains solid in soybeans, but export demand still leaves plenty to be desired.  Wheat demand is tepid at best with export interest nil and domestic demand ho-hum.

The corn market provided the most fodder for analysts yesterday, and that’s what I’d like to focus on today.  CONAB put their corn production number at 88MMT yesterday, well below what the trade was looking for, and a full 7MMT below the USDA’s unchanged Feb WASDE number.  The fact USDA opted to leave their number unchanged is a real head scratcher, and makes a person wonder if they bothered even analyzing Brazilian corn conditions this month?  Nonetheless, this bolsters US corn export ideas for both 17/18, but especially 18/19, and in our opinion fully justifies the USDA’s decision to bump the 17/18 export estimate by 125mbu.  This prompted us to take a closer look at the 18/19 balance sheet and a few acreage implications which will obviously change a good deal over the next 3-months.  Our balance sheet below shows the 17/18 updates from USDA, and also plugs in a 172bpa trend line yield against four different acreage scenarios.  90.2 million would be unchanged from this year, while two scenarios show larger acres and one smaller.  We are using 14.800bbu worth of demand which assumes a small increase to ethanol demand, a 50mbu increase to feed demand and a further 150mbu increase to exports which would still be below the 16/17 export estimate.  One could argue this demand estimate is too high for this early in the year, but even though y/y demand change has been volatile, the 10-yr average is 2.80%.  Our 14.80bbu demand number would be a 1.15% increase from 17/18.  Growth at 2.80% would imply at 15.003bbu.  We don’t think you can get to 15.00bbu type demand numbers without another bumper crop and plenty of supply to keep prices subdued.

Moving on, one can see with unchanged acres, carryout would fall to 1.857bbu, which would be the lowest since 2015/16, and the last time the average corn price received was above $3.50/bu.  If acres were to fall a million from this year, even with a trend yield of 172bpa, carryout would drop to 1.668bbu, the smallest since 2013/14 when corn price received average $3.70.  Even with a two million acre increase to planted acres, and keeping demand at 14.800bbu, carryout still drops to 2.142bbu vs. 2.350bbu this year.  It would take a national average yield on par with the last two years near 175.0bpa to give us a carryout of 2.395bbu, or about unchanged from 17/18.  This isn’t to say we can’t do 175bpa, because we’ve done it the last two years with less than optimal growing conditions for most of the WCB last year, but the burden of proof would appear to be on bears at the moment provided demand holds up.

The only other thing we wanted to touch on would be the correction in wheat, both on the futures board and cash market.  KC wheat posted a rather ugly reversal yesterday, putting in fresh highs for the move, but also trading below the previous day’s low.  Fortunately, we didn’t close below the previous session’s low, but the follow through selling today is obviously a yellow flag.  Momentum indicators have understandably turned lower, and possibly have put in a bearish divergence in momentum.  However, only trade below $4.54 ½ would be able to confirm that, and in-turn solidify the current up move is over.  Making matters worse was the cash floor trade on the KCBT spot which saw every protein class except ORD’s trade lower by 5-40c.  High protein was hit the hardest, down 40c with 13.0% protein now indicated at +185/200H vs. +225/240H a week ago.  12.0% pro was seen at +160/175H vs. +165/180H a week earlier.  TX-Gulf bids and offers were also down 5c for most slots.  The basis response highlights the fact wheat still needs demand at these higher futures levels, something which is very tough to argue at the moment.

 

Bottom Line: The USD Index has corrected higher, equities remain volatile and energy markets are well off 2018 highs.  Lots of positives in grains from dry southern plains weather to improved export demand in corn.  Yet, there remains plenty of old crop corn for sale above the market, soybean export demand still has issues hitting the USDA’s revised estimate, and the focus to spring planting and acreage is over a month away.  Some consolidation of the recent move is probably warranted while the trade continues to assess South American weather.

 

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.

2/8/2018 Morning Comments

Good Morning,

 

China released January import/export data last night, with both beating trade expectations.  Imports surged 36.9% y/y vs. expectations of a +9.2% gain, while exports were up +11.1% y/y vs. +10.2% expected.  The trade surplus came in at +$20.43 billion vs. estimates of $56.4 billion thanks to the much larger imports.  Some of the import highlights included iron ore imports of 100.34MMT, up 9.1% y/y, copper and copper product imports were up 17% at 443,000MT, crude oil imports were 40.64MMT which were up 19% y/y and soybeans were 8.48MMT which were up 11% on the year.

No major changes to the South American forecast with fairly widespread, soaking rains into most of the Argentine growing regions this weekend.  Totals are still expected to be in the 0.50-1.50” on 75-80% of the growing areas.  However, follow up rains are absent until next weekend with warm temps until this weekend, then a cool down following the rains.  There will be temps warming into the 90’s for the second half of next week making the rains 10-days out critical.  Brazil appears to be on pace to continue receiving beneficial rains with temps running close to average in most cases the next 7-10 days.

 

Some consolidative trade overnight, especially in wheat which is trying to digest its 2-day, 20-cent move in Chicago and 19.0c gain in KC.  Both KC and Chicago made new highs overnight before turning lower, and would very much like to turn things around during the day session to keep a potential reversal candle off their charts.  Otherwise, both winter wheat charts still look good from an intermediate and long-term stand point.  Corn charts also look strong after this week’s trade, stringing together three winning sessions in a row for a 6.0c gain.  Importantly, corn charts are not as yet showing hints of a bearish divergence in momentum, while wheat charts appear to have made new highs on declining momentum.  Any set back in wheat charts below a minor corrective high like $4.52 basis Chicago or $4.70 basis KC would be a warning signal.  Soybeans remain torn between the current upsurge being a corrective high ahead of new lows below $9.67, or whether the entire move down from late-Jan highs is corrective ahead of new highs above $10.04.  Based on momentum and spread trade, would lean toward the former.  This morning’s WASDE report will grab headlines, but in all honesty, it should be a fairly quiet report in terms of market moving data.  The USDA almost never comes clean on South American production in February, preferring to wait until more data is available in March or April.  In addition, US changes should be light, and if anything should be negative via export cuts to soybeans and wheat.

As important as the USDA later today was CONAB earlier this morning releasing their most recent estimates of Brazilian production.  The group raised their soybean estimate to 111.6MMT from 110.4MMT last month, but would remain below the 114.1MMT produced last season.  As recently as yesterday, boots-on-the-ground are pegging the Brazilian soybean crop as high as 116-118MMT thanks to incredible early yield reports in the country’s largest soybean state, Mato Grosso.  As interesting, however, was CONAB reducing their estimate of Brazilian corn production to 88MMT from 92.3MMT last month and a record 97.8MMT a year ago.  The group cited reduced yields and smaller planted area as to their reasoning behind a smaller corn crop.  Between the Brazilian cut, and Argentine weather, if there is a US export story to be made one way or another, it is likely to be corn from June into new crop as opposed to soybeans.  The world has plenty of soybeans to meet Chinese demand, but cheap and readily available corn supplies can be best met by the US.

Speaking of US soybean imports, markets were probably rattled yesterday when reports hit newswires that China was considering trade measures on soybeans in addition to their review of anti-dumping legislation on US sorghum.  These two measures continue the tit-for-tat between China and the US which was ramped up by President Trump when he slapped tariffs on imported solar panels and washing machines.  If this were even 2-3 years ago, China would most likely not have put soybeans on the table, but now that they import a larger percentage of their beans from Brazil than they do the US, at a time in which both countries have copious amounts of soybeans, the move puts China in much less jeopardy.  However, any snag in Brazilian weather or logistics which compromises those imports would likely see the measures taken right back off the table.  China knows better than anyone how important food security is, and what a short-sighted move that would be with a commodity they are so heavily import-dependent.  Nonetheless, the entire narrative is likely to keep the soybean market on edge the next several weeks.

We’ve been talking at length recently about wheat charts looking positive, but at the same time US FOB offers becoming increasingly uncompetitive.  Another measure which illustrates this rather well is the spread between Chicago/Paris futures and KC/Paris futures.  The spread between PM/W is trading at $27.88/MT this morning which is the lowest since Thanksgiving, and below the 50/100/200-day moving averages by quite a margin.  Even more impressive is the PM/KW spread which is trading at $20.01/MT this morning, the lowest print since July 20th.  Looking at a much longer weekly time scale, the 200-period moving average comes in at $15.82/MT, so the current price is still above a very long-term look, but the correction in these two prices is undeniable.  Considering we have yet to break dormancy, and considering the US balance sheet is still carrying a huge supply buffer, albeit of lower than desirable protein, the timing of this surge is still suspect.  In addition, as we pointed out last week, February is the worst month of the calendar year in terms of 30-yr average seasonal returns, again making the timing of this rally look questionable.  Producers should review marketing levels often.

Other data yesterday included weekly ethanol production which was up 17,000bbls/day to 1.057 million bbls day and about unchanged from the same week a year ago.  This is below the roughly 1.1% gain ethanol production needs to run on average above year ago levels each week through the end of August.  Weekly stocks surged along with production, up 444,000bbls to 23.489 million bbls, which is the third highest level on record.  This is interesting considering the surge in exports witnessed the month of December.  It could have implications about exports during the month of January, especially if Brazil does not make as big of splash as they did at the end of 2017, and if China doesn’t make their imports from December a consistent feature.  Worth noting, the spot month RBOB/Ethanol spread has corrected rather sharply in recent days, down to 34.6c/gln from a high around 55.0c/gln just 10-sessions ago.  Back months are still close to 50.0c/gln, but this is off from highs close to 70.0c at the end of January.  Almost all of this correction has been because of the RBOB selloff while ethanol prices have remained relatively static.

 

Bottom Line: USDA headlines will carry the day later this morning, but more important to us were the CONAB numbers from this morning, and the weekend rainfall event in Argentina.  If the rains underwhelm, the soy market could be in for a sharply higher open Sunday. If the rains over-perform, the opposite could be true.  Spring wheat hasn’t had anything to rally about lately given the story started with US winter wheat conditions and carried on because of the heavy fund shorts in those two markets.  Minneapolis won’t be grabbing headlines until the February insurance pricing is over or producers begin to head to the fields.  Having said that, I wouldn’t sleep on Minneapolis given the relatively tight balance sheet projections even with an acre increase and normal yields.  In addition, inter-market spreads between MW/W and MW/KW have been a one-way street with funds covering winter wheat shorts and dumping spring wheat longs.  If the focus shifts to spring wheat, it will be apparent which direction those spreads will trend.

 

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.

2/7/2018 Morning Comments

Good Morning,

 

We picked a heck of 3-day stretch to be off markets with respect to financial markets.  The epic roller coaster in the stock market appears to have somewhat quieted down with E-mini S&P’s down just 9.50 points as of this writing, but the 349 points we dropped from the highs on the 29th to the lows on the 6th is nothing short of remarkable.  Most would be quick to point out that on a percentage basis, the drop wasn’t anywhere near the largest ever, it was still something to witness.  Many have been quick to point the blame at various volatility products, especially the XIV, or the VelocityShares Daily Inverse VIX Short-term exchange-traded note.  Say that three times fast.  This product is designed to be a bet on calm markets, hence the short-volatility premise, and is supposed to trade opposite the VIX, or volatility index of the CBOE.  The XIV fell roughly 85% during the malaise, but as most are quick to point out, would not have caused the broader market selloff.  It should be noted the S&P 500 traded right down to the 200-day moving average, but bounced off of that measure sharply, keeping stocks in bull-market territory for 2018.

The weather focus is squarely on Argentina this morning with dry weather having dominated all of Argy and the southern 2/3’s of Brazil yesterday.  There are no major changes to the Argentine forecast this morning with limited rains expected tomorrow, but fairly soaking rains expected for Friday and into the weekend.  The forecast this morning is calling for 0.50-1.50” with isolated totals over 1.50” on around 75-80% of the growing region.  Following that system, dry weather is then expected to return for most of the next week.  Some are calling these rains “make or break” for the Argentine crop, which should make for a very interesting Sunday night open.  Brazil continues to see healthy rains the next 10-days, which could cause some slight soybean harvest delays.

 

Follow through buying in wheat and corn with a little overnight set back in soybeans so far this morning.  Interestingly, soybeans opened a good deal higher last night, trading up as much as 5.0c before giving up gains to trade 1-2c lower this morning.  Some of this weakness is probably just consolidation from yesterday’s strong gains, and also traders wanting to take a wait-and-see approach on this weekend’s rain forecast.  There is the February WASDE report tomorrow, but it is highly unlikely the USDA will adopt any of the more aggressive analyst estimates out there for Argentina or Brazil.  Helping yesterday’s strength were comments from the Buenos Aires Grain Exchange which said without these rains in the forecast, the Argentine soybean crop could drop to 40MMT from their current estimate of 51MMT and the USDA’s current 56.0MMT.  In wheat, there is no real fundamental drivers of the price action, which likely means strength is coming from technical buying after KC wheat was able to make new highs for the move.  Most KC contracts are hitting the highest levels since late September, despite US FOB offers moving further and further away from working into major destinations.  Our space saw pretty large short-covering yesterday in everything except corn.  Corn open interest rose 13,578 contracts, soybeans fell 10,803 contracts, meal was up 1,867 contracts, Chicago wheat was down 7,040 contracts and KC wheat was down 6,305 contracts.  Corn open interest is back to within 15,000 contracts of the highest level since February of 2011.

As impressive as the technical action in wheat right now are the US FOB offer comparisons with other major origins.  Going home last night, US 12.50% pro HRW was indicated around $224/225/MT FOB (DMB) which compares with $222/MT FOB a week ago.  Contrast this with 12.50% pro-Russian offers at $198/MT FOB and German at $209/MT FOB.  11.0% pro HRW offers are enjoying a similar premium to similar offers with US at $209/MT FOB vs. Argentine 11.50% pro at $185/MT FOB and 11.0% pro French at $209/MT FOB.  It goes without saying most of these origins enjoy freight advantages to US wheat in addition to the FOB price discount.  With  tomorrow’s export sales report including most of the recent run up in price, it will be very interesting to see what effect it had on importer buying decisions.  Based on Gulf basis changes, it could be an ugly report.

Sticking with wheat data for a minute, weekly deliverable stocks reports showed continued draws at the KCBT and CBOT and a build at the MGEX.  HRS stocks in Minneapolis and Duluth rose a combined 482,000 bushels in the week ended 2/4, with stocks now at 22.019mbu vs. 21.895mbu a year ago.  At the CBOT, combined wheat stocks totaled 81.638mbu, down 1.358mbu on the week and 4.030mbu below a year ago.  Non-deliverable grades continue to run below year ago levels as well at 5.911mbu vs. 6.392mbu.  KCBT stocks fell 1.372mbu on the week to 109.015mbu, but are 5.320mbu above year ago levels.  A big show down could occur this year in KCBT deliverable warehouses should the crop prove shorter than normal and therefore have a higher protein content than the last two years.  KCBT warehouses are chock-full of sub-11.0% protein wheat, and a big majority of probably below 10.5%.  This has kept calendar spreads wide and the best home for southern plains wheat being storage.  If higher protein wheat is achieved, and this low protein wheat can be blended, it could create better demand for the low-pro wheat, helping tighten calendar spreads just as we move into the VSR-era.

Other noteworthy data yesterday included December monthly import and export data from the US Census Bureau on ethanol and DDGs.  The month was a very strong one for ethanol exports, coming in at 173.3 million gallons, the largest single month total since December 2010 and the second largest month on record.  This helped propel 2017 calendar year ethanol exports to 1.367 billion gallons, beating last year by 197 million gallons and beating the previous calendar year record of 2010 by 173 million gallons.  The massive total was aided by Brazil who took 48.5 million gallons, the largest monthly total since May, and helping them tally 445 million gallons in 2017, blowing their previous record of 386 million in 2010 out of the water.  Also noteworthy was China coming in for 22.1 million gallons, their largest total since November 2016, and after having taking essentially nothing for the entire 2017 calendar year.  India was also strong at 20.0 million gallons, their largest monthly total since March 2017, and Canada took their workmanlike 23.1 million gallons.  It will be interesting to see if Brazil is back in January with solid imports, or whether they were just filling their duty-free import total and will now exit the market.  DDGs exports totaled 968,700MT which was up from last month’s 875,302MT and up from last year’s 844,209MT.  2017 calendar year exports were 11.077MMT, down from 2016’s 11.314MMT and the lowest calendar year total since 2013.  China took 21,699MT, the largest total since April.

KC wheat isn’t the only chart which looks strong as corn pushed to new highs both yesterday and overnight, trading to the best levels on a front-month basis since August 22nd.  In the process, spot month corn is now above the 200-day moving average for the first time since August as well, and has the 38.2% retracement of the 4.17-3.36 selloff at $3.67 in its crosshairs.  Momentum indicators still look solid, not showing any signs of a bearish divergence in momentum, funds are most likely still carrying some level of net short position, and calendar spread trade has been very impressive on the rally as well.  The CH/CK spread hit -7.25c overnight, the highest trade since 9/8 while the CN/CZ hit -14.75c, tying the best levels since 9/8.  In addition, after weakness last week, cash markets have stabilized with the PNW firmer than late week totals, and CIF barges absorbing the higher market as well.  Other than the realization of how much corn remains for sale between $3.65-3.70 basis spot month corn, there isn’t a great deal of bearishness to be thrown at this market.  However, once the fund short is covered, we need to ask ourselves who is going to buy this market to take us higher than the $3.70ish area?  Lastly, as we’ve been discussing here a lot lately, CZ18 corn hit $3.94 ¼ overnight, within spitting distance of last year’s $3.96 February crop insurance average.  Anything close to $4.00 CZ18 futures should ensure steady or higher corn acres in 2018.

 

Bottom Line: Charts look good, and forecasts for Argentina remain a concern.  With soybeans especially, we still aren’t back to levels from late January, so expecting another round of selling from farmers who already had the chance to sell these levels isn’t likely.  Producers are being given a great opportunity to catch up on old crop sales, and take a look at hedging/protecting the uncovered portion of their production which isn’t protected by revenue insurance.  The trend is your friend, and right now trends are up.

 

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.

2/2/2018 Morning Comments

Good Morning,

 

While much of the focus in wheat markets lately has been the impressive rally in KC Wheat, what has also been noteworthy is the spread between US wheat futures and Paris Wheat futures.  Paris wheat didn’t rally nearly as hard as KC to begin with, advancing the equivalent of around 24c/bu, but has corrected since January 30th, to only be a net 7c/bu higher than the nearly two-year lows from mid-January.  This has corrected the KW/PM spread to just $25.42/MT premium Paris compared with the $36.00/MT premium on January 23rd.  What’s further, this spread is now trading below its 200-day moving average for the first time since July.  The W/PM spread is still trading at $31.22/MT, just above its 200-day moving average as the strength has been much more pronounced in KC.  This will be a spread to watch as US-HRW had already blown past most major competitors on a FOB basis.

Dry weather dominated most of Argentina yesterday, while light rains fell on 85% of the Brazilian growing region.  Limited rains are still seen the next 5-6 days in Argentina, carrying over to the 6-10 for much of the region.  Lots of waffling for the end of the 6-10 and beginning of the 11-15 day with better rains seen for most of Argentina by that period, but it is still a long ways out at best.  In addition, the changes were subtle compared with previous model runs, so a widespread/soaking event still doesn’t look guaranteed.  Model changes on Sunday night will be important for next week’s expectations.  Still doesn’t seem to be anything out of the ordinary with Brazil.

 

Easier markets as we get set to close the first trading week of February.  For the week, soybeans are down 5.50c, KC wheat is up 21.75c and corn is up 5.25c, with wheat and corn working on their third consecutive higher weekly close.  Kansas City wheat has stalled out a bit the last three sessions, making new highs Wednesday, but failing to close at new highs.  Nonetheless, despite sizable intra-day selloffs, KC futures have managed to rally back almost every day to close high range.  Continuous charts remain just below the 38.2% retracement of the 5.77-4.10 selloff at $4.74, a level which will probably remain as solid resistance.  Money mainly flowed into the CBOT during yesterday’s session with a sharply lower oilseed complex, struggling wheat contracts and a two-sided corn market.  Corn open interest was up 15,789 contracts, soybeans were up 7,519 contracts, meal up 6,716 contracts, Chicago wheat up 2,949 contracts and KC wheat up 3,921 contracts.  Active-continuation charts of corn show price at $3.6175 just below the 200-day moving average of $3.6225, a level if traded above could prompt another round of short-covering.  Copious amounts of cash corn should be for sale overhead, also.

Export sales were probably the largest talked yesterday, for many reasons.  Corn sales were impressively large at 72.9mbu, the largest since November and well above the 20.9mbu needed weekly to hit the USDA’s export estimate.  It is somewhat comical the way the analyst community is so quick to alter export estimates based on a couple weeks’ worth of sales.  Some are ratcheting up corn export sales, which probably can be argued given the improved sales pace should continue for the foreseeable future with South America focused on soybeans and Ukraine finding a smaller crop than originally expected.  Total commitments of 1.269bbu are still down 20% from a year ago vs. the USDA calling for a 16.0% decline y/y.  Wheat sales were not as positive at 10.6mbu vs. the 13.1mbu needed weekly, and given the sales report didn’t cover most of the recent rally, it is expected future sales reports could be even worse.  Total commitments of 750.0mbu are down 11% from a year ago vs. the USDA calling for a 7% decline.  Soybean sales were the real show-stopper at just 13.2mbu, coming in below expectations and well below the 18.8mbu needed weekly to hit the USDA estimate.  The 7-month low in soybean export sales is thought to be partially quality-related with the more stringent foreign material discounts implemented on US-only beans as well as concerns over a lower protein crop compared with South American stem.  Total commitments are down 13% from a year ago vs. USDA calling for a 1% y/y decline.

Other big news yesterday was the Buenos Aires Grain Exchange cutting their estimate of Argentine soybean production to 51MMT from 54MMT last month and vs. USDA’s last at 56MMT.  This was somewhat of a surprise considering the Argentine crop is just starting to flower on the earliest planted soybeans, while the last few percent of soybean acreage is still being planted.  Nonetheless, it is always helpful to take a closer look at the breakdown of a production estimate in terms of yield and acres as opposed to just flopping whole numbers out.  If acreage is set at 18.700 million hectares, then a yield of 2.72MT/ha would be needed to produce production of 51MMT.  To put this in perspective, that would be 13.4% below last year (which was not a record), and would be the lowest national average soybean yield since 2012/13.  Importantly, even with a production number which would be considered low by the trade, ending stocks on a Sep/Aug marketing year, would still be 31.170MMT vs. the 5-yr average of 29.460MMT.  This is due in large part to the fact Argentina is carrying in record old crop supplies which will help buffer any yield short-fall.  To be clear, we are not subscribing to this low of an estimate at this time as we feel we are too early in the crop development stage to make that sort of a low ball estimate.  Even with an estimate that low, the larger beginning stocks will help buffer Argentine supplies to the point demand probably isn’t affected.  Couple that with still growing Brazilian crop estimates, and combined South American supply and demand should still be on pace if not growing.  These ideas need to be kept in context when headline flashes of production estimates are released.

A few wheat notes of interest, the KC spot floor saw a swift drop for 13.0-14.0% protein with bids and offers down 25c/bu.  13.0% protein is now indicated at +225/240H vs. +245/260H a week ago.  HRW offers at the Gulf were also weaker, which should be a huge surprise given the big premium the US is carrying vs. other origins.  Some are still making the claim the HRW balance sheet needs to be rationing exports given the declining crop prospects.  Again, not sure if we can subscribe to that theory this early in the game, especially considering old crop exports have work to do just to meet the USDA’s estimate or risk bumping carryout higher.  Garnering as much focus has been inter-market spreads which saw new highs posted overnight for KW/W.  With expectations for a short crop with a higher protein profile, the thinking is Kansas should reassert a more traditional 20-40c premium over Chicago, although doing so on February 2nd might be a bit hasty.  The same thinking carries over to MW/KW which is trading at the lowest levels since June and well below the 200-day moving average.  With normal protein, Minneapolis should only carry something around a 60-100c premium over KC.  That is a long way away, especially considering as much of the Northern Plains is covered in drought conditions as the Southern Plains.  For what it’s worth, new crop KC calendar spreads rallied sharply in late January, but have been setting back the last two days.  These should provide clues about the market’s new crop ideas and expectations.

 

Bottom Line: Midday model runs from South America may be key about how we finish today, but still an impressive week for grains provided we don’t give it all back today.  Both the South American weather issue and the US Southern Plains weather issue seem premature to me, and it feels like the market is realizing that with the late week trade.  This isn’t to say we don’t have issues which need to be monitored, but simply killing both crops on February 2nd is inherently difficult to do.  All three of our markets have work to do on their export estimates to ensure USDA doesn’t make any additional cuts with corn looking the best for adding to its export estimate.  Producers should not get lulled into a false sense of security with the rallies this week, on either old crop or new crop.  As always, stress test your marketing plan against your biggest risk, not your biggest reward.

 

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.

 

2/1/2018 Morning Comments

Good Morning,

 

Nothing doing on the Midwest radar this morning.  Updated 7-day forecast shows a heavy band of moisture to impact the ECB and Mid-South midweek next week, bringing with it 0.50-1.50” of water-equivalent moisture for the ECB and up to 2.00-3.00” for the US-SE.  The 7-day shows very little chance for measureable precip in the US-HRW belt.  Extended maps show little for relief either with both the 6-10 and 8-14 day well below normal precip for the southern half of the US.  The week 1 and 2 forecasts for Argentina aren’t much better with both maps showing a net drying effect over their respective time frames relative to normal.  Looking back over the last 30-days on multiple time frames, moisture deficits are not especially severe yet, but by the end of the week-2 forecast, things will be getting worse.  Temps will be warming over that period as well, exacerbating moisture needs.  Despite some wetness concerns, Brazil still doesn’t look to have anything in the forecast which would materially impact production.  Areas outside of heavy rain potential are still adding yield.

 

A new month and lower prices.  January was a pretty solid month for CBOT prices with soybeans closing up 44.0c, KC Wheat up 40.0c and corn up 10.75c.  The wheat strength was particularly impressive considering January is typically a rather negative month for wheat prices seasonally.  The only worse month seasonally than January is February, which brings our current rally into the spotlight given the odd timing of a production-scare type rally.  The overnight price weakness could be a sign of that to some degree as traders weigh historically poor crop conditions against US FOB offers which aren’t competitive into almost any origin.  Add that to the fact the 17/18 marketing year still has plenty of work left to do in order to ensure no additional cuts to the USDA export forecast take place.  Would appear to have been additional short-covering by the managed fund community during yesterday’s session where corn O/I fell 7,345 contracts, soybeans were down 2,115 contracts, SRW wheat was down 2,027 contracts and KC wheat was down a rather large 10,792 contracts.  Since the KC wheat rally began, open interest is down 26,996 contracts, or 7.8%.

A fair amount of data yesterday including weekly ethanol production which fell 22,000bbls/day to 1.040 million bbls/day, which was also 2.0% below the same-week production from a year ago.  Unfortunately, this was the third week out of the last five which was below year ago levels, creating more of a focus on production rebounding moving forward.  Weekly ethanol production needs to average about a 1.0% increase over year ago levels each week through the end of August.  Weekly ethanol stocks fell sharply, down 755,000 bbls to 23.045 million, but remain rather large from a seasonal standpoint.  At that level, they are the second largest since last May.  Fortunately for ethanol producers, ethanol has been enjoying in the energy complex rally, albeit to a lesser extent, rallying from decade lows in mid-December around $1.25/gln to $1.41 this morning.  Recent trade has pushed the contract above its 50 and 100-day moving averages with a serious of higher-highs and higher-lows.  Calendar spreads have also rallied, but the RBOB/Ethanol spreads from spot through August remain at huge premiums for RBOB.  The 6-month strip calculates at 59.6c/gln this morning, which should be encouraging large amounts of discretionary blending.

Also released yesterday was the bi-annual cattle inventory report which came in slightly below expectations.  All cattle and calves as of 1/1/18 totaled 94.399 million head which was 100.7% of the inventory on 1/1/17.  This was slightly below the average trade guess of 101.3% of year ago levels, but the overall number is still the largest cattle inventory since 2009, and is over 6 million head larger than the record low set in 2014.  The annual calf crop came in at 35.808 million head which was up 102.0% from a year ago, slightly larger than the 101.5% pre-report estimate.  Total cattle on feed for all feedlots as of 1/1/18 totaled 14.0 million head, which is up 7% from a year ago.  Based on the data, the US cattle herd looks set for another year of expansion, which will keep support underneath current feed estimates for corn, wheat and to a lesser extent soy meal.  Coupled with record large hog and pig numbers as well as record poultry numbers, there should be doubting actual feed demand, even if the residual category continues to be a mystery.  It should be noted, feed demand was larger about a decade ago, but feed efficiencies, especially in hogs and poultry continues to climb.

Other than the winterkill/HRW discussion here in the US, the big topic in the analyst community has been the rising Brazilian production estimates and the falling Argentine estimates.  Some private analysts have been cutting Argentine production for a week or two now, even though it is the equivalent of late June there.  Nonetheless, we have seen some estimates down around 52-53MMT vs. the USDA’s latest at 56.0MMT and 57.8MMT last year.  Keep in mind, private analysts were busy cutting Argentina to sub-50MMT a year ago at this time before they bounced back in a big way.  Nonetheless, if we take Argentina at 52-53MMT, where does that leave us with Brazil?  The USDA is currently at 110.0MMT vs. 114MMT, but almost no one with any contacts in Brazil thinks this crop is any smaller than a year ago.  If we leave it at that and walk away, combined Braz/Argy soy production would be 166-167MMT vs. 171.8MMT a year ago.  However, as recently as yesterday, some impressively large Brazilian production numbers have begun floating around as harvest advances toward 15-20% in Mato Gross and yields are above last year.  If Brazilian production gets close to last year’s record yields of 3.37MT/ha with say a 3.30MT/ha, on this year’s larger acres, production bumps to 115.5MMT.  Combined production would then be at 167.5-168.0MMT.  With the near-perfect weather experienced in Brazil this year, are record yields out of the question?  If record yields of 3.40MT/ha are achieved, production would move to 119MMT, with combined production at 171-172MMT, tying last year with Argentina’s yields falling to the lowest since 2013/14 and 11.7% below last year.  As one can see, the South American soybean situation is by no means a train-wreck, even assuming some pretty serious yield cuts to Argentina which are arguably to severe given the current development stage of the crop.  South America has shown a fair amount of resilience the last couple of growing seasons, so counting on a disaster in Argentina to continue to support prices might be getting ahead of ourselves.

Export sales estimates out later this morning expect 175-400TMT of wheat, corn at 850-1,200TMT, soybeans at 775-1,300TMT, meal at 175-375TMT and soy oil at 7-35TMT.

 

Bottom Line: A new month bringing some weakness early with funds still probably toting decent sized short positions in most of our markets.  Tomorrow’s COT data isn’t likely to show the full extent of the short-covering which occurred this week, especially in KC Wheat, which could be nearly covered by now.  With that in mind, and given the date on the calendar, and given the current spread in FOB prices among major competitors, producers should be taking a hard look at both old and new crop HRW offerings.

 

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.