10/20/2017 Morning Comments

Good Morning,

 

No measureable precip on the radar for the Midwest once again this morning.  Chances of rain do increase tomorrow evening for the Dakotas, but more seriously for SE-MN/IA/MO/E-KS/E-OK where precip totals range from 0.50” in MN to 2.25” in E-OK.  The progression works east to bring solid chances of rain for IN/OH/MI to the tune of 0.75-1.50” on Monday/Tuesday.  Otherwise the Plains and most of the WCB should be dry for the balance of the week.  The below normal precip trend continues in the 6-14 day, enveloping the entire country during that time period.  Temperatures will be much more divided, however, with the Plains and west remaining above normal while anything east of the MS-River slips below normal.

 

Mostly firmer markets this morning as we follow through on yesterday’s strength which felt like the first higher close in a month.  Open interest saw solid gains across the board which is a bit difficult to read considering open interest had been mainly rising as prices were under pressure the last several sessions.  Corn open interest jumped 18,597 contracts, soybeans were up 4,709 contracts, meal up 4,422, soy oil up 7,124, SRW wheat up 13,747 contracts and HRW wheat up 6,025 contracts.  Volume, however, was nothing to write home about which continues to point to a lack of day-to-day participation in our markets.  Volatility continues to drop vs. week ago values with December corn settling last night at 12.86% vs. 14.02% last week, SRW wheat at 16.77% vs. 17.07% and Dec soybean vol at 11.60% vs. 13.22% a week ago.  I need to ping some colleagues and find out if they’ve ever seen single digit grain vol.

Helping set the firmer tone yesterday were better than expected export sales for grains while soybeans were a bit disappointing.  Wheat sales totaled 22.6mbu vs. the 13.4mbu needed weekly to hit the USDA export forecast.  This was the largest wheat sales total in 9-weeks, and helped push total commitments for the year to 543.8mbu vs. 566.7mbu a year ago.  The USDA is calling for a 7.3% decline in y/y commitments.  Leading the charge was HRS sales which totaled 9.2mbu, nearly triple the amount needed on a weekly basis.  Total HRS sales for the year are now 153.2mbu vs. 171.8mbu a year ago and ahead of pace to meet the USDA objective.  The HRS sales included 120,000MT to China which brings them to 397,900MT of total commitments on the year.  Corn sales were also solid thanks to several daily sales to Mexico.  Sales totaled 49.4mbu vs. the 27.3mbu needed weekly.  Total commitments of 587.7mbu are still down 34% from a year ago.  Soybean sales were a bit light at 46.9mbu which is above the 28.5mbu needed weekly, but the seasonality of soybean sales and shipments is apparent to everyone.  Total commitments are now 965.9mbu vs. 1.162bbu a year ago.  We did have a 384,000MT sales announcement to China yesterday morning, so sales next week should pick back up.

Continuing on the soybean export theme, FOB basis levels paid to the farmer continue to get worse across the Northern Plains and WCB, fueling animosity on various social media platforms.  It is not uncommon to see -100X to -130X being paid in the country for anyone whose primary outlet is the PNW or quite a distance from major crush facilities.  Obviously the yields are a good deal better than was expected even a month ago, and many farmers are choosing to let soybeans fly off the combine given their relative value to corn and wheat.  The latter two are being socked away at home, but corn harvest has barely begun for most north of I-80.  What producers need to be aware of is the very real buyers’ market we are trying to push soybeans into.  Both PNW and Gulf soybean bids fell 3-5c Wednesday/Thursday, and it was not coincidence Dalian soybean contracts hit fresh contract lows pretty much throughout the curve.  China is importing a record amount of soybeans to be sure, but the stocks are piling up at ports and impacting their bid structure.  The overcapacity built to feed the PNW has finally caught up to the general market with not enough demand to take on the excess supply.

Analytics firm Informa Economics released their adjustments to 2017 acreage yesterday, but also released their first blush thoughts on 2018.  For corn, they see 2018 acreage at 90.460 million vs. 90.439 million in 2017.  Soybeans are pegged at 90.347 million vs. 90.207 million, while all wheat acreage is seen at 45.875 million vs. 46.012 million this past year.  We have several issues with their initial estimate, the first being nearly unchanged corn area.  Most anecdotal reports suggest an increase in corn acres due to the large amount of acres shifted to soybeans this year.  We would see another 1-2 million corn acres at current price differentials, even though the market arguably doesn’t “need” acres that high.  We are okay with the soybean estimate of essentially unchanged soybean acres as we believe there will be additional acres rotated out of other crops and toward soybeans.  Once again, with November ’18 futures within a pimple of $10.00, and the yields being achieved in the country, farmers will gladly sow more beans.  For wheat, we agree there will be another reduction in all wheat area, but think there will be a greater drop in HRW acres and more of an increase in HRS acres.  They see WW acres at 32.173 million vs. 32.696 million a year ago, but based on the planting pace in KS, this crop could be much larger.  Conversely, other spring wheat acreage is seen at 11.335 million vs. 11.009 million a year ago, but that increase should be much larger with spring wheat acres over 12.0 million.  Lots of time to change, obviously.

Quickly, HRW basis has been on fire this week with back-to-back jumps in high protein.  Yesterday, 12.0-14.0% protein jumped 10-20c which followed 10-45c increases the day previous.  12.0% protein is now indicated at +145/160Z vs. +140/155Z a week ago, 13.0% pro at +205/220Z vs. +165/185Z and 14.0% pro at +235/250Z vs. +215/230Z a week ago.  For reference sake, 12.0% pro a month ago was +130/145Z, 13.0% at +205/220Z and 14.0% at +255/270Z.  Cash should maintain a firm bias given the focus on shipping corn and soybeans at the moment, and especially considering we aren’t even to the winter months when movement slows seasonally.  Wheat could be especially difficult to buy from the producer without a flat price rally as, right or wrong, he remains a flat price seller.

 

 

Bottom Line:  Looks as though there is enough follow through buying to help us close firm into the weekend, but we should see a very active harvest weekend for many.  This could increase the amount of pre-hedging later today.  Option volatility continues to suggest we are going nowhere fast, and some would argue that based on current acreage ideas for 2018, prices are still too high.  Producers who are agitated with cash basis levels would do well to remember a few short years ago when soybeans were inverted for each week and month during harvest through the end of the year.  This year, we are being paid nearly full carry plus interest to store beans each week and month well into 2018.  That is a major shift in structure some are still grappling with.

 

Good Luck Today.

 

10/18/2017 Morning Comments

Good Morning,

 

Crude oil is starting off on a firm note again this morning, trying to close in positive territory for the forth session in a row.  Helping its cause is the API data from last evening showing US crude supplies dropped by 7.1 million bbls for the week ended October 13th.  Traders will now shift their focus to the EIA data out later this morning which is expected to show a 3.9 million bbls draw.  Also worth noting, the Financial Times released an article last evening discussing shale oil productivity, implying that key statistic may have begun leveling off.  Production per rig in the main shale oil formations peaked in late 2016 and has been mainly declining in 2017.  In addition, days spent to drill a well also mostly leveled off in 2016.  Lastly, the number of vertical wells had been declining since 2012 but has ow leveled off for most of 2015-2017 while horizontal wells climbed until 2015, plunged until mid-2016, rose into 2017 where it is now leveling off.  Point being, almost all new wells being drilled are horizontal, limiting the productivity leap we saw going from vertical to horizontal for much of this decade.

Another wide open harvest day for the Midwest.  The Midwest should be mainly rain free for another 3-4 days before rains begin moving in from the south Saturday/Sunday.  Rain chances are best for E-OK/E-TX/LA/AR/MO and maybe the southern tip of IA.  Otherwise the Plains and most of the ECB should remain fairly dry.  Those same rain showers will move east next week and should clip OH and most of the east coast with 0.50-1.00”.  Extended maps are beginning to show a cool off for the central/east corn belt while the west and north should retain above normal temps through the 8-14 day.  Rainfall remains especially limited, however, with the Plains showing well below normal precip during the 6-14 day outlook.  Forecasters still looking at a dry Northern Brazil this week but better chances next week as we close in on the end of the month.

 

Easier markets once again this morning as the path of least resistance clearly remains down in our space.  It feels as though left to their own devices, our markets would continue to drift lower until all selling has been exhausted.  Volatility has been dropping right along with price, keeping a lid on expectations for a dramatic price move in either direction the next 30-45 days.  December Chicago wheat ATM vol closed last night at 16.81% vs. 17.49% a week earlier.  In addition, SRW volatility was inverted Nov-Jan a week ago, but is now in a carry Nov-Sept ’18.  December corn ATM vol settled at 12.81% vs. 17.02% a week earlier, and vol for Nov-Jan all range from 12.56-12.81%.  December soybean vol closed at 11.83% vs. 14.31% a week earlier.  Said another way, there is a 68% chance soybeans remain between $9.57-10.32 the next 37 sessions, while SRW remains between $4.11-4.58 and corn between $3.42-3.57.  When one considers December corn could be in a 15c range for the rest of the year, it really begins to temper marketing expectations and decisions.  To be clear, this doesn’t mean there can’t be sharp moves, simply that the option market is not pricing one in anytime soon.

Deliverable stocks out yesterday with MGEX posting a 717,000 bushel draw between Duluth/Minneapolis.  Combined stocks now total 25.186mbu which compares with 29.647mbu a year ago.  2017/18 looks to have finally begun its seasonal decline which is starting at a lower level than each of the last two years.  Also worth noting on spring wheat, spot floor trades were a good deal firmer yesterday, albeit on 18 cars. 14.0-15.0% protein were all up 15-20c with 14.0% now indicated at +125/130Z vs. +110Z a week ago.  15.0% pro was indicated at +170Z vs. +150Z a week ago.  KC spot floor was unchanged with 12.0% pro at +125/140Z vs. +125/140Z a week ago.  Chicago deliverable supplies were down 124,000 w/w and 2.581mbu y/y to 96.896mbu.  KC stocks were up 55,000 bushels w/w and 9.502mbu y/y to 121.715mbu.

We talked briefly last week about the US sunflower situation after the USDA issued their first objective production estimate.  When combined with old crop stocks as of September 1st, this helps set the table for sunflower prices over the winter.  Old crop ending stocks of 647.9 million lbs are the second largest since 1983/84, but production in the field is estimated at the smallest since 1989/1990.  This creates the unique supply/demand situation of comfortable stocks up-front as is indicated by any bid sheet across the Midwest, but a potentially tight situation next summer.  Stocks/use is currently pegged at 10.22% which compares with 14.11% on the 5-yr average and 12.33% on the 10-yr average.  Outright ending stocks are estimated at 244.6 million pounds vs. the 5-yr average of 367.6 million.  The thing to be wary of is the severe drop in yield being projected by the USDA.  Current yield estimate is 1,338 lbs/ac vs. last year’s record 1,731 lbs/ac and the 5-yr average of 1,540 lbs/ac.  This yield would be the lowest since the other drought years of 2006/07 (1,214lbs) and 2002/03 (1,133lbs).  The anecdotal yield reports from the country are not nearly as bad as would be implied by the drought monitor or the USDA, however.  In addition, as we’ve seen with corn and soybeans, today’s genetics are a tick better than those employed in previous drought years.  As with anything, cash markets and spreads should tell the tale.

In the first paragraph, we discussed terribly low volatility and low expectations for a move to take us out of current ranges the rest of the year.  Spreads are acting a bit better, however, at least in part.  While the front month CZ/CH is still sitting just off contract lows, the CZ7/CZ8 has rebounded off the lows of -46.50c ten sessions ago to trade to -43.50c this morning.  The CH/CK hit -8.00c this morning, up from -9.00c at contract lows last week.  The CK/CN traded to -6.50c yesterday, off the contract lows of -8.00c last week as well.  None of these spread trades are implying a swift move in futures, but their strength does seem to suggest futures have gone low enough for now.

 

Bottom Line: Another session of drifting markets as producers hit the fields hard this week to get harvest progress caught up to averages.  Soybean piles are popping up all over the Northern Plains and WCB with very little to no corn harvest having even been attempted.  The worst of cash premiums might not be over yet as producers are encouraged to go home with as much supply as they possibly can.

 

Good Luck Today.

Tregg Cronin

Market Analyst

Tregg.Cronin@halocommodities.com

www.halocommodities.com

@5thWave_tcronin

 

 

COMMODITY TRADING INVOLVES RISK AND MAY NOT BE SUITABLE FOR ALL RECEIPIENTS OF THIS EMAIL. Neither the information presented, nor any opinions expressed, constitutes a solicitation for the purchase or sale of any commodities. The thoughts expressed in this email and basic data from which they are derived are believed to be reliable, but cannot be guaranteed due to uncertainty about future events and complexities surrounding commodity markets. Those acting on the information are responsible for their own actions.

10/17/2017 Morning Comments

 

Good Morning,

 

Completely blank Midwest radar this morning, and should remain that way through the weekend.  Next chance of rain comes Friday/Saturday with lingering chances into early next week for the central and ECB.  IA/IL/IN/OH could be looking at 0.25-0.50” totals, but the Delta and Mid-South will be looking at slightly better totals.  The Plains/WCB will be dry, allowing harvest progress to catch up where crops are mature.  More of the same in the 6-10 and 8-14 day which shows above normal temps and below normal precip for nearly the entire Midwest.  Any delays to harvest should be minimal by the time this forecast runs its course.  Still some concerns about dryness in Northern Brazil, although chances are looking better as we get closer to the end of October.  Southern Brazil remains well watered.

 

Easier markets this morning as we see follow through selling from yesterday.  Minimal changes to open interest during yesterday’s session with volume off notably from level achieved last week.  This should be a very big week for harvest progress, and futures/cash/spreads could feel the weight of the remaining 50-75% of harvest left to bring in.  In some areas, storage will be at a premium with limited options for farmers while others such as the Northern Plains should have ample storage due to light small grain harvests.  Anecdotal yield reports on corn continue to come in better than expected while soybean have turned a bit more two-sided as the later planted and even replanted crops are starting to get brought in.  So far, no reason to doubt USDA’s latest yield projections.  Focus is definitely shifting to demand, and the export sales and shipments are certainly becoming a bit of a concern.

Yesterday saw weekly export inspections which were awful for corn and wheat and okay for soybeans.  Wheat shipments totaled 11.9mbu vs. the 17.1mbu needed weekly to hit the USDA forecast.  Total shipments continue to slip behind a year ago with inspections at 390.4mbu vs. 405.7mbu in 16/17.  Corn shipments were dreadful as we await new crop bushels to get into place.  Shipments totaled 12.7mbu which is well below the 35.7mbu needed weekly to hit the USDA forecast.  Total shipments are now 153.7mbu which is a full 50.0% below year ago levels.  The USDA is only calling for a 19% decline in exports y/y, but the competition so far from South America and the Black Sea is implying the drop could be even larger.  Soybean shipments totaled 65.0mbu which was above the 42.0mbu needed weekly.  However, shipments for 17/18 just slipped below year ago levels with 17/18 inspections at 265.8mbu vs. 287.7mbu in 16/17.  This is the time of year soybean shipments need to make hay with huge shipments posted each of the next several weeks a year ago.

We also received the weekly crop progress report yesterday which continues to see a rise in corn conditions, counter-seasonally, which would suggest better yields than expected.  Corn conditions nationally were 65% G/E vs. 64% expected and 74% last year.  Largest increases were seen in SD (+5), MI (+7), CO (+22?) KS (+4) and PA (+6).  Most WCB states improved 1pt.  Corn harvest was estimated at 28% complete vs. 22% last week and 47% average.  Still very large deficits with average for most states across the Midwest as delayed maturity is pushing farmers to let crops dry in the field.  Given the forecast, this seems like a perfect opportunity to let Mother Nature do her work.  Soybean conditions were unchanged at 61% G/E vs. 61% expected and 74% last year.  Soybean harvest remains delayed as well with 49% harvested nationally vs. 49% expected, 36% last week and 60% average.  SD, IA, NE and MN are all 30-40pts behind average, but again should be of limited concern after the forecast we have.

Winter wheat planting progress remains delayed, especially in HRW areas, prompting more to cut acreage expectations.  Nationally, we are 60% seeded vs. 48% last week and 71% average.  At 60% planted for this week in October, progress is the slowest since 1999.  For the nation’s largest wheat producer KS, progress at 42% planted is the slowest on record going back to at least 1982.  This year is 10 points behind the next slowest year in 1999.  KS is not alone with NE at 86% also being the slowest on record, and CO at 84% planted would be the lowest progress for this point on record.  OK at 57% planted is the slowest since 2001.  SRW states are generally ahead of schedule which could imply a few more acres there.  The obvious concern with delayed planting would be delayed emergence as 2017 emergence at 25% is the lowest for this week since 2001.  As mentioned multiple times above, the weather does look ideal for planting/harvesting, but some states have already hit their final plant dates for insurance purposes.  In KS, six counties have already hit final plant dates in the NW part of the state.  Another 20 will hit final plant dates on October 20th, while another large tranche hits on October 31st.  Only 23 of Kansas’s 105 counties can plant until November 15th.  In addition, the later planting gets, the less emergence one can count on before dormancy which can limit winter hardiness.  The acreage implications would be the chief concern at this juncture.

A few Black Sea notes this morning included the Russian Ministry of Agriculture raising their estimate of this year’s wheat crop to 83.0MMT from 81.7MMT previously and the USDA’s latest at 82.0MMT.  If that sort of crop is confirmed, against USDA demand, ending stocks would rise to a further new record with stocks/use at 24.95% being the highest since 2010/11.  It is really beginning to feel like until Russia’s crop is threatened, this wheat market will struggle to find legs.  Winter planting progress is also off to a very swift start with an increase in acres expected.  USDA Attache to Ukraine also released his latest estimates with the 17/18 wheat crop slightly larger at 26.893MMT vs. USDA at 26.5MMT.  Exports are slightly lower at 16.0MT vs. 16.5MMT from USDA.  Corn production is slightly lower at 27.2MMT vs. 27.5MMT from USDA.  Exports are seen at 19.6MMT vs. USDA at 22.0MMT which is a notable difference.

Quickly, NOPA crush data for the month of September was also released yesterday.  Crush demand was estimated at 136.419mbu vs. estimates for 138.1mbu, 142.4mbu last month and 130.2mbu last year.  Soybean oil stocks were 1.302 billion pounds vs. estimates for 1.322 billion pounds and 1.376 billion pounds a year ago.  While too early to glean anything off of oil yield given it is probably mostly old crop, the oil yield was estimated at 11.78lbs/bu vs. 11.72lb/bu last month and 11.76lbs/bu last year.

 

Bottom Line: Strong seasonal still in place for soybeans, but a lot of corn and soybeans left to come in and demand for corn in Q1 doesn’t look like it is going to be enough to sop up the excess.  The focus for wheat in coming weeks/months will be cash markets and gauging acres which are being planted right now.  Between price and progress, doesn’t look good for a big jump in winter wheat.

 

Good Luck Today.

Tregg Cronin

Market Analyst

Tregg.Cronin@halocommodities.com

www.halocommodities.com

@5thWave_tcronin

 

 

COMMODITY TRADING INVOLVES RISK AND MAY NOT BE SUITABLE FOR ALL RECEIPIENTS OF THIS EMAIL. Neither the information presented, nor any opinions expressed, constitutes a solicitation for the purchase or sale of any commodities. The thoughts expressed in this email and basic data from which they are derived are believed to be reliable, but cannot be guaranteed due to uncertainty about future events and complexities surrounding commodity markets. Those acting on the information are responsible for their own actions.

10/13/2017 Morning Comments

Good Morning,

 

Some light, scattered showers in SD this morning, but also some rain/snow mix in ND.  Otherwise, the Midwest radar is quiet.  The western and central corn belt as well as the Great Lakes will be active the next 48-hours, bringing moderate to heavy totals to MO/IA/IL/S-WI/MI in addition to NE-SD/C-MN.  Totals as of this morning are putting 0.50-2.50” in the aforementioned and 0.25-0.65” in the latter.  After that, the region takes on a much drier tone with no measureable precip seen through late next week.  Above normal temps will remain in place through the 15-day time frame, with dry conditions present in the 6-10 day.  The 8-14 day precip outlook is calling for above normal moisture east of the MO-River, but below normal precip for the Plains.  This will continue to allow swift harvest progress in the WCB, but delay things in the ECB.

 

Mostly firmer markets this morning led by soybeans on follow through strength from yesterday as traders continue to digest the most recent USDA data sets.  As always, traders have immediately begun trying to guess what the changes made yesterday will mean for changes on future USDA reports.  It would seem most in the trade now believe the soybean crop is done getting larger and could/should see further cuts on subsequent reports.  Regardless, it is still difficult to assign the “bullish” moniker to yesterday’s report, or even supportive for that matter.  Supply and demand balance sheets still show ample soybean supplies in both hemispheres, and cash and spreads remain at historic lows.  One thing is for certain, the corn and wheat reports were not supportive and bordered on bearish.  Without soybeans closing up 20c+, I believe we could have seen some rather ugly grain markets yesterday even with funds already toting sizable net short positions.  The supply side of the equation is pretty much set, shifting our focus to demand which does not typically produce violent, volatile moves this late in the season.  Our markets are defining ranges for trade to take place inside for the next several months.

First, a note on volume and open interest as yesterday caused quite a stir in both.  Wheat open interest climbed despite the softer price reaction with SRW futures up 6,342 contracts and HRW up 4,021 contracts.  Volume on both was nothing to write home about.  Corn open interest surged 24,505 contracts to 1,486,916 contracts to the highest since February.  Meanwhile, soybean open interest jumped by 10,431 contracts to 734,666 contracts, the largest since April.  Volume jumped to 535,216 contracts, the largest since May of 2016.  Piggy-backing off this to spreads, thought it was interesting corn spreads hit fresh contract lows within the first few minutes of the data being released yesterday, but recovered with futures near the close.  Would still appear we have cash and spreads moving in one direction on row crops while futures move in another.  Producers should market with caution.

The focus of the report yesterday were the yield changes to corn and soybeans which saw corn raised 1.9bpa to 171.8bpa vs. the average trade estimate of 170.0bpa and nearly eclipsed the highest trade estimate of 172.0bpa.  Total production therefore rose 96mbu from last month, but would be down 868mbu from a year ago.  In addition to supply changes, USDA also made several old and new crop demand adjustments.  Old crop feed/residual was increased 39mbu to account for the smaller Sept 1 stocks, while FSI use was up 20mbu and ethanol up 3mbu.  Exports were down 2mbu, resulting in a combined increase of demand of 57mbu and ending stocks dropping by 55mbu.  For 17/18, USDA cut planted area by 500,000 acres and harvested area by 400,000 acres, mitigating the 1.9bpa increase in yield.  Feed/residual was increased 25mbu and FSI was up 10mbu.  Net change in ending stocks was just a 5mbu increase from last month, much less than it could have been without some creative math.  The world corn balance sheet saw ending stocks drop 1.5MMT from last month to 201.0MMT and would compare with 227MMT of ending stocks in 16/17.

The national soybean yield was cut 0.4bpa from last month vs. the average trade estimate of 50.0bpa and the average last year of 52.0bpa.  This, combined with a 700,000 acre increase to planted area, actually completely offset each other to leave the crop unchanged from last month.  How that happens is anyone’s guess.  Old crop demand changes included crush and exports being upped slightly while residual was increased 22mbu to drop ending stocks 44mbu.  No new crop demand changes were made which left ending stocks at 430mbu from 475mbu last month and well less than the 500mbu+ type numbers some feared.  Now, for the future report implications.  This is the first time USDA has cut yield from September to October in 5-years, and they’ve also underestimated final demand on the October report in eight of the last nine years.  It was also interesting to note USDA is still using record large pod weights in their yield assumption, but are using the lowest pod counts in four years.  This would confirm the reports from Crop Tours in August that the pods simply weren’t there.  Nonetheless, this is the third time USDA has cut soy yields from Sept to Oct in the last 15-years.  Yields in the other two years both declined in November, but were split on direction for the “final” in January.  Worth noting, the percent of objective yield plots harvested for the October report was 49%, the lowest in three years.  This could put more emphasis on later planted and replanted soybeans.  World ending stocks for soybeans fell to 96.1MMT from 97.5MMT projected last month and compare with 94.9MMT for 16/17.

Wheat balance sheet changes, for both the US and World, were pretty much uniformly bearish.  In the US, old crop ending stocks were adjusted down 3mbu to 1.184bbu.  For 17/18, feed/residual was cut 30mbu to 120mbu which carried through to ending stocks rising by 27mbu to 960mbu.  Ending stocks at that level would still be the third largest in nine years and fourth largest since 2000 despite the lowest planted acres since 1909.  Within the classes, most of the damage came at the hands of hard wheat with HRW ending stocks rising from 463mbu to 487mbu while HRS ending stocks rose to 162mbu from 146mbu thanks to the larger than expected production estimate on September 29th.  SRW ending stocks fell 8mbu, white fell 7mbu and durum rose 3mbu.  Global changes were mostly bearish as well with cuts in Australia offset by increases in Russia, Canada and Europe.  Larger production and smaller imports in India also helped the global balance sheet jump over last month.  World ending stocks of wheat are projected at 268.1MMT vs. 263.1MMT last month and 256.6MMT last year.  The Indian supply situation is much like the Chinese one in that larger production there simply means a little bit smaller imports, but India will not be doing an about-face and exporting wheat anytime soon.  Their stocks are pretty much unavailable to the world like China, pushing analysts to look at the global S&D without those two included.

Also released yesterday was the first objective look at the US sunflower crop which the USDA pegged at 1.810 billion pounds.  This would be down from last year’s 2.651 billion pounds, and the smallest production since 1989.  Analysts were pegging the crop at roughly 1.87 billion pounds going into yesterday, so the production number could probably be construed as supportive.  However, two factors would seem to prevent runaway bullishness.  One, yield assumptions being used by the USDA appear light in the Dakotas compared with anecdotal yield reports from the field.  Two, ending stocks of sunflowers on September 1st totaled 648.8 million pounds, the largest since 2006 and the second largest on record.  When we combine old crop ending stocks and USDA’s production estimate, we see total supply of 2.459 billion pounds.  This would be down from last year’s 3.063 billion pounds, and down slightly from the 5-yr average of 2.786 billion pounds, but not the runaway bullish situation implied by the smallest production in nearly 30-years.

One quick note, worth mentioning the sharp appreciation in HRW and SRW bids the last day or two.  Gulf bids for both were firmer on the selloff yesterday, and the KCBT spot floor was up 4-15c for Ord’s-12.80%.  12.0% protein HRW on the spot floor was indicated at +140/155Z vs. +110/125Z a week ago.  Wheat was already difficult to buy before the report, and the selloff in futures back down to August lows has pushed US-HRW back into the grids against French and Black Sea wheat into some destinations.  Would caution getting bearish futures prices “down here” after a bearish report while cash and spreads remain relatively firm.

 

Bottom Line:  The soybean report might be enough to keep things firm into the weekend, but would remind all of the amount of harvest yet to be brought in for both corn and soybeans across the United States.  Cash and spreads remain weak on both row crops, which will make a continuation of a futures rally difficult when the funds get their belly full.  The corn balance sheet and yield is going on the third year of practically the same supply situation.  With that in mind, it remains difficult to see how we will not resort to range bound trade for the bulk of the marketing year inside the broader 3.15-3.90 range, but more specifically inside the 3.35-3.75 range.  Supply is set with the focus shifting to demand.  Corn demand is nothing sensational and is definitely in prove it mode.

 

Good Luck Today.

 

Tregg Cronin

Market Analyst

Tregg.Cronin@halocommodities.com

www.halocommodities.com

@5thWave_tcronin

 

 

COMMODITY TRADING INVOLVES RISK AND MAY NOT BE SUITABLE FOR ALL RECEIPIENTS OF THIS EMAIL. Neither the information presented, nor any opinions expressed, constitutes a solicitation for the purchase or sale of any commodities. The thoughts expressed in this email and basic data from which they are derived are believed to be reliable, but cannot be guaranteed due to uncertainty about future events and complexities surrounding commodity markets. Those acting on the information are responsible for their own actions.

 

10/11/2017 Morning Comments

Good Morning,

 

Fairly clear Midwest radar this morning which should help harvest progress resume in the WCB after a rather wet two weeks.  A large area of E-NE/SE-SD/E-IA/S-MN has received 3-8” of rain over the last 2-weeks, saturating fields and disrupting an otherwise busy first part of soybean harvest.  Things will remain quiet the next 2-3 days until Saturday/Sunday when showers flare up again in IA/IL/WI with another 0.75-2.00” expected by Monday/Tuesday.  The forecast calls for warm, dry weather in the 6-10 followed by above normal precip in the 8-14 for IA/MN/IL/MO/WI.  The Plains should continue to remain below normal on precip.  Temperatures maintain their above normal bias throughout the period.  Much of the Dakotas and N-MN received a killing freeze Tuesday morning which should aid in crop dry down for the immature corn and sunflowers.

 

Easier markets this morning, adding to losses from yesterday’s session and continuing the overall weaker theme heading into tomorrow’s WASDE report.  There has been a real lack of fresh news the last several sessions, forcing traders to focus on yield reports which seem to be confirming the “better than expected” narrative as well as the USDA’s rising crop production ideas.  History is certainly on the side of the USDA raising production ideas.  The average trade estimate for tomorrow’s numbers put the average corn yield at 169.8bpa vs. 169.9bpa in September, while the trade sees soybeans at 49.9bpa, unchanged from last month.  According to RJ O’ Brien, there have been 13 years since 1990 in which the USDA raised the national average corn yield in September from their August estimate, and in eight of those years, the October yield was also raised.  On soybeans, there have been eight years when the USDA raised yields in September from August, and six of those years saw further yield increases in October.  Possibly even more impressive for bulls looking for large yield deviations still to come, over the last three years, the final corn yield in January has varied from the September estimate by only 0.9bpa with 2016 posting only a 0.2bpa change.  On Soybeans, the January yield has been higher than September each of the last seven years by an average of 1.8bpa with 2016 posting a 1.4bpa increase.  Bottom line is yields haven’t changed much on corn from September on lately, and if they change on soybeans they have been increases to production.  Widespread increases to open interest yesterday on the lower board with SRW wheat up 5,289 contracts, corn up 6,304 contracts, HRW wheat up 499 contracts and soybeans up 7,860 contracts.  Soybean open interest is now the largest since June 22nd.

We finally received this week’s Crop Progress report yesterday afternoon, delayed due to the Columbus Day holiday.  Corn conditions improved 1pt to 64% G/E vs. expectations of 62% and 73% last year.  WCB conditions mainly declined while ECB conditions improved sharply with MI up 9pts.  Corn harvest was estimated at 22% complete vs. 27% expected and 37% average.  WCB states are where the largest gaps with average exist with SD down 23pts from average, ND down 15pts, MN down 22pts, IA down 20pts and NE down 16pts.  Soybean conditions also improved 1pt to 61% vs. estimates for unchanged and compare with 74% G/E last year.  Soybean harvest was estimated at 36% complete vs. estimates for 38% complete and 43% average.  Again, largest difference from average is the WCB with SD 37pts behind average, ND down 20pts, MN down 41pts, IA down 19pts and NE down 23pts.  Winter wheat planting progress continues to lag behind average as well with 48% of expected area seeded vs. 58% average.  The 48% seeded for this week is the slowest national progress since 1999 and the second slowest on record back to 1982.  Individual state progress is also interesting with KS just 27% seeded vs. 58% average, and the slowest progress on record.  For a little perspective, the next slowest planting progress was 42% planted on this date in 1999.  NE is 77% planted vs. 88% average, and has the slowest progress on record.  OK is 42% planted vs. 57% average with the slowest pace since 2001.  CO is 70% seeded vs. 86% average, and the slowest pace on record.  Most SRW states are at or ahead of average, leading some to believe we will see a decline in HRW acres, but stable to slightly higher SRW acres.  Lots of progress left to complete in the ECB as well.

Other data yesterday included export inspections which were below needed levels for everything but soybeans.  Wheat inspections totaled 12.9bpa, down from 26.4mbu last week and below the 17.0mbu needed weekly.  Total shipments measure 378.4mbu vs. 388.6mbu at this point last year.  Corn shipments totaled 20.6mbu vs. the 35.2mbu needed weekly, and were also the lowest of the young marketing year-to-date.  Total shipments are now 138.7mbu which are 49.2% below a year ago, running the risk of the USDA downgrading the marketing year export forecast tomorrow.  Soybean shipments totaled 54.6mbu which was a marketing year high and above the 42.5mbu needed weekly.  However, inspections over the next three weeks a year ago averaged 102mbu, a tall task for loadings this year to keep pace with last year’s record breaking soy export season.  The USDA is of course calling for another 3.6% increase this year above and beyond last year with shipments currently 3.7% ahead of a year ago.

Weekly deliverable stocks showed a build in spring wheat with combined Minneapolis/Duluth supplies up 776,000 bushels to 25.903mbu which compares with 30.420mbu a year ago.  In Chicago, deliverable stocks declined 69,000 bushels w/w, and are now 2.762mbu below a year ago.  Kansas deliverable supplies declined 547,000 bushels w/w, but remain 8.969mbu above year ago levels.

Australia has certainly been in the headlines for their record breaking drought, but rains last week in some of the driest spots have helped futures relax some.  Futures on the ASX exchange, closed yesterday at A$267.80/MT, the lowest print since mid-September and off recent highs at the beginning of the month near A$300.00/MT.  ASX futures rallied as high as A$315.00/MT in mid-July.  The USDA should cut Australian wheat production from 22.5MMT to around 20.0MMT tomorrow, but as important will be how they deal with exports.  Currently, USDA has Australia exporting 18.5MMT, although few in the trade believe exports will be over 14MMT with the domestic market fighting to keep all excess bushels in-country.  Offsetting the Australian cut should be a 1-2MMT increase in Canada, and another 0.5MMT in Russia.  Worth noting, with the futures setback, US-HRW prices are moving back into the mix for major international tenders.  FOB offers last night put 12.50% protein HRW at $193.00/MT vs. Russian at $194.00/MT, German at $199/MT and Baltic at $194.00/MT.  11.0% protein French wheat was seen at $192.00/MT vs. the equivalent US-HRW at $186.00/MT.  Freight still hurting the US into MENA.

 

Bottom Line:  Open interest rises each and every day as harvest bushels get sold, volatility drops and funds become emboldened in their short positions.  The market is anxious to get tomorrow’s report out of the way, but once it does, it will essentially be the last word on corn and soybean production until January.  As the stats above point out, yields haven’t moved much from the September estimates the last several years, so don’t hinge your marketing plan on big cuts from the USDA moving forward.

 

Good Luck Today.

Tregg Cronin

Market Analyst

Tregg.Cronin@halocommodities.com

www.halocommodities.com

@5thWave_tcronin

 

 

COMMODITY TRADING INVOLVES RISK AND MAY NOT BE SUITABLE FOR ALL RECEIPIENTS OF THIS EMAIL. Neither the information presented, nor any opinions expressed, constitutes a solicitation for the purchase or sale of any commodities. The thoughts expressed in this email and basic data from which they are derived are believed to be reliable, but cannot be guaranteed due to uncertainty about future events and complexities surrounding commodity markets. Those acting on the information are responsible for their own actions.

10/10/2017 Morning Comments

Good Morning,

 

Rain in IA/NE as well as IL/IN this morning, adding to totals received in those same areas over the last 12-hours.  Rains will finish up later today in E-IA/IL/N-IN with totals expected to be around 0.50-2.15” in N-IL.  Then things dry out until the weekend when rains once again move back into IA/S-WI/N-IL with another 0.75-2.50” with heaviest totals in E-IA.  Most other areas of the Midwest should be quiet during the 7-day, although rain chances increase slightly late in the weekend for SD.  Temperatures in the 6-10 and 8-14 will remain above normal, while precip is a mixed bag with above normal in the ECB, but below normal in the Plains.

 

Mixed markets this morning as wheat markets are mostly following through to the downside, while soybeans try to claw back some of what they lost yesterday.  On the selloff yesterday, open interest was mostly higher with SRW Wheat up 3,838 contracts, corn up 104 contracts, HRW wheat up 2,792 contracts and soybeans up 5,850 contracts.  The string of steady open interest increases in corn finally came to an end Friday with O/I dropping around 5,000 contracts as price climbed slightly.  Still impressive that over 130,000 contracts of open interest have been added since August 30th between the prices of $3.44-3.62.  Corn option volatility has climbed slightly over last week at 15.95% vs. 15.24%, but remains historically very low.  That amount of fresh interest in our market added between such a tight price range isn’t likely to stay bottled up for long.  Otherwise, soybeans remain inside their rising trend channel, while wheat has found itself back with 10-12c of two month lows.

The weekly crop progress report will be delayed until today given yesterday was a government holiday.  Data Friday included the most recent Commitment of Traders data which showed funds mainly adding to recent positions.  Funds in the corn market sold another 10,772 contracts to put their net short at -170,553 contracts, the largest net short since 5/30, and about 100,000 contracts larger than the 52-week average.  Funds in soybeans bought 1,807 contracts to lighten their net short position slightly to -15,596 contracts.  This is the smallest net short for the group since 8/1/2017.  Commercials have also been buying, however, with the gross commercial long position rising to +315,993 contracts, the largest position in 6-weeks.  Data also indicative of farmer/elevator selling with the gross commercial short rising to 383,690 contracts, the largest position since April 4th.  In KC wheat, funds sold 3,511 contracts, leaving their net long at +2412 contracts, while in Chicago funds bought 7,919 contracts to put their net short at -86,679 contracts.  Small net selling by managed funds in Minneapolis with their net long down to 5,383 contracts, the smallest since May 30th.

Other data released last week included import/export data for the month of August.  Ethanol exports saw a solid month with 103.0 million gallons exported which was down from 116.6 million gallons last month but above the 91.4 million gallons from a year ago.  YTD ethanol exports total 906 million gallons vs. 708 million gallons for this same time a year ago.  Brazil’s imports declined from last month but remain above year ago totals despite the threat of tariffs.  DDGs exports for the month of August totaled 761,467MT, the smallest since May and well below the 1.137MMT from a year ago in August.  DDGs exports YTD total 7.303MMT which are down slightly from the 7.527MMT exported a year ago.  Otherwise, also thought it interesting to point out wheat imports for the month of August which totaled 366,113MT, 99.9% of which obviously came from Canada.  The total is the largest month of wheat imports since July 2014.  While there was some fear of low protein Canadian wheat finding its way across the border, most of the wheat imported was 12.9-13.9%+ according to the US Census Bureau.  Even though they are on a 2-month delay, monitoring imports from Canada will be important to the US-HRS balance sheet as 17/18 unfolds.

Fresh contract lows for many corn and soybean spreads as harvest rolls on and crops appear to be getting larger, not smaller.  CZ/CH hit fresh contract lows of -13.50c yesterday and overnight, accounting for right at 75% of full financial carry.  If farmers or elevators have not yet begun moving hedges to the March, these sort of levels are probably not a bad place to start.  CZ/CK and CZ/CN have also hit fresh contract last in the last 24-hours, while the CH/CK and CK/CN are just off contract lows.  SH/SK hit a fresh contract low overnight of -9.25c.  Barge freight has stabilized and even clawed back a bit after the big sell off last week as the river system received a fresh injection of rainfall.  Still, export premiums are nothing to write home about, despite the steady string of daily export sales announcements.  Producers needing to catch up on marketing should be looking at the available carries on the board, as well as the potential cash carry once the sloppy gutslot harvest levels are past.  The old saying is carries are rarely earned, meaning the 30c the board is currently paying to store corn until July won’t be earned if it isn’t sold.  One has to ask what is more likely, that front-month corn rallies to where the deferreds currently are, or whether the deferred months slowly work themselves to where the spot months are trading?

 

Bottom Line: Both export inspections and crop progress will be released today, providing some fresh data to chew through.  Otherwise, we are gearing up for the October 12th WASDE report which will not only give us the latest corn and soybean production estimates, but also the latest by-class wheat S&D’s based off the Sept. 29th report data.  While vol is off the lows from last week, still isn’t implying we are going anywhere fast.  Basis levels remain especially weak in the country, encouraging farmers to store as much as possible.  Don’t forget to lock in the carry if the decision makes sense.

 

Good Luck Today.

 

 

Tregg Cronin

Market Analyst

Tregg.Cronin@halocommodities.com

www.halocommodities.com

@5thWave_tcronin

 

 

COMMODITY TRADING INVOLVES RISK AND MAY NOT BE SUITABLE FOR ALL RECEIPIENTS OF THIS EMAIL. Neither the information presented, nor any opinions expressed, constitutes a solicitation for the purchase or sale of any commodities. The thoughts expressed in this email and basic data from which they are derived are believed to be reliable, but cannot be guaranteed due to uncertainty about future events and complexities surrounding commodity markets. Those acting on the information are responsible for their own actions.

 

10/6/2017 Morning Comments

Good Morning,

 

Showers across the Midwest this morning which kicks off a rainy week in the corn belt.  Rains the last 24-hours were heaviest in S-IA/N-MO with showers also falling in C-IL/C-IN/C-OH.  Rains will continue falling over the next 2-days in IA/E-NE/KS/SE-MN/WI with totals between 1.00-2.45” expected.  Hurricane Nate is also expected to make landfall Sunday morning which will bring heavy rain to the Delta and US-SE before pushing into the Mid-South and ECB.  Totals for those areas by early next week are expected to be 3-8”.  The Northern Plains will be mainly dry after today and stay that way through the 7-day and into the 6-10 day.  The below normal temps leave by the 6-10 day, and above normal temps return for the 8-14 day along with below normal precip which will aid harvest efforts in the WCB.

 

Easier markets this morning as we get set to end the first full week of October and the new quarter.  For the week, corn is down 6.25c, soybeans are down 1.50c and Chicago wheat is down 8.50c.  Open interest continued to rise nearly the entire week for all of the major commodities, including yesterday when corn O/I rose another 4,055 contracts, Chicago wheat was up 995 contracts and soybeans bumped 268 contracts higher.  Corn open interest has risen 136,835 contracts since August 30th, and all of that increased participation has occurred between the prices of $3.44 ¼ and $3.62.  This is a fairly narrow price range for such a large amount of open interest to accumulate in, suggesting that when corn finally does move outside of this range, the move could be swift as someone is caught on the wrong side.  Unfortunately, volatility continues to decline on an almost daily basis, implying the breakout is not in the immediate future.  December ATM option vol settled yesterday at 14.43% vs. 16.28% a week ago and 19.00% at the beginning of September.  Important to remember, the vast majority of harvest is still in front of the market, not behind.

Yesterday saw a solid jump from soybeans despite mediocre export sales (which we will cover below), softening CIF bids and contract lows in calendar spreads.  There didn’t really seem to be an impetus behind the jump, although seasonally, October is a fairly solid month for price performance for not only soybeans but corn and wheat as well.  According to www.sentimentrader.com, the 30-yr average performance for the month of October on soybeans is +1.314%.  This would be about a 13c rally from where we opened the month.  On corn, the 30-yr average performance for the month is 1.829%, or a 7c gain from the open of the month.  On Chicago wheat the average return is 0.618%, or about a 3c rally.  One other interesting seasonal tidbit for soybeans is the fact November soybeans have made their low for the month of October before the 15th in every year except 2008 going back to 2003.  For January soybeans, the same was true except for 2009 when the high came before the 15th.

Export sales were also released yesterday and were average to slightly above average compared with trade estimates.  Wheat sales were solid at 18.1mbu vs. the weekly amount needed at 13.5mbu.  This was the largest total in five weeks.  Total commitments for wheat now stand at 514.8mbu, down just 3% from a year ago while the USDA is calling for an 8% decline.  Sales were led by hard red spring wheat with 7.0mbu of new commitments, which is nearly double the amount needed.  Total commitments of 141.2mbu are down 13% from a year ago while the USDA is calling for a 19.0% decline.  Corn sales totaled 32.0mbu which were at the low end of expectations, but above the 28.4mbu needed weekly.  Total commitments of 478.9mbu are down 41% from a year ago amid cheaper supplies from Argentina, Brazil and Ukraine.  Soybean sales came back down to earth at 37.3mbu vs. the 29.5mbu needed weekly.  Total commitments measured 857.3mbu which are down 18% from a year ago vs. the USDA calling for a 3.6% increase.  China is on holiday this entire week, so it will be important to see if they flip the buy switch back on next week.

Informa Economics released their latest crop production estimates during the session yesterday, inching both higher and in-keeping with the overall trend of yield reports.  They put the national average corn yield at 170.5bpa vs. USDA at 169.9bpa in September, while total production is 14.182bbu vs. USDA at 14.184bbu.  Soybean yield was increased to 50.0bpa vs. USDA at 49.9bpa last, with total production jumping to 4.474bbu vs. 4.431bbu USDA last.  They also took a stab at sunflower production, putting the average yield at 1,508lbs/ac vs. 1,731lbs/ac last year and total pounds at 1.830 billion pounds vs. 2.655 billion last year.  USDA has not estimated the nation’s sunflower crop yet this year but will issue a guess next week.  Other private estimates out this week included FC Stone at 169.2bpa and 49.8bpa for corn and soybeans, respectively.  T-Storm weather put the crops at 171.1 and 49.2bpa, respectively.

Jumping back to the wheat market for a moment, think it worth pointing out the improving technical and fundamental picture of Minneapolis spring wheat.  As noted above, export sales notched the highest level in 7-weeks and were the second largest of the marketing year.  Price has also found support from the 200-day moving average which we touched Monday through Thursday of this week and held.  Further, various studies of momentum are indicating a potential bullish divergence, but would need trade back above $6.50 to confirm.  As of 9/26, managed funds held a net long position of 5,913 contracts which was the smallest since May 30th, and slightly below the 52-week average of 6,915 contracts, indicating their position has finally gotten more balanced.  While a sharp retracement isn’t expected straightaway, one can certainly make the argument for a meaningful correction back into the upper 6-handle area.  Cash markets and spreads should be good leading indicators to the futures board as we move into fall and winter, which is precisely how a well-functioning market is supposed to work: first cash, then spreads, then futures.

 

Bottom Line:  News is light, outside markets are fairly quiet and harvest could be interrupted by rain in many parts of the WCB this weekend.  The amount of pre-hedging going into the weekend isn’t likely to be as heavy as it was last weekend or will be in the futures which should take some pressure off.  Friday’s are trend days, and our markets are all carrying losses for the 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.

 

10/5/2017 Morning Comments

Good Morning,

 

Outside Markets as of 6:15am: Dollar Index up 0.110% at 93.5900; Euro down 0.233% at 1.17830; Aussie Dollar down 0.598% at 0.78070; British Pound is down 0.587% at 1.3199; S&P’s are up 0.50 at 2536.75; Dow futures are up 5.00 at 22,612.00; 10-yr futures are up 0.07%; Crude Oil is up $0.07 at $50.05; Heating Oil is up $0.0090 at $1.7829; Paris Milling Wheat is unchanged at €166.00/MT; Paris Rapeseed is up €0.75 at €368.75/MT; Dalian markets are still closed on holiday.

After several losing sessions in a row, crude oil markets are finding support thanks to supporting inventory data as well as solid export data from the EIA.  Weekly crude oil stocks declined by 6.02 million bbls vs. an average estimate of a -0.80 million bbls decline.  Crude oil stockpiles are now at 464.96 million bbls which is below last year’s 469.11 million bbl level, but still above the 3-yr average of 407.92 million bbls.  Part of the large drop in inventories was due to crude oil exports hitting 1.98 million bpd, surpassing the record of 1.5 million bpd set the previous week.  Analysts point to the premium of Brent Crude oil over WTI crude oil as part of the reason for the sustained export demand.  That spread is sitting at $6.03/bbl premium Brent this morning, but is near the strongest levels since July of 2015.

Showers scattered across the southern and central plains as well as a good sized system setting up shop over IL/IN this morning.  Rains this week have been heaviest over E-NE, MN, E-SD, NW-IA, N-KS and most of OK.  Over the last 14-days, the vast majority of the Plains and WCB have been running at 200-600% of normal precip as soil profiles continue to be recharged.  IL.IN/OH/MI/MO, however, have been running severe deficits for the last 15-30 days of 5-50%.  This has promoted quick harvest, but has also delayed SRW planting and emergence.  Rains the rest of the week and early next week will be heaviest in the aforementioned areas: NE-KS/E-NE/IA/N-MO/S-MN/WI.  IL/IN/OH also look set to receive better moisture early next week in the 1.25-3.00” range.  Below normal temps and precip look to develop over the entire Midwest in the 6-10 and 8-14 bringing more of the growing season to a close.

 

Mixed markets this morning with firmer row crops, weaker winter wheat and better spring wheat.  Doesn’t seem to be a lot of trend in our markets as of late with prices remaining mostly inside recent ranges, awaiting fresh fundamental data by way of harvest reports and the USDA on the 12th.  Farmer frustration with current corn and soybean cash prices are growing in many locations, but the amount of old crop movement still occurring speaks to the carryout levels confirmed by the USDA last week.  While there have been a few more two-sided yield reports surface, by and large the soybean and corn crops look set to get larger on next week’s WASDE report with the vast majority of observations yielding “better than expected” or “as expected.”  In the main corn belt, there hasn’t been a great deal of cash pressure on corn just yet, as producers are attempting to go home with as much corn as possible.  Selling soybeans off the combine will be popular on both ends of the belt, especially the WCB where wheat and corn will be the preferred commodities to store.

While price action has been a bit two-sided, volatility has been a one-way train to pound town.  Chicago SRW ATM volatility for December closed at 16.17% vs. 19.59% a week ago.  Corn December ATM Vol closed at 15.36% vs. 16.90% a week ago, while Nov soybean vol closed at 12.93% vs. 14.66%.  Clearly the market is not anticipating any sharp moves in either direction in the next 30-45 days, and producers should adjust their expectations for futures prices accordingly.  Another way to look at volatility, is the expectations going forward.  The options market and volatility is telling us there is a 68% chance November soybean prices remain between $9.27-9.88 per bushel between now and the end of the month.  For December corn, futures have a 68% chance of remaining between $3.28-3.68 from now until opex at the end of November.  December Chicago wheat is expected to remain between $4.15-4.68 over the next 50 sessions.  When one looks at futures through this prism, expectations for a sharp move in either direction become a bit more tempered.  This exercise can be done over any time frame, and should be used by producers who will be marketing grain before year end to realize what is possible, and what is likely as harvest begins.

Data yesterday included weekly ethanol production which came in at 1.010 million bbls/day, which was up 14,000bbls/day over the previous week.  Ethanol production needs to average a 1.1% increase over year ago levels in order to meet the USDA’s objective, and this past week’s production was up 3.1%.  Ethanol stocks jumped sharply last week by 805,000 bbls to 21.545 million bbls, which pushed them back to the highest level in seven weeks and the second largest stocks in over four months.  Import/Export data for the month of August will be available later this morning, and analysts will be keen to see whether exports finished the summer in strong or weak fashion.  There is also the looming threat of reduced imports by Brazil which took the second largest amount of ethanol in the 16/17 marketing year behind Canada.  The 6-month RBOB/Ethanol strip is trading at 18.96c/gln this morning.

While the focus has been on Minneapolis and US spring wheat heading into the September 29th reports, Canadian production is still up in the air as harvest plods along.  As of September 26th, Alberta had harvested around 60% of all their crops, which was a bit behind the 5-yr average of 67.7%.  Meanwhile Saskatchewan was pegged at 78% harvested vs. the 5-yr average of 74%.  The USDA’s latest estimate of the Canadian all-wheat crop was 26.5MMT in September, but most analysts are in the 29-30MMT area now given better than expected yield reports.  If production does come in at 29MMT, and harvested area is unchanged, the national average yield would come in at 3.22MT/ha, the third largest on record despite huge moisture deficits in the southern prairies much of the summer.  Nonetheless, if demand is unchanged from the USDA, carryout would grow to 7.615MMT which would be the second largest since 2009/10 and up from 6.865MMT last year.  However, protein reports are coming in almost uniformly below average and is being reflected in protein scales at ports.  There is a premium of $1.10 from 12.0% protein to 13.8% protein which would compare with a 55c/ premium in US-HRW spot floor scales and a 15c premium between 13.0-13.5% on the MGEX spot floor.  No quotes for less than 13.0% protein were available.  Looked at another way, Canadian scales are roughly 12c per 1/5th, vs. US-HRW at  7c per 1/5th and Minneapolis around 7-8c per 1/5th as well.  Monitoring Canadian exports in the coming months to see what the bulk of their wheat has for a protein and quality standpoint could be important.

Quickly, we are entering the critical time frame for much of the Australian wheat crop with some already too far gone to rebound.  A survey of industry participants in Australia put the crop at an average of 19.2-19.4MMT with the total range between 17.0-21.5MMT.  The ends of the range would be characterized as the results if rains arrive immediately or if rains don’t show up at all the rest of the growing season.  The USDA put the crop at 22.5MMT in September, while ABARE last pegged the crop at 21.64MMT.  Exports are likely to fall 4-5MMT as the domestic market tries to protect itself, leaving excess bushels available for only those who prefer Australian White wheat over other hard varieties from Canada and the United States.

 

Bottom Line: Hurry up and wait.  Cash, spreads and yield reports.  Volatility should stabilize ahead of the October WASDE, but the historic levels being witnessed right now don’t spell a lot of excitement between now and year end.  As noted above, producers would do well to adjust futures price expectations through harvest and into year end.  This doesn’t mean one can’t be optimistic, just practical when making marketing decisions.

 

Good Luck Today.

Tregg Cronin

Market Analyst

Tregg.Cronin@halocommodities.com

www.halocommodities.com

@5thWave_tcronin

 

 

COMMODITY TRADING INVOLVES RISK AND MAY NOT BE SUITABLE FOR ALL RECEIPIENTS OF THIS EMAIL. Neither the information presented, nor any opinions expressed, constitutes a solicitation for the purchase or sale of any commodities. The thoughts expressed in this email and basic data from which they are derived are believed to be reliable, but cannot be guaranteed due to uncertainty about future events and complexities surrounding commodity markets. Those acting on the information are responsible for their own actions.

10/4/2017 Morning Comments

Good Morning,

 

Outside Markets as of 6:30am: Dollar Index down 0.2500% at 93.3770; Euro up 0.165% at 1.18160; S&P’s are down 1.50 at 2531.25; Dow futures are down 10.00 at 22,598.00; 10-yr futures are up 0.14%; Crude Oil is down $0.19 at $50.23; Heating Oil is up $0.0058 at $1.7562; Paris Milling Wheat is down €0.25 at €166.75/MT; Paris Rapeseed is up €1.25 at €368.25/MT; Dalian markets remain closed for Golden Week.

Widespread frost across the Dakotas this morning with temps dipping below 32* and wind chills well below 30*.  Some areas will be seeing the end to their growing season this morning or later this week with more chances of frost early next week.  Extended maps from NOAA keep the below normal temps firmly in place for the next 10-14 days.  This will limit dry down for crops which didn’t need/want a freeze, but should accelerate dry-down for crops which were lagging maturity.  Best chances of rain in the coming 7-days will definitely be in IA where the entire state looks to receive 1.75-5.00” by the end of the weekend.  Heavy totals will also be seen in OK/OK/E-NE/MO/IL?WI/N-IN/S-MI.  After that system passes, below normal precip moves into the Plains and Corn Belt for the 6-14 day outlook.

 

Quiet markets overnight with corn and soybeans inside 2c ranges, and wheat mainly inside a 3c range.  Soybean prices stabilized after heavier losses early for all of the reasons outlined in yesterday’s communique.  However, barge freight also loosened up yesterday with some quotes dropping 250-400% at some stations due in part to heavy rain forecast for the Illinois and Mississippi rivers.  This helped CIF corn and soybean bids shed premium as the volume of grain coming at the market is still more than it has homes for.  More open interest increases across the floor yesterday with SRW wheat up 3,463 contracts, corn up 12,759 contracts and soybeans up 2,440 contracts.  Since the end of August, corn open interest is now up 118,962 contracts, or close to 600 million bushels.  Adding to the bearish sentiment toward corn is the continued new contract lows in spreads for various contracts.  The CZ7/CZ8 hit new contract lows of -46.00c yesterday and overnight with some analysts expecting -50.00c before bottoming.  CN8/CZ8, which is a proxy for ending stocks, hit a new contract low overnight of -16.50c.  The coiling, descending triangle pattern still intact for corn contracts, however.

Yesterday saw deliverable stocks report released for the various exchanges which we’ve glossed over the last couple of weeks, but Minneapolis saw a huge build the last work week.  HRS stocks in Duluth/Minneapolis rose 2.934mbu, which is the largesse single week build since August of 2015.  Combined wheat stocks now total 25.127mbu which compare with 30.848mbu a year ago.  Stocks usually hit their seasonal peak sometime in September, but that could come a little later this year given the drawn out harvest efforts in ND/MN.  While the delivery market is certainly pressuring spreads, one supportive feature is the amount of on-farm wheat which we continue to dig into.  Yesterday, we talked about the amount of total wheat in MN/SD/ND/MT as of Sept 1 being the lowest since at least 1986/87.  Today we looked at just the amount of wheat on-farm in those states as of Sept 1 which totaled 316.00mbu, the lowest since 1966.  This is a massive draw down from a year earlier when farmers held 494.00mbu.  Farmers in those states are holding 58.72% of all the wheat on-farm which is down from 91.80% a year ago, and would be the lowest since 1966 as well.  This can be looked at in several ways as the higher percentage of wheat off-farm should be a cap on futures, but should also imply firming spreads and basis as the year progresses.

The other wheat point worth noting after digging through more data from Monday would be the delayed HRW planting progress.  As of October 1st, there were 36% of the intended winter wheat acres planted which is down from 43% last year, but above the 31% from 2-years ago.  However, this year is tied for the second slowest for this date since 2001.  The individual states really tell the tale with KS just 21% planted vs. 39% average, and would be the slowest progress since 1999.  OK is 30% planted which is below the 5-yr average of 43%, but the second slowest pace behind 2016 since 2001.  CO is 57% planted vs. the 5-yr average of 69% planted and among the slowest for the last 30-years.  MT at 53% planted is the second slowest since 2001.  Some are blaming dry conditions, but rains are headed for the southern plains this week.  As we’ve written about here previously, odds are growing for another year of winter wheat acreage declines based on relative values to other crops and producers tiring of yield adversity, quality discounts, etc.  While the Sept 1 Stocks report tempered some of the strength in the wheat market, the 18/19 balance sheet is growing more supportive by the day.

While discussing stocks, there were several other data points from Friday’s SIAP report for minor feed grains and specialties worth pointing out.  In the sunflower market, the discussion for much of the summer was about the lowest amount of acres since 1976.  Friday’s data helped temper that mood, however, when it was revealed sunflower stocks on September 1 totaled 648.8 million pounds, the largest since the 784.1 million pounds in 2006 and the second largest on record.  Lots and lots of carryover sunflower stocks, but could still be talking about a tightening market in 2018, especially if oil content is not as high as last year.  Barley stocks totaled 179.5 million bushels, which was the lowest since 2011, and the second smallest going back to the 1940’s.  Oat stocks totaled 71.805 million bushels, the smallest since 2013, and the second smallest on record as well.  Making the barley and oat market even more interest is the current estimate for the smallest production on record for both crops on record going back 70 years.  While row crop production keeps growing in the Northern Plains, wheat and minor grains keep tightening.

 

Bottom Line: Looks like another quiet session as we continue to watch cash markets, spreads and field harvest reports.  The Northern Plains continues to plug away at soybean harvest, but still a long way to go before most will feel comfortable about their progress.  Volatility is dropping, and the odds for sharp moves in either direction dropping along with it.  Markets look and feel like they are snuggling in for the winter already.

 

Good Luck Today.

Tregg Cronin

Market Analyst

Tregg.Cronin@halocommodities.com

www.halocommodities.com

@5thWave_tcronin

 

 

COMMODITY TRADING INVOLVES RISK AND MAY NOT BE SUITABLE FOR ALL RECEIPIENTS OF THIS EMAIL. Neither the information presented, nor any opinions expressed, constitutes a solicitation for the purchase or sale of any commodities. The thoughts expressed in this email and basic data from which they are derived are believed to be reliable, but cannot be guaranteed due to uncertainty about future events and complexities surrounding commodity markets. Those acting on the information are responsible for their own actions.

10/3/2017 Morning Comments

Good Morning,

 

Outside Markets as of 6:20am: Dollar Index down 0.100% at 93.5340; Euro up 0.114% at 1.18055; S&P’s are up 1.50 at 2527.75; Dow futures are up 28.00 at 22,535.00; 10-yr futures are down 0.09%; Crude Oil is down $0.13 at $50.42; Heating Oil is down $0.0121 at $1.7544; Paris Milling Wheat is up €0.50 at €166.00/MT; Paris Rapeseed is unchanged at €366.75/MT; Dalian markets are closed for Holiday.

Showers moving across the upper Midwest this morning, bringing rains to ND/SD/E-NE/NW-IA/MN, adding to totals from the last 24-hours  in some of those same areas.  In the last day, the eastern half of NE has seen a broad 0.50-1.00” with localized amounts over 2.50-3.00”, while much of MN has also seen 1.00-2.50” amounts.  Rains will remain active across the southern plains and WCB the next several days, bringing moderate to heavy rainfall to OK/KS/NE/IA/MO/IL/WI.  Forecast totals for the next 7-days put 2.50-3.50” in many of the aforementioned states.  This will slow harvest efforts in the central and ECB where solid progress has been made over the weekend.  The growing season looks as though it may come to an end next week in the WCB, however, with below normal temps seen in the 6-10 and 8-14 as well as below normal precip chances.

 

Mostly easier markets this morning, at least for row crops which continue to find pressure following yesterday’s selloff.  After leading gains Friday on the tighter than expected September 1st stocks, soybeans gave back all of the gains on Monday on a big harvest weekend in the ECB, falling crush basis, logistical challenges on the Ohio River, and the perception this crop is not done getting larger.  After an impressive August and September, soybeans have turned weaker technically, trading below the 50/100/200-day moving averages as well as slipping below rising channel support.  On-Balance-Volume has turned negative, indicating more volume on down days than up days over the last 20 sessions, and open interest continues to rise as soybeans are sold off the combine from one end of the corn belt to the other.  Worth noting, large open interest increases were seen across the board yesterday with funds likely adding to net short positions in corn and wheat.  SRW wheat was up 4,211 contracts, corn was up 10,544 contracts, KC wheat was up 2,513 contracts and soybeans were up 8,121 contracts.

Starting with the river challenges, low river levels and back-ups at several lock and dams are pushing the cost of barge freight to levels not seen in many years.  Barge freight trades according to cash sources put Memphis-Cairo at 1100% of tariff, St. Louis around 850% and some chatter about prompt freight south of Memphis trading 1300%.  Mid-Miss freight was said to trade 775% over the weekend.  These are levels not seen since 2014 when demand for barges by frac sand and other industrial products pushed freight to record levels.  Expensive freight usually has the effect of lifting destination premiums, allowing elevators who are able to take advantage, but with harvest bushels taxing the entire system, soy premiums are falling off in slabs in the ECB.  Rather than buy the expensive spot freight, elevators are storing beans for the near-term until the situation corrects itself.  With no competition from the river, crush plants are being overrun with soybeans.  This will spillover to corn once that harvest gets rolling in another couple weeks.  Not having your main transportation channel to export elevators running at 100 during harvest is a terrible situation.

While old news today, Friday’s Stocks-In-All-Positions report yielding many interesting data points which have set the table for the next 3-months’ worth of trading in the wheat markets.  To summarize in a word, the spring wheat crop proved 20mbu larger than last month, much to the dismay of the market, wheat feed/residual demand was much smaller in Q1 than previously thought, and both corn and soybean stocks were a bit smaller than originally expected.  The spring wheat market sold off hard Friday and followed through yesterday on the more comfortable supply, although the spring wheat market is still historically tight and shouldn’t relinquish much more premium.  Ending stocks of HRS will likely move up to around 167mbu from 146mbu previously, which would be the smallest since 2012/13 as opposed to the tightest since 2007/08.  This of course unless the USDA decides to change demand on October 12th.  Still, when looking at 2018/19, even with a 15% increase in acreage and 5-yr average yields, ending stocks actually decline 6mbu next year.  With a 20% increase in acreage, ending stocks would bump to 190mbu from 167mbu, but still relatively snug.  It could be argued the selloff in futures prices is not promoting more acres across the Northern Plains, just as the selloff in winter wheat price is probably not promoting more HRW acreage in the Southern Plains during their sowing campaign.

Another impressive statistic to come out of the reports was the amount of wheat in the Northern Plains and on-farms across the United States.  Stocks of wheat in MN/SD/ND/MT as of September 1 totaled 538.134mbu, which was the smallest on record going back to at least 1986/87.  This is due in large part to the drought obviously, but also to the amount of old crop wheat which moved on the rally in May/June.  Hitting this point home further is the amount of wheat on-farm across the entire United States which totaled 488.8mbu, the smallest amount on-farm for Sept 1 since 1963.  A larger portion of wheat is being held at the commercial level than usual, which could limit future price reaction, but should also promote spread and basis strength as we get deeper into the marketing year.  In addition, the dichotomy of this year’s HRS crop will make for cash market opportunities for farmers with high protein and test weight.  The big yields in E-ND/N-MN yielded a low protein crop as did the bushels in Manitoba.  There isn’t a great deal of demand for 12.5-13.5% protein spring wheat, as mills are finding it cheaper to blend 14.0-15.0% spring wheat and 11.5% HRW to make their grist.  Pay attention to protein scales.

Data yesterday included the weekly crop progress report which saw corn conditions rise 2pts to 63% G/E vs. 61% expected and 73% last year.  Conditions jumped in the Dakotas, IA, MO, IL and CO.  Conditions increases at this stage are usually better than expected yields by crop being harvested, or anecdotal reports of silage yields, etc.  Corn harvest was pegged at 17% complete, up from 11% last week and 26% average.  Little to no progress has been made across the Northern Plains with ND/SD/MN at 2-3% complete vs. 11-19% average.  68% of the crop is mature vs. 64% average, but most states in the Northern Plains are lagging averages which will be interesting if frost/freeze chances pick up next week.  Soybean conditions were unchanged at 60% vs. 74% last year.  Soybean harvest was estimated at 22% complete vs. 10% last week and 26% average.  ND/SD/NE/IA/MN/WI have all not passed 20% complete.  US winter wheat planting progress was estimated at 36% complete vs. 24% last week and 43% average.  Most southern plains states are behind average due to reported dry conditions.  Emergence was pegged at 12% vs. 16% average.

Export inspections yesterday were solid for wheat, but still lacking for corn and soybeans.  Wheat shipments totaled 25.4mbu, the largest since the third week of the marketing year in June.  Cumulative shipments now total 364.5mbu, down 2.2% from a year ago.  Also worth noting, there were 4.24mbu of HRS shipped to China last week, which is the kind of extra-ordinary demand which will keep the spring wheat market tight in the 17/18 crop year.  Corn shipments totaled 30.8mbu vs. the 35.0mbu needed weekly.  Total shipments now measure 115.3mbu, which is down 49.3% from a year ago.  Some export forecasts by privates are slipping from 1.850bbu from the USDA to 1.750bbu.  Soybean shipments totaled 32.9mbu vs. the 42.8mbu needed weekly.  Total soy shipments measure 145.9mbu vs. 125.3mbu last year.

 

Bottom Line:  Soft basis, steady/weak spreads and expanding harvest is usually not a recipe for a futures rally.  Yield reports seem to confirm USDA yield ideas, and the way USDA estimates have a way of trending, would seem to promote larger production on next week’s WASDE report.  Wheat markets have the supply side of the equation locked in for the US, so it is all about demand moving forward.  The high-volatility period of the summer has come and gone, and producers need to acknowledge the trading ranges which are likely setting 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.