12/7/2018 Morning Comments

Good Morning,

 

Weather was mainly dry in Argentina yesterday with temps generally in the 80’s.  Forecasts see limited rains through the weekend and early next week to help planting continue but fairly soaking rains to hit the region by the middle of next week.  Dry weather will follow at the end of next week and into the weekend which would be nearly ideal for late spring.  In Brazil, average rains are expected in the next week to ten days for Mato Grosso, Goias and Minas Gerais.  Limited rainfall is seen in the other provinces through the weekend and early next week before a front brings fairly soaking region by the end of next week.  Difficult to call the current weather pattern anything but favorable at this juncture.

 

Mixed trade this morning with firmer wheat markets but a softer soy complex as we get set to close the week.  The bounce overnight in the three wheat markets is encouraging after the last two to three days’ worth of losses.  Traders were discouraged by the fact Egypt’s GASC bought a large tranche of wheat from Russia and Ukrainian yesterday despite the concern over letters of credit.  In addition, no US-SRW was offered, and the landed price of the wheat purchased was only $0.17/MT above the last tender.  Most thought the purchase price would carry with it a substantial risk premium but that was not the case.  In addition, most were under the impression Russia wheat export offerings had begun to slow and would not be offered in the copious amounts they had been.  This was not the case and seemed to suggest Russia will be offering wheat for the foreseeable future.  Corn has continued to respect the Sunday evening gaps below the market where the 50 and 100-day moving averages currently reside.  The risk would be a gap lower which would produce an island top, although complications with trade negotiations would see to be the only thing important enough to produce such a move.  Open interest changes yesterday saw corn O/I up 13,382 contracts with only 2,299 left in the December.  Soybean futures were down 2,338 contracts, SRW wheat was down 1,520 contracts and HRW was down just 84.

Yesterday we saw October Census Import/Export data released which we always look forward to even though it lags by two months.  Census exports offer us the only glimpse at DDGs and ethanol exports.  Speaking of which, October ethanol exports surged back to 175.4 million gallons which was the largest monthly total since March and a solid 67% above October 2017.  This at least partially explains why production rates remain supported despite the difficult operating environment.  2018 calendar year exports now stand at 1.416 billion gallons, which is a new calendar year record, with two months still remaining. Brazil showed back up in a big way in October with the largest imports since April, while India was back in for the largest monthly grab since March 2017 and the second largest monthly total on record.  DDGs exports totaled 1.018MMT which was down a hair from September but up a hair from October 2017.  Calendar-year-to-date DDGs exports of 9.976MMT are up 8.7% from a year ago.  We also like to look at corn, soybean and wheat census exports to double check the math of the weekly numbers.  October wheat exports were a bit better than expected at 1.904MMT, which were the largest October exports since 2013.  Still, JJASO exports of 9.110MMT are the smallest since 2015 and the second smallest for that period since 1971.  Soybean exports during October were 5.580MMT, the smallest October since 2011.  Sept/Oct exports of 8.817MMT are down 37% from a year ago vs. USDA calling for a 12.6% reduction.  Corn exports during October were 5.694MMT, the largest total for the month since 1980.

Egypt’s GASC ended up buying 350,000MT of wheat yesterday with 290,000MT being Russian and 60,000MT of Ukrainian.  Average Russian price was $236.80/MT FOB with the Ukrainian at $236.60/MT FOB.  Landed price was around $252.90/MT which was nearly unchanged from the previous tender.  This obviously flew in the face of ideas looking for sharply higher wheat prices due to letter of credit issues.  It also didn’t bode well for bulls hoping Russia had exhausted their exportable supplies.  US-SRW wasn’t even offered with counter-party risk issues obviously viewed as too high.  Wheat purchases so far in 2018/19 are running just a hair behind 2017/18 which is the largest export pace of the last five years.  Fortunately, Chicago wheat spreads remain priced to move wheat with the WH/WK sitting at 21.95% of full financial carry.  Once the letter of credit issues subside, hopefully we will see US-SRW back in the mix.

Other wheat news yesterday included the Kansas Wheat Commission stating winter wheat acres in the state will likely be lower than a year ago, and could be the lowest in 100-years for the United States’ largest wheat producing state.  Last year’s 7.7 million acres were the third lowest in a century.  The fall sowing campaign was not a good one in Kansas with October and November moisture and cold temperatures preventing timely seeding.  In addition, what got planted has uneven emergence if it emerged at all before dormancy set in.  Further, harvest progress in Kansas according to NASS on Monday showed corn harvest at 96% complete, soybean harvest at 95% and sorghum at 89%.  Very difficult to plant wheat into standing crop.  Even with the declines, as long as wheat yields don’t fall significantly below trend, the HRW balance sheet should be able to handle smaller production.  However, a lower starting point will put more emphasis on achieving trendline yields which could keep risk premium in place this winter and into next spring.

Weekly ethanol production increased by 21,000bbls/day last week to 1.069 million bbls/day, flying in the face of weak production margins.  Anecdotal reports from ethanol plants continue to suggest negative margins, although as one astute market observer noted, it is much more difficult to slow a plant down in the winter time (and often more costly) than it is to keep grinding corn at unfavorable margins.  As he noted, this likely means the ethanol production levels of the last two months are probably the low end of the production range.  That is actually supportive, because if margins do improve it means we can grind a lot more corn and produce a lot more ethanol.  The aforementioned ethanol exports are certainly helping the situation provided they continued in November.  Weekly ethanol stocks increased by 100,000 bbls to 23.030 million bbls/day which remain record large for this week of the year.

 

Bottom Line: Export sales will be eyed later this morning for direction, but it still feels like trade war activity is driving the bus.  To us, it feels as though traders will need confirmation of something soon or risk removing premium.  If Sinograin shows up to buy the 4-5MMT of soybeans which has been kicked around, markets would likely react very positively.  In a perfect world, any agreement would include ethanol bi-product purchases as well as some wheat and sorghum.  The potential island top formation in corn heading into the Sunday night open is something to keep an eye on.

 

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.

12/6/2018 Morning Comments

Good Morning,

 

Equity and oil markets are sharply lower this morning but both stocks and oil have recovered off of their early morning lows.  At one point this morning, spot month crude oil futures were down over 4.5% to $50.23/bbl.  Comments from Saudi Arabia’s energy minister seemed to suggest doubt about OPEC’s decision to cut oil production to balance markets.  Specifically, there are concerns Libya, Nigeria and Russia would all agree to the cut after having been exempt from previous measures.  In addition, the cuts have no bearing on US producers which continue to ramp up production.  Equity markets are also sharply lower after having taken a day off yesterday for the national day of mourning for President George H.W. Bush.  DJIA futures were down well over 400 points this morning but have recovered to trade down 384.00 at last print.  Canadian officials arrested a top executive of the Chinese technology company Huawei yesterday with plans to extradite him to the US.  The company has been the focus of corporate espionage and cyber security with concerns over whether this could hurt current negotiations on trade between the US and China.

Flurries in in the central Midwest otherwise dry weather and expected to remain that way the next 7-days at least.  The southern plains, Delta and Mid-South are a different story, however.  The entire southern half of the US is expected to see a massive winter storm bring rain and snow to the tune of 0.75-5.00” of water-equivalent moisture by Sunday.  The cutoff is rather sharp with Oklahoma expected to see moisture but Kansas shouldn’t see much of anything.  Temperatures remain mainly above normal the next 15-days with precip above normal in the aforementioned region but below normal in the Northern Plains.  Still do not detect anything of issue in South America from the private forecasters.  Brazil continues to see water in most growing regions while Argentina is favorably dry to finish their planting campaign.  LH-Dec to FH-Jan is the critical developmental time frame for much of Brazil.

 

After mixed trade to begin the night, grain markets are weaker across the board as the outside market sentiment weighs on Ags.  The trade continues to wait with bated breath for a resumption of Chinese buying which President Trump seems confident about but most are cautiously nervous about.  According to our contacts, the only entity which has been given the green light to purchase US soybeans is Sinograin to refill state-owned reserves.  If that is the case, cash traders think reserves could be replenished with around 4-5MMT of buying.  This would be a big step forward but nowhere the level needed to support higher prices in our opinion.  In addition, if China isn’t going to buy US soybeans, there can’t be much hope they are going to buy anything else like wheat, DDGs, ethanol, sorghum, etc.  That all said, we are impressed with soybeans’ resilience at current levels, especially SX9 over $9.50 which to us looks overpriced and is sending the wrong signal about 2019/20 acreage.  Wheat markets traded weakly yesterday on concerns over financing with respect to Egyptian purchases of wheat.  GASC tendered again overnight and that is discussed below.

Concerns over letters of credit being granted by GASC began surfacing last week but seemed to gain momentum Tuesday and Wednesday.  Supposedly, there are 950,000MT worth of wheat with delivery dates in January which are at risk.  GASC tried to tamp down these flames yesterday saying LC’s for three cargoes were granted yesterday and another five will be coming soon.  Anytime the globe’s largest wheat importer is having liquidity concerns it is reason for pause.  Overnight, seven exporters offered twelve cargoes of Russian, Ukrainian and Romanian wheat at range of $236.30/MT FOB to $250.00/MT.  There was no US wheat offered to no one’s surprise as US exporters are taking a wait-and-see approach to the GASC situation.  US-SRW would have been competitive depending on freight valuations.  US wheat should win the recent Iraq tender with US-HRW coming in $7-24/MT cheaper than Aussie and Canadian on a landed basis.  However, Iraq has not always purchased the cheapest offer so remains to be seen what they do.

CHS registered a fresh 67 corn deliveries last night and delivered a total of 69 with an ADM customer stopping 64 of them.  These are the first real deliveries of the cycle, bringing the month-to-date total to 77.  ADM House registered a fresh 140 SRW receipts in Toledo last night and delivered same.  Didn’t appear to be any big commercial stopper, but again, these were the first deliveries against the WZ of the cycle.  Most of the 297 HRW receipts delivered the night before last by ADM have been stopped with only 82 put out overnight.  In fact, ADM stopped 70 of the receipts which could be a shuffling of receipts to get either older or newer stem depending on their position.   ED&F Man has stopped 600 of the total 877 put out, although we aren’t sure which commercial entity this is clearing through ED&F Man.  Continues to be no Minneapolis deliveries after CHS cleaned up everything the other commercials delivered on the first two days of the period.  While old news today, was interesting to see a fifth straight week of draws out of Duluth/Minneapolis on the weekly stocks report.  Stocks are now down to 17.630mbu, the lowest since 2011 for this week, and 19.7% below the same period a year ago.  Daily shipment reports would suggest another sizable draw next week and this activity is keeping basis mostly firm.  MWZ/MWH remains inverted and those two things together do not point toward weaker futures in the near-term.

StatsCan will be out later this morning with their December crop production report.  All-wheat production is expected to inch higher to 31.4MMT vs. 31.019MMT in September and 29.984MMT a year ago.  Canola production is expected to fall slightly to 20.800MMT vs. 20.999MMT last and 21.328MMT last year.  Barley production seen at 8.200MMT vs. 8.227MMT last and 7.891MMT a year ago.  Canada continues to handle China’s hard wheat needs, almost exclusively, so their export pace will need to be monitored closely this winter.

 

Bottom Line: Weekly ethanol production out later this morning and export sales delayed until tomorrow.  Yesterday’s session offered nothing and it was a pathetic showing by the CME Group to keep Ag markets open while the rest of the markets were closed in honor of President Bush.  That said, there were no data points to chew on but markets need to see some action out of the China/US negotiations soon to prevent a selloff to close the Sunday night gaps.  In our mind, nothing has changed from last week until we see some sales confirmations.  Each day closer to 2019 is a day closer to Brazilian new crop and the door closing on US soybeans to China.  Brazilian FOB are weakening which could be a sign we are headed in the right direction but still no activity off the PNW where it is badly needed.

 

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.

11/29/2018 Morning Comments

Good Morning,

 

 

A sharply lower Dollar Index yesterday thanks to comments from Fed Chairman Powell which seemed to walk back some of his previous hawkish stances.  The outside reversal in the USD came after nearly tying the 15-month highs from early November.  Many, many asset classes will be primed for a decent sized move in one direction or the other depending on the outcome of the G20 Summit.  The USD is near 15-month highs, crude oil is sitting on 13-month lows, 10-yr treasuries are near 3-month highs and equities have rebounded smartly since setting 8-month lows.  Expect volatility to ramp up today and tomorrow and the Sunday open to be more heavily traded than usual.

 

Snow around the Great Lakes but a mainly dry Midwest ahead of the next round of winter weather this weekend.  Two more days of dry weather before the next round of moisture moves into the WCB and Northern Plains but the central belt and ECB will also be affected.  7-day forecasted precip totals from this morning’s GFS see 0.50-2.00” of water-equivalent moisture to fall in the next week.  The question will be how it falls with rain/snow mixed expected.  Temperatures are expected to be below normal in the 6-10 and 8-14 day while precip moves to below normal for most of the Midwest by the 8-14.  Private forecasters continue to see nothing of concern in South America as planting continues.  As always, weather during the month of January will be the determining factor for the majority of the production there.

 

 

Weaker markets this morning as we take a step back from yesterday’s solid gains.  The soy complex remains the focus after prices hit a one-month low on Monday only to trade back up to 3-month highs yesterday.  The trade is skittish ahead of the G20 Summit, and for good reason.  It feels like the market is confident something will get done, but few think a full-blown trade deal with framework is likely to come out of the meetings.  As we’ve said, short of a guaranteed purchase amount of US soybeans or at least preferential treatment of US soybeans over Brazilian/Argentine beans, it feels next to impossible to hit the USDA’s current 1.900bbu export forecast.  If we cut exports any further, carryout will go over 1.0bbu and price should react negatively.  That said, there are still bushels of soybeans in the north to be harvested, so the final soybean yield in January isn’t likely to remain unchanged.  KC wheat led gains in the grains yesterday with some unwinding of MW/KW and W/KW spreads.  Cash was also very firm at the Gulf for both SRW and HRW, suggesting additional export business is getting done.  Export sales later this morning will include the holiday-shortened week, so light totals should be expected.  Open interest saw big drops ahead of first notice day Friday with corn down 68,601 contracts, soybeans down 6,636 contracts, meal down 9,024, oil down 11,411, SRW down 10,005 and HRW down 6,039 contracts.

 

Most in the trade expected yesterday’s weekly ethanol production to decline due to the poor operating environment but production improved by 6,000 bbls/day to 1.048 million bbls/day.  We aren’t sure why production is continuing to hang on through this period, other than plant operators would rather run at full capacity than idle a plant or slow to inefficient levels.  Every metric one wants to look at related to ethanol production is poor.  Even with the increase the 1.048 million bbls/day was down 1.7% from same week production last year and below the +2.2% over last year needed to hit the USDA forecast.  Weekly ethanol production hasn’t achieved the level needed a single week this marketing year which will keep the USDA’s ethanol estimate in question.  Stocks were up 139,000 bbls to 22.930 million bbls which are up 4.0% from a year ago.  RBOB/Ethanol spreads are trading just above the lowest level since September 2017.  Most ethanol calendar spreads are at or near contract lows.

 

Social media is abuzz with talk about Egypt’s GASC asking exporters to delay some shipments due to a “liquidity crunch.”  The issue is related to eight cargoes with a Dec 11-20 delivery slot with some shippers suggesting they will delay boats until January when GASC’s next letters of credit can be opened.  Others will ship the wheat and hope to be paid later, not wanting to snarl up their logistics.  As Rory Deverell from FC Stone points out, the value of wheat purchased during the 18/19 marketing year is the highest in at least five years and is up 60% from two years ago due to the higher futures prices.  Even though Egypt is the world’s largest wheat importer, they’re not like doing business with Japan or South Korea.  Whether this affects further offers of US-SRW remains to be seen, but it is definitely not a development the US export program needs to deal with now that things have started to roll.

 

The KCBT and MGEX spot floors rolled to the March yesterday with basis mainly unchanged at the Z/H spread.  Often times, commercials will try to take the spread by weakening basis, but bids simply reflected the roll which was a positive.  SRW barges traded at +76/78Z again yesterday, holding firm and well above delivery equivalence.  HRW was stronger at the Gulf with 12’s reportedly trading around +170Z vs. +157Z on Tuesday which is now +132H on the spot floor.  Those sort of Gulf numbers FOB back to 30-40c over the option, which is way over delivery but cash traders suggest shippers aren’t interested in loading trains just yet.  Carries are still large enough to justify sitting on wheat until JFM.  Spring wheat cash was mostly unchanged to a bit bitter with 15’s unchanged at +150/160H.  That sort of value should FOB back to near option price to slightly under for 15’s in the country, although you’d be hard pressed to get it from most commercials.  With winter weather on its way, concerns about logistics and mills get caught short should keep a bid in the market to keep wheat moving.

 

Export sales later this morning are expected around 300-500TMT for wheat, 600-900TMT for corn, 400-850TMT for beans, 175-400TMT for meal and 8-30TMT for oil.

 

 

 

Bottom Line: Hurry up and wait for the weekend’s events.  Most pundits believe a deal, even a partial one, results in 50-100c rally in the nearby.  We hope that’s the case, but remain skeptical of it.  If it occurs, it will be a golden marketing opportunity for both old crop and new crop soybeans.  November ’19 soybeans near $9.50 looks like a good place to start marketing for 19/20.  Prices at that level or higher doesn’t shift the acres away in our opinion.  Some chatter in the country suggesting farmers will get another MFD payment next year if the trade war is still ongoing.  We are not willing to count on that.

 

 

 

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.

11/21/2018 Morning Comments

Good Morning,

 

US equity futures look to open higher this morning following another washout on Tuesday.  Equities are still above their October lows, but not by much.  As one of our colleagues pointed out, the argument the US was winning the trade war based on our stock market performance vs. China’s is starting to wear thin.  China waited out the midterm elections, and now that our equity market has turned south, the PRC is more likely emboldened to let things play out.  In our opinion, this is not a good thing for commodities generally and grains specifically.  There is a line of thinking that hard assets become more valuable as inflation rises and money flees equities.  While there might be a sliver of truth to this, grains and the rest of the commodity sector will be hard pressed to outperform anything when the cause of the equity selloff is the world’s largest consumer of commodities.  In the 2007/08 financial crisis, no asset classes were safe, although we are certainly not calling for anything of that magnitude.  In short, grains are not likely to be a safe haven if the trade war worsens and equity performance continues to decline.

The weather focus has certainly shifted to South America, although still harvest left to complete in the US.  Fortunately, looking at mostly open weather through Thanksgiving although there is a system set for Saturday through Monday impacting Kansas, Nebraska, Iowa, and Missouri.  Totals on this morning’s GFS look to be in the 0.50-1.00” amount for IA/MO/IL/WI/NE-KS.  Have to believe winter wheat planting is complete everywhere, or certainly will be when this storm hits.  Most calling for this moisture to fall as snow given temps.  Temps in the 6-10 and 8-14 day outlook will be below normal while precip moves to above normal.  Looks like winter will be here in full force by the first week in December.

 

Lower markets because the path of least resistance is down.  Looking across the technical and fundamental landscape, there aren’t very many bullish narratives one can spin right now.  Russia is still exporting wheat and the US is not hitting the targets it needs to.  The trade war between the US and China rages on, and depending on which Trump official speaks next, the conflict is either nearly over or set to continue for the next 12-months.  Ethanol and export demand for corn have been showing cracks for weeks now, even if most in the trade believe the supply is set to get smaller in January.  Outside of the G20 Summit, South American weather is the next market moving event and so far, they are off to a blazing fast start on planting with few dry spots to worry about.  Most cash sources believe the US farmer is much longer than he wants to be, which should limit rally attempts as volatility declines into the holidays.  With all of the 2018/19 length in the bin and on the ground, the last thing the US farmer wants to discuss is 2019/20 despite seed orders being placed hot and heavy.  Open interest changes yesterday included corn down 5,759 contracts, soybeans down 8,909, meal down 3,942, oil down 2,546, SRW wheat down 4,486 contracts and HRW up 1,478 contracts.

Data was lacking yesterday, although we did take interest in the weekly deliverable stocks reports.  The majority of the time, these reports are a boring glance at data which barely moves.  However, one checks them weekly so when a situation arises like we have in spring wheat, attention can be paid.  Combined wheat stocks in Duluth and Minneapolis fell 1.622mbu last week to 19.659mbu.  This compares with 23.660mbu a year ago, and would be the lowest for this week in November since 2011.  Our data set goes back to 2003, and looking at the chart of all of those years, current stocks levels are below nine of the fifteen years listed.  The stocks situation, along with firming basis levels on the spot floor and in the to-arrive market, certainly help explain the MWZ/MWH inverting this week and trading around even money this morning.  Minneapolis can, and often does, get nutty in delivery periods when stocks are out of position or quality differentials come into play.  With the spread near even money, one would imagine commercials would deliver against the December, but if the stocks in Duluth/Superior are 13.5% protein or higher, commercials might be hesitant to let go of their delivery certs.  Without commercials making delivery, it is difficult to say what could happen to front-month spreads.  If you don’t have a reason to be in December Minneapolis wheat, take your chips to the March and live to fight another day.

In Kansas City, weekly stocks fell 1.886mbu to 120.945mbu but remains 2.276 mbu above a year ago.  KCBT stocks remain the highest for this week on the calendar since at least 2011/12.  Similar to MGEX, CBOT stocks continue to decline to multi-year lows with total wheat stocks down 450,000 bushels on the week to 76.892mbu which compares with 94.861mbu a year ago.  Stocks are at a three year low for this week.  Here again, the stocks levels in addition to the firm basis trades, help to address the drop in variable storage rates and the WZ/WH trading into -5.50c earlier this week.  KCBT basis was firmer yesterday by 7c for 12.20-14.00% protein.  12’s are now listed at +151/166Z vs. +131/146Z a week ago while 13’s are +158/173Z vs. +135/150Z a week ago.

Ukraine’s Ag Minister said their country’s corn crop has moved further into record territory, now estimated at 34.8MMT vs. 34.0MMT last, USDA at 33.5MMT and their previous record of 30.9MMT in 2013/14.  Ukraine produced a maize crop of 24.1MMT last year as drought reduced supplies.  Conventional thinking would assume more supply would mean more exports.  Currently, USDA is forecasting Ukrainian exports at 27.0MMT which would easily be a new record by a huge margin.  The previous record was 20.004MMT in 2013/14.  It is often helpful to look at demand estimates as a percentage of total supplies.  USDA is currently forecasted exports (27MMT) to account for 77.29% of total supplies (34.934MMT).  The 77.29% would be a new record by almost 5%.  If the crop hits the Ag Minister’s level, this percentage would fall to 74.52%, compared with the 5-year average of 68%.  Even if exports can’t be further raised into record territory, the supplies will mean Ukraine competes all year long with US supplies into Europe, the Middle East and SE-Asia.

South American planting progress was reported yesterday with soybean planting for Brazil at 80% complete vs. 69% last week, 71% last year and 69% average.  All of the major producers are over 90% complete.  1st crop corn planting progress was 87% complete vs. 78% last week, 82% last year and 85% average.  Argentine corn planting progress was seen at 55% complete vs. 52% last week, 46% last year and 41% on the 5-yr average.

 

Bottom Line: Conventional wisdom would say today will be a quiet session heading into the holiday break but these markets are anything but conventional.  As outlined in the first paragraph, there are precious few bullish headlines at the moment and it is difficult to see that narrative changing until South American weather becomes a problem.  Russian exports need to slow for the wheat market to get traction.  Period.  Corn would do well to see ethanol prices rebound and RBOB/Ethanol spreads head the other direction.

 

Would like to wish everyone a Happy Thanksgiving and safe travels this week.

 

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.

11/20/2018 Morning Comments

Good Morning,

 

Energy markets remain volatile this morning with natural gas down 4.21% after a sharp rally the day before.  Crude oil is finally settling down, having strung together several positive sessions following its 12 session decline.  It is becoming more clear what helped lead to the exaggerated energy moves last week with the first casualty of the blow up now public.  Optionsellers.com is a firm specializing in selling naked commodity options and happened to be short natural gas calls and crude oil puts.  The extreme moves didn’t allow them to adjust their positions quick enough, leading to a total blow up of the firm and their clients losing everything.  Some reading on this subject is a great primer to the risks of selling naked options for anyone unfamiliar.  With the limit up move in oats yesterday, we were wondering if the firm wasn’t short oat calls as well…….

Some light snow around the Great Lakes, otherwise a mostly quiet Midwest radar.  A mostly open week of weather in the Northern Plains and WCB where it is badly needed.  A few showers are expected in Kansas and Missouri where final seeding efforts are still occurring.  A good deal of soybeans remain in the field from North Dakota to Missouri with quality and shatter problems widespread.  Extended maps showing below normal temps moving in during the 6-10 and hanging around through the 8-14.  Above normal precip will be the feature over most of the Plains although below normal precip will hover over the central/east corn belt.  The week 3 and 4 outlooks show below normal precip but below normal temps which covers Dec 1-14.

 

Quietly firmer markets this morning following yesterday’s washout.  It appears the market did not like the comments out of the APEC Summit from the weekend, especially from Vice President Pence who seemed to suggest a deal is not imminent and additional tariffs would be forthcoming.  We have thought for a while that if no deal was agreed to at the end of the month, the market will extract additional premium.  Despite the comments from Mr. Meyers, the WAOB chairman, last week in Geneva, we do not believe the current 1.900bbu export estimate is achievable without additional sales to China.  If exports do not hit 1.900bbu this marketing year, then the ending stocks estimates over 1.0bbu will become reality.  A 1.0bbu carryout is not congruent with $8.75 futures prices in our opinion.  Wheat markets also traded weakly yesterday with Kansas City December making new contract lows and the lowest trades since mid-July.  It feels like funds are still trying to figure out how to position themselves with the drop in variable storage rates in Chicago.  Price action so far would suggest they plan to park their shorts in KC to earn roll yield if Chicago and Minneapolis are going to see spreads near par.  Export demand has improved, but Russia hasn’t slowed their pace and until they do, difficult to justify higher prices.  Open interest changes on the selloff included corn down 4,909 contracts, soybeans up 3,763 contracts, meal down 3,237 contracts, oil down 4,048 contracts, SRW up 3,941 and HRW down 9,007 contracts.

Data yesterday included the weekly crop progress report which showed a bit more harvest left to complete than expected.  Corn harvest was estimated at 90% complete vs. 91% expected, 84% last week and 93% average.  The concern areas are the Dakotas with North Dakota at 71% harvested and South Dakota at 82%.  Heavy snow last week kept farmers out of the field, and storage is also running tight with piles on farms and at elevators quite common.  Cash sources suggest the overrun is being sold, however.  Soybean harvest was estimated at 91% complete vs. 88% last week and 96% average.  Concern areas here are Kansas at 81% complete, Missouri at 77% complete, Arkansas at 83% and Michigan at 83%.  National progress is the slowest since 2009 and the second slowest since 1992.  Winter wheat planting progress was shown at 93% complete vs. 89% last week and 97% average.  This is also the slowest pace since 2009 and the second slowest on record.  Kansas has 5% of its acres left to plant, Missouri 18%, Arkansas 21%, Oklahoma 8% and Texas 15%.  It is next to impossible to estimate what is still going to get planted at this juncture.  Safe to say the 10-15% increase in seedings is out of the question.  Also of interest is national winter wheat emergence at 81% complete vs. 88% average.  Much of this wheat in the Great Plains which isn’t out of the ground yet will go into dormancy barely sprouted and obviously not as winter-hearty as desired.

Inspection data was less than inspiring again this week with wheat at 18.7mbu vs. the 22.5mbu needed weekly to hit the USDA forecast.  Borderline pathetic we haven’t hit the needed level a single week since the beginning of the marketing year.  Total inspections of 360.5mbu are down 18.4% from a year ago vs. USDA calling for a 13% increase y/y.  Corn inspections totaled 31.4mbu, below the 45.2mbu needed weekly to hit the USDA forecast.  Total inspections of 469.9mbu are up 79.8% from a year ago, so some breathing room is warranted.  Soybean inspections of 38.8mbu were slightly above the 34.9mbu needed weekly and achieved the needed level for the sixth week in a row.  This isn’t something to get cocky about, however, as the Oct-Nov shipment window is our largest and usually sees export weeks of 60-100mbu.  Total inspections of 405.4mbu are down 42.9% from a year ago.  Sorghum inspections of 2.2mbu were actually at the level needed for just the third time this year, although total inspections of 8.9mbu are down 68% from a year ago.

Spring wheat continues to have our attention with spot floor trades up 25-30c on the offer for 13.5-14.0% protein, although receipts were very light at just 8 cars.  Movement remains incredibly light as farmers across the Northern Plains are focused on finishing harvest and not hauling wheat.  The firmer basis helped the MWZ/MWH invert yesterday, hitting a high of +2.75c.  With the spread inverted, it should bring out deliveries by commercials unless the protein content of their receipts in Duluth are well above the 13.5% standard and they don’t want to part with it.  US-HRS and US-DNS continue to trade at a discount to CWRS, especially for higher protein.  13.5% protein offers have US-NS at a $6/MT discount to CWRS, but 14.0% protein has US-NS at a $20/MT discount for January.  The premiums are fairly consistent out to March which should keep business like Bangladesh at our shores.  Also watching European Union wheat exports which were reported at 6MMT total this week which are down 27% from a year ago.  In the last WASDE, USDA estimated EU wheat exports down just 1.2% from last year.

 

Bottom Line: Should be a quiet session into the holiday break, but we thought that about yesterday also.  The soybean market will continue to be battered around by comments and tweets until the US and China conclude their meetings in Argentina.  Our markets need a positive outcome from that meeting, not just for soybeans, but for wheat and corn as well.  The sentiment toward commodities as a whole is not good right now, and rotation out of the flailing stock market is not happening.  We continue to watch 2019 new crop prices closely.

 

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.

11/15/2018 Morning Comments

Good Morning,

 

Natural Gas decided the crude oil rout had stolen enough attention, rallying to a 4-yr high yesterday on a cold front moving into the East Coast, declining domestic stockpiles and prospects for LNG exports to China.  The single day gain yesterday of 18% was the largest single day gain since September 2004, pushing spot prices to the highest since February 2014.  US stockpiles of natural gas are currently about 16% below their 5-yr average as of last week.  There is also the very real possibility funds had been long crude oil, short natural gas and with the puke in crude oil futures this week, flipping their short natural gas positions could have been a natural progression.  Natural gas is one of the few futures contracts with extraordinary daily trading limits which can move about $15,000/contract before limits are enforced.

Wintry mix over the eastern corn belt this morning while the Great Plains and western corn belt are dry one more day before moisture tomorrow.  Tomorrow’s moisture for the western corn belt could come as rain or snow, depending on the temperature, but actual moisture with the system should be mainly below 0.25”.  Along with the moisture will come a cold front which will push high temps for Saturday into the 20’s for many in the Northern Plains and WCB.  Temps will be mainly in the 40’s or below for the next week.  Temps will be mainly normal in the next 14-days while precip will be below normal in the 6-10 but above normal for most in the 8-14 day.  The last 10-20% of harvest would do well to finish up by Thanksgiving.

 

Higher prices overnight led by soybeans as newswires carry comments from Chinese officials that trade talks have indeed resumed.  Most seem confident something positive will come out of the G20 Summit in Argentina at the end of the month, which certainly needs to be the case after futures have rallied back to 3-month highs.  If a trade deal is announced, and futures tack on an additional 50-100c like many are touting, this would seem to be a golden marketing opportunity for both old and new crop.  As we’ve discussed in recent weeks, the current USDA export forecast of 1.900bbu is down 160mbu from a year ago while Chinese imports are forecast down 147mbu.  This would imply the USDA’s estimate has a fair amount of Chinese demand penciled in.  If a trade deal is not done, and China can indeed forego US soybeans this season, there is no way we can reach 1.900bbu worth of exports.  Our current pace implies something closer to 1.500bbu which current futures prices certainly do not have priced in.  The caveat to this scenario is of course whether any trade deal has a guarantee of purchases of US soybeans which would impact Brazilian loadings Jan-Apr.  Much to prove yet and this rally does not seem to be built on firm foundation just yet.  All counties of Kansas will hit their last plant dates for full insurance coverage on winter wheat today, creating a large incentive to stop planting, regardless of current progress.

Prior to the rally overnight, December KC wheat futures traded down to 4.80 ¼, which is just 2c from where the September contract went off the board.  This is a classic example of futures grinding out the carry, and why carries are never earned until they are sold.  This should push producers to look at the forward curve and consider the carries currently available out to July.  This is not to say futures will never rally again, but in plentiful supply environments, even ones which should have second half demand pull, the market will do its best to not pay anyone to carry grain.  That said, Chicago and Minneapolis wheat futures have held in much better with KC receiving a disproportionate amount of pressure is applied on the unwind of KW/W and KW/MW spreads.  KW/W especially is trying to price in the difference in storage differentials now that Chicago will be 8c/mo and KC will be 11c/mo.  Prior to now, funds held shorts in Chicago to earn larger carries while putting their longs in KC on ideas of improved export demand.  It will be interesting to see if these positions are reversed to put shorts in KC to earn higher storage and longs in Chicago on better cash markets?  Minneapolis calendars and basis remain firm as producers focus on row crop harvest and not moving grain.  The MWZ/MWH traded to even money yesterday as neither farmer nor elevator is giving much though to marketing spring wheat as winter weather approaches unharvested crop.  PNW offers of HRS remain a discount to PNW offers of CWRS.

NOPA will release October member crush data later this morning with estimates looking for 170.2mbu crushed vs. September crush of 160.8mbu and October 2017 crush of 164.2mbu.  This should keep the string of monthly records going, which dates back to 2017.  Board crush continues to weaken with board spreads below $1.00 throughout the curve vs. every contract being above $1.00 just a short time ago.  $0.96/bu for Jan crush is still a solid margin, just well off the $1.30-1.60 levels earlier this year.  Soybean oil has continued its downtrend of late, probing back toward September lows.  Newswires earlier this week said the Trump Administration was reviewing the anti-dumping duties imposed on Argentina with the possibility of removing them ahead of the G20 Summit.  Would appear the Administration is interested in offering an olive branch to Argentina and showing the rest of the members the US is willing to take a look at all trade actions.  This would not bode well for crush margins as there is no shortage of vegetable oils in the US or anywhere in the globe.  Meal continues to find support in the low $300/ST area, a spot which has held four times dating back to late August.

Ethanol production delayed until later this morning with production expected around last week’s level.  However, ethanol margins continue to be especially poor with some calculating them at the lowest levels since 2008.  RBOB/Ethanol spreads have collapsed to $0.27/gln, the lowest levels since February, creating little incentive for discretionary blending, even though a great deal wasn’t occurring when the spread was north of $0.60 either.  It does make a person wonder how much effect the small refinery exemptions the Trump Administration’s EPA has been granting is ultimately having on ethanol demand?  Spot ethanol prices continue around the lowest levels since 2005, while the ethanol/corn spread remains in negative territory.  Not bullish corn prices.

 

Bottom Line:  Firmer until trade chatter says otherwise.  As mentioned in the open, we remain skeptical of a rally on a trade deal unless it involves concessions which guarantee purchases of US soybeans.  Short of that, any rally attempt will look like a good selling opportunity.  Brazilian FOB basis has been weakening, but still no serious bids for PNW soybeans.  Wheat has shown it can garner demand at these futures levels, so we would expect export demand to remain constant.  Corn has shaky exports and ethanol demand to deal with.

 

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

11/13/2018 Morning Comments

Good Morning,

 

Crude oil is sharply lower overnight, working on its 12th lower close in a row.  Since 10/29, crude oil is off over 13% and spot prices are $9.00/bbl below their 200-day moving average.  Spot prices are now the lowest they’ve traded since February as OPEC appears unwilling to cut production and risk losing market share as they’ve seen happen in the past.  In addition, despite US-imposed sanctions, Iran appears to have allies like Russia willing to help get its crude to market.  Further, the US granted exemptions to seven or eight major countries to continue importing Iranian crude which defeats the entire purpose.  Also, as we’ve seen time and time again, shale drillers in the US have become the leanest, lowest cost producer outside of Saudi Arabia and appear to be able to keep pumping crude and make money at these levels.

Some snow flurries around this morning, but otherwise the Midwest should see 7-10 days of wide open weather to finish harvest.  After the unseasonably cold weather to begin November, the second half looks to warm to above normal beginning on Wednesday.  This will aid in farmers getting the last 10-20% out of the fields.  Otherwise, meteorologists taking stock of the heavy rains in Argentina over the weekend which dropped 3-10” in various spots of their growing belt.  Ripening wheat would have received the largest damage, although corn and soybean planting could also be delayed for several days.

 

It’s a wheat world and everyone else is just living in it.  Grains are weaker overnight, but the buying enthusiasm in Chicago and to a lesser extent Minneapolis and KC are the talk of the markets.  The idea variable storage rates would be reduced from 11c/mo to 8c/mo did not show up yesterday, but you would have thought it did they way traders are reacting.  For much of the last two years, managed funds have been short Chicago wheat thanks to the huge carrying charges which allowed them to attain a positive roll yield by moving their contracts down the curve each delivery period.  The returns were not sexy, but they were stable and consistent which is preferable to a roller coaster each way.  The drop in storage charges should mean tighter calendar spreads which reduce the incentive and amount of yield from rolling each delivery cycle.  Chicago storage charges will be reduced, but Kansas City will not, so it will be interesting to see if funds move more short positions in KC?  That spread has also been upended as funds tried to reduce their risk exposure by being just short Chicago with a long position in KC.  As funds decided to bail on Chicago, they’ve also bailed on the long in KC, sending that spread from +7.00c on October 12th to -26.50c this morning.  Not much to say about corn and soybeans this morning although soybeans acting well at resistance from the last 30-days.  Open interest changes saw corn down 2,408 contracts, soybeans down 2,769, SRW down 5,638 and HRW up 2,753 contracts.

Adding to the strength in wheat yesterday was another 132 delivery registrations being canceled out of Indiana last night at Cargill’s elevator.  This leaves just 10 outstanding delivery registrations in Ohio, which is a bit interesting to think there are only 50,000 bushels as the supply of last resort.  There are still 232 delivery registrations outstanding in Kansas City as that market is not facing the same sort of pressures as Chicago.  Minneapolis has 102 outstanding registrations with 94 in Duluth and 9 in Minneapolis.  With cash basis above delivery equivalence in all zones including Chicago, it would not be a surprise to see the last 10 registrations canceled in Ohio.  Adding to the cash strength and demand component is the idea winter wheat acres could be unchanged or even down from a year ago when most expectations were for a 10-15% increase back in September.  A poor fall for seeding and germination has put a damper on those ideas with this afternoon’s crop progress report expected to show at least 10% left to plant.  All areas of Kansas will have hit final plant dates for winter wheat on Thursday.  Around 70% of Kansas already hit last plant dates on November 5th.

We used this opportunity to do a little by-class balance sheet work for 19/20.  For our HRW balance sheet, we are using USDA’s numbers for 18/19 but put the winter wheat acreage change at up 3% from the current year.  This gives us 23.924 million planted acres and harvested acres of 18.182 million using a 5-yr average for harvested percentage.  We plugged in a yield of 42bpa as the slow pace of planting and higher chance of winterkill only gives us confidence in an average yield at the moment as opposed to above average.  Total supplies would then be at 1.196bbu vs. 1.246bbu this year.  We had domestic demand up 7mbu from the current marketing year and exports down 10mbu with all of this subject to change.  Carryout would be estimated at 379mbu vs. 426mbu last year and the lowest carryout since 2014/15.  A stocks/use ratio of 46.33% is not bullish, but it is not egregiously bearish like we’ve seen at times over the last five years.  If anything, we feel it makes a compelling argument for spot month futures remaining over $5.00 and probably closer to the premiums being carried by deferred contracts in new crop slots.  We also ran a way-too-early balance sheet for HRS assuming average in the Northern Plains up 5% from the current year based on a shift away from soybeans.  This would give us planted acreage of 13.344 million vs. 12.709 million this year and would be the largest spring wheat planted area since 2008/09.  A yield of 47bpa and a harvested acreage percentage of 97% would give us production of 608mbu vs. 587mbu this year.  Demand is pretty much unchanged from this year, although we did take exports down 15mbu to 280mbu which is still up 6mbu from the 5-yr average.  Carryout would be projected at 353mbu vs. 260mbu this year and would be the largest carryout going all the way back to 1987/88.  Stocks/use of 61.23% would dwarf the 5-yr average of 41.77% and has us contemplating hard what should be done with new crop futures at $6.08-6.20.  If supplies are indeed that large, it will be tough to justify spring wheat over $6.00.  The largest question is how hard the shift away from soybeans will be at $9.30 SX9, and whether the shift will be into HRS for the most part?  Time will tell, but also has us curious about the current spread between Kansas City and Minneapolis.

Other news included Ukraine reporting crop progress with harvest at 84% complete and 28.4MMT collected so far.  Using USDA’s yield estimate of 7.4MT/ha pushes that crop size to 33.8MMT if yields hold the rest of the way which is slightly larger than USDA’s production estimate of 33.5MMT.  The yield and production estimates would shatter the previous records in Ukraine of 6.89MT/ha and 31.906MMT.  it will also keep Ukrainian supplies competitive into Europe and the Middle East.  Spot offers out of the Gulf last night were $166.63/MT FOB vs. Ukrainian offers at $166.00/MT.  Brazil’s nearest offer was $168.99/MT for December and Argentina didn’t have any available offers.

 

Bottom Line: Remains to be seen whether the last of the fund blow out is over yet.  Today should see the final day of the Goldman Roll which could allow front-month spreads to relax a bit.  This will prove a long winter for bears in the wheat market if calendar spreads are already tightening and cash is above delivery equivalence at all three wheat exchanges.  Export sales have improved and should hopefully hold for the next several months.  Russia still rolling out wheat is going to keep the market in check, as is ideas for record winter wheat acreage there.  Corn and soybeans need some fresh inputs.

 

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.

 

11/9/2018 Morning Comments

Good Morning,

WTI crude oil is trading below $60.00/bbl this morning while Brent crude has slipped below $70.00/bbl, both instances the first since February and April, respectively.  Adding to the selling pressure the last couple of weeks was the news last night Iraq is close to a deal with Kurdistan Regional Government to restart oil exports from the disputed territory of Kirkuk.  The Trump Administration has ramped up pressure to restart crude oil operations, in part to offset the expected decline in Iran from US-imposed sanctions.  If WTI closes lower on the day, it will mark the tenth consecutive lower close pushing crude further into a bear market now that it is more than 20% off its 52-week high.  Spot prices are looking to the Feb lows for support, but if those don’t hold, next support would probably be the May 2017 highs around $54.00.

 

Weaker prices across the board this morning as we see follow through selling post-WASDE report.  To be fair, however, grains recovered quite nicely into the close yesterday considering the cavalcade of bearish news dumped on the market.  The big talker, as we alluded to yesterday morning, was the risk USDA decided to update their global S&D’s to reflect the recent Chinese Census statistics.  They did, and the resultant 150MMT added to global corn ending stocks was an eye-opener.  The USDA also added 6MMT to global wheat ending stocks for the same reason.  By the closing bell, however, it felt like most traders and analysts realized these supplies did not just appear overnight.  The bushels had been there the entire time, they just hadn’t been accounted for properly, so cash markets were already aware they existed.  None of these bushels were available to the market before the November WASDE, and none of them are available now, it just might move the goalposts for China’s ambitious ethanol production plans.  The Chinese data helped defer attention away from what was a particularly bearish soybean report which we will cover below.  Open interest changes yesterday saw corn up 17,942 contracts, soybeans up 998 contracts, oil up 1,520 contracts, SRW down 15,942 contracts and HRW down 6,601 contracts.  Index rolls have commenced for the December futures which helped drop December open interest sharply.

We aren’t going to rehash all of the Chinese data as we did that fairly well yesterday with differences only amounting to a few million tonnes.  Still laughable to see world corn carryout at 307.5MMT vs. 159.4MMT last month.  In the US corn balance sheet, USDA reduced the national average corn yield by 1.8bpa to 178.9bpa which was over 1.0bpa more than the average trade guess.  As the analyst community is want to do, the average trade guess for December/January should be another 0.50-1.0bpa lower because original thought is discouraged among most in that group.  The yield cut took 152mbu off production which was tempered somewhat by a 50mbu cut to feed/residual and a 25mbu cut to exports.  Interesting to see USDA reduce exports this month after a couple poor weeks of sales when soybean sales have been abysmal for 3-months and the Department just now reduced exports.  Carryout for 18/19 at 1.736bbu is the lowest in four years and should support prices.  USDA increased the low end of their average farm price by 20c/bu to $3.20-4.00.  USDA made no changes to the US wheat balance sheet outside of a 7mbu increase to seed demand.  Yawn.  Globally, USDA cut Australian wheat production by 1MMT to 17.5MMT which is still 1.0MMT while they cut Aussie exports by 1.5MMT to 11.5MMT which is still 2.0MMT too high.  At least they are headed in the right direction.  No changes were made to Russia or Canada, punting on those until next month.

The soybean balance sheet revisions garnered a lot of attention, as they should have.   USDA cut yield by 1.0bpa to 52.1.bpa which was a bit more than expected.  This slashed 90mbu off total supplies, but this was more than offset by a 160mbu cut to exports, a 7mbu cut to seed use and 2mbu cut to residual.  Crush was increased 10mbu.  Therefore, carryout rose by 70mbu to 955mbu which was more than the average trade guess but will below some estimates over 1.0bbu.  Anyone with a carryout over 1.0bbu is carrying exports even lower than USDA’s revised 1.900bbu forecast.  We applaud USDA for making the severe cut, although based on export sales to date, this is not enough which we touch on below.  The USDA was forced to cut US soybean exports that much because of the 4MMT cut to Chinese imports.  USDA is now at 90MMT for 18/19 Chinese imports vs. 94MMT last month and 94.1MMT last year.

While USDA made a step in the right direction, we fear it is not enough unless something happens at the G20 Summit at the end of the month. Weekly soybean export sales last week totaled 14.3mb vs. the 26.8mbu needed weekly to hit the USDA forecast.  Total soybean commitments of 802.4mbu are down 31% from a year ago with the deficit increasing over the last two weeks by 5%.  The commitment total is the lowest since 2011 while the commitments/forecast ratio of 42.23% is the lowest since 2007.  As we noted yesterday, for the commitments/forecast ratio to fall in line with even last year, which was the lowest for this week since 2008, the export forecast would need to drop another 400mbu.  If the trade war drags on, and China never does buy US soybeans, but the rest of the world comes to us for their needs, there should be larger second half purchases.  I hope.  The other category I wanted to note in the export sales report was sorghum.  Sorghum sales last week were actually a net negative -2,656MT.  Total commitments are down 9.781mbu, the lowest on record by an incredible margin.  The next lowest commitment level for this week was 2011 at 23.4mbu.  The USDA slashed its sorghum export forecast yesterday by 50mbu to 100.0mbu.  Even doing that, we’ve sold just 9.7% of the USDA’s forecast almost 2.5 months into the new marketing year.  This lack of demand should impact domestic demand for corn and wheat where applicable.

 

Bottom Line: Disheartening price action, although not sure what we should expect after a report like we received yesterday.  For every supportive point (yield cuts), there was a negative point (weaker demand).  December corn likely settles into its 3.60-3.80 range until FND at the end of the month.  Still like the look of grains more so than oilseeds unless something is done on the trade front.  A little too much harvest left out for comfort considering the snow and cold temps across the upper-Midwest.  This could point to lower corn yields and should help basis recover even faster.  That said, the producer has plenty of ammunition to throw at any rally.  In our opinion, producers should be eyeing new crop sales as we move toward year end as the shift in focus to next spring should not be bullish corn prices if acres jump as much as expected.

 

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.

 

11/8/2018 Morning Comments

Good Morning,

 

China released import/export data for the month of October last night, showing stronger than expected exports, even to the United States.  Chinese exports to all countries grew at 15.6% from a year earlier, while imports rose 24.1% according to the customs data.  Both figures exceeded expectations, while exports to the United States rose 13.2 from a year earlier.  The stronger than expected exports come despite the US-imposed tariffs which most thought would curtail US demand for Chinese goods.  As most analysts are pointing out, this could strengthen China’s resolve in the trade war if the US penalties are not having the desired effect.  Some of the strength is undoubtedly due to importers front-loading purchases ahead of the second and possibly third round of tariffs.  As the trade war drags on, hopefully not for long, we will get a truer sense of the tariff impacts.

Wonderful, glorious snow is falling across the Plains this morning much to the delight of farmers everywhere who still have crops in the field.  In Kansas, both snow and rain are falling, creating a wonderful mix of slop to keep farmers from finishing the tail end of winter wheat planting.  The moisture moves out of the Plains later today, bringing dry weather until Sunday/Monday when another light shower/snow mix will move over Oklahoma, N-Texas and Kansas.  The Northern Plains and WCB should be mainly dry the rest of the seven-day period.  The 6-10 day period will remain cold across the midsection of the US but by the 8-14 day the Plains and WCB move to above normal temps.  Fortunately, precip appears to shift below normal for the entire country during the 6-10 and 8-14 day.  Bitter cold through the weekend.

 

WASDE day today and we are higher heading into the report.  Most contracts were riding two to three day losing streaks heading into today, so a little bounce is warranted.  There are several themes analysts will be watching closely on today’s report: 1) changes to corn and soybean yields; 2) changes to Australian/Canadian/Russian wheat S&D’s; 3) changes to Chinese soybean imports and US exports; 4) changes to Chinese corn stocks from the last several years.  We will discuss the last point below as it is garnering a lot of attention on the newswires.  In our opinion, any change to US soybean and corn production should be minor at this stage of the game.  Harvest is dragging out longer than expected but a huge loss of bushels is not expected in any one area except maybe soybeans in the very far north of the Midwest.  Cash and spreads would not suggest harvest supplies are sharply smaller than estimates.  How aggressive USDA gets with cuts to Canada and Australia will also be in focus with the USDA likely adopting ABARES estimate of Australian production t 16.7MMT.  With harvest wrapping up in Canada, production cuts there also might be less severe than originally thought.  Corn open interest down 1,662 contracts, soybeans down 5,027 contracts, meal down 1,431, oil up 2,881, SRW wheat down 13,093 contracts and HRW down 5,78 contracts.

Last week, the Chinese Census was completed for the first time since 2008.  In it, they updated grain stocks for the last ten years, making substantial revisions to corn production and ending stocks.  Newswire services began picking the details up over the weekend and earlier this week after the Chinese National Grain and Oilseeds Information Center made sweeping revisions to its S&D’s.  In it, they increased Chinese corn production in 2017 to 259MMT vs. USDA at 215.9MMT, 2016’s crop up to 263MMT vs. USDA at 219.6MMT and 2015’s crop at 265MMT vs. 224.6MMT.  They also hinted at ideas the 2018 corn crop was near 259MMT vs. USDA at 225MMT and sharply above China’s official estimate of 213MMT.  Somehow, they reason they were understating corn area by close to 6 million acres, which would be nearly 15 million acres.  That would be missing the entire corn area in Minnesota, South Dakota and North Dakota combined.  Not exactly sure how you could miss by that amount, but I digress.  The important question is whether the USDA adopts these numbers this month, or at all, in coming months.  If they do, the global corn balance sheet will look drastically different.

If the USDA were to adopt these new supply statistics, without adjusting demand which isn’t likely, ending stocks in China would skyrocket to levels congruent to their wheat balance sheet.  Ending stocks for the 2018/19 marketing year would be projected at 219.4MMT which is more than double the level estimated at the end of the 2014/15 marketing year.  The supply situation would look something like that projected in the bar graph below.  Compare the first chart using CNGOIC updated numbers with the USDA’s current estimates from the last WASDE report in October.  Using the USDA data, China’s corn balance sheet was finally taking on a supportive look with ending stocks falling to the lowest since 2010/11 and a stocks/use ratio at one of the lowest levels of the last 30-years.  Looking at things a little differently, it is unlikely area was missed by that large of a margin, but instead demand was probably not as strong as originally thought while the crude storage methods in China allowed a massive amount of slippage from the last Census.  Global consumption of corn is still growing, and Chinese stocks are not available to the market in any capacity anyway, so it isn’t clear whether these new data figures will have a great deal of impact on the market anyway.  If USDA adopts the numbers, funds and algos could have a selling spree for a few days, but the market should work out of that once it realizes global corn trade doesn’t really involve China anyway.  With China’s ambitious ethanol production plans the next several years, it could mean imports will not be needed as quickly as originally thought, but we’re not sure it SHOULD have any more impact than that.

CONAB will be out later this morning with their latest estimate of Brazilian corn and soybean production.  On their last report, they were 116.8MMT vs. 119.3MMT in 2017/18 on soybeans while they see this year’s corn crop at 90-91MMT vs. 81.4MMT last year.  USDA sees Brazilian corn production at 94MMT and soybean production at around 123MMT.  Soybean exports are the other area of focus on today’s report for us.  We’ve only sold 38.2% of the USDA’s current soybean export forecast which is the lowest since 2005.  A sobering take on the export forecast, to bring the current commitments/forecast ratio in-line with last year (52%), the USDA would need to cut their forecast by 560mbu.  We do not believe they will do that, but this gives an idea of how bad our exports currently are.

 

Bottom Line: Let’s get the WASDE behind us and we will all be smarter.  Focus for us is outlined above.  China’s updated data is just headline risk, but that doesn’t mean funds and algos can’t have fun with it for a while.  More after the report.

 

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.

 

11/7/2018 Morning Comments

Good Morning,

 

Well.  The Midterms are finally over and the experts were mostly wrong again.  There was no “Blue Wave,” although Democrats did manage to take back control of the House of Representatives.  However, Republicans strengthened their lead in the Senate, including taking down several prominent Senators which could have implications in the next election.  Democrats needed 23 seats to secure 219 in total and have a simple majority and they got 216.  This was well short of the 30-40 some analysts were forecasting, but should ensure gridlock for the next two years regardless.  Of most importance will be trade policy with China in our opinion which President Trump can largely conduct without Congressional approval as we’ve seen with his tariff implementation.  Any formal trade deal does need to go through Congress, however, setting the table for an interesting two years.

Scattered rain showers across Kansas, scattered snow shower across Nebraska with rain in Arkansas and flurries around the Great Lakes.  We will be watching the next 24-48 hours in Kansas as another 0.25” is forecast to fall with high temps mainly in the 30’s and 40’s through the weekend. All counties in Kansas have hit final plant dates for insurance purposes except the southeast 23 counties which have until November 15th.  Otherwise a mainly dry week will occur across the Midwest, although temps remain bitterly cold, especially across the Northern Plains.  High temps into the 20’s will be common place to close the week.  Well below normal temps hold in the 6-10 but start to moderate in the 8-14 while precip moves to well below normal by the 8-14 day.

 

Mixed markets with wheat and soybeans higher but corn weaker.  Grains are waiting on tomorrow’s WASDE report and fresh data tables before taking on fresh direction.  Of most importance on tomorrow’s WASDE will be changes in national average corn and soybean yields, what USDA elects to do with Chinese soybean imports and therefore US soybean exports and finally if they will finally make the necessary changes to Australia and Canada.  Like the Midterm elections with equities, our markets will be happy once the report is behind us so we can move the focus back to weekly demand indicators, estimating actual winter wheat planted area and gauging the eventual slowdown in Russian wheat exports.  Open interest changes in yesterday’s session saw corn up 555 contracts, soybeans down 124, meal down 2,614 contracts, oil up 1,291, SRW down 3,461 and HRW up 769 contracts.

Deliverable stocks out yesterday with a continued draw down in Chicago are warehouses.  Total wheat stocks in Chicago fell by 647,000 bushels to 77.786mbu vs. 95.836mbu a year ago.  That marks an 18.8% drawdown in stocks from a year ago, a pretty impressive feat considering similar carry-in and production sizes.  In Kansas City, stocks totaled 123.877mbu vs. 123.809mbu a week ago and also above the 119.794mbu a year ago.  HRS stocks fell 680,000 bushels from the week before to 21.975mbu and compares with 24.057mbu a year earlier.  The move in the MWZ/MWH spread yesterday garnered a lot of attention as it shot up to -3.00c, the highest trade since February.  Traders couldn’t point to a specific reason for the move, although there is the general expectation Canada will see a cut to production and exports on tomorrow’s WASDE.  In addition, if the quality issue are worse than feared, that could also make Duluth stocks more valuable.  Domestic bids also said to be better which would be supportive.  WZ/WH also in focus as the VSR calculation period rolls on.  That spread is trading at -14.75c this morning, which accounts for around 39% of full financial carry.  The rolling average for this spread is 49.8% of full financial carry which would be under the threshold to reduced variable storage rates from 11c/mo to 8c/mo.  To us, this would mark a major fundamental shift for managed funds who have gotten used to the solid roll yields provided by being short Chicago wheat.  Doubt it leads to an outright liquidation of their entire short position but could shift more contracts to KC where storage rates are not at risk of being reduced.

Also out yesterday was South American planting progress which showed Brail at 55% complete vs. 44% last week and 41% average.  Largest soybean province Mato Grosso is 90% seeded vs. 74% last week and 62% average.  It looks like a near certainty Brazil will have early beans ready for export in January, cutting the window of when US soybeans have a chance to make inroads into China.  Brazilian 1st crop corn planting progress was 75% complete vs. 67% last week and 69% average.  With the USDA Attache cutting hit estimate of Chinese soybean imports to 85MMT this week, we remain very concerned the USDA could finally make their needed cut.  Unlikely the Department makes a straight road cut to 85MMT from 94MMT, but even reducing 4MMT this month would signal more cuts to come.  4MMT worth of cuts would equal 146mbu which would pretty much go straight to US export and eventually ending stocks.  This is how many private estimates have been projecting carryout over 1.0bbu for much of the last month.  And if we needed more bearish information, officials from Argentina said if the trade spat between China and the US continues, Argentina could export up to 16MMT of whole soybeans to China vs. 7-8MMT average and 3MMT this year.  If Brazil is able to export 75MMT to China, add in 16MMT from Argentina, and 3-4MMT from other minor producers, China can import their 94-95MMT.  Definitely not what the US producer needs to see/hear right now but it is reality.

Ethanol production will be in focus later this morning after stocks finally broke last week and production rebounded from multi-month lows.  Ethanol margins have continued to deteriorate, however, with estimated gross ethanol margins from RJO at $0.47/gln vs. $0.56/gln last week and $0.74/gln last year.  According to their chart, these are the worst margins in at least four years.  RBOB/Ethanol spreads continue to downtrend, although have rallied 1-2c the last day or so.  At 37-40c/gln premium RBOB over Ethanol, these are the tightest spreads since March.  Further illustrating this point is the ethanol/corn spread which helps paint a picture of ethanol profitability by seeing how well the price of ethanol covers the input cost of corn.  At current, the spread is trading at -$0.04/bu highlighting the fact ethanol does not cover the input cost of corn on a futures basis.

 

Bottom Line:  More chop until tomorrow.  Wheat arguably has the best fundamentals at the moment with improving demand, concerns about winter wheat acres and declining prospects in Australia/Canada.  Soybeans easily have the worst fundamentals in the grain room, but it’s a matter of how aggressive USDA wants to get.  Corn is somewhere in the middle with supportive carryout projections but demand indicators a little shaky.

 

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.