8/21/2018 Morning Comments

Good Morning,

 

Light rains moving across South Dakota and S-ND this morning, but hardly making up for the big miss last weekend.  The eastern corn belt is also seeing rain with heavy showers across MI and OH.  Several dry days before the next chance of solid rain in the Midwest toward the weekend.  NE-SD, KS, MO, IA, MN, WI, IL, IN, OH and MI all have a shot at 0.50-1.50” in total by the end of the weekend.  Temps gradually warm throughout the week, getting to the upper-80’s to low 90’s by Saturday.  No extreme heat seen, but just warm enough to require follow up moisture on finishing soybeans.  Above normal temps and below normal precip look likely in the 6-10 and 8-14 with the most severe below normal precip in the southern plains.  Most HRW states have been very-well watered the last 14-days.  Largest 2-week percent of normal precip deficits exist across ND, SE-MN, N-WI, E-IA, N-IL and N-MI.

 

Easier prices across the board this morning led by wheat as the three exchanges add to yesterday’s sharp losses.  The rumors of limitations possibly being placed on Russian wheat exports from Friday turned out to be just that, and stories yesterday implied Russia aims to sell 2MMT of grain from government stockpiles in 2018/19.  As of August 17th, government stockpiles were 3.7MMT.  One minute we are limiting exports, the next we are selling state-owned reserves.  As Friday’s charts showed, when Russia placed an embargo on exports in 2010/11, they watched their share of global wheat trade fall from 13.54% in 2009/10 to just 3.00% in 2010/11.  In 2009/10, their 13.54% export share was the fourth largest among major exporters before watching it fall to the absolute lowest that year.  It is highly unlikely they would make the same mistake again, even if the export limitations are only partial.  Not to mention, Black Sea FOB prices remain sharply lower than both US and EU wheat offers, so it is difficult to take any talk of export limitations seriously until the FOB gap has been closed.  The ProFarmer tour continues today with big yields being found in the WCB as we discuss below.  Open interest changes yesterday saw corn down 8,327 contracts, soybeans were down 2,659, SRW wheat was up 2,146 contracts and HRW was up 3,321.

Data yesterday included weekly export inspections which were on the low-side for all major grains.  Wheat inspections were 12.7mbu vs. the 20.5mbu needed weekly to hit the USDA forecast.  Total inspections are down a ridiculous 37.8% from this time a year ago with 2017/18 exports notching the third lowest export total of the last 15-years.  Very poor start to the export season with second half commitments needing to be almost record large.  Corn inspections totaled 43.2mbu vs. the 44.5mbu needed weekly.  Total inspections of 2.170bbu are down just 0.3% from a year ago, and should come very close to meeting the USDA’s forecast.  Soybean inspections totaled 23.5mbu vs. the 25.6mbu needed weekly.  Total inspections are down 3.2% from a year ago at 2.005bbu.  Like corn, soybean inspections will come down to how much is forced out the door the next two weeks and how much is rolled to new crop.

Also got the latest crop progress report which carries limited value until harvest progress begins to be reported next month.  National conditions fell 2pts to 68% G/E vs. 62% G/E a year ago, a phenomenon which occurs every year as the crop turns color and dies.    Largest declines were in the upper-Midwest where moisture stress has been present for several weeks.  Corn denting progress was estimated at 44% complete vs. 26% last week and 26% average.  Many corn belt states are double their average dent progress which should lead to a swift harvest.  Soybean conditions declined 1pt to 65% G/e vs. 60% last year.  Big declines in ND/SD/MN as moisture stress turned soybean gray in color and cut potential.  Spring wheat conditions also declined 1pt to 74% G/E and vs. 34% G/E a year ago.  Spring wheat harvest is 60% complete vs. 35% last week and 44% average.  SD is essentially done with harvest while ND crossed the 2/3’s complete line this week.  Winter wheat harvest is 97% complete.

The ProFarmer tour had scouts in South Dakota and parts of Nebraska as well as Ohio and parts of Indiana yesterday.  The tour released data for SD and OH, but will issue final numbers for NE and IN tonight when more data is compiled.  One of our good friends, Pete Meyer, is leading a car on the eastern leg and confirmed the good yield potential in Ohio.  The tour found an average corn yield of 179.57bpa vs. the USDA’s current 180.0bpa although he made sure to point out they only sampled the western half of the state.  He noted the much higher percentage of corn dented than normal, so what they had in their hands is likely to be closer to what the crop actually is than normal.  With that said, last year’s yields benefited from a long, cool August which helped to maximize grain fill while this year’s crop is already through that critical stage.  Normal kernel depth was noted.  Pod counts in Ohio were estimated at 1,248.2 vs. the 3-yr average of 1,149.39.  USDA is estimating soybean yield up 13% y/y.  Big yields were also found in South Dakota, but only three reporting districts are sampled in SD, and the largest corn production county in SD (Brown) is not.  That said, the tour found an average yield of 178.01bpa vs. he USDA at 170bpa, both of which would be new records by 7-8bpa.  The 3-yr average for SD is 147bpa.  We think the early potential for South Dakota corn has been cut due to dryness in the northeast the last 30-45 days.  Soybean podcounts were seen at 1,024.7 vs. the 3-yr average of 961.95.  Here again, it is difficult to think South Dakota can reach its full soybean potential given the dryness and heat during the first half of August during such a critical period for soybean development.  Any crop tour faces large challenges in trying to amass enough data to be statistically significant.  ProFarmer Tour is the best we have, and the trade will focus on Iowa and Illinois Wednesday which could sway the entire national yield estimate.

One last note, an interesting article came across our desk this weekend from www.zerohedge.com about Russia offering farmland to China.  One of the major talking points about the trade war has been the fact if it lasts long enough, it will force China to diversify its suppliers and even encourage production in other parts of the globe.  The report on ZH said Moscow offered China 2.5 million acres of arable land to Chinese farmers to help meet its demands for soybeans.  There is some discussion about the quality of this farm land, and whether the best land in the Far East Russian cropping belt had already been picked over.  We are skeptical about reading into or using anymore of the data in this article as it links to other stories which are littered with falsehoods and data which is clearly inaccurate.  Nonetheless, the idea of China outsourcing and acquiring land in other countries is not ridiculous.  The longer this trade war drags on, the more severe the implications for US farmers.  Every tonne of soybeans China can get outside of the United States is one more tonne they don’t have to come back to the US for when the trade war is over.  China has much more leverage with smaller countries than it does with the United States and would gladly take more beans from a Uruguay a Canada or a Ukraine.  The clock is ticking.

 

Bottom Line: Soybeans continue to stand in at these prices much better than the recent moisture across the Midwest would suggest.  The ProFarmer tour is finding big yields so far but a lot of the tour remains.  Wheat cannot continue to rally with the US offering wheat so far above the market.  Wheat export sales will fall, shipments remain terrible and the world will make due before it has to rely on overpriced US wheat.  The market always underestimates the resolve of the Northern Plains farmer to hold wheat off the market when he is not satisfied with prices.  He is doing that so far with his spring wheat, but without an export demand pull, the domestic market is not large enough to give him the price he wants.

 

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.

8/20/2018 Morning Comments

Good Morning,

 

Lots of rain around the Midwest this weekend and this morning with widespread rain totals being reported.  The entire state of Iowa as well as large parts of NE/MN/IL are seeing rain this morning, which will make for a wet start to the ProFarmer Crop Tour.  Some 3-4” totals are being reported after Sunday’s storms in Nebraska.  Rains will continue falling most of today in the central/east corn belt, but then a mostly dry week develops Tuesday forward.  The rains were largely a bust in South and North Dakota with totals of 0.10-0.50” falling where 1-2” were being forecast.  The cooler temps are beneficial but difficult to think potential has been taken away from corn and soybean crops.  Temps will warm to above normal in the 6-10 and 8-14 day while precip will be mainly below normal into Labor Day weekend.

 

Mixed markets overnight as the soy complex is firmer while wheat markets give back a portion of Friday’s gains.  The gains in soybeans last week and again this morning are nothing short of impressive considering the crop-making rainfall in a huge portion of the Midwest the last 72-hours.  This would appear to be growing confidence in trade talks at the end of the month which could finally produce a breakthrough with China.  November soybeans have two levels of overhead resistance at $9.1450 and $9.2225, but if those two levels are breached beans could produce significant gains considering how sharply prices fell on the way down.  Wheat was buoyed Friday by the ridiculous reporting by Reuters and others on the Russian export situation which led some to believe wheat exports could be curbed once 30MMT has been hit.  Clarifications were issued in much the same way they were with the Ukrainian export limitations were discussed two weeks ago.  Russia will not be limiting exports anytime soon, and until EU and Black Sea wheat prices trade to a premium over US, last week was likely to be our largest export sales week for a while.  Open interest changes Friday saw corn up 19,212 contracts, soybeans down 4,565 contracts, SRW up 1,944 and HRW up 4,656.

The chatter Friday out of the meeting between the Russian Ag Minister and grain exporters produced a lot of confusion, but the 30MMT level for wheat exports was kicked around.  30MMT worth of wheat exports would compare to the current Russian Ag Ministry forecast of 35MMT which is equal to the USDA’s and would still be the second largest marketing year total on record.  Nonetheless, we wanted to see how the 30 and 35MMT numbers fit with total supplies based on what we know today.  The chart below plots marketing year exports on the Y-axis against total wheat supplies on the X-axis.  The yellow box represents USDA’s current forecast while the red box attempts to “fit” the export number based on current wheat supplies which comes in at 28.5MMT.  The 30MMT figure would be above the trend line by about 1.5MMT.  Based on current Black Sea futures prices and FOB spreads, we do not believe the market has a 28.5-30.0MMT export figure priced in as Russia is not currently rationing export demand at current prices.  Unfortunately, many of these export-based relationships within the balance sheet are only valid for the last few seasons when Russia actually became a reliable exporter year in and year out.  In 2017/18, Russia exported 48.2% of their total wheat supply which compares with just 25.1% five years ago.  USDA is currently forecasting Russia to export 44.9% of their wheat supply which would actually be up from 43.6% last year, so possibly one more figure to argue for a lower export total.

Despite the relatively bearish USDA reports during the reporting week, funds actually didn’t sell as heavily as one might think.  In the week ended August 14th, funds sold 5,527 contracts of corn to leave them net short -47,384 contracts which is still well above their low-water mark of -144,581 in mid-July.  Relatively little commercial activity worth mentioning.  Funds sold 9,510 contracts of soybeans to put them net short -103,916 contracts which is the largest net short since January 23rd.  Commercial buying was present, however, with the gross commercial long rising to 355,661 contracts, a four week high.  More buying in wheat with funds adding 4,914 contracts to their net long in KC wheat putting them net long 39,560 contracts.  This is the largest net long since mid-June.  Commercial selling is still a feature with the gross commercial short the third largest on record.  Funds bought a small amount of Chicago wheat putting them net long 14,220 contracts.  Commercials reduced both their gross short and gross long positions.

We continue to watch wheat/corn spreads for signs the wheat market is getting a bit over its skis.  The 2017/18 marketing year saw feed/residual demand of just 48mbu which was the second lowest total of the last 15-years.  Front-month Chicago wheat/corn traded in a range of +50.0c to +130.00c for most of that marketing year with the exception of a few days over +140.00c in late June/early July 2017.  These values would compare with the current front-month spread at +188.00c in Chicago and +195.50c in Kansas City.  Obviously not implying more feed demand would be present.  This relationship and line of thinking can be extended globally, especially in Europe where a fair amount of feed wheat is used in livestock rations.  At current wheat/corn spreads, livestock feeders there will undoubtedly import and feed more corn and less wheat.  With funds toting a net short position in corn, while sporting one of the few net long positions ever in Chicago wheat, we remain concerned this relationship is implying wheat prices need to extract premium relative to corn.

 

Bottom Line: The ProFarmer corn and soybean tour begins this morning, so social media will be abuzz with yield estimates and condition updates.  ProFarmer historically has come in under the USDA’s August estimate, but with the well-time rains this week, soybean estimates will be moving higher across the board.  Chatter around the US-Chinese trade talks will grab headlines this week, and anything constructive will be positive considering the last 30-45 days have seen absolutely no action.

 

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.

8/17/2018 Morning Comments

Good Morning,

 

A few more details are emerging about the US/Chinese trade negotiations at the end of the month.  The Chinese delegation will be led by Vice Commerce Minister Wang Shouwen, who is in responsible for China’s worldwide trade negotiations, and David Malpass who is the undersecretary for international affairs at the US Treasury.  Unfortunately, the talks won’t come in time to prevent the next round of tariffs being implemented with both China and the United States set to slap $16 billion in tariffs on each other’s goods.  However, it could lead to a solution before the 25% tariff on $200 billion worth of Chinese goods goes into effect.  China also announced it would retaliate with 5-25% tariffs on an additional $60 billion in US goods.  Experts hope the partial success with the EU/US trade negotiations could provide a roadmap for the US/Chinese negotiations.  With that in mind, the US will be seeking much larger concessions from the Chinese than were being asked of the European Union.  It would be more encouraging to see higher ranked US officials take part in the negotiations given the Chinese are sending their top trade diplomat.

Good rains along the NE/IA border in the last 24-hours with solid rains also present along the IN/KY border and N-AR.  The improved rainfall chances continue the next 3-5 days in the Plains and WCB with totals for South Dakota and the ECB of IN/OH seeing best prospects.  1.25-2.00” is expected by the end of this system, but nearly 90% of the corn and soybean production areas should see rainfall with only North Dakota being shortchanged in the 7-day.  Temperatures are below normal in the 6-10, but gradually warm in the 8-14 day to slightly above normal.  This takes us to the end of August, and wouldn’t be necessarily a bad thing to have a bit of heat at the end of the growing season to help speed maturity into fall and all but eliminate the risk of early frost.  Precip is normal/above for the majority of the corn belt through the end of the month.

 

Better markets overnight led by the wheat markets which are adding to yesterday’s strong performance and the improvement in US export sales.  December KC wheat traded to a recent high of $6.26 on August 7th before dropping $5.60 just a week later, which was also the 50% retracement of the entire 4.93-6.26 rally.  Since bottoming two days ago, Dec KC has rallied 25-30c with most analysts trying to determine what our new trading range is going to be as the wheat is put away and cash and spreads go to work on moving wheat?  Lots to discuss on the US wheat export picture, which we dive into below, but this market needs to be careful about once again rallying away from the business we badly need to see.  Corn is higher in sympathy, but beans couldn’t follow through on the trade-talk strength posted Thursday.  Until trade negotiations lead to a resumption of Chinese buying US soybeans, there doesn’t appear to be a lot in the soybean market worth buying.  The forecast across the corn belt is adding bushels in many spots and carryout is projected at an all-time record high.  Corn open interest rose 1,802 contracts yesterday, soybeans were down 5,569 contracts, SRW was up 609 and HRW was up 1,902.

Export sales were the big talker yesterday with all wheat sales sharply outpacing the level of sales needed at 29.5mbu vs. 17.1mbu.  This is just the second week of the marketing year which hit the needed level of sales, and pushed total commitments to 305.6mbu vs. 410.1mbu at this time a year ago.  Unfortunately, this level of outright commitments is the lowest since 2009’s 282.1mbu and is the lowest percent of marketing year commitments since 1999 at 29.81%.  The 17.1mbu needed to sell/ship each week through the end of May would be the highest level of weekly commitments since 2010 and among the highest weekly averages of the last 15 years.  While our export program could look a bit bleak when viewed through that lens, the encouraging thing is the years which we need to mimic in performance turned out to be huge export years where the US saw impressively high market share.  This could be the story this year with so many major exporters seeing y/y declines in production and exports.  In 2010, we averaged 20.2mbu each week here forward on our way to a 1.289bbu export program, 2007 saw 17.5mbu each week on the way to 1.263bbu and 2003 saw 19.2mbu each week on the way to 1.158bbu.  Granted, these years had a minimum of 351mbu worth of commitments at this point in the year vs. our 305.5mbu, but the point is the heightened level of sales and shipments can be done.  As the global export share chart below shows, in those years, the United States saw a 26-29% share of global export trade.  In 18/19 we are only expected to see 15% market share, but those other years also presented major shifts in traditional trade flows.  2010 was the Russian export embargo, 2007 featured back-to-back droughts in Australia (similar to this year) as well as the second smallest exports out of Ukraine in the last 18 years, and 2003 featured droughts in the EU and Black Sea much like this year.

Otherwise, export sales were decent elsewhere.  Old crop corn sales totaled 13.3mbu vs. the -14.5mbu needed to hit the USDA forecast.  Total commitments of 2.372bbu are up 7% from a year ago, but outstanding sales of 269.6mbu are much higher than last year’s 137.1mbu.  New crop corn sales measured 41.1mbu and put total commitments at 348.7mbu vs. 225.9mbu at this time a year ago.  Old crop soybeans ales were 4.9mbu vs. the 6.2mbu needed with total commitments of 2.156bbu down 4% from a year ago.  There are 173.3mbu of outstanding sales vs. 187.7mbu a year ago.  New crop soybean sales remain impressive at 21.0mbu this week, taking the total to 421.7mbu vs. 291.4mbu a year ago.  Meal sales were also strong this week at 207,200MT which pushed commitments 20% ahead of last year.

The daily announcement of 200,000MT of HRW solid to Iraq yesterday morning was certainly encouraging and the kind of swing business the US absolutely needs to capture.  Inside the weekly export sales report was business to Nigeria which the United States has also missed out on in large part the last couple of years.  HRW went home last night level with German and Baltic wheat but remains $15/MT above Russian FOB wheat and remains at a sharp freight disadvantage.  Spring wheat off the PNW has also moved to a $10/MT discount to Canadian wheat.

 

Bottom Line:  Friday’s are trend days, and the short-term trend in wheat has turned higher.  Our markets need to look at recent history and realize we do not need to rally away from the improved interest in our wheat.  Difficult to believe funds will allow that to happen, however.  At current board prices, winter wheat acres will surge this fall by 10-20%.  Producers would do well to take a look at the July ’19-forward futures curve and be locking in a portion of their insurance guarantee and extra production.  As we saw with soybeans this year, a lot of the “extra” acres had nothing done with it before the board break, and now these bushels will be lugged into 2019 and possibly beyond.  Take advantage of marketing opportunities when they are presented.  Once the wheat is locked away, cash and spreads will move wheat, lessening the need for the board to buy wheat.

 

Good Luck Today.

Tregg Cronin

Market Analyst

Tregg.Cronin@halocommodities.com

www.halocommodities.com

@5thWave_tcronin

 

 

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

8/16/2018 Morning Comments

Good Morning,

 

Not intending to sound like a broken record, but we continue to be impressed by the washout in emerging market currencies and stock markets as well as the number of raw commodities posting 52-week lows.  Several analysts have posted charts on social media in recent days detailing the performance of some of these assets, and the list when shown together is quite impressive (https://twitter.com/EconguyRosie/status/1029707203668832257/photo/1).  As the chart shows, the CRB-Index is off 8.0% from its 52-week high, while the Bloomberg Commodity Index made fresh lows for the move and a new 52-week low.  The Turkish Lira, the Argentine peso, the Brazilian Real, South African Rand, Russian Ruble, Indonesian Rupiah and Indian Rupee are all off 10% plus, while half that group is off 15% and the Chinese Yuan is off 8.9%.  Copper is off 23.8% from its 52-week high while crude oil is off around 13.0%.  Lumber is off 33% from its 52-week high, although to be fair, its 52-week high was an all-time high which was nearly 50% above its previous high set in the mid-90’s.  Nonetheless, all of the selling taking place in emerging markets and hard assets has us keeping an eye peeled toward money flow in the Ag space.

Showers in the ECB as well as a system along the SD/IA/NE border.  Solid rains in the last 24-hours in SW-IA/N-MO/SE-NE and S-MO.  Oklahoma also saw nice rains with 30-45 days to go in front of winter wheat planting.  The entire corn belt continues to look active through early next week with some truly impressive rainfall totals being forecast by this morning’s GFS.  The entire state of Iowa is slated for 1.75-2.50” through the next week.  Nary a spot in the corn belt will be without 0.50-1.00” if things fall as forecast.  Most of Kansas will also stay well-watered as we move closer to fall seeding.  Below normal temps and normal/above normal precip in the 6-10 and 8-14 day outlook.  While the last week of July and the first half of August was rather poor in many areas of the corn belt, the finish to August looks ideal.

 

Rather firm markets overnight, led by soybeans as news broke last evening about a trade delegation from China led by the Vice Commerce Minister will head to Washington D.C. at the end of August.  There really weren’t any other details besides that splashed on social media, but one gets a sense just how much money is short soybeans and also short soybeans against wheat and corn.  Regardless of reason, from a technical standpoint, the fact price did not revisit the July lows following the August WASDE will look like a positive and make an argument seasonal lows have been made.  While the flat price trade is encouraging, cash and spreads are showing absolutely no reason to back this move with spreads continuing to be anemic and sitting on contract lows while the PNW shuttle market remains essentially no bid and the CIF barge market traded double digits lower to just +18X yesterday.  Money flows can drive markets in the short-term, but with both cash and spreads trading sloppy would be wary about pressing things too far.  Grains following soy overnight, but short-term trends remain down in wheat and corn has just reclaimed its 50-day moving average.  Corn open interest rose 2,855 contracts yesterday, soybeans were up 1,175, SRW was down 5,257 contracts and HRW was off 5,153 contracts.

One of the major wheat exporting countries we’ve been watching closely has been Australia, which is why the USDA’s decision to leave their crop production estimate unchanged this month was a bit puzzling.  Australia went through one of the driest autumn’s on record, and the lead up to spring and summer has been just as bad or worse.  To help quantify these prospects, we took a look at the USDA’s Crop Explorer tool which has the ability to look at Vegetative Health Indices for the different production areas.  Western Australia is above last year and above average as boots on the ground have confirmed with solid crop estimates.  W.A. accounts for 39% of national wheat production in Australia.  However, the East Coast is in much worse shape.  The NDVI for New South Wales is sharply below both 2017 and average as the chart below shows with NSW accounting for 26% of national wheat production.  Queensland has also been hard hit as shown in the chart, and Victoria is running below both 2017 and Normal.  The national NDVI departure from average map helps pull it all into perspective and highlight the need for precip immediately.  Our sources have been saying rainfall needed to arrive by the 15th of August to have a material effect with precip coming after this point only leading to marginal improvement.  With that in mind, many crop production forecasts have slipped to 18MMT vs. USDA’s current 22MMT.  Carryout would slip negative with current USDA demand, so it is reasonable to only expect around 12MMT at most of exports during the 18/19 marketing year.  Cutting 4MMT worth of exports leaves us with a similar carryout to the USDA, but that demand will undoubtedly need to be replaced elsewhere.

Other big talker this week has been discussion about winter wheat plantings and the potential increased based on board prices and what should be an attractive insurance guarantee price.  KWU19 is trading $6.04 this morning vs. $5.13 for KWU18 on this same date a year ago.  The 17.7% price increase is prompting calls for a 10-20% increase in winter wheat acreage, specifically HRW, although other factors such as fall harvest and moisture at planting will also play into the decision.  The southern plains has been wet as of late, and that pattern looks to continue through August.  We decided to take a look at a couple of acreage scenarios for next year and what an HRW balance sheet might look like under those ideas.  A 10% increase in planted acreage would be about 25.5 million with harvested acreage of 20.1 million using the 5-yr average.  We also plugged in a 5-yr average of 40.0bpa for a national average yield vs. the 39.2bpa yield in 18/19.  Total supplies would actually be down about 50mbu from smaller carry-in, while we kept demand essentially unchanged but that may be difficult with major hard wheat exporters likely having better crops next season.  Nonetheless, the 10% increase in acreage yields a carryout of 348mbu vs. this year’s projected 393mbu.  A 20% increase in acreage would give us a carryout of 421mbu, while unchanged acreage would see carryout slip to 275mbu.  At this stage, we think a 10% increase in acreage looks appropriate, but have serious doubts about demand until it begins to show up in a more meaningful way.  Would call current balance sheet projections for both 18/19 and 19/20 supportive, but not runaway bullish, especially if doubts remain about exports.  5-yr average carryout for HRW is 429mbu.

Weekly ethanol production declined 28,000bbls/day last week to 1.072 million bbls, but remains well above the needed level to hit the USDA’s ethanol production forecast.  Ethanol stocks rose 94,000bbls w/w to 23.017 million bbls.  Gasoline demand last week was 9.512 million bbls, up form last week’s 9.346 million bbls and unchanged from the same week a year ago.  Gasoline demand year-to-date is up 1.3%.

 

Bottom Line: News of a trade delegation to the US might be good for a one day bounce, but with cash and spreads remaining so weak, all of the headlines will do little to prop us up long-term is if the talk doesn’t result in demand.  September is a bearish month seasonally for both corn and soybeans, and reports from the country suggest there is still a fair amount of old crop grain to move before harvest.  Producers continue to suggest soybeans will be stored and harvest which could lead to more corn being sold off the combine.  Fortunately, we have an export program for that.

 

Good Luck Today.

Tregg Cronin

Market Analyst

Tregg.Cronin@halocommodities.com

www.halocommodities.com

@5thWave_tcronin

 

 

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

8/14/2018 Morning Comments

Good Morning,

 

Emerging market weakness has been center stage the last several trading sessions as fresh sanctions hit Russia, Turkey faces a currency crisis and India’s Rupee hit the lowest level against the USD on record.  The Russian situation is fairly straightforward with another round of sanctions causing the Ruble to trade down to the lowest level since March of 2016.  The Turkish situation is a little more multi-faceted as a spat between Istanbul and Washington D.C. is weighing on the currency as is traders pulling support as the era of easy money and low interest rates begins to sink its teeth in.  The Turkish Lira was marked to market yesterday at a new record low of 7.1611.  The Indian Rupee followed suit, falling to 70.2000, an all-time record low.  South American currencies are also showing widespread weakness with the Brazilian Real trading to the lowest levels since the spring of 2016.  Weak emerging market currencies are not usually a harbinger a strong commodity returns given that asset makes up such a larger portion of emerging market economies.  The Bloomberg Commodity Index has closed lower four straight sessions and is back near 12-month lows.

An active radar this morning in the Southern Plains and MS-River Valley.  Rains are finally falling in some of the driest areas of KS and MO, although these rains are coming too late for crops in many areas of these two states.  After a dry start to August, patterns do look to turn more wet and cool for most of the corn belt through the end of the month.  Several rounds of rain will present themselves with 7-day forecasted precip amounts look especially impressive as shown in the map below.  Areas of South Dakota, Iowa, and Illinois could badly use the rain being shown, while North Dakota and N-Minnesota look to be short-changed for the most part as soybeans try to fill pods.  Below normal temps and above normal precip are shown in the 6-10 and 8-14 day time frame which producers will gladly take.

 

A little better markets this morning following two straight days of selling pressure in the wheat markets, but encouraging to see soybeans shake off Friday’s washout to trade firmer yesterday and today.  The general consensus seemed to be soybeans would head for July lows which was another 25c under Monday’s lows as USDA confirmed large crops and soft demand resulting in the largest carryout projection for soybeans on record.  That hasn’t happened in one fail swoop, however, with some traders suspecting China may be quietly buying US soybeans as the time has come where they can no longer avoid stem from the PNW and Gulf.  This should not come as a surprise as many have pointed out how logistically impossible it is for China to avoid US beans completely, but most thought they would de-stock a little further, increasing the pain for US farmers heading into harvest.  Regardless, we do not believe soybeans are heading sustainably higher as the USDA carryout projection has too much buffer in it for better demand or smaller crops, limiting the need for higher prices from either one.  Short-term trends remain down in corn and wheat with hefty fund length leading to major sell pressure in the latter.  The latest Commitments of Traders data support further wheat weakness.  Corn open interest was down 18,080 contracts yesterday, soybean O/I was up 4,038 contracts, SRW was up 3,593 contracts and HRW was up 2,579.

The yield forecasts stole the show Friday, but we were a little more focused on some of the demand changes.  In particular, the USDA’s decision to raise the US wheat export forecast by 50mbu to 1.025bbu.  The USDA raised the US export forecast because of cuts to EU production and what will likely be cuts to production Canada and Australia in coming reports.  There simply isn’t any other origin to push demand to without having to just cut feed/residual demand or FSI demand.  The issue we have with raising the forecast is the level of exports is will require the rest of the year.  As of 8/2, total wheat export commitments measured 7.513MMT (shipments plus outstanding sales).  This is the lowest commitment total since 2009 and the fifth lowest total for this date on record.  What’s more, this level of commitments accounts for 26.93% of the USDA’s current export forecast which is the lowest level for this week since 1992.  Even if USDA would have left their export forecast unchanged at 975mbu, we would still only have 28.31% shipped or spoke for, the lowest level since 2003.  This is obviously going to require a record second half export program.  As it stands today, we need to sell roughly 17.4mbu of wheat each week through the end of May to hit the USDA forecast.  This would be the highest level of average sales since 2010, and would be more congruent with an export program from the 90’s.  Not impossible, but will need to see some better sales in coming weeks.

We did see the latest crop conditions yesterday afternoon, although these are receiving even less attention than they did earlier in the season, especially with the advanced nature of this year’s corn and soybean crops.  Corn conditions fell 1pt to 70% G/E vs. 62% G/E at this time a year ago.  Conditions remain right at the 5-yr average.  Declines were seen nationwide, and honestly difficult to believe the national rating only fell 1pt with IL down 5, ND down 6, WI down 3, NE down 2, CO down 8, etc.  Corn denting progress was estimated at 26% complete vs. 13% average with IA at 22% vs. 9% average and IL at 45% vs. 20% average.  We learned dent is estimated by NASS enumerators as they are driving, so actual ears are not pulled to check dent status.  Another mostly meaningless figure we are given.  Soybean conditions fell 1pt to 66% G/E vs. 59% last year.  ND saw an 11pt drop in conditions w/w which is in-line with reports of dryness there, but the 1pt improvement in SD makes absolutely no sense.  Soybeans are turning grey across SD just like ND, so would expect to see some downward movement next week.  Soybeans setting pods was seen at 84% vs. 72% average.  Spring wheat conditions improved 1pt nationally to 75% G/E vs. 33% last year and remains the highest rated crop since 2010.  Harvest was estimated at 35% complete vs. 13% last week and 27% average.  SD is 30pts ahead of average.

We’ve been writing about the major wheat exporter balance sheet all summer as crops have gotten smaller and the world demand figures looked more and more untenable.  USDA finally reduced export and feed/residual demand this last month along with a small cut to FSI consumption.  The combined demand changes resulted in a 6.140MMT drop in total usage vs. total supplies being reduced 8.059MMT compared to the previous month.  The y/y drop in feed/residual now amounts to 6.762MMT, which is not difficult to understand when one considers wheat/corn spreads trading at multi-year premiums around the globe.  In addition, 8-14MMT cuts in y/y feed/residual use are not all that uncommon going back the last 15-years.  The point here is additional cuts to production in Australia and Canada, if they happen, will most likely result in lower feed/residual figures as more demand gets pushed to corn.  The world corn balance sheet is already supportive, and would likely become more so resulting in a bullish bias for corn and an neutral bias on wheat.  As we discussed above, pushing more export demand to the United States looks very difficult to do, so the USDA is more than likely going to resort to cutting demand and feed/residual still has room to make that happen.

 

 

Bottom Line: A little claw back trade, but the wetter forecast and bearish S&D’s from the USDA on soybeans are making their price strength the last two days all the more interesting.  Would remain wary of expecting further upside in beans with the current forecast, but if China is coming back to the US for supplies despite the tariffs, that could be supportive in the near-term.  Wheat is holding a lot of length that doesn’t normally reside in that market, and the USDA has ways of making that balance sheet work without making the US balance sheet anymore supportive.  Corn remains the commodity with the best story in our opinion, even with the giant yield forecast provided Friday.

 

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.

8/10/2018 Morning Comments

Good Morning,

 

Scattered showers across E-IA, IL, IN, KY and TN this morning, but the WCB and Northern Plains continue dry.  The heat and dryness of the past couple weeks combined with a forecast for another 5-7 days of no moisture is causing a fair amount of concern in the upper-Midwest.  The two-week percent of normal precip map below shows the deficits building across ND/SD/MN as well as S-IA/N-IL.  These are likely to get worse before the next chance of rain shows up midweek next week, although for the majority of that area, the chance doesn’t look like more than a tenth.  Unfortunately, no real relief for the Northern Plains in the 6-10 or 8-14 day with above normal temps and below normal precip seen through August 23rd.  Without measurable precip by the 20th of August, soybean crops in the WCB will have faced irreparable damage.

 

Slightly easier markets this morning as we await the USDA’s first objective yield estimates on the 2018 corn and soybean crops.  They will also be updating their hard red spring wheat production estimate, along with supply and demand estimates for all crops and countries.  There will be a ton of data released today, but the trade will definitely focus on the two yield estimates first.  The concern from the trade of late has been the speed at which the crop developed, and what that might mean for kernel depth and ear weight.  Both of those factors will not be incorporated in USDA yield estimates until October, so expecting a smoking gun on this report will leave one empty handed.  As alluded to in the weather comments above, there is also a lot of concern about the soybean crop in SD/ND/MN/IA with widespread reports of soybeans “graying.”  This will increase by next week, and without a major pattern change by September will cut soybean production severely.  This makes the USDA’s plight even more difficult as soybean prospects look so strong in other parts of the corn belt.  Wheat seeing a little follow through selling from yesterday’s weakness with the Russian Ruble off another 0.437% after yesterday’s 2.2% plunge and Wednesday’s 2.5% drop.  The currency weakness in response to additional sanctions imposed by the US causes Russian wheat to be cheaper in local terms and into major importers.  Traders are anxious to get updated crop estimates on the EU and Australian wheat crops.  Corn open interest was down 8,891 contracts yesterday and is off 60,509 contracts this week.  Since July 24th, corn open interest is down 173,260 contracts.  Soybean open interest was down 2,386 contracts yesterday, SRW wheat was down 7,067 contracts and HRW was down 3,231 contracts.

In our opinion, it is going to be difficult to get a bearish yield estimate from the USDA today, unless it comes in sharply higher than trade expectations.  The average trade estimate for corn is 176bpa, up from 174bpa in July.  This adds about 160mbu to total supplies, and bumps carryout to 1.719bbu without any demand changes.  However, that is why we aren’t real concerned with a yield estimate of 176 as one can easily increase export demand by 100-150mbu alone, not to mention inching feed/residual demand higher on the larger crop.  100mbu of additional exports and 25mbu of extra feed demand keeps carryout at 1.595bbu vs. 1.552bbu last month.  Anything that remains under 1.600bbu, or 1.700bbu for that matter, doesn’t require a big set back in price in our opinion.  Even if some of the alarmists are correct, which we doubt highly based on the last several weeks of weather, and the USDA posts a 178bpa number today, carryout would only rise to 1.883bbu with last month’s demand.  With the 125mbu of additional demand we discussed, carryout only moves up to 1.758bbu which isn’t a reason to rally but certainly isn’t a reason to selloff.  If the USDA surprises the trade to the downside, and leaves the yield unchanged at 174bpa, we believe this is bullish and should be bought.  With the expected changes to the EU wheat balance sheet, and the prospect for more corn exports, an unchanged yield estimate will prove difficult to square with a growing demand base.  174-175 is supportive in our mind.

In soybeans, the trade is looking for a national average soybean yield of 49.6bpa vs. last month’s trend yield of 48.5bpa.  This bumps total production to 4.409bbu, a new record by 10-12mbu.  Without any demand changes, carryout would scoot higher to 681mbu vs. 580mbu last month.  Unfortunately, soybeans aren’t making the strong argument for an increase in demand the way corn is.  Export demand could probably be upped a bit based on sales exceeding last year’s level to this point, although at some point the real weight of no Chinese export program will be felt.  Crush demand is projected at a new record by 15mbu over last year, so again, difficult to increase this to a further record before the marketing year even begins in September.  With conditions well above last year, it would not be a huge surprise to see the USDA print a 50+ number today, even if that estimate gets smaller in subsequent reports due to the dry finish in the upper-Midwest.  A 50.0bpa national average yield would push carryout to 717mbu with current demand, and carryout increases of this magnitude will likely have to be sold by the trade, especially after the recent run up in price.  A trade resolution with China remains about the only thing which can add lasting strength to the soybean market unless analysts begin cutting estimates by the end of the month due to dryness.

Paris futures are a bit better this morning after two days of lower closes.  There remain gaps to the downside which arguably need to be filled, and if the USDA doesn’t provide the trade with the bullish data it wants, those gaps could be in play.  USDA’s last estimate of the EU wheat crop put the all-wheat crop at 145MMT, although Strategie Grains in their last estimate has the crop at 139MMT.  If USDA came in that aggressive, it would likely result in 3-4MMT worth of demand being cut from exports and needing to be made up elsewhere.  Wheat feed/residual for the EU is the most likely candidate to also cut demand, especially with wheat/corn spreads trading at the premiums they are around the globe.  That said, the EU’s corn crop estimate is also in jeopardy with USDA’s estimate last month of 61.5MMT at risk of slipping below 60MMT.  Carryout was already projected at a 6-year low, and lower production would likely require more imports.  USDA currently has the EU importing 16.0MMT of corn but would likely need 19MMT or more worth of imports to keep carryout steady with 17/18.  The EU will not turn to the US to fill their corn import needs, but they will exhaust Ukrainian supplies meaning the US will have to fill additional holes elsewhere.  Australian crop estimates and any further changes to Russia will also be a focus but the EU crops are probably the most important outside of the US.

Export sales were released yesterday and continued recent trends of solid row crops and poor wheat sales.  All wheat sales totaled 11.7mbu vs. the 16.2mbu needed weekly to hit the USDA forecast.  This marks the fifth week in a row in which sales failed to hit the needed level.  Total commitments of 276.1mbu are down 29% from a year ago while the USDA is currently expecting an 8.2% increase.  Corn sales totaled 21.8mbu vs. the -7.5mbu needed weekly to hit the USDA forecast.  Current commitments of 2.359bbu are up 6% from a year ago and will require a bump in estimates from the USDA today.  There are however 304mbu a outstanding sales waiting to be shipped which could see a fair amount rolled into 18/19.  Soybean sales were 15.5mbu vs. the -0.4mbu needed to hit the forecast.  Total sales of 2.151bbu are down 3% from a year ago with 190mbu of outstanding sales waiting to be shipped.  Should have no issue hitting the USDA mark and might even come in a tick ahead.  New crop corn commitments of 317.6mbu are well ahead of 17/18’s 199.5mbu and soybean commitments of 400.7mbu are well ahead of the 258.4mbu on this same date a year ago.  At some point, that sales total will likely fall behind 17/18, but the longer it remains ahead of last year, the more comical the crowd screaming this is all about tariffs becomes.

 

 

Bottom Line: We will all be smarter at 11:01am, so let’s pick it up from there.  Based on early harvest results from South Dakota and North Dakota, feel the HRS production estimate has more downside than upside.  Demand is still the much more important component, especially as cash basis gets hit each and every day.

 

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.

8/8/2018 Morning Comments

Good Morning,

 

Another month of Chinese import/export data was released last night with imports and exports up more than expected, although soybeans saw buying cool as tariffs went into place.  July exports were up 12.2% y/y vs. expectations for +10.0%, while imports were up 27.3% y/y vs. estimates for +15.3%.  July soybean imports totaled 8.005MT, down 21% on the year with Jan-Jul soybean imports of 52.88MMT down 3.7% on the year.  Iron Ore imports for the month were 89.96MMT, up 4.3% y/y with Jan-Jul imports of 620.65MMT down 0.7% y/y.  Crude Oil imports of 36.02MMT were up 3.7% with Jan-Jul imports of 260.83MMT up 5.6% y/y.  The July trade surplus came in at $28.05 billion vs. estimates of $39.1 billion, while the trade surplus with the United States specifically narrowed to $28.09 billion from $28.9 million in June.  Winning.

Some scattered showers in the corn belt this morning, but a more organized system working across S-KS and OK.  Over the last week, best rains have been in the N-1/2 of IA, SE-SD and the far ECB.  14-day percent of normal precip values show the largest deficits across S-IA, N-IL, MO, SE-MN, SD, N-MN and ND.  Unfortunately, the driest areas the last two weeks will be the driest in the upcoming 5-days with no measurable precip expected across ND/SD/MN/NE and very little expected in IA and N-MO.  Next round of precip for the WCB and Northern Plains, and coverage would be light at best, not seen until Aug 14-15th.  Moisture deficits should grow, especially with widespread 90 degree temps through Sunday for everywhere in the WCB.  Soybeans in the WCB and Northern Plains need a finishing rain quite badly and it doesn’t look like its in the forecast.

 

Mostly better prices this morning, clawing back some of the late losses in grains and adding to the gains made in the soy complex.  Trade has turned consolidative in row crops this week as we await updated yield estimates from the USDA on Friday.  Traders are also anxious to get an update on the spring wheat crop with harvest producing slightly less than expectations in South Dakota and fears this could carry over into North Dakota.  Harvest is also running in Canada, which is around two weeks ahead of normal due to dry, hot conditions there.  This combined with what seems like a daily stream of smaller crop estimates out of the EU and Australia and the wheat market remains mostly firm.  Global wheat prices continue to share in the rally which we’ll touch on below.  Lots of discussion about USDA’s yield estimates on Friday, and the only thing we would add is to remember this will be a yield estimate based on stalk and ear counts, but no actual measurements of the ear itself.  With strong emergence reported throughout the corn belt, this could contribute to USDA inching their yield higher.  Stress from crops being pushed too quickly, resulting in shallow kernel depth and light ears will not be picked up until October.

Deliverable stocks data was released yesterday, and it would appear our seasonal low ahead of harvest was set last week in spring wheat.  Combined stocks in Duluth and Minneapolis totaled 15.120mbu, up 1.176mbu on the week and follows six straight weeks of stock draws.  The 15.120mbu compares with 20.559mbu a year ago.  The 15.120mbu would be the lowest combined stocks for this week since 2014.  Wheat stocks in Chicago declined 881,000 bushels to 83.031mbu and compares with 96.034mbu a year ago.  KCBT stocks were up 503,000 bushels on the week to 126.201mbu and compares with 125.581mbu a year ago.  Wheat stocks in Kansas are easily the highest for this week since at least 2012/13.  Stocks in Chicago are the lowest for this week since 2015/16, but above 2013/14-2015/16.

As important to us as the corn and soybean yield estimates Friday will be what the WAOB does with the major exporter balance sheet.  Private estimates of EU production have slipped another 3-5MMT since the July WASDE, and correspondingly, Paris futures have rallied €32/MT or 17%.  Even more impressive has been the rally in Aussie Wheat as production estimates continue to slip there and are centering on 18MMT vs. USDA at 22MMT.  Since the July WASDE, ASX futures have rallied A$83/MT, or 25.4%.  With Australia facing back-to-back droughts, some estimates have Australian export capacity dropping to 10MMT vs. 15MMT last year and USDA at 16MMT.  It will be difficult for USDA to maintain global import growth as well as global feed/residual growth if all of the major exporters are seeing production cuts of this magnitude.  Unfortunately, it feels as though the market is already pricing in US exports of 1.0bbu vs. USDA’s current estimate of 975mbu.  The US is certainly the logical place to fill the gap in global wheat demand, but unfortunately, we aren’t even on pace to hit last year’s terrible exports, let alone growth of 75-100mbu.  Total commitments as of 7/26 measured 7.196MMT (accumulated exports + outstanding sales), which is down 2.866MMT from a year ago or 28.4%.  The USDA is already calling for growth of 8.2%, creating a real dilemma for raising exports further.  The longer we go without seeing a material pickup in demand, the more difficult it will be to achieve these lofty estimates in the second half of the marketing year.  There is still time, but US cash offers must stop rallying away from business each time we get close to penciling into a major importer.

While old news now, we remain concerned about the current positioning of commercials and spec funds in KCBT and CBOT wheat.  In the former, funds bought 13,667 contracts of HRW last week, one of the top 10-15 largest weeks of buying on record.  The net long position held by specs of 26,396 contracts is back up to a five-week high.  This comes while the Gross Commercial Short is aggressively selling this rally, bumping his position back up to 162,578 shorts, the largest position for this group since June 12th.  In Chicago, funds bought 28,857 contracts on the week, a particularly large week of buying in its own right.  The net position held by specs of +37 contracts, is the first net long since 2014.  The GCS in Chicago of 228,976 contracts is right back to the 5-year set in mid-June.  The last time commercials amassed this large of short position in mid-June, the market rolled over the same week and saw December KC wheat drop $1.00 from June 12th to July 2nd.  Chicago saw prices fall around $0.70.  The commercial positioning combined with the relentless pressure in basis has us concerned futures are on the precipice of another selloff, depending on what USDA says Friday.  With producers staring at KCBT values of $6.28-6.50 for new crop ’19 and MGEX values of $6.60-6.70, producers need to be taking a long look at these with the prospect for more acres going in the ground this fall and next spring.

 

 

Bottom Line: Should see more consolidative trade ahead of Friday’s balance sheet updates.  Seems like it will be difficult for yields to feature a bullish surprise based on what USDA is actually measuring this month.  Northern Plains and WCB soybeans need a finishing rain, otherwise production ideas could wain in those states.  Wheat markets remain impressive, but US cash does not and is giving every reason to be cautious of another leg higher.  Great opportunity for catch up sales on 2018 crop and a solid chance to start making 2019 sales at levels not seen in half a decade.

 

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.

 

8/3/2018 Morning Comments

Good Morning,

 

The July employment situation report is due out later this morning and is expected to sow another solid gain in jobs added of +190,000 vs. the very strong +213,000 jobs added in June.  The 12-month trended average is +198,000, so this month’s gains would be down slightly, but the unemployment rate is expected to fall 0.1 point to 3.9%.  If realized, this unemployment rate would be just 0.1 point above May’s 3.8% which was the lowest in 48-years.  The Federal Reserve is still forecasting the unemployment rate will fall to 3.6% by the end of 2018 and down to 3.5% in 2019-2020.  The labor force participation rate remains at a relatively low 62.9%, which is just above the 40-year low of 62.3% in September 2015 and is well below the 66% witnessed pre-2008.  Average hourly earnings are expected to be unchanged from June at +2.7% y/y.

Some scattered precip in the Midwest this morning, but no organized rain systems.  This morning’s GFS is putting a fair amount of rain in the northern ½ of IA, most of MN, all of WI and most of NE which will be welcomed considering the longer-term maps continuing to suggest dryness.  The northern plains, outside of MN, will continue to be mainly dry which will push small grain crops to maturity, although fall crops could use one more drink in August to finish off.  Temps from the CPC continue to suggest normal to slightly above normal temps for much of the central/western belt while the ECB is normal/below.  Precip is mainly below normal for the WCB and Northern Plains while again the ECB is more normal/above on precip.  If the extended maps verify, deficits would start to surface across the WCB/Northern Plains as temps are generally in the mid-80’s for the next 10-days.

 

Stable, dare we say quiet markets overnight after yesterday’s wild ride, especially in wheat.  After following yesterday’s early morning strength from Paris wheat, US futures were off to the races following a misunderstanding about Ukrainian wheat exports which led to buying in a vacuum.  Once the clarification was issued, markets sold off hard, barely managing positive closes and leaving particularly nasty exhaustion candles on almost every daily chart.  Wheat still managed a positive close at all three exchanges, and the two winter wheat boards would be trying to close higher for the fifth consecutive day while spring wheat is trying to end in the green for the eighth day in a row.  Corn mainly followed the strength in wheat, and finds itself higher to finish the week, working on its third higher weekly close and up 6.50c since Monday.  December corn is now up 32c from the lows posted in early July.  Soybeans setting back for the third day in a row, finding it difficult to muster any lasting strength now that prices are near $9.00.  Crop ideas are large, demand ideas are not large enough, and the rhetoric surrounding a trade-deal with the European Union sounds like just that: rhetoric.  Open interest continues to decline in row crops with corn down another 19,874 contracts and off 51,782 contracts on the week.  Soybean open interest fell 2,050 contracts, meal was down 4,141 contracts and soy oil was up 3,798 contracts.  SRW O/I was down 6,105 contracts on the short-covering while HRW was up 9,520 contracts.

Yesterday’s confusion about Ukraine limiting wheat exports was prompted by the Ukrainian Ag Minister posting on Facebook of all places about the general agreement between the government and exporters which has been commonplace the last several seasons.  Essentially, the government and exporters have a gentlemen’s agreement about not exhausting grain supplies via the export channel, and in return, the government issues no hard rule on export caps.  Yesterday’s post was simply reiterating this agreement, but social media and traders misunderstood the post and took it as the first in what could be several moves to limit wheat exports by major exporters.  On the news, KW and W rallied to near limit up on relatively light volume before closing 30c off those highs.  Producer selling of winter and spring wheat was incredibly heavy which we will touch on below.  Chicago spreads made new lows on the rally while KC spreads tied contract lows as commercials smiled.

KC spot floor closes were not available this morning, but there were another 130 cars including four trains on the Minneapolis spot floor yesterday.  This brings the week-to-date total of cars on the spot floor to 515, which is roughly five shuttle trains worth.  The producer selling remained heavy yesterday as folks take advantage of the rally to price old crop sitting on DP and get caught up on doing zero marketing since planting concluded.  President Trump announced a $12 billion bailout package for US farmers in response to Chinese trade tariffs, but the rally in Minneapolis as we go into harvest is a much bigger bailout.  14’s closed down 15-20c at +70/75U vs. +115/120U a week ago while 15’s closed down 10-15c at +85/95U vs. +150U a week ago.  The absolute collapse in protein premiums in Minneapolis has followed the trend set by KC in June, although this has been much more severe with 14’s bid more yesterday than 14.5’s and only a 15c premium from 14’s to 15’s.  We don’t have any indication of North Dakota protein, but it should be lower than last year’s drought-heightened levels.  South Dakota has seen high protein across the board so far and could carry into North Dakota.  Yield ideas out of South Dakota continue to be mostly lower than expected with producers owing the lower yields to the 20-30 days less growing season.  It is difficult to make up the entire month of April and some of May in terms of development and what that does when fill periods are condensed.  Southern North Dakota is probably 7-days away from spring wheat harvest beginning.

Data yesterday included weekly export sales which were mainly positive for row crops and slightly disappointing for wheat, continuing recent trends.  All-wheat sales totaled 14.1mbu, unchanged from a week ago but slightly lower than the 16.1mbu needed on a weekly basis to hit the USDA’s increased wheat export forecast.  Total commitments of 264.4mbu remain down 29% from a year ago despite the USDA looking for an increase of 74mbu in full year exports.  Total commitments (accumulated exports plus outstanding sales) as of the fourth week in July stand at 7.196MMT, the lowest total since 2009.  Corn sales totaled 11.5mbu, well above the net cancellations of 1.7mbu needed to reach the USDA forecast meaning we have already sold well more than the level needed.  Corn commitments of 2.337bbu are up 5% a year ago with 338.7mbu left outstanding with a month left to ship.  New crop corn sales totaled 38.8mbu, with total new crop commitments at 281.7mbu vs. 174.7mbu a year ago.  Soybean sales totaled 3.4mbu vs. the -0.2mbu needed weekly.  Total commitments of 2.136bbu are down 4% from a year ago but right on track to hit the USDA mark.  There are 211.8mbu of outstanding sales, and there were 20.0mbu of new crop sales which brings the total to 381.2mbu vs. 234.9mbu a year ago on this date.  The increase over a year ago remains impressive, especially in light of China not buying during their normal US slots.

HRS crop ideas remain a moving target with the general consensus moving below USDA’s July estimate of 584mbu.  Some of the ideas being floated are too drastic for us, especially considering nary a wheel has been turned in North Dakota.  If yields are reduced slightly, to possibly the previous record set in 2016/17 and 2014/15 of 46.3bpa, production would be reduced only 8mbu while some of the ideas out there are the crop could be 50-75mbu smaller.  To put that in perspective, to get a total production number of 520mbu, national average yields would need to be around 42bpa which would only be up 2bpa from last year’s devastating drought.  Granted, in E-ND last year, spring wheat crops were a record, but in spots like W-ND, production should be double what it was a year ago.  It is just difficult for us to believe, regardless of how much top end yield is off, that spring wheat yields are only up 5% from a year ago.  Demand remains the larger concern with projected exports up only 40mbu from a year ago and still 50mbu smaller than 2016/17.  Interesting to note the bounce back in HRS production relative to HRW production, however.  HRS production as a percentage of HRW production would be a new record 88.8% this year, eclipsing the previous record of 83.05% set in 1996/97 and vs. 51.33% a year ago.  HRS ending stocks as a percentage of HRW ending stocks will also bounce back this year to 68.04% from an all-time record low of 32.9% last year.  Inter-market spreads will be an interesting trade this year, but in general, HRS should continue to command much less premium than a year ago, especially with protein premiums collapsing and a relatively high pro HRW crop this year.

 

Bottom Line: We remain skeptical of this wheat rally given the collapse in basis, weak spreads and what is undoubtedly a growing long position held by managed funds.  As export sales showed us yesterday, global importers are not yet turning to the US for their wheat needs, and each week which passes gets us closer to the Q2/Q3 window in which the US should be doing this swing business.  Even in the Iraq tender earlier this week, they took Aussie wheat instead of US wheat despite US being lower priced.  Continue to take direction from EU and Black Sea markets, which are firm, but could be in their irrational phase as analysts race to the bottom with production estimates.  Soybeans appear tired after their short-covering bout and could be susceptible to set back.  Wheat/Corn benefits corn in the near-term.

 

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.

8/2/2018 Morning Comments

Good Morning,

 

Crude oil is working on its third lower close in a row this morning, and would be the lowest spot print since June 22nd.  In addition, the most actively-traded front-month contract has dropped below both the 50 and 100-day moving averages with price off roughly $8.00/bbl from the highs at the beginning of July.  Weekly energy inventories from the EIA did show crude oil stocks up 3.80 million bbls on the week vs. estimates for a draw of 2.80 million bbls.  Crude oil stocks at 408.74 million bbls remain sharply below last year’s 481.89 million bbls and the 3-yr average of 467.25 million bbls, however.  The next area of significant support would come from the June 18th corrective lows and 200-day moving average which both line up around $63.59-63.63.

Some very light sprinkles around the Midwest this morning, but otherwise mainly quiet.  The ECB has witnessed the best rains in the last 24-hours, especially OH/IN where 0.50-1.50” of rain fell.  Several disturbances expected in the next 7-days from west to east with combined totals looking to provide 0.50-1.00” across the majority of the corn belt.  Best rains should be in C-IA where up to 2.00” is seen for the week total.  The Northern Plains will be mostly dry with the exception of MN which is expected to see a general 0.50-1.25” the next week.  Extended maps continue to suggest above normal temps and below normal precip for the 6-15-day period.  This continues to make traders nervous for pod-setting soybeans, but as these dry periods roll forward, it seems as though models put more moisture in as they get closer.  WC-IA has the largest 2-week precip deficit relative to normal.

 

Better grain markets this morning as we are once again led higher by the three wheat exchanges.  While wheat prices are leading the CBOT higher, our prices are merely following the lead from Paris/London/Black Sea which continue to push higher on declining production ideas out of Europe.  Euronext Paris Milling Wheat is up another €4.00/MT this morning, or 1.92%, with prices breaking out to the highest level since May 2014 on an active-continuation basis.  Most believed the series of gaps Paris left last week would need to be closed before additional strength could be shown, but it would appear we will need to close these sometime down the road.  London Feed Wheat is also making new highs for the move, up £1.75/MT this morning to £191.50/MT and the highest trade since April 2013.  As important to point out this morning, Euronext Paris Corn futures are also rallying sharply, up 2.46% to the highest level since June 2015 as feed ingredients could be in short supply as the supply of total wheat declines.  With global corn exporter stocks on the decline thanks to Brazil, Argentina and the Black Sea, the US remains the only viable origin of corn from now until next spring.  Dedicating the wheat supplies in the EU for milling/food use will require higher feed ingredient imports.  Soybeans traded sharply higher Tuesday on ideas China and the US were closer to coming back to the negotiation table, only to have President Trump quash that idea at a rally and the soybean market to give back half its gains Wednesday.  Additional losses are occurring this morning as private production ideas continue to rise for the US and carryout estimates are pushing toward 700mbu.  Corn open interest fell 19,254 contracts yesterday, soybeans were down 9,564 contracts, SRW was up 13,119 contracts and HRW was up 3,927 contract

The focus lately has been justifiably on the global wheat market and projections for major exporter stocks.  However, in the process, domestic US wheat values have been under some pretty intense pressure as the board has continue to rally.  This is especially true in spring wheat as new crop hits the market from South Dakota while elevators in N-MN and North Dakota continue to move old crop to make room for new supplies by the middle of the month.  There were 106 cars on the spot floor in Minneapolis yesterday which included four trains.  This follows 78 cars yesterday and 203 cars on Tuesday with Tuesday’s huge number comparing with zero cars the same date a year ago during the drought.  The movement hammered basis with 14.0% down 25c on the high side to +90U vs. +115/120U a week earlier.  Reports of higher protein out of SD also hitting 15’s with those down 35-40c at +95/110U vs. +150/165U a week earlier.  Spring wheat is seeing protein scales narrow just like HRW did with their higher pro crop.  HRW basis also under pressure as growers still making sales there with 12.60-14.00% down 10-15c yesterday alone while 11.60-12.40% were down 5c.  12.0% is now indicated at +115/130U vs. +125/140U a week ago while 13.0% is seen at +125/140U vs. +140/155U a week earlier.  The demand which everyone keeps pushing back to the US on the balance sheet has not shown up yet, and there is simply too much grower selling to overcome with the board rallying.  With basis breaking and spreads getting pressured lower, would be wary about buying futures up a dime today.  Additional risk management probably prudent.

With the board running hard, inter-market spreads have understandably made quite a move as well.  The wheat/corn continuous spread is trading at +199.00c this morning, the highest print since December 2014, while KW/C is at the highest level since January 2015.  As we’ve pointed out before, in very general terms, W/C likes to spend a lot of time between +50.00-150.00c, with the exception of 2006-2008 and a period from 2013-2014.  With respect to the US balance sheet specifically, the 2017/18 marketing year saw feed/residual demand fall to 50mbu, the lowest level since 2007/08, and the second lowest level on record on the way to a 1.100bbu carryout.  With these kind of spreads against corn, difficult to believe we can achieve USDA’s current 130mbu feed/residual estimate for 18/19.  With exports running behind schedule, even as everyone continues to push demand back to the US in Q3/Q4, we don’t exactly need another demand component to worry about with carryout already at 985mbu on some arguably inflated demand ideas.  Would be wary of some profit taking in this spread in the near future.

And in case we didn’t have enough going on at the moment, plenty of folks already talking about 2019/20 acres with winter wheat seeding about two months away for a big swath of the country.  As it stands today, corn and winter wheat would appear to be the big winners in the acreage battle as soybean prices should be low enough to cause a meaningful shift away.  On this date a year ago, July 2018 KC winter wheat futures were trading at $5.39 vs. July 2019 futures at $6.20 this morning.  In addition, CZ9 at $4.06 compares with CZ8 at $3.79 a year ago.  As we saw with spring wheat acres this year, it does not take much convincing for farmers to plant more wheat as it helps them get rotations back in order after several years of heavy fall crops, spreads out their workload with earlier planting times and also their harvest workload with bushels off before the end of summer.  As is usually the case, however, the attractive board prices currently available will most likely not be available if left unhedged or protected at harvest time next year.  The prices will buy acres, and once the market has confirmation of the increased acres, premium will be extracted.  As next year’s crop insurance prices for winter wheat are being established, producers would do well to consider locking in a portion of their unprotected acres to ensure these attractive returns remain attractive when the crop is harvested.

In the run up to the August WASDE report, INTL FC Stone released their August customer survey for the 2018 corn and soybean crops.  They pegged the US corn crop at 178.1bpa with a crop of 14.562bbu which compares with the USDA at 174.0bpa and 14.230bbu in the July WASDE.  Their soybean crop is seen at 51.5bpa and a crop of 4.574bbu vs. USDA at 48.5bpa and 4.310bbu.  Would characterize both of these numbers as on the high side of the range of estimates.  As one astute observer pointed out this year, there is a general fear analysts are overcompensating for last year’s huge miss when crop conditions models had the crop significantly smaller than what USDA presented in August while weather models were much closer to reality.  This year, crop condition models are suggesting huge yields based on historically good conditions while weather models are suggesting yields at USDA’s current number or slightly lower.  Analysts tend to put too much stock in an event which just occurred or is fresh in memory.

 

Bottom Line: Higher, but export sales this morning could be a reminder that US wheat prices have no business in rallying away from demand.  We’ve closed the FOB gap with US prices not showing any discount to EU prices any longer.  Grower selling is heavy at these prices, and cash reflects same.  Corn still feels like it could add more premium ahead of the August WASDE but soybeans don’t seem to know what to do with the 9-handle basis SX8.  If the soybean crop ends up as large as what some are projecting, we’ve got too many soybeans regardless of what China does to their buying pattern.

 

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.

7/30/2018 Morning Comments

Good Morning,

 

A big week for financial markets with the Tue/Wed meeting of the Fed’s FOMC, which is forecast to return an unchanged rate policy.  We also have the July employment situation report which is expected to show continued job growth of around +193,000 on the month while the unemployment rate is expected to drop by -0.1 to 3.9%.  In addition, the next round of tariffs is slated to be implemented, amounting to 25% on $16 billion worth of goods as the public comment period ends tomorrow.  The USD Index and crude oil are coiling, and both could be expected to produce breakouts in one direction or the other based on all of the aforementioned events this week.  Spot crude oil has been oscillating around the 50-day moving average, closing above and below that line the last 10-sessions.  The USD is sitting just atop its 50-day moving average, having traded in a 1.500 range since mid-June.

Systems across KS/NE/S-SD as well as OK/TX and IL/IN/OH this morning to begin a new week.  Rainfall the last week was best in SW-KS and W-NE, while the Great Lakes also saw good rainfall.  The bulk of the corn belt was mainly dry, and the 14-day percent of normal precip map shows decent deficits across a big chunk of Iowa, E-MO, all of Illinois and W-IN.  Various outlets made note of the fact Des Moines will have experienced its 5th driest July on record this year.  Fortunately, much of July was also below normal on temps, keeping moisture needs lower than normal.  Not much relief until next weekend for most places running deficits with the WCB mostly devoid of moisture until N-IA sees 0.50” chances this coming weekend.  Temperatures gradually warm this week with normal/above temps present for most by the end of the week.  WCB continues to be below normal on moisture while ECB is above normal.

 

Better markets out of the gate last night and following through this morning as most contracts attempt to add to last week’s decent gains.  The dry two week stretch we’ve just endured combined with limited prospects the next 7-10 days appears to be putting a bit of strength under row crops, although most crop observers continue to make note of the incredible potential in this year’s soybean crop.  Many areas of Iowa, Illinois, Nebraska and South Dakota are remarking these are the best soybeans they’ve ever seen.  Turning the water off now into mid-August could trim that potential somewhat.  Also lots of discussion about kernel depth and ear weight making the rounds as analysts try to quantify what the speed of maturation this year might do to ultimate yield potential.  We went from 50% planted to 50% silked faster than any year on record, including 2012, leading some to believe the long fill period often required for heavy corn was just not possible this year.  This isn’t likely a factor which will impact the August WASDE report, so any surprises from lighter ears would most likely surface in September or October if at all.  Wheat retains its floor leadership this morning as production estimates for EU/FSU continue to be dialed back and as more folks wake up to the dim production ideas out of Australia due to drought.  Lots of demand being moved around between the major exporters, but for the United States, our export forecast is already counting on hefty y/y gains which we have not yet proven we can achieve.  Corn open interest on Friday was down 17,426 contracts, soybeans were down 18,218 contracts, SRW wheat was up 4,041 contracts and HRW was down 1,047 contracts.

Funds added to their net short position in corn last week according to the latest COT data, selling another 10,139 contracts to put their net short at -144,581 contracts.  This remains the largest net short since late January, and is probably a bit larger than the trade was expecting.  Some short-covering has occurred since the position was posted.  The gross commercial long (end user) added another 19,000 contracts as he moves back closer to his record position achieved in mid-June.  Still not much farmer selling according to the gross commercial short.  Also selling by the funds in beans with their net short rising by 9,701 contracts to -93,719 contracts.  This is the largest net short since January 23rd.  Light buying by the funds in HRW, which was probably even heavier to finish the week.  Funds in Chicago wheat bought 8,582 contracts to drop their net short to -28,820 contracts.  A bit more length in HRW, and probably not the size of net short the market was expected in SRW.  Funds added to their net short in Minneapolis, selling another 283 contracts to put their short at a new record -12,865 contracts.  Here again, there was short-covering to close the week, but the size of the net short in Minneapolis is still way too big and lends itself to further correction higher.  Also supportive was the fact the gross commercial long in Minneapolis rose to 35,333 contracts, up 2400 contracts on the week to the largest since mid-November 2017.

Lots of movement in inter-market spreads lately, especially within the three wheat exchanges.  Minneapolis has corrected around 20.0c against Chicago and around 10-15c against KC.  After the Wheat Quality Council tour released a lower than expected wheat projection, analysts are busy trying to determine what it means for the USDA estimate, and how much demand we actually need based on various production scenarios.  We contend HRS needs demand, regardless of production size, but if the crop is around USDA’s latest estimate or even smaller, then Minneapolis probably deserves more than a 25-30c premium over Chicago and KC.  W/C and KW/C corrected sharply the last two weeks and have now hit the highest levels since the drought run up in June/July last year.  In fact, on an active-continuation basis, W/C actually hit the highest level since June 2015 and has completely priced itself out of any possible feed ration.  With a few exceptions, W/C has generally traded a range of 50.0-200.0c going back to the early 90’s.  At $1.81 basis the December contracts, would have to call this high range and susceptible to set back.  In addition, if EU wheat crops are curtailed, and feed wheat demand needs to be rationed there, it could lend itself to higher corn imports for the bloc, supporting US corn demand even further.  Would be wary of a correction in W/C and KW/C, especially given the size of the fund short in corn and the recent buying in wheat.

We continue to monitor global wheat prices as they lead this move in wheat.  With the production concerns in Europe, Russia and Australia, it 100% needs to be these areas which take leadership for any wheat rally.  This morning, Paris wheat continues to rally higher with PMU up €3.25 this morning, but just below the €204.75/MT high set Thursday.  While December is the most actively traded contract, the September chart shows a potential “Island Top” pattern setting up which would lend itself to sharp losses straightaway if price gaps lower below the €197.00/MT low from last week.  London Feed Wheat is also higher this morning, up 1.47%, although below last week’s highs.  ASX Australian wheat futures remain very well supported, closing last week at $380.00/MT, which is a new contract and all-time high going back to 2015.  Black Sea wheat futures closed lower Friday, but is only ticks off contract highs set Thursday.  While higher prices will ultimately ration demand for Russian wheat, futures there continue to sport decent carry, limiting farmer engagement and in effect helping ration available wheat supply.  The U/Z spread in Black Sea futures is still showing -$7.75/MT worth of carry, or 21.0c/bu vs. KCBT U/Z at -26.75c, although this is up from -28.00c mid-week.

 

Bottom Line: Some seasonal bottoms definitely feel as though they’ve been set with forecasts turning drier and warmer than what we’ve seen recently.  Demand remains strong for corn and soybeans, while less so for wheat.  Wheat continues to exhibit strength on ideas of better demand in 2H-2018/19.  This certainly looks likely, but the longer we go without seeing a pickup in demand, the more difficult it becomes to actually achieve any of these lofty export totals.  Global demand can drop y/y with major importers using more corn in feed rations, and pulling wheat from non-traditional origins.  The US cannot afford to rally away from export demand like we’ve done time and time again over the last 2-years.  Corn and soybeans awaiting the kick off of several private crop tours before the ProFarmer tour mid-month.

 

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.