6/23/2017 Morning Comments

Good Morning,

 

Outside Markets as of 6:15am: Dollar Index down 0.125% at 97.4130; Euro up 0.183% at 1.12190; British Pound is up 0.504% at 1.2767; S&P’s are up 0.25 at 2432.00; Dow futures are down 38.00 at 21,310.00; 10-yr futures are down 0.02%; Crude Oil is up $0.09 at $42.84; Heating Oil is down $0.0014 at $1.3771; Paris Milling Wheat is up €0.25 at €174.25/MT; Paris Rapeseed is down €1.50 at €355.50/MT; Dalian corn closed up 0.30%, Dalian soybeans finished down 0.39%, Dalian soybean oil closed down 0.31% and Dalian meal closed off 1.05%.

Fairly active Midwest radar this morning with rains over NE, but lots of shower activity east of the MS-River from LA all the way up to OH and MI.  Rain in the last 24-hours was best in the southern half of WI, NE-IA, SE-MN, and N-MI.  Totals were mainly 0.50-1.00” with decent coverage.  Rains will work east and south today, leaving the WCB and Northern Plains to be mostly dry until Tuesday/Wednesday.  Then the area will see a follow up system Wednesday-Friday which puts 1.00-2.50” across the entire state of IA as well as NE-KS, most of WI, N-IL and the eastern half of MN.  If those rains verify, corn won’t be going anywhere.  Will be very few dry spots left in the major production areas after the 7-day period if all the rains fall as forecast.  Temperatures look normal/below for the 6-15 while precip will turn to above normal, especially for IA/N-MO/IL/WI/S-MN.  Not the forecast bulls want to see.

 

Firmer markets overnight led by soybeans as we bounce back from yesterday’s selloff which hit row crops the hardest before wheat staged a late session comeback.  For the week, corn is down 20.75c, soybeans are down 31.0c, Chicago wheat is down 1.75c, KC wheat is down 6.25c and Minneapolis wheat is up 14.50c.  For those keeping score at home, Minneapolis wheat is looking for its sixth higher weekly close in a row, and over that time has added $1.24 in value.  While Minneapolis has had its share of headlines this week, the poor performance in the row crops has been the narrative.  Many analysts are actually confounded with the fact reports of reduced acreage, uneven stands, slow development and top-end yield potential being gone doing nothing for the corn market.  One must also factor in the largest carryout in decades, the largest South American corn crops on record and real uncertainty over what the starting point for corn planted acreage was.  Was it 89.966 million as the USDA suggested on its March planting intentions report, or was it closer to 90.5 million or even 91.0 million?  Losing 500,000-1,000,000 acres of intended corn acres really depends on where the starting point was.

Lots of questions and calls regarding the spring wheat balance sheet lately, so we have decided to piece meal the supply and demand situation of the spring wheat market out each day.  Today we decided it would be good to look at harvested acreage, especially compared to other years of extreme drought in the Northern Plains.  The USDA said US farmers planted 11.308 million acres of other spring wheat this year which most think is a bit high, but will suffice for this discussion.  The 10-yr average for harvested percentage on other spring is 97.4% which produces harvested acres of 11.013 million.  This is not a typical year, however, as the pictures of farmers spraying out or baling spring wheat acres have hit social media websites this week.  Taking a look at the last four times harvested acres have taken a notable hit due to drought, we see 2011, 2008, 2006 and 2002.  The worst harvested acreage percentage was 85.5% in 2002 while the best was 97.4% in 2011.  If we average all four, we come up with 92.8% for a harvested percentage.  It is so difficult to compare years, although abandonment has already occurred in SD and will continue into ND, but the price rally of the last 6-weeks has also probably pulled some acres back into the harvested category which might have went unharvested.  If we use the average, harvested acreage comes out at 10.501 million.  Using the usual hard red spring/white mix, this would mean 9.660 million harvested acres of hard red spring.  Many yield estimates are already 40bpa or below, which would automatically push production below 400mbu and put us in extreme rationing mode.  As we’ve written about in this space recently, the job of rationing the domestic demand for 13.0-15.0% pro spring wheat to be blended with low pro HRW will be huge this year.

The Northern Plains have been garnering the lion’s share of the attention related to spring wheat as of late, but the PNW has been quietly drying out over the last 14-days, especially WA and OR.  Washington comprises 5% of total spring wheat production, while OR just 1% and ID around 8%.  Much of the ID spring wheat is irrigated, but dry conditions can still affect irrigated wheat when heat and drought are combined.  The PNW came out of winter with solid soil moisture which has carried them quite a ways into their growing season.    Conditions had begun slipping the last two weeks in the PNW, part of the reason the market was looking for an uptick in conditions on Monday but the national rating fell another 4pts.  Conditions in the Northern Plains may have stabilized, but if the PNW continues to slip, it could put downward pressure on national ratings and keep support under price.  Limited chances for rain in the next 7-days for those areas of ID/WA/OR.

StatsCan will release their update to planted acreage on June 29th with newswire services publishing estimates yesterday afternoon.  The trade sees planted acreage at 22.70 million acres which would be down from the April report of 23.18 million and down from last year’s 23.21 million.  Lots of uncertainty over what got planted in Alberta where areas continue to be inundated with water.  Some acres were thought to still not have last year’s crop harvested.  Non-durum acres are seen at 17.70 million vs. 18.04 million in April and 15.4 million last year.  Durum wheat is seen at 5.0 million vs. 5.15 million in April and 6.19 million last year. Canola acreage is pegged at 22.20 million vs. 22.39 million in April and 20.37 million last year.  Oat acreage is seen at 3.40 million vs. 3.42 million in April and 2.83 million last year.  Barley was pegged at 6.00 million acres vs. 5.88 million in April and 6.39 million a year ago.  Not much change at all expected for pea, flax, lentil and soybean acreage from the April estimate.

Egypt’s GASC bought wheat yesterday which included 120,000MT of Romanian wheat at an average FOB price of $193.96/MT and 60,000MT of Ukrainian wheat at $190.13/MT FOB.  The prices were about $2/MT higher than the last tender Egypt conducted, and there was no Russian wheat purchased for the first time in several tenders.  Egypt has already purchased over 1.0MMT of wheat for the 2017 crop year which is more than double the total purchased for any of the last four years.  In fact, the total purchased for July delivery would be the second largest month of procurement for any month dating back to July of 2013.  Whether that is a sign of things to come or not will be worth monitoring, but anytime the world’s largest wheat importer jumps out to that kind of start to a marketing year it is worth noting.  Still believe low pro HRW could be well positioned to compete with GASC later this marketing year.

 

Bottom Line: Market act as though they want to bounce to close the week, but the damage to row crops is done.  Wheat is trying its best to divorce itself from the row crop situation, which will be no problem for the spring wheat market but much more difficult for the winter wheat contracts.  Weather looks non-threatening as we head into the largest report of the summer next week.  Lower acreage would indeed be supportive to corn, but South American FOB offers are undercutting exports in a big way right into new crop.  There’s no Brazilian drought this year to make the US the only game in town.

 

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.

 

6/22/2017 Morning Comments

Good Morning,

 

Outside Markets as of 6:00am: Dollar Index down 0.011% at 97.5370; Euro down 0.00160 at $1.11780; Russian Ruble is off 0.72% at 59.8465; S&P’s are down 2.00 at 2431.50; Dow futures are down 13.00 at 21,365.00; 10-yr futures are up 0.01%; Crude Oil is up $0.16 at $42.69; Heating Oil is up $0.0039 at $1.3687; Paris Milling Wheat is down €1.25 at €174.25/MT; Paris Rapeseed is down €0.75 at €357.25/MT; Dalian corn closed down 0.12%, Dalian soybeans down 0.62%, Dalian soy oil finished down 0.10% and Dalian soymeal closed down 0.71%.

Crude oil entering a bear market, closing 20% below recent highs, is the talk of the financial markets these days.  At the lows yesterday of $42.05, spot month crude oil traded to the lowest level since August 11th, which is below the level hit when OPEC announced production cuts last November.  It would appear traders are losing faith in OPEC’s ability to manage the global oil balance sheet, especially as the drilling rig count in the US rose for a record 22nd straight week last week.  US shale producers are proving they can compete in a world of sub-$50/bbl oil, something OPEC producers are finding increasingly difficult.  The US supply glut is easing slightly as the weekly EIA data showed crude oil stocks drawing by 2.45 million bbls to 509.10 million bbls, but this compares to 499.99 million last year and the 428.60 million 3-yr average.

Showers moving across SD/MN as well as NE-IA and S-WI this morning as any area west of the MS-River welcomes additional precip.  Rain is expected to keep falling in the eastern half of IA, SE-MN and most of WI during the next 24-hours with totals ranging from 0.50-2.00”.  Then the Midwest dries out for a few days with the next rains for the corn belt not seen until Tuesday/Wednesday of next week where models are showing 0.50-1.25” for most of the state of IA, but not much for anyone else.  Over the next week, rains will be especially limited for the Northern Plains outside of MN, which should continue to stress crops there.  While wheat is still the chief concern, some areas of the Northern Plains will already be worrying about fall crops.  Dry areas in IL will also be monitored.  Temps remain mostly normal to below normal for the next 15-days without any threatening heat seen.

 

Easier markets over night, led lower by winter wheat as harvest expands across KS and the surge in cash premiums the last two weeks appears to have abated at least in the near-term.  During the euphoria of searching for protein, premiums in the US way overshot global export competitors, which should have essentially pushed all export business elsewhere.  While protein will be in short supply, I’m not sure it’s the market’s job to ration all export demand when we are still harvesting in Kansas.  Spring wheat will be its own animal most of the season as demand for spring wheat, and especially DNS, is so inelastic.  Looking over the last 15-years, food use for spring wheat has averaged 237mbu vs. 250mbu last year, while in 2008 when Minneapolis hit $25/bu it was 233mbu and in the drought year of 2011/12 it was still 223bu.  Exports will be rationed and most analysts are already carrying 50-60mbu less export demand than this past year.  Yet, spring wheat is the one with the bushel problem, while winter wheat is the one with the protein problem.  If exports are unable to meet protein specs, a lot of wheat will be destined for delivery warehouses and stored.  Tough way to chew through 700mbu.

While on the topic of wheat, there are several areas around the globe with dry conditions which are threatening to cut production including the EU, Ukraine and Australia.  Australia is trying to plant their winter crops right now, but a total lack of rain in W.A. and S.A. has limited progress the last several weeks.  Estimates flying around the trade suggest 10-15% of the intended acres may not be planted because of no moisture.  The concern is certainly being manifest in their export offers with 9% ASW ex-W.A. offered $229/MT FOB vs. $217/MT FOB a week ago, while 10.5% APW is offered $235/MT FOB vs. $220/MT FOB last week.  In S.A., 10.5% APW is offered $232/MT FOB vs. $217/MT FOB last week, while 11.5% AH is offered $250/MT vs. $232/MT FOB last week.  On average, up around 32-40c/bu.  Australia is coming off of a record setting crop last year when they produced 35MMT with exports expected to finish around 24MMT.  This coming season, estimates of production are as low as 20MMT to as high as 24MMT with exports expected around 19MMT.

Wheat has certainly garnered the lion’s share of attention lately, but several other minor crops are facing some serious balance sheet tightness.  Using current USDA supply and demand assumptions, the global oat balance sheet has quietly slipped to the tightest on record from both an ending stocks and stocks/use perspective.  At 8.74%, the global stocks/use ratio compares with the previous record low of 10.12% in 1986/87.  The world’s largest exporter, Canada, is expected to see ending stocks drop to the lowest since 2012/13.  The global barley S&D is expected to see ending stocks drop to the lowest since 1983/84 with a stocks/use ratio of 10.55%.  The balance sheets for these two commodities become especially important for countries who still feed a large amount of oats and barley, like the EU which is expected to see its barley stocks/use ratio drop to 7.8%.  This could force more reliance on wheat feeding, which could crimp an already tight wheat balance sheet as production prospects slip amid drought.  Lots of moving pieces with cereal grains around the globe, and plenty to keep our attention in 17/18.

Data yesterday included weekly ethanol production which came in at 990,000bbls/day which was down 12,000bbls/day from the previous week.  Usually, we are seeing weekly ethanol production ramp up into driving season, but production has mainly declined the last 4-5 weeks and is still in an overall downtrend from the beginning of the year.  Production was still 2.9% above the same week a year ago, but is well down from the 4-8% increases we were used to seeing a month ago.  Ethanol production margins have been under pressure and are undoubtedly contributing to the slowdown in grind rates.  Ethanol stocks did dip by 262,000 bbls to 22.280 million bbls, which is still 5.5% higher than the same week a year ago.  Spot ethanol prices closed below its 50/100/200-day moving averages yesterday for the first time in a month.

In other export news, Egypt’s GASC tendered for wheat overnight seeking option origin wheat for July 15-25 shipment.  Russian and Romanian wheat have been cleaning up most of the recent business, and that shouldn’t change based on FOB offers going home last night.  It could be very interesting to see how lower protein US-HRW stacks up down the road with FSU wheat into Egypt given the US should have copious amounts of that grade with limited homes.  Much of the Algerian and Moroccan business we enjoyed during 16/17 should be pushed back to France/Germany, and Argentina should be able to supply more of the Brazilian business we stole last year.  While some analysts think HRW production could still be revised lower by 20-30mbu, demand seems to be evaporating based on our inability to supply consistent protein content, something which has usually never been a problem for the US.

Export sales due later this morning are expected at 300-500TMT for wheat, 550-950TMT for corn, 250-900TMT for soybeans, 100-250TMT on soymeal and 10-35TMT for soy oil.

 

Bottom Line: Winter wheat contracts are under pressure as the market realizes we went a little too far a little too fast, and the job of the market shouldn’t be to eliminate all export demand for HRW 3-weeks into the new marketing year.  Protein is the big issue in wheat this year, and should continue to support cash premiums until or unless we run into better protein in N-KS.  Forecasts are wet and cool enough to keep the bulls at bay on corn and soybeans, but until we get a little closer to July and get a peek into pollination weather, tough to pressure those markets too much just yet.

 

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.

 

6/20/2017 Morning Comments

Good Morning,

 

Outside Markets as of 5:30am: Dollar Index up 0.005% at 97.5300; S&P’s are up 0.75 at 2448.25; Dow futures are up 12.00 at 21,473.00; 10-yr futures are up 0.01%; Crude Oil is down $0.89 at $43.31; Heating Oil is down $0.0187 at $1.3924; Paris Milling Wheat is up €1.75 at €179.25/MT; Paris Rapeseed is up €0.75 at €367.00/MT; Dalian corn closed down 0.48%, Dalian soybeans finished down 0.54%, Dalian oil closed down 0.81% and Dalian meal closed up 0.04%.

Fairly open Midwest radar this morning as the region enjoys cooler temps before a warm up tomorrow.  Temps will be mainly in the 70’s and low 80’s today before temps in most places rise to the mid-80’s to low-90’s Wednesday.  The southern plains will see temperatures soar to 97-99* in N-TX which will aid in harvest efforts but stress developing row crops.  The forecast for the next 7-days sees rainfall to move into E-IA/N-IL/S-WI and most of MI by the weekend and bring 0.50-2.30” in the localized areas.  Another broad system which encompasses all but the Northern Plains will hit over the weekend, dropping rains of 0.50-1.30” in most of the southern plains and mid-south, while the US-SE sees heavier rains closer to 2.00-3.00”.  Not much rain around for the Northern Plains in the 7-day, and extended maps keep the region below normal for the 6-10 before turning more normal on precip in the 8-14.

 

Firmer markets overnight, led by none other than the wheat market, specifically the Minneapolis variety which is up 2.40% at this writing.  Going into yesterday’s crop progress report, there were two schools of thought: 1) recent rains which fell in the Northern Plains helped revive yield prospects in drought-stricken areas while increasing yield prospects in areas which were in good shape.  2) That HRS crops in tough areas were already too far gone to help at this point and the solid areas of ND weren’t going to be blow off yields large enough to compensate.  The market was actually pricing in a condition bump of 4-5% nationally for the spring wheat crop, but when data came out at 3:00pm, the USDA crop surveyors saw the crop as 4% worse w/w.  This has given the impression the spring wheat balance sheet is still tightening and the market needs to get in front of the rationing process.  Winter wheat contracts are trading higher in sympathy, but also on lighter harvest marketings than expected and on elevators waiting for protein content to increase now that harvest has moved into C-KS.  Corn is clawing back meager gains after losing 5-6c on last weekend’s rainfall and the turn to cooler temps in the forecast.

On the row crop side, the national corn condition rating did not change at 67% G/E, but 2% did move from Good to Excellent, raising the overall condition score.    The 67% G/E compares with 75% G/E last year and is still the lowest for this week in June since 2013.  Conditions were uniformly higher across the corn belt with the only states seeing conditions declines being CO (-10), KS (-4), TX (-2) and PA (-2).  The southern plains are in need of a drink, especially KS where producers have made the comment their corn crops are already rolling to protect themselves from the warm temperatures.  Soybean conditions were up 1pt to 67% G/E vs. 68% expected and 73% G/E last year.  Across the corn belt, MN was down 1pt, and NE down 2pts, but all other Midwest states saw an improvement in conditions.  Soybean planting progress was up 4% to 96% nationally which is ahead of the 93% 5-yr average.  89% of the soybean crop has emerged vs. 84% average.

The real story was once again the spring wheat market which saw conditions fall another 4pts to 41% G/E vs. an expectation for 47-49% G/E and compares with 76% G/E last year.  South Dakota conditions were actually unchanged at 13% G/E, but the western states were the ones posting big declines.  ID was down 11pts to 62% G/E while WA was down 8pts to 67% G/E.  The national spring wheat crop at 41% G/E is the lowest rated for this week in June since 1988 when only 5% of the crop was rated G/E.  For the individual state crop ratings, the WA crop is rated 67% G/E which Is the lowest since 2014’s 24% G/E, but is still better than the 5 and 10-yr averages.  The ID crop at 62% G/E is the lowest since 2012’s 61% G/E, but is well below the 72% and 77% 5 and 10-yr averages.  North Dakota, which comprises 45% of US spring wheat production, has a condition rating of 42% G/E which is the lowest since  1988 when that crop had no wheat rated good or excellent.  15% of the crop is headed which is actually slightly behind the 5-yr average of 17%, but the SD crop is 65% headed vs. 40% average.  The conditions will cause analysts to further ratchet down yield expectations, with sub-40bpa national yields becoming a reality.  This in-turn will keep downward pressure on national production, which is probably headed to or below 400mbu, while carryout could be headed for 100mbu.  The compounding factor of back-to-back low protein HRW crops will keep a bid for cash spring wheat like we haven’t seen in years.

Winter wheat conditions were down 1pt nationally to 49% G/E vs. 61% a year ago.  Conditions were mainly steady across the south with the exception of CO (-7), while most of the decline came from the PNW.  National harvest progress was pegged at 28% complete vs. 17% last week and 25% average.  KS is 22% harvested vs. 25% average with progress expected to take a big jump this week until rain toward the weekend.  Still plenty of low protein reports coming from KS with the central part of the state all the way up to Salina still posting a lot of 9-10% protein content.  Very, very few pockets of 12.0%+ type reports which is more common for the northern areas in an average year.  Farmer marketing across the truck scale has been as high as 60-65% in some areas and as low as 20-25% in others.  On average, still not seeing many locations post an average over 10.0% which puts an incredible amount of pressure on the northern tier of KS and NE to find some protein.  If they don’t, protein spreads will continue to add to their already record scales.

Export inspections were also released yesterday, all of which were supportive to current USDA demand numbers.  Wheat inspections were reported at 27.2mbu which was better than the 18.3mbu needed weekly to hit the USDA export forecast.  Total shipments of 59.8mbu are already up 36.5% from a year ago.  Corn shipments totaled 48.0mbu vs. the 26.7mbu needed weekly to hit the USDA forecast.  Total shipments were reported at 1.835bbu vs. 1.276bbu a year ago.  We’ve shipped 82.4% of the USDA total to-date with 2.5 months left in the marketing year.  Soybean shipments were reported at 10.1mbu vs. the 8.3mbu needed weekly.  Total shipments now stand at 1.906bbu vs. 1.621bbu a year ago.  We have now shipped 92.9% of the USDA’s total objective with plenty of time left in the marketing year.  If we are going to get the level of roll over sales some analysts are claiming (100-150mbu), shipments had basically better stop in the next week or two, otherwise the USDA’s objective not only looks achievable but probably low by 100mbu.

 

Bottom Line: The current row crop debate comes down to early season conditions vs. current beneficial weather and forecasts.  Will poor planting and early season weather hamper ultimate yield potential, or can beneficial weather, if it is in fact received, still allow us to hit top end?  Corn seems to be land-locked between the two-schools of thought, while soybeans are still several weeks away from weather being crucial.  Global wheat production prospects are declining from the US to EU to UKR.  Major exporter balance sheets are getting tighter, and protein/quality could be in high demand again this year.  Add in record tight barley and oat balance sheets and this wheat story looks far from over.  MW has an upside futures target at $6.70 in the crosshairs, and the way it’s been trading doesn’t look all that difficult for even today’s session.

 

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.

6/16/2017 Morning Comments

Good Morning,

 

Outside Markets as of 5:45am: Dollar Index down 0.161% at 97.3080; Euro up 0.206% at 1.11770; S&P’s are up 3.50 at 2437.75; Dow futures are up 23.00 at 21,386.00; 10-yr futures are down 0.04%; Crude Oil is up $0.24 at $44.70; Heating Oil is up $0.0137 at $1.4283; Paris Milling Wheat is up €1.75 at €172.25/MT; Paris Rapeseed is unchanged at €360.75/MT; Dalian corn closed unchanged, Dalian soybeans closed down 0.03%, Dalian soy oil finished up 0.75% and Dalian meal settled up 0.56%.

While much of the attention in commodities lately has been on the heightened volatility in grains, the overall sector has been under a good deal of pressure.  The Bloomberg Commodity Index sank to 80.3000 yesterday, the lowest level since April 16th, 2016.  This is due in large part to a floundering energy sector which has witnessed crude oil trade right down to 7-month lows as concerns mount over the renewed production cuts by OPEC and the consistent increase in US drilling rigs.  The swoon in commodities has also made them cheap against equities once again as the ratio between the S&P 500 and BBCI hit 30.0902 yesterday, the highest value on record going back to November 2006.  Despite the relative “cheapness” of commodities vs. equities, it hasn’t really produced a strong buy reaction from managed funds yet as interest rates continue to rise and commodity fundamentals remain bearish.

Rains across IL and scattered showers across many other corn belt states this morning as the corn belt braces for another round of showers this weekend.  Rains are forecast to fall in E-IA and most of N-IL the next 48-hours which would hopefully fill in the driest areas remaining in the heart of the corn belt.  The map below shows the 30-day percent of normal precip map with some notable deficits cropping up in IA/IL/MO/KS and to a lesser extent MI and IN.  Looking at the 7-day forecasted precip map, most of the hole should be filled in by this time next week, although deficits could persist in S-IL/S-IN as well as grow further in SD/W-ND/E-MT.  Extended maps keep precip below normal in the Northern Plains while the corn belt shifts from above normal to normal by the end of the period.  Temperatures look to remain most normal over the next 15-days with no oppressive heat seen.

 

Friday’s are trend days, and the trend has been mostly higher so firmer markets to close the week is not too much of a surprise.  Ag markets are once again being led by the wheat markets which look poised to close higher for the second week in a row.  For the week, Chicago wheat is up 12.50c, KC is up 19.50c and Minneapolis is up 33.0c.  In fact, Minneapolis looks set to close higher for the fifth week in a row, adding $1.02 since the lows in mid-May.  It is undeniable we have priced in something in the spring wheat market, but the question remains how much the recent rains have helped and how much spring wheat was already too far gone to be helped.  In addition, major production areas in E-MT/W-ND didn’t receive much of any rain the last 7-days and look to remain dry the next seven.  Dangerously low spring wheat carryout estimates are making the rounds which will be exacerbated by the second lower protein HRW crop in a row, heightening the demand for all protein levels of HRS.  Row crops will be focused on the incoming rains for IA/IL this weekend which need to fall to prevent dryness from expanding.  Quality and coverage of the forecasted rains will influence the open Sunday evening.

Export sales released yesterday morning were mostly in-line with estimates although wheat was a bit disappointing at 13.7mbu vs. the 14.8mbu needed weekly to hit the USDA forecast.  Total commitments for the 17/18 marketing year now total 256.5mbu which is up 7% from a year ago.  Corn sales were more than needed at 23.6mbu vs. 12.9mbu required to hit the USDA forecast.  Total commitments now stand at 2.150bbu vs. 1.792bbu at this time a year ago.  We have now sold 96.6% of the USDA’s full year estimate while we have shipped 77.9% with two and half months left in the market year.  Soybean sales totaled 12.5mbu which were well better than the net cancellations of -5.0mbu needed to hit the USDA forecast.  Total commitments are now 2.165bbu vs. the USDA’s full year target of 2.050bbu.  We have now sold 105.6% of the USDA’s target and shipped 93.1%.  Why the USDA chose to leave the 16/17 export estimate for soybeans alone on last week’s WASDE is ludicrous by anyone’s guess.  While many are quick to point out roll over sales could be larger than normal, it begs the question why importers would still be buying old crop slots and why we haven’t seen shipments slow to a pace which would imply exports could fall meaningfully short of the USDA’s total?  Neither has happened, and if the current pace continues, we will fit the USDA’s projections by mid-July.

Wheat cash markets continue to steal the show in the US as demand for protein is moving from a priority to full blown panic.  HRW protein scales on the spot floor were firmer for ORD’s, 11.40-11.80% and 13.0-14.0% pro yesterday.  12.0% protein wheat is now indicated at +168/178N vs. +130/140N a week ago, while 13.0% protein is indicated at +221/231N vs. +180/190N a week ago.  In spring wheat, 13.5’s were a tick weaker but the bid side of 14.0-15.0% were firmer.  14.0% wheat is now indicated at +120/125N vs. +100N a week ago while 15.0% protein is +185/195N vs. +160/175N a week ago.  Domestic markets weren’t the only market firmer, however as TX-Gulf bids for HRW rallied 5-20c on both the bid and offer.  Spot bids were shown at +180/200N vs. +160/170N a week ago.  To see cash values of HRW rally during harvest, and HRS values rally just before harvest as reports of better old crop demand circulate speaks to the larger issue at work in the wheat market.  Obtaining enough protein to meet both domestic and export demand will be a major challenge this year, and is likely to keep protein scales especially wide throughout 17/18.  If producers have protein, offer high.  One last cash market note, there were another 140 warehouse receipts canceled in Duluth last night, leaving 503 outstanding in Duluth and 208 in Minneapolis.  This should keep deliverable stocks coming down into harvest as they are want to do seasonally.

Other data released yesterday included the monthly NOPA crush which beat expectations handily in a reversal of the last several months.  May NOPA member crush was reported at 149.246mbu vs. the average trade estimate of 143.2mbu.  This also compares with 139.1mbu last month but below the 152.3mbu from May 2016.  While the crush number sharply beat average estimates, it still marked the fourth month in a row in which crush fell below the same month from a year ago.  Using a proxy for full US crush, we will need to see 466mbu of soybeans crushed in the US from June-August to meet the USDA’s current marketing year crush estimate.  This would be 18mbu higher than we crushed a year ago, and would reverse four consecutive months in which crush fell below the year ago level.  While the USDA just cut full year crush on the last WASDE report, they could be in jeopardy of needing to cut it once again on the July WASDE.  Soybean oil stocks were 1.749 billion pounds vs. the average trade estimate of 1.745 billion pounds, 1.725 billion last month and 1.994 billion pounds in May 2016.

 

Bottom Line:  Corn could struggle into the weekend as long as the midday models confirm rain in IA/IL tonight and tomorrow.  Still, one rain is not going to take care of the corn belt for good and the Northern Plains look to slip back below normal on precip for the next 15-days.  Plenty of holes left in the percent of normal precip map to throw caution to the wind.  Protein will be a driver in 17/18 once again, which should keep a bid under flat price to a certain extent.  The trend of protein reports in HRW as harvest moves into NC-KS will be important.

 

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.

 

6/14/2017 Morning Comments

Good Morning,

 

Outside Markets as of 5:45am: Dollar Index up 0.031% at 97.0300; Euro down 0.067% at 1.12080; Aussie Dollar up 0.597% at 0.75840; S&P’s are up 1.75 at 2441.75; Dow futures are up 24.00 at 21,346.00; 10-yr futures are up 0.07%; Crude Oil is down $0.48 at $45.97; Heating oil is down $0.0075 at $1.4402; Paris Milling Wheat is up €1.50 at €171.25/MT; Paris Rapeseed is up €0.25 at €359.75/MT; Dalian corn closed up 0.12%, Dalian soybeans closed unchanged, Dalian soy oil finished up 0.03% and Dalian meal settled up 0.75%.

Showers moving across North Dakota, Nebraska, Iowa and eastern Kansas this morning, bringing more relief to areas which have been hurt by drought.  The Northern Plains received additional moisture in the last 24-hours, putting two day totals at over 1.00” across a broad swath of ND/SD/MN.  Localized totals in NE-SD/C-ND/W-MN pushed between 2.50-3.00”.  Unfortunately, the driest areas of W-ND and E-MT did not see much relief and will be dry the next 7-days.  That goes for the larger Northern Plains as well with AM models showing light amounts across the four state region through mid-week next week.  The real focus for the market will be the forecasted rains for IA/IL the next several days. Some rain fell in IA overnight with 0.50-1.00” on about 50% coverage of the state.  Placement of the rains will be key, but if rains fall as forecast, some serious relief will show up for the central corn belt.  The ECB stays well-watered through the 7-day.  Extended maps show normal/below temps for much of the Midwest while precip remains below normal for the Northern Plains, and mostly normal for the corn belt.

 

Spring wheat is the word.  Sharply higher yesterday with closing gains of 27.50c which have been followed by another 15-16c overnight as the larger market wakes up to the conditions Northern Plains producers have been dealing with since mid-May.  While rains have moved through areas of the Northern Plains in the last 24-hours, much of this spring wheat in South Dakota and southern North Dakota is too far along to be helped all that much by rainfall.  Yield potential was determined weeks ago, and at this point rain might help heads fill, but a full revival of yield potential is not possible.  With that said, production estimates are being slashed and carryout levels for 17/18 are pointing toward some dangerously low levels.  The buying taking place at the MGEX is spilling over to winter wheat and helping both contracts trade up toward their upper range caps as the rather large managed fund shorts become uneasy.  Corn is also maintaining an upward bias until rainfall is received in Iowa and Illinois, while soybeans are simply trading in sympathy given the fact weather in June doesn’t determine much on a soybean crop.

While we have been tracking deliverable stocks levels for all of the major grains, most don’t pay any attention to these numbers until a crop issue rears its head.  Enter spring wheat.  Deliverable stocks of hard red spring fell last week by 996,000 bushels to 18.970mbu in both Minneapolis and Duluth.  This compares with 22.593mbu a year ago, and would be the lowest total wheat stocks level since September 19th, 2014.  Stocks got quite low in 2014, dipping all the way down to 9.809mbu in August before new crop supplies replenished warehouses.  The lowest combined MPLS/DUL spring wheat stocks since 2003 occurred in June of 2009 when combined stocks dropped to 2.419mbu.  We are not forecasting anything like that, but simply think it is a good idea to continue to monitor the level of deliverable stocks to get a sense of how reliant commercials will be on drawing down these stocks if production does take a hit and producers become slow sellers.  Also worth noting, another 69 warehouse receipts were canceled out of Minneapolis last night, which should keep the shipments flowing out of Minneapolis well into the summer.

On the winter wheat side, new crop supplies have started to flow into SRW warehouses with MS-River jumping close to 5.0mbu w/w.  Total wheat stocks in SRW warehouses moved from 63.784mbu last week to 69.403mbu this week.  Both compare with 47.788mbu a year ago.  In Kansas, total wheat stocks were tabulated at 96.249mbu vs. 96.449mbu last week and 71.910mbu a year ago.  Harvest has not let loose in a big way in KS just yet, but should make meaningful progress this week.  While deliverable stocks are massive at 96mbu going into harvest, there remain large concerns about the protein content of the HRW crop with more reports of 10.0% protein or less as custom crews move into Kansas.  This has undoubtedly fueled part of the response in Minneapolis as end users recognized the importance of getting 14.0%+ spring wheat to make blends.  MW/W moved to +194.75c overnight while MW/KW is up to +179.75c.  In 2011, we saw MW/W move to +300.00c and MW/KW move to +240.00c, both of which could be in the cards if production prospects continue to decline and HRW protein proves as low as some are fearing.

Inter-markets serve as a good segue to basis appreciation which seems like it is a daily occurrence at both KCBT and MGEX.  KCBT protein premiums improved by 5-15c yesterday for 11.80-14.00%.  12.0% is now indicated at +135/145N vs. +115/125N a week ago, while 13.0% pro is now indicated at +200/210N vs. +170/180N a week ago.  Spring wheat basis also firmed on the spot floor with 14.0% up 50c on the high side to +100/150N while 15.0% pro was up 15c on the high side to +180/195N.  High pro is now up 35c w/w and should see $2.00 plus basis in the near-term.

Analytics firm Informa Economics released their latest acreage estimates for the 2017 yesterday during the session, putting corn up 190,000 acres from the USDA’s March Prospective Plantings report at 89.996 million acres.  This was definitely a surprise to most as the wet conditions in the eastern corn belt seemed sure to drop acres, not add them.  This gets back to the question of what the actual starting point for corn acreage was?  Instead of 89.996 million acres, was it actually 90.5 million, or 91.5 million?  If the USDA raises acres on the June 30th report, the market would definitely take that as a negative.  Other changes included soybean acres down 120,000 to 89.362 million, which was also a meaningful surprise.  Informa sees double crop soybean acreage at 3.925 million which would be the lowest in at least 5-years.  Other spring wheat acreage was seen down 110,000 to 11.198 million which is in-line with anecdotal reports, while durum was unchanged at 2.004 million.  The moving target for wheat acres will be abonnement in the Dakotas as producers are busy haying HRW or might be close to getting wheat released and spraying it out.  Hopefully recent rains revive harvest ideas.

 

Bottom Line: The market’s focus is corn belt rains in IA and IL with both placement and amount very important.  In wheat, we continue to be observers of the spring wheat party with the big concern being the dry pattern forecast for the next 15-days after the recent rains.  In areas which weren’t fortunate enough to get a drink in the last 48-hours, production prospects could be all but done.  Add in the inelastic nature of spring wheat demand on top of another low protein HRW crop and the stage is set for 2017/18.  The all-important June 30th reports are just 13 trading sessions away, and producers would do well to take stock of growing conditions and on-farm grain levels.  Even in years of short crops, the market usually tries to price things in early with July turning decidedly negative from a seasonal standpoint.  Don’t get lulled to sleep by the constant stream of weather maps.

 

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.

 

6/13/2017 Morning Comments

Good Morning,

 

Outside Markets as of 5:45am: Dollar Index down 0.0873% at 97.0730; Euro down 0.031% at 1.12090; Canadian Dollar is up 0.520% at 0.75445; British Pound is up 0.513% at 1.2726; S&P’s are up 4.25 at 2432.75; Dow futures are up 23.00 at 21,249.00; 10-yr futures are down 0.07%; Crude Oil is up $0.20 at $46.28; Heating Oil is up $0.0027 at  $1.4279; Paris Milling Wheat is up €1.50 at €169.75/MT; Paris Rapeseed is unchanged at €359.25/MT; Dalian corn closed unchanged, Dalian soybeans were down 0.20%, Dalian soy oil closed up 0.10% and Dalian meal closed down 0.86%.

Today marks the beginning of the two-day FOMC meeting which is expected to culminate with another 25bp hike at the conclusion tomorrow.  Markets are currently discounting a 100% chance of a 25bp hike, which would mark the second increase in their benchmark lending rate this year.  Since another rate hike is all but a sure thing, the market will be focusing on expectations for additional rate hikes yet this year via the ‘dot plot.’  The Federal Funds futures market is currently discounting another 25bp hike by September at 34% while markets see a 62% chance they increase rates by December.  The current dot-plot sees three rate hikes per year during 2017, 2018 and 2019 which would bring the fed funds rate to 3.00% by the end of 2019 compared with 0.00-0.25% for much of the last 7-8 years.

Beneficial rainfall moved through the Northern Plains last night and is continuing to bring moderate to heavy rains still this morning to some of the driest areas of the Northern Plains.  While radar returns have been suspect the last couple weeks in the Northern Plains, radar returns this morning currently show a broad 0.75-1.00” falling across the western half of SD with totals increasing yet this morning toward the north east part of the state.  SC-ND also saw 1.0” amounts with the eastern part of the state picking up additional rainfall this morning.  S-MN also saw rains just above the IA border.  These rains were absolutely critical for South Dakota, as some spots in the northern half of the state had only seen 1.0-2.0” over the last month.  The same would be true for W-ND.  Rains will continue in the Northern Plains the next 24-hours bringing heavy rains to N-MN.  Rainfall will also firing up the balance of the week in the corn belt where they are badly needed.  Current 7-day forecasted precip models are showing a very broad 1.00-2.50” for everything east of NE.  Extended maps keep the Northern Plains in below normal precip for the next 15-days, however.

 

Firmer markets overnight led by none other than spring wheat as the decimation to weekly condition ratings seemed to finally wake market participants up to the problem in the Northern Plains.  Conditions for corn and soybeans were also a bit lower than expected, especially in the WCB and Northern Plains, helping to lift row crops overnight.  This space has been talking about the potentially tight hard red spring balance sheet for months now, with or without a production issue.  Fast-forward to today with the conditions experienced the last 30-45 days, and production is expected to take a meaningful hit in the Dakotas at the very least.  Over the weekend, Twitter shared pictures of producers haying their spring wheat crop in C-SD which followed a lot of HRW which found its way into a bale.  Condition reports from North Dakota don’t differ all that much, except for the fact the crop is anywhere from 2-4 weeks behind the South Dakota crop.  Still, anecdotal reports of spring wheat heading out this week as far north as Minot seemed to call into question how much benefit additional rainfall could provide.  Row crops in the Northern Plains still have a lot of potential with the rain received the last 24-hours.

The national corn condition rating fell 1pt to 67% G/E which was in line with expectations but down from 75% G/E last year.  The drop actually looked light based on some of the sharp declines witnessed, especially in South Dakota which fell 17pts to 45% G/E, North Dakota was down 9pts to 58% G/E, IL down 1pt to 58% G/E and IN was down 2pts to 44% G/E.  For South Dakota, the condition rating of 45% G/E is the lowest for week #23 since 1992.  North Dakota at 58% G/E would be the lowest for this week since 2002.  Both should see improvement on next week’s report.  The national condition rating for this week is the lowest since 2013 and the second lowest since 2002.  Worth noting, while the G/E rating fell 1pt, the P/VP rating climbed 2pts nationally.  Soybean conditions came in ranked 66% G/E vs. 69% G/E expected and 74% G/E last year.  This was the lowest initial rating since 2013 and the second lowest since 2008, but it’s difficult to be too steadfast with an opinion about soybeans in early June as not much can be gleaned this early.  Still 8% of the soybean crop to be planted, while 77% of the crop is emerged vs. 73% average.  Another reason to be patient with the soybean condition rating.

The real story was the national spring wheat condition rating which fell an astounding 10pts to 45% G/E vs. 53% G/E expected, although anyone who didn’t see another sharp decline coming doesn’t know what has been happening in the Northern Plains.  Declines were led by MT which saw its G/E rating fall 25pts to 23% G/E followed by SD down another 12pts to 13% G/E while ND fell 9pts to 43% G/E.  The national spring wheat condition rating of 45% G/E is currently the lowest rated crop since 1988, although when the F/P/VP is accounted for it is the lowest rated since 1992.  However, individual states like South Dakota at 13% is the lowest on record, while MT at 23% G/E is the lowest since 1997 and North Dakota at 43% G/E is the lowest since 1988.  Surprising the trade was the crop rating from MN at 93% G/E which was down 2pts on the week but remains the highest rated crop on record.  Were it not for the exceptionally strong rating in MN, the national HRS rating would look quite a bit worse.  The question now becomes what the recent rains have done for the Dakotas, and whether this will change any producer attitudes toward abandoning their wheat, harvesting their wheat or putting it up for hay.

Winter wheat conditions improved 1pt to 50% G/E which compares with 61% G/E last year thanks to some sharp increases in SRW ratings along the MS-River.  Given the advanced state of the crop, this is likely due to better than expected yields being reaped in those states.  HRW conditions declined by 1pt in NE and 9pts in SD, while SRW conditions declined 2pts in IN and 7pts in MI.  National harvest progress was pegged at 17% complete vs. 10% last week and 15% average.  Very little progress has yet been made in KS which is only 4% harvested vs. 13% average.  TX and OK are flying through their crop, however, at 72% and 52% complete, respectively.  Given the large amount of HRW put up for hay and simply sprayed out in South Dakota, HRW abandonment could be especially high this year which will need to be factored into national production estimates.

The reports of low protein HRW in the south and concerns over shortened HRS production in the north has not been lost on the cash market.  Both the KCBT and MGEX spot floors have been rallying over the last 7-10 days with KC seeing 12.0% pro now worth +130/140N vs. +100/110N a week ago and +110/120N a month ago.  13.0% protein is now indicated at +190/200N vs. +145/155N a week ago and +150/160N a month ago.  This despite the fact harvest is expanding across the southern plains and should be pressuring cash markets.  On the MGEX spot floor 14.0% was bid +100N last night vs. +85/105N a week ago while 15.0% pro was indicated at +180/190N vs. +150/175N a week ago.  Duluth still has a lot of high quality wheat available to the market, but if production is as low as what some estimates suggest, those stocks will be drawn down precipitously over the next 3-4 months.  As has been the trend over the last 2-3 years, the world is having no problem producing wheat, but raising high quality, high protein wheat has been quite the challenge.  Producers with high protein wheat of any variety look to be in the driver seat once again this year.

While old news today, the Commitment of Traders data released Friday had several noteworthy statistics.  These included the managed fund net short position across the entire soy complex moving to a new record of -219,066 contracts.  This beat the previous record from last week by 20,000 contracts, and is 70,000 contracts larger than the prior record from March 2016.  While the large crops which seem to keep getting larger in South America are a major bearish overhang, one has to remain a bit cautious about selling the soy complex into the ground ahead of the major developmental weather to come next month.  If the record corn short showed us anything, it is the managed funds can get a bit far out over their own skis.  Speaking of corn, managed funds bought 53,115 contracts to reign in their net short position to -171,456 contracts.  Small changes were recorded in the winter wheat crops to leave the managed fund short in Chicago at -139,732 contracts.  In Minneapolis, funds bought 4,510 contracts to put their net long at 9,486 contracts which is still well below the 16,717 contracts they wielded in January or the 18,000+ contracts held in 2010.  Funds likely own more spring wheat than indicated above, but with a market of only 70,000 contracts, one has to be wary of a quick flip of the position.  Funds currently account for 12.3% of total open interest which is far smaller than the 28-30% recorded in 2007 and 2010.

 

Bottom Line: The market appears to be woken up by the weekly crop progress report which showed declining conditions across major wheat and corn producing states.  It is imperative the weather turn solidly beneficial to reverse the trend in these ratings heading into the June 30th acreage reports.  Both spring wheat and corn could see further acreage declines based on the season to date which would put even more upside pressure on price.  Otherwise we are still living model run to model run waiting for moisture to cover the entire belt.

 

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.

 

6/8/2017 Morning Comments

Good Morning,

 

Outside Markets as of 6:15am: Dollar Index up 0.201% at 96.8880; Euro down 0.182% at 1.12400; S&P’s are up 4.25 at 2436.25; Dow futures are up 38.00 at 21,202.00; 10-yr futures are down 0.16%; Crude oil is down $0.04 at $45.69; Heating Oil is up $0.0065 at $1.4227; Paris Milling Wheat is up €1.00 at €169.50/MT; Paris Rapeseed is up €2.75 at €360.25/MT; Dalian corn closed down 0.06%, Dalian soybeans finished up 0.18%, Dalian soy oil down 0.31% and Dalian meal up 0.41%.

The collapse in crude oil has weighed on the entire commodity sector this week as the most heavily traded commodity is working on its seventh lower close in the last eight sessions and ninth lower close in the last 11 sessions.  Spot month crude oil has traded below the 50/100/200-day moving averages and right back down to the early-May support levels.  Weighing on crude oil this week was a surprise build in crude oil stockpiles, the first weekly increase in supplies nine weeks.  US crude oil stock piles rose 3.30 million bbls to 513.21 million bbls, which compares with 501.84 million bbls a year ago and 432.85 million bbls on the 3-yr average.  The S&P 500 divided by the Bloomberg Commodity Index is back up to 29.6981 this morning, just below recent highs of 29.7069 on 6/5 as commodities continue to be priced especially cheap relative to equities.

A few stray showers in the southern plains, otherwise quiet in the Midwest.  Precip models this morning have taken on a drier tone for the heart of the corn belt this morning, likely leading to the price strength overnight.  The first meaningful precip chance for IA doesn’t come until late week next week, while IL sees only light chances of rain the next 7-days. This will of course follow a blast of heat and breezy conditions moving into the WCB and Northern Plains this weekend.  Northern North Dakota has some chances of rain Friday into Saturday, followed by decent chances in E-MT/SW-ND this weekend.  SD sees no meaningful relief over the next 7-days.  Extended maps show a slow cooling trend for the Northern Plains which will be welcome relief, while precip remains normal/below for the Plains.  The ECB looks to remain in above normal precip territory.

 

Stronger markets overnight once again, led by corn and KC wheat as models turn a bit drier this morning for the central/western corn belt as well as Northern Plains next week.  The two-week percent of normal precip map shows large deficits across ND/SD/MN/NE/IA/N-MO/WI/IL while the 30-day percent of normal precip maps don’t look quiet as dire for NE/S-MN/WI.   However, if current precip models verify for the next week, NE/IA/IL/SD will see deficits grow further while ND/MN/WI/MO might see conditions improve.  Net/net, you still have the top three corn producing states off to a drier than normal start in a year in which the market is counting on near record yields.  The corn market responded in a big way yesterday to the slipping potential by posting the largest trading volume on record at 1,068,894 contracts which also saw open interest rise 26,450 contracts.  This is significant considering as of 5/30, managed funds were net short -224,571 contracts.  That means the buying was not coming solely from managed funds covering short positions, but rather people initiating fresh positions.  Farm gate movement has increased significantly on the rally, which will be discussed below.  Other open interest changes of note included Chicago wheat down 15,113 contracts on short-covering, KC Wheat down 2,000 contracts, soybeans were down 7,155 contracts, soymeal was down 6,686 contracts and soy oil was down 7,039 contracts.  MGEX volume and O/I was not available at writing.

As noted above, corn basis and spreads have been under pressure on the rally which isn’t totally surprising considering the large amount of old crop still left on farm and at the elevator.  Regardless of what the 17/18 crop size eventually is, there is still plenty of old crop to go around.  PNW corn bids went home last night at +48/50N vs. +68N a week ago and +74N a month ago.  The drop hasn’t been tied to BNSF rail freight as bids for spot cars were around tariff to -$50/car discount a month ago and are trading right around those levels this week as well.  CIF bids were indicated around +21/23N for spot barges vs. +27/31N a week ago and +33/35N a month ago.  Until yesterday, corn spreads had been trending weaker with the CN/CU hitting -8.50c yesterday, a new contract low, before rallying along with flat price to close at -7.50c.  The CU/CZ is also off its lows of -11.0c to trade -9.75c this morning.  Another spread getting a lot of interest as of late has been the CZ17/CZ18 which can be a good indicator of crop size early on.  That spread is trading -11.0c overnight after printing -20.50c in mid-May.  In major drought years, it is not unheard of to see Z/Z spreads trade to par, or even invert.  However, do not think we are anywhere near that kind of environment, even if managed fund short-covering might take this spread further in the near-term.  We still look to carryout 1.8-2.0bbu of corn at the end of August, with similar projections for next year until the USDA starts confirming a loss of yield potential.

Data yesterday included weekly ethanol production which took a notable slip to 999,000bbls/day, down 21,000bbls/day on the week and posting the first y/y decline in production since July of 2016.  Weekly ethanol production had been running 5-6% stronger than the same week in 2016 for much of the calendar year, leading to strong ideas the USDA would increase their ethanol demand for corn estimate by 50mbu+ on tomorrow’s WASDE report.  An increase is still very much warranted, but the market will be interested to see if this one week set back portends a new trend.  Ethanol stocks saw a sizable drop of 781,000bbls to 21.982 million bbls, the largest decline in two months.  Stocks remain at rather comfortable levels, especially as it seems the strong ethanol export program has slowed slightly.  Sugar prices are trading near the lowest levels since February of 2016 which will change the calculation for Brazilian sugar and ethanol producers.  Brazil was one of the largest two markets for ethanol exports in 2016, so any change to their operating environment will hold sway.

Lots of focus on tomorrow’s WASDE report given the rally this week, although meaningful changes to the 17/18 balance sheet are likely to be minimal.  The USDA has only adjusted yields on the June report a handful of times on the June WASDE, and usually only in the case of extreme weather.  While dryness has been increasing the last week, not sure it would have made it on this report.  Acreage changes should also not be included in this report given they are surveying for the June 30th acreage report right now.  Therefore, we will be relegated to old crop demand changes in corn and soybeans, while the winter wheat estimate is likely to see a few tweaks.  Of most interest to the trade will be the old crop corn ethanol and export numbers, which could both see an increase, as well as old crop soybean exports and crush.  In the case of soybeans, exports will see an increase, but it could be totally offset by the reduction in crush.  Global production changes should see another small increase to Argentine and Brazilian corn and soybean crops with the latter seeing private estimates on corn rise to 100MMT+ vs. USDA last at 96.0MMT.  With the currency influence accounted for, South American producers are seeing especially attractive corn prices thanks to the rally and should keep SAM FOB offers dirt cheap well into 2018.  South America is not set up to store meaningful amounts of maize like the US farmer so we should expect the excess to move into exportable position.

 

Bottom Line: We are officially into the silly season and now that IA is turning a bit dry the market is paying close attention.  Everyone was well aware of the second largest grain and oilseed short position heading into this week except for the people who held the position themselves.  If meaningful short-covering is going to continue, prices can be carried much higher in the near-term.  The market is likely to brush off tomorrow’s WASDE rather quickly and return to trading the latest weather models.  We are finally back to meaningful Sunday night weather trade.

 

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.

 

6/7/2017 Morning Comments

Good Morning,

 

Outside Markets as of 6:15am: Dollar Index up 0.433% at 96.9430; Euro down 0.545% at 1.12145; Swedish Krone is down 0.667%; Aussie Dollar is up 0.559%; S&P’s are up 0.25 at 2431.00; Dow futures are down 3.00 at 21,153.00; 10-yr futures are down 0.05%; Crude Oil is down $0.33 at $47.86; Heating Oil is down $0.0052 at $1.4610; Paris Milling Wheat is up €0.75 at €167.50/MT; Paris Rapeseed is up €2.25 at €357.25/MT; Dalian corn closed up 0.24% at 1638.00, Dalian soybeans up 0.16%, Dalian soy oil finished up 0.46% and Dalian meal closed up 0.60%.

Scattered showers along the MN/ND border, otherwise fairly quiet across the Midwest this morning.  MN will see light showers the next 24-hours, with some on-again/off-again showers in the WCB/Great Lakes towards the weekend.  In the Northern Plains, the rains forecast for this weekend and early next week will be of great interest as all-told, ND/MT/N-MN look to pick up some decent rains.  The northern half of ND could see totals in the 0.50-2.00” range, with similar totals in N-MT/N-MN.  SD looks to get largely missed during the next 7-days, which will worsen conditions there as temperatures heat up this weekend.  High Temps Friday and Saturday in SD and ND will be in the low 90’s to low 100’s.  Extended maps keep temps normal/above with rains moving to above normal for the corn belt and especially ECB in the 6-15 day period.

 

The story yesterday was definitely the surge in Minneapolis spring wheat brought on by the worse than expected condition report Monday afternoon.  The diminutive market saw a surge in volume and a slight increase in open interest yesterday with volume rising to 22,742 contracts, the highest since January 17th.  Row crops rallied in sympathy with the spring wheat market, and also on ideas conditions in the WCB/Northern Plains could start slipping for corn if moisture deficits persist.  Corn broke out of its 3-month trading range yesterday, rallying to $3.7975 yesterday and $3.8050 overnight for front-month.  Volume was fairly well restrained, but open interest in corn rose 15,176 contracts despite the fact managed funds are carrying large net shorts.  December corn is once again knocking on the $4.00-handle, trading to $3.99 overnight.  There should be a decent round of farmer selling by producers south and east of the Northern Plains at the $4.00-4.04 level which are the 12-month highs.   Soybeans rallied, but remained below near-term resistance at the April lows around $9.30-9.35.  The soy complex should continue to be the weak-leg in the Ag room.

The condition ratings for the spring wheat crop on Monday afternoon woke a lot of people in the trade up to what most in the HRS trade have known for months: the US didn’t need a major production issue to have a fairly tight HRS balance sheet in 2017/18.  Fast-forward 2-3 months and no we are faced with a meaningful production hit in arguably the most price-inelastic market of the major commodities.  At current, Halo is using 10.2 million harvested acres, down 200,000 from last year on slightly larger abandonment as well as slightly smaller planted acres on the June 30th report.  With a 5-year average yield of 45.0bpa, the US sees production of 459mbu vs. 493mbu last year.  With domestic demand of 304mbu vs. 275mbu last year, and exports of 250mbu vs. 310mbu last year, ending stocks come out at 172mbu vs. 217mbu a year ago.  Now, if yield is dropped to 43.0bpa which is only slightly below the 10-yr average of 43.9bpa, production drops to 438.6mbu and ending stocks drop to 151.6mbu with a stocks/use of 27.36%.  The lowest national HRS yields in the past 10-yrs were 2011/12 at 37.7bpa and 2007/08 at 37.1bpa.  If the national yield slips to 40.0bpa, ending stocks fall to 121mbu and a stocks/use ratio of 21.84% which would easily be the tightest since 2007/08’s 12.43%.

The real moving target could be harvested acres as producers in South Dakota are already getting their HRW released and either spraying it out or haying it.  If spring wheat begins to shoot heads in the next 7-10 days with the wheat only being knee high, producers there would likely spray that wheat out and opt to take their insurance check and conserve moisture.  There is still a lot of time for spring wheat in North Dakota and Montana to catch rain and realize trend-type yields, but time is running away from wheat in South Dakota quickly.  As noted above, with demand so inelastic on spring wheat given few suitable alternatives for Dark Northern Spring, moves can be exaggerated in basis, spreads and flat price.  The key will be realizing the potential rains this weekend and early next week in the northern tier of the spring wheat belt, as well as rains in Canada which has watched its southern belt turn dry over the last two months.  The percent of normal precip for the Canadian Prairies is shown below.

Sticking with spring wheat for a moment, the weekly deliverable stocks report showed a draw in total wheat stocks of 39,000 bushels last week to 19.966mbu, the first time below 20.0mbu for both Duluth and Minneapolis since September 19th, 2014.  The total also compares with 21.274mbu a year ago.  Still lots of good quality wheat socked away in Duluth for the market to grind through in coming months, which should alleviate any near-term tightness being imposed by the futures market.  If the production hit takes place as it looks like it may, the real tightness in the spring wheat market wouldn’t likely develop until very late in Q4-2017 or Q1-2018, unless the market does its job of rationing demand.  Basis on the spot floor yesterday was firmer with 14.0-15.0% up by 10-25c as 14.0% is now seen at +110N and 15.0% at +160/175N.  High-pro on the KC spot floor was also sharply firmer yesterday as 12.0-14.0% was up 10-25c with 12.0’s at +115/125N vs. +100/110N a week ago while 13.0’s are now +170/180N vs. +145/155N a week ago.  2017/18 is definitely shaping up to be a year in which protein will be at a major premium for any producers who have it.

Domestic end user margins compiled by RJ O’Brien were also released last night showing mixed margins for those who count corn among their major inputs.  Gross ethanol margins were estimated at $0.70/gln vs. $0.66/gln last week and $0.81/gln last week.  US Broiler crush margins continue to surge, jumping to 98.14c/lb vs. 96.18c/lb last week and 77.58c/lb a year ago.  These are easily the highest margins in at least the last four years.  Hog crush margins were softer this week at $70.31/hd vs. $97.83/hd last week and $72.66/hd last year.  Cattle crush margins were seen at $118.22/hd vs. $133.44/hd last week and $138.88/hd last year.  C-IL cash soybean crush margins were pegged at $0.80/bu vs. $0.82/bu last week and $1.44/bu a year ago.

 

Bottom Line: Corn finally producer the breakout many had been waiting for, and has potentially put thousands of managed funds shorts underwater.  Wheat markets are also testing the resolve of the large managed fund short position with spring wheat trading to near two-year highs, while winter wheat contracts push toward the upper-end of recent ranges.  Amassing the second largest net short position across all of the major grain contracts as we enter a new growing season is always a risky proposition.  The next couple of weeks could test fund confidence in that position.

 

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.

 

Good Morning,

 

 

Outside Markets as of 5:55am: Dollar Index down 0.0830% at 96.7190; Euro down 0.058% at 1.12580; S&P’s are down 4.50 at 2430.00; Dow futures are down 34.00 at 21,142.00; 10-yr futures are up 0.20%; Crude Oil is up $0.01 at $47.41; Heating Oil is up $0.0001 at $1.4594; Paris Milling Wheat is up €1.00 at €166.25/MT; Paris Rapeseed is up €1.25 at €354.25/MT; Dalian corn closed down 0.12%, Dalian soybeans closed up 0.58%, Dalian soy oil finished up 0.32% and Dalian soymeal closed down 0.11%.

The USD hit fresh lows for the move yesterday at 96.6970, the lowest print since the election night lows on November 9th.  Analysts suggest the pressure on the Dollar is due to investors being less optimistic about the US economy as the current Administration seems unlikely to get any of their ambitious growth agenda passed.  While the market is still convinced the Federal Reserve will raise interest rates at next week’s policy meeting, without the pro-growth agenda from Trump in place, the Fed won’t be able to raise interest rates beyond 2.00%.  Despite the weaker dollar, which is usually bullish commodities, the Bloomberg Commodity Index has failed to rally and is actually trading at the lowest level since May 9th.

A system is working across parts of SD and NE this morning, otherwise the Midwest and corn belt are quiet.  The rain in SD doesn’t have a lot of moisture with it, bringing little to no relief to drought stricken areas there.  The Northern Plains sees only stray chances of moisture the rest of this week and into early next week, although N-MN could see better rains by the weekend.  The western and central corn belt will also be dry the next 7-days which is welcome news to isolated areas in the central belt, but areas west of the MS-River need rain. Over the last two weeks, rainfall has been well below average for IA/NE/SD/ND/MN/WI/IL which will need to be rectified soon.  Extended temperatures show above normal temps during the 6-15 day outlook, while precip remains normal/below in the west and normal/above in the east.

 

Firmer markets this morning, led by the wheat markets and specifically spring wheat as the traders finally wake up to the tough growing conditions being faced in the Northern Plains.  Last night’s crop progress report was a real mixed bag with better than expected conditions in corn, but much worse conditions in spring wheat than analysts were expecting.  Soybeans are also clawing back a bit of premium this morning as demand remains stronger than expected with exporters still shipping old crop cargoes as well as the fact managed funds hold a record net short across the soy complex.  Prices are being held in check, however, as almost everyone believes soybean acres will be larger than the USDA forecasted on March 31st.  Farm gate selling is expected to slow as farmers wait for crops to progress through key growth stages before committing additional old and new crop bushels.

The weekly crop progress report showed the national corn condition rating improving by 3pts to 68% G/E vs. 67% expected, 65% last week and 75% G/E last year.  Big gains were noted in MN/IA/WI/IL/MO/KS/CO while larger than expected declines were noted in SD and MI.  In fact, the South Dakota corn rating of 62% G/E is the lowest for this week in June since 2009 and the second lowest since 2002.  IL conditions improved by 7pts to 59% G/E which compares with 76% G/E last year and is the lowest rating for the state since 2013.  Still, heat is what was needed in the central belt, and they are getting that, so it will be a battle of declining conditions in the west vs. improvement in the east.  The entire WCB needs rain to maintain conditions.  Corn emergence was viewed as 86% complete vs. 73% last week and 87% average.  Still a fair amount of corn left o emerge in WI (68% complete) and MI (66% complete).  Soybean planting was listed as 83% complete vs. 67% last week and 79% average.  WI/IN/OH/MI/MO all still have at least 25-29% of the their crop left to plant.  Soybean emergence was pegged at 58% complete vs. 37% last week and 59% average.

While most analysts were focused on the corn condition rating, the spring wheat conditions might have stolen the show.  The national spring wheat rating was put at 55% G/E vs. 62% last week, expectations for 61% and 79% G/E last year.  Conditions fell by double digits in both South and North Dakota which came as no surprise to producers in those states as drought conditions wreak havoc on young crop.  Were it not for MN, the national rating would be in even worse shape.  The 55% G/E rating for the US is the lowest for this week since 55% in 2002, and tied for the lowest since 1988.  For individual states, the 25% G/E posted by South Dakota is the lowest spring wheat condition rating on record, lower even than the major drought years in 2006, 2002 and 1988.  Producers have been spraying out HRW and baling it for hay for the better part of a week now, but if the spring wheat continues to stall out and go backwards the way it is, some of that wheat won’t even get to throw a head before dying.  The North Dakota rating of 52% G/E is the lowest since 2008 and the second lowest since 1988.  MT at 48% G/E is the lowest since 2002, while MN at 95% G/E remains the highest rated spring wheat crop for the state on record.  Have to believe conditions start to slip materially in MN next week if they don’t receive rain as conditions there have been on a drying trend for the last 2-3 weeks.  Early season ratings and final yields still have low correlation at this juncture, but irreparable harm is being done to the southern  HRS belt, so difficult not to have a lower bias on yields already.

Winter wheat conditions fell by 1pt to 49% G/E with declines mostly seen in the HRW belt with the exception of TX which saw its rating up 5pts to 36% G/E.  Rating increases this late in the season usually mean yields are better than expected.  Continuing the theme, South Dakota saw its winter wheat condition score fall by 21pts to 29% G/E.  SRW conditions mainly improved.  Winter wheat harvest nationally was pegged at 10% complete vs. 7% average.  KS has not yet started harvest while OK was 25% complete and TX was 58% complete.  Quality reports continue to be a mixed bag in the southern plains with protein slightly below average, as expected, while test weight and defects are around normal.  Winter wheat heading progress is estimated at 87% complete vs. 80% last week and 85% average.  All of the HRW states are well ahead of average with 78% of the SD HRW crop headed vs. 47% average.

Jumping from the crop progress report to the Commitments of Traders Data from last Friday, think it worth pointing out a few nuggets.  As mentioned above, the managed fund community have moved to a new record net short position across the soy complex with -191,934 combined net shorts.  This is 40,000 contracts larger than the previous record net short position from the spring of 2016.  Contrasting that would be the gross commercial long position in soybeans which rose to 372,573 contracts which is around 40,000 contracts below the record high from mid-April.  Also worth noting is the aggregate short position across C,S,W,MW,KW,SM,BO which rose to -561,978 contracts last week which is the second largest net short on record.  The record net short was -607,455 contracts from the spring of 2016 which emphasizes just how bearish funds are toward the grain and oilseed space.  Considering we are still in the early stages of the North American growing season, would have to believe these positions remain at risk for a serious bout of short-covering on the first signs of inclement weather.  Producers in the Northern Plains would posit the inclement weather is already here.

Has been a fair amount to talk about with calendar spreads as of late with corn spreads trending weaker despite up-trending flat price.  The CN/CU hit -8.25c yesterday and overnight which would be a new contract low while the CU/CZ is around 0.50c off its lows.  Basis has been mixed to weaker as farmers remain engaged sellers at $3.75+ basis July futures.  Cash market sources suggest $3.80CN buys even more corn as there is still plenty left on farm to move.  Spring wheat spreads, however, agree with the higher futures prices as MWU/MWZ and MWZ/MWH both hit new contract highs overnight with the former inverted by +1.50c.  The front-month MWN/MWU at -2.25c is the highest since mid-February, but the story in spring wheat is not on the front-end of the curve.  Duluth still has a large amount of high quality/protein wheat in deliverable position which will help limp us along for quite a while.  The story in spring wheat, if there eventually is one, will develop December/March forward.  In years of tight spring wheat/comfy winter wheat balance sheets, it wasn’t unusual to see spring wheat maintain a $2.00-3.00 premium over KC and Chicago.

 

Bottom Line: The Northern Plains are in dire need of moisture, and the WCB is about another week away from producers there really getting excited about how dry it’s been since planting.  While there is plenty of good corn out there, there are lots of problem areas for June 6th, and very difficult to argue the USDA’s 170.7bpa national trend line yield doesn’t have a downward bias.  Producers should be wary about lumping soybeans into the bullish discussion with wheat and corn, however, as acres are likely higher and lots weeks away from key development weather.

 

Good Luck Today.

Tregg Cronin

Market Analyst

Tregg.Cronin@halocommodities.com

www.halocommodities.com

@5thWave_tcronin

 

 

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

6/2/2017 Morning Comments

Good Morning,

 

 

Outside Markets as of 6:15am: Dollar Index up 0.034% at 97.2350; Euro unchanged at 1.12235; S&P’s are up 6.50 at 2436.00; Dow futures are up 82.00 at 21,214.00; 10-yr futures are up 0.04%; Crude Oil is down $1.18 at $47.19; Heating Oil is down $0.0258 at $1.4759; Paris Milling Wheat is up €0.50 at €166.50/MT; Paris Rapeseed is down €0.75 at €352.00/MT; Dalian corn closed up 0.80%, Dalian soybeans up 0.67%, Dalian soy oil up 0.25% and Dalian meal settled up 0.27%.

Crude oil finds itself under pressure once again this morning as investors move back to worrying about global production after President Donald Trump signaled he would pull the United States out of the Paris Climate Accord.  Crude oil is now firmly below the 50/100/200-day moving averages with next support eyed at the May 5th stab lows at $43.76.  Even a continued draw in US crude oil supplies wasn’t enough to stem the tide, although despite the decline, US stockpiles remain gigantic.  The weekly report from the EIA showed crude oil stocks in the US down 6.43 million bbls vs. the 2.50 million bbl draw the market was looking for.  Total stocks are now 509.91 million bbls compared with 504.21 million a year ago and 436.91 million bbls on the 3-yr average.

No organized systems on the Midwest radar this morning.  Temperatures will heat up today in the Northern Plains and WCB today with the Dakotas watching high temps into the low 90’s, exacerbating dry conditions there.  There is a chance for moisture later this evening on a line from W-NE to NW-ND which would be badly needed.  Otherwise the Midwest will be fairly quiet the next 7-days, although some passing showers will occur on and off through next Friday.  The southern plains will remain active the next week as harvest is either just getting going in OK/KS or just wrapping up in TX.  Either way, dry weather doesn’t look to be on tap.  Central and eastern Midwest will be mainly dry the next 7-days which will be welcome.  Features in the extended maps would be normal to below normal precip for the Northern Plains with normal to above temps.

 

Quietly mixed markets overnight as market try to digest the two-sided trade yesterday and what might be in store the next couple weeks.  Price action yesterday was quite interesting as Chicago wheat traded as much as 9c lower at one point to only close 0.25c lower at settlement.  This was accompanied by a surge in open interest to the tune of 14,727 contracts suggesting a lot of piling in on the short-side was done when prices were trading lower.  With the wheat market closing almost unchanged, it would imply many of these late-comers are now under water, especially as open interest is now at the highest level since April 26th.  The average price from the 5/2 high and the 5/16 low is $4.40 with open interest up 45,082 contracts over that time frame.  Be watchful if price can manage strength up to $4.40.  Corn open interest was also up by 5,681 contracts as prices traded a range of 6.0c but closed just 1.75c lower. Soybean open interest was up 10,554 contracts as price fell 3.75c, but failed to make new lows for the move.  Soybean open interest is up 52,381 contracts since the May 17th highs, which is no surprise based on the recent COT data.

Another day, another new high in Minneapolis wheat futures and inter-market spreads.  Spot month futures at the Minneapolis Grain Exchange pushed to $5.7950 yesterday, the highest print since January 19th with the $5.90 blow off top from 1/17 in the crosshairs.  Spring wheat continues to try to price in the potential drought and hit to production across the Northern Plains which is getting dire with each passing day.  The current dryness is affecting about every square inch of the hard red spring wheat belt, a commodity which didn’t need a production hit to see its balance sheet tighten this year.  With a conservative production estimate of 460mbu vs. 493mbu this past season, it is not difficult to get ending stocks down to 150-160mbu.  This would be 26-29% stocks/use which would easily be the lowest since 2007/08.  Let’s be clear, however, the 460mbu does not have a meaningful production hit included with it but is rather just accounting for lower acreage which could drop further on the June 30th report.  If the Northern Plains remains in full-blown drought, and yields slip materially below trend, the HRS balance sheet could incredibly tight.  This is supporting Minneapolis over Kansas City and Chicago wheat futures with inter-market spreads hitting contract highs every day this week.  Spot month MW/W is trading at $1.48 this morning, but in 2013 and 2011, the last time the HRS balance sheet slipped below 30% stocks/use, we saw that spread go to $1.60 and $3.00, respectively.  While 2007/08 is an extreme outlier, that year saw MW/W trade to $10.00.  Bottom line is MW has room to put more premium on over KW and W if production slips further, and considering the questionable protein and quality aspects of this year’s winter wheat crop.

Data out yesterday included weekly ethanol production which saw a decent rise in production of 10,000bbls/day to 1.020 million bbls/day.  This was 6.3% above production from a year ago, which continues to run at a much stronger pace than needed to achieve the USDA’s latest marketing year objective for ethanol production.  It looks like a foregone conclusion the USDA will be raising their demand estimate by 50mbu to 5.500bbu on next week’s WASDE, although even that increase might not be enough if production continues to post similar y/y gains as we have over the last 6-weeks.  Ethanol stocks jumped by 79,000 bbls to 22.763 million bbls, which are around 10% above a year ago.  Data on monthly ethanol exports from April will be available next week and will be looked to by the trade to gauge export interest as the summer months approach.  Sustaining exports of 100 million gallons on a monthly basis will be key to preventing stocks from building to excessive levels and also supporting production at a 5.500bbu+ type of pace.

Market participants continue to be impressed by the Chinese corn auctions from state reserves.  This week the government auctioned 3.23MMT of 2013 corn, which was around 93% of the 3.47MMT offered.  The average price was $202.38/MT which compares with $157.20/MT for FOB offers at the Gulf.  Since early May, China has sold 18.2MMT, which is around 86% of the total offered, and the supply has been mainly 2012 and 2013 corn.  It would appear the moves by the Chinese government to increase domestic demand and industrial consumption are certainly working, and is encouraging from an analyst standpoint as they attempt to whittle down their 100MMT stockpile.  The USDA is currently forecasting Chinese ending stocks at 81.288MMT for the 17/18 marketing year which is down 20MMT y/y while the stocks/use ratio is expected to fall from 50.93% two years ago to 34.15% this year which would be the lowest since 2012/13.

 

Bottom Line: Weather appears to be improving for the water-logged ECB, but the Northern Plains remains in dire straits.  Global weather is mainly beneficial, and if one focuses solely on global supply levels, then current price levels seem appropriate or even a bit rich.  However, many analysts will be focused on the trend in crop condition ratings come Monday as opposed to the outright level.  The WCB and Northern Plains should be trending lower, while the ECB could be bottoming and trending higher.  Another year of east vs. west it would appear.

 

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.