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.