12/13/2017 Morning Comments

Good Morning,

Dry weather continued to dominate Argentina and S-Brazil with light amounts falling across the north Brazilian growing region.  Little relief in store for Argentina until the weekend and the end of next week, placing a lot of emphasis on these rains actually falling before a true pattern change can take place.  Southern Brazil too will remain dry until an upturn in shower activity early next week.  Temps will be running above normal for Argentina today before cooling as the week progresses, while the 6-10 day period sees highs in the 80’s.  Brazil will remain in good shape temperature wise for the next 7-10 days.  December 18th-22nd look like the best rains for the dry areas in South America.

 

Slightly firmer markets this morning following the negative reaction to the USDA report yesterday morning.  Our markets saw both sides before realizing a growing carryout in US soybeans and wheat was difficult to construe as supportive.  Corn carryout did drop, but enough concerns remain about a future cut to exports, which would offset the increase to ethanol yesterday, that price remained subdued.  Chicago wheat has now closed lower for the seventh session in a row, which appears to be the longest losing streak of 2017, and could be the longest losing streak going back much further.  Since December 4th, Chicago wheat open interest has risen 35,482 contracts while price has dropped 27c/bu.  Corn open interest is up 39,483 contracts since 12/4 while price is down 10.75c.  Conversely, soybean open interest has dropped 36,564 contracts since its recent peak on 12/5 while price is down 19.75c.  Should see managed funds adding to their net short positions in wheat and corn, while liquidating their net long in soybeans when the next COT data is released on Friday.

As noted above, US corn carryout fell by 50mbu yesterday as the USDA increased corn demand for ethanol by 50mbu thanks to the record production rates achieved the last several weeks.  A further ethanol discussion will follow below, but no one can argue with the increase.  Exports were left unchanged, and that is probably the right move at this juncture, given most are expecting a seasonal increase in corn sales and shipments as the calendar flips to 2018.  If an increase to both is not seen in early January, then USDA may have grounds to cut the 1.925bbu export forecast.  The US soybean carryout increased by 20mbu thanks to a 25mbu cut to US exports and a 5mbu increase to seed use.  The end result was in line with trade estimates, and should provide a little breathing room for US exports.  However, even at the reduced pace, exports are still expected to grow by 51mbu, despite the fact commitments and shipments are behind last year’s pace.  This needs to be monitored closely over the next 6-weeks.  US wheat carryout also rose thanks to a 25mbu cut to exports, which was mostly justified.  Commitments and shipments had also fallen well behind a year ago, but second half exports are still expected to be solid, and the business announced to Algeria yesterday could be the start of that program.

South American estimates were left completely unchanged for both Brazil and Argentina on corn and soybeans.  There were some rumblings Brazilian soybean production could be increased as CONAB had done earlier in the morning, but an unchanged estimate is completely understandable.  Brazilian corn estimates are decidedly under the market, however, with the USDA remaining at 95MMT vs. 98.5MMT a year ago.  Acreage is declining, but weather has been good enough to keep yield ideas on the up and up.  Argentina estimates were unchanged as the trade was expecting, considering the planting campaign is not even complete there.  Other big world changes would include Canadian wheat production being bumped to 30MMT from 27MMT last month and StatsCan at 29.98MMT last week.  Oddly, Australian wheat production was not touched at 21.5MMT, despite ABARES moving to 20.3MMT earlier this month.  In addition, Australian exports of 17.5MMT were maintained, but no one on the ground in Australia would subscribe to a number that large.  Thanks to the aforementioned, world carryout rose for corn, soybeans and wheat again this month.  Also worth noting, however, world demand rose to a new record 740.5MMT, which is 5MMT larger than where WASDE began the marketing year back in June.  Based on normal growth rates over the last 10-20 years, world demand for 18/19 would be projected anywhere from a conservative 749.9MMT to an aggressive 753.6MMT.

The other big news yesterday was the HRW business to Algeria with 120,000MT announced, and another 60,000MT said to be in the works or conducted but not announced.  Cash traders also said some Moroccan business under their preferential-duty program could also be conducted in coming days.  HRW at the Gulf for January is as cheap as any other origin on a FOB basis, although freight spreads change things depending on destination.  Yesterday also saw Egypt’s GASC tender and buy 295,000MT of wheat for January 21-31 shipment.  This amounted to 235,000MT of Russian wheat and 60,000MT of Romanian wheat at an average FOB price of $193.27/MT and an average landed price of $208.37/MT.  Interestingly, US-SRW would have been competitive on a landed basis, but could not make GASC protein specs.  Point here being, US-SRW is now the cheapest priced feed wheat in the world as well, although getting commercials to give up lucrative storage returns to hit feed business isn’t all that likely.  Lastly, MATIF/KW spreads hit the highest premium yesterday since August 2016 around $38.12/MT.  Similar price spreads are true for MATIF/W.

Weekly ethanol production will be the focus for the Ag space later this morning given the record run rates of the last several weeks.  Traders will also be watching given spot ethanol prices dropped to the lowest price in 12 years yesterday, the fourth month ethanol futures were traded back in June of 2005.  It isn’t just spot futures prices trading weakly as calendar spreads are also at contract lows and paying as much as 2.5c/gln to store ethanol for as little as 30-days.  Encouragingly, RBOB/Ethanol spreads are also trading at huge premiums with the spot month spread at the highest premium since July 2015.  This should be encouraging max blending as well as higher inclusion of discretionary blending and use for higher ethanol blends. Helping support ethanol grind rates despite overflowing storage is solid demand for DDGs which are up $8-10/MT on a FOB basis at the Gulf since the beginning of the month.  While storage tanks are overflowing with ethanol, DDGs storage is said to be scraping out the corners at many plants.  Higher priced meal is forcing domestic feeders as well as importers to seek alternatives.

 

Bottom Line: Nothing in yesterday’s data to change the overall narrative, but without a higher close today, soybeans will be looking to put in their sixth lower close in a row and wheat its eighth.  Our markets are technically and fundamentally weak at a time in which volumes will be declining into the holidays, and the only volatility will come by way of South American weather.  Producers would do well to identify the top and bottom ends of our ranges when they develop and place marketing targets accordingly.  In addition, new crops prices need to be tracked early and often this year while they still provide margin.

 

Good Luck Today.

Tregg Cronin

Market Analyst

Tregg.Cronin@halocommodities.com

www.halocommodities.com

@5thWave_tcronin

 

 

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

 

12/12/2017 Morning Comments

Good Morning,

 

 

A few snow showers over the Great Lakes and ECB, but otherwise an empty Midwest radar.  Will be on again/off again chances of moisture over the next 3-4 days for the upper-Midwest and Great Lakes, while the southern plains continue to receive dry/warm weather as the feature.  Temperatures remain uniformly above normal during the 6-10 day, but moderate slightly for the 8-14 day.  The Northern Plains continue to be features in the above normal precip category, but the rest of the Midwest and especially southern plains see below normal precip the next 15-days.  The 30-day percent of normal precip map below accurately depicts the dryness being experienced.  Limited precip in Argentina most of this week with chances increasing during the 6-10 in which both Argentina and S-Brazil are expected to see above average rains fall.  These rains will be important as both areas have seen below average rainfall the last 3-4 weeks.  Central and northern Brazil continue to see benign weather.

 

Quietly mixed markets this morning with grains slightly better and soybeans slightly lower.  While December is typically a strong month seasonally for both corn and wheat, the opposite has been true through the first 12 days.  Both winter wheat exchanges have closed lower the previous six sessions in a row, the longest streak since the beginning of November.  Minneapolis is lower this morning for the sixth session out of the last seven.  Corn has been a bit more split with lower closes in four of the last seven sessions, but since the beginning of the month has still lost 5.75c.  The heavier than expected deliveries with no strong commercial stoppers have really weighed on the futures board, especially as traders look ahead to the rest of the delivery periods this marketing year and expect more of the same.  Wheat has no technical or fundamental support, and export interest is only now starting to trickle in  Analysts universally agree 18/19 should see tightening wheat supplies amid lower acres in the US and abroad.  However, until we get to the January 12th WASDE report when the first USDA winter wheat acreage projection is released, it is tough to shake the mentality of burdensome supplies and an ultra-competitive export market.  With December essentially off the board, March corn has taken up its $3.50 magnet roll rather well, despite hitting fresh contract lows yesterday.  Soybeans are testing support once again, although spreads have perked up.  The COT structure in the soy complex is concerning.

Starting with Friday’s COT report, the things which jumped out were the structure of the soymeal and soybean market specifically.  In meal, funds bought 25,207 contracts during the reporting week, to push their net long to +63,907 contracts, the largest net long since 2/28/17.  Any position in excess of +60,000 contracts net long would be considered large going back to 2007.  As interesting as the fund position would be commercials selling a net -35,082 contracts to put their net short at -190,197 contracts.  This is the largest net short since 2/28 as well, but is just 10,000 contracts from the all-time record net short of -200,782 contracts set on 2/21/17.  The 35,082 contracts commercials sold on a net basis was the third largest week of selling on record.  The gross commercial long position as a percentage of open interest at 21.0% is the smallest for this time of year since 2013 and the second smallest on record.  Similar positioning was seen in soybeans, although the outright positions aren’t nearly as exaggerated with funds long just 30,561 contracts.  As many people have pointed out on social media, corn didn’t have a great COT week either considering funds bought 28,474 contracts during the reporting week of 11/29-12/5, over which time corn rallied from $3.4950 to a high of $3.60 before closing the reporting week at $3.5375.  In other words, funds bought back 12% of their position and the market only managed a net change of 4c, which is probably why we are right back down at contract lows.

While corn has been weak, wheat has been weaker, pushing wheat/corn spreads back down to levels not seen in several months.  The spot month W/C spread settled last night at +51.25c, the lowest trade since 4/26/17.  From an active-continuation basis, W/C is trading at +65.00c this morning, the lowest since August.  KW/C is trading at +65.00c this morning as well.  On a weight-adjusted basis, W/C and KW/C are trading at 111% of the price of corn, which on its face is probably not low enough to entice widespread switching by feedlots.  On a cash basis, however, HRW is trading at 93.0% of the weight-adjusted price of corn in the Triangle Area of TX, which is much closer to working in on paper, especially if lower protein wheat can be secured at a discount.  In Rose Hill, NC, SRW is trading at 92.3% of the weight-adjusted price of corn, also leading to inquiries.  This isn’t to say the flat price levels of both can’t trade lower, but simply wheat is getting down toward value areas relative to the price of corn.

Export inspections were also released yesterday and continued the theme of disappointing grains and ho-hum soybeans.  Wheat inspections were 11.6mbu vs. the 19.9mbu needed weekly to hit the USDA export forecast.  Total exports now stand at 480.4mbu which are now down 7.3% from a year ago.  The USDA could make a downward adjustment in their export forecast later this morning, but odds are better they wait until January.  Corn inspections were 25.9mbu vs. the 40.4mbu needed weekly to hit the USDA forecast.  Exports continue to lag last year by about 41.6%, but if exports pick up seasonally JFM to around that 40mbu level, a downward adjustment might not be needed at this time.  This would be especially true if USDA follows private estimates on Brazilian corn production lower.  Soybean shipments totaled 45.2mbu vs. the 34.8mbu needed weekly, but were the lowest shipments in 10-weeks.  The deficit with a year ago continues to grow and now stands at -13.8% despite the USDA calling for a 76mbu increase in exports y/y.

The USDA will release their latest WASDE projections later this morning, and it should a relatively quiet report all things considered.  Corn carryout could drop as ethanol demand is increased, soybean carryout should go up on a cut to exports and wheat carryout probably remains unchanged until Dec 1 stocks data can be incorporated for next month.  World changes should see USDA adopt ABARE’s estimate for Australian wheat production, which would be a small cut, while they should also adopt StatsCan numbers for Canada which would be a sizable increase to production and ending stocks.

Quickly, CONAB released their latest Brazilian crop estimates early this morning, increasing their soybean estimate to 109.2MMT vs. its November forecast average of 107.5MMT and the USDA at 108.0MMT.  Corn production is seen at 92.2MMT vs. their previous estimate of 92.35MMT and the USDA at 95MMT.  Some private estimates are already sub-90MMT on simply acres, but weather to-date has been ideal so estimates could be scooting back higher already.

 

Bottom Line: Another USDA report, but very unlikely to change the overall narrative of global grain surpluses.  While corn basis has been firming up at both export hubs, and domestic demand remains strong from feed lots and ethanol, the US farmer remains undersold as we near year-end and the 1st of the new year, both of which can bring selling which isn’t price-sensitive.  Wheat markets need to get to January 12th as quickly as possible to try to change the narrative.  Protein will remain in the driver’s seat for the foreseeable future.

 

Good Luck Today.

 

Tregg Cronin

Market Analyst

Tregg.Cronin@halocommodities.com

www.halocommodities.com

@5thWave_tcronin

 

 

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

 

 

12/8/2017 Morning Comments

Good Morning,

 

An open Midwest radar this morning, but impressive are the rain and snow bands moving across the Texas Gulf, Delta and US-SE.  Significant snowfall was noted across TX last night, but most was too far south to provide any relief to the HRW belt.  Most of the Northern Plains now have at least some snow cover, although warming temperatures this weekend and early next week should melt the majority of this.  The Midwest is mainly dry the next 7-days.  No moisture relief is seen for the southern plains in the next 15-days, but the Northern Plains move into above normal precip during the 8-14 day.  Dry weather continued to dominate Argentine growing weather, and should remain that way for the next 7-10 days.  Some relief is being offered for the 11-15 day, but that is a long way out to have a ton of confidence in.  S-Brazil is also creeping drier while Northern Brazil remains in ideal shape.

 

Firmer markets this morning as our space attempts a bounce to finish what has been a tough week for grains.  For the week, March corn is down 5.50c, March Chicago wheat is down 15.50c, and Jan soybeans are up 1.50c.  New contract lows the last three days in the three wheat contracts has been pretty demoralizing for bulls, especially as the selloff hasn’t really done much to perk up export interest.  The way December wheat broke into option expiration, and then again into FND as commercials hurled more wheat than expected at the delivery market gives us a pretty solid road map for future expirations, especially considering this was the same path followed during September expiration.  While not as dramatic, the same could be said for December corn as September traded down to $3.30 as we approached FND while December gave up its carry to trade $3.35 amid heavy deliveries.  Overnight, there were an additional 5 KC wheat deliveries, bringing the month-to-date total to 820, 25 Chicago wheat with the MTD total at 4,724, 464 corn with the MTD total at 7,269 contracts and 189 meal with that MTD total at 1,323 contracts.  Grain open interest is increasing on the break while soy is dropping.

While we were away in Chicago, a ton of fundamental data was released which we’ll attempt to cover if it is deemed important.  Yesterday, export sales were released, none of which was particularly impressive with the exception of soybeans.  Wheat sales totaled 11.8mbu vs. the 14.2mbu needed weekly to hit the USDA export forecast.  Total commitments continue to slip relative to a year ago at 642.5mbu vs. 711.7mbu, a 10% deficit.  As noted above, the disheartening part is the fact the break in futures isn’t improving export interest, due in part to our strong basis levels because of a lack of high quality/high protein wheat.  HRS sales missed the needed level for the third week in a row.  Corn sales totaled 34.5mbu vs. the 26.1mbu needed weekly, but total commitments at 901.5mbu are still down 27% from a year ago.  Fortunately, after a slow start, corn sales are closing the gap with a year ago.  Brazilian corn production is expected to decline vs. a year ago, so second half export sales could be stronger than expected.  Soybean sales were solid at 74.1mbu vs. the 24.1mbu needed weekly.  Total commitments of 1.335bbu are down 16% from a year ago, but closed the deficit by 2% this week alone.

Sticking with the export theme, October Census import/export data was released this week with DDGs exports totaling 1.027MMT vs. 903,290MT last month and 965,336MT a year ago.  Calendar year-to-date DDGs exports are a hair behind a year ago, but prospects for improvement are high given China’s move to cut some import taxes on US-DDGs.  In addition, Vietnam has removed trade barriers with the intention of resuming US-DDGs imports.  Given the reports of US-DDGs being smuggled across the Vietnam border into China, it should have come as no surprise Vietnam banned US-DDGs at the same time China decided to implement enough import taxes to kill interest.  Therefore, it should come as no surprise Vietnam is willing to take DDGs again when China takes steps in that direction.  Ethanol exports totaled 93.6 million gallons in October vs. 86.4 million gallons last month and 123.7 million gallons a year ago.  Ethanol exports are well ahead of last year at this time, although slowing imports from Brazil will need to be monitored given they took the second large amount of ethanol during the previous marketing year.

Corn, soybean and wheat exports for the month of October were also released, allowing us to compare weekly inspection data with official Census exports.  Soybean exports totaled 9.441MMT which was the lowest October since 2014, and lower even that weekly inspection data implied.  China accounted for 74% of the total shipped in October, but it too was the smallest total shipped to them during the month since 2014.  Such a slow month during what is largest export month of the marketing year raises further concern about the USDA’s current 3% increase being forecasted for full year exports.  Corn exports totaled 2.725MMT, down from September at 3.520MMT and down from last year’s 3.618MMT.  The three largest export months for corn during 2016/17 occurred Mar-May, so plenty of time for corn exports to catch up, but putting the onus on the second half of the marketing year.  Wheat export sales were 1.383MM down from last month’s 2.341MMT and last year’s 1.719MMT.  MYTD wheat exports total 11.346MMT vs. 11.634MMT a year ago.

Lots of other data we could comb through, but the most important to the wheat market would have to be the revised Canadian wheat production number issued by StatsCan.  The group said our neighbors to the north produced 29.984MMT of wheat, which was about 1MMT above even the largest pre-report estimate.  The 29.984MMT compares with the USDA’s estimate last month at 27MMT, and should mean a big increase by the USDA on this month’s WASDE report.  While protein levels of this crop are reported to be down from last year and the last several years, it should still mean Canada will attempt to export as much of this estimate as possible.  If this updated production number is put against current USDA demand, ending stocks rise to 7.099MMT which would be the largest since 2013/14.  If one takes the 37.299MMT of total supply, and subtracts total domestic demand of 8.1MMT, it leaves us with 29.099MMT of exportable surplus were it all to be shipped.  The chart below shows the exportable surplus relative to the last 37 years with 17/18 being the third largest since 1993/94.  With US-HRS export sales already struggling, this isn’t going to help attempts to climb out of that hole.

 

Bottom Line: The focus this week has been the grain weakness and the soy complex strength with the exception of the previous two sessions.  Meal spreads have rallied, but soybean spreads have not.  Weather in Argentina remains a large enough concern to limit losses, but if rains in the 11-15 day period verify and allow the second half of planting to catch up, the board might be more apt to give up premium.  Grains feel like they’ve gone low enough for now with funds clearly adding back to their net short positions.

 

Good Luck Today.

Tregg Cronin

Market Analyst

Tregg.Cronin@halocommodities.com

www.halocommodities.com

@5thWave_tcronin

 

 

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

 

12/1/2017 Morning Comments

Good Morning,

 

Another blank Midwest radar this morning, and should remain dry until Sunday/Monday when light chances of precip show up in the WCB and Great Lakes.  A system will work in early next week and set up shop for 2-3 days over SD/NE/MN with heavier totals to the east in WI/IL/IN/OH/MI.  7-day forecast totals are putting 0.10-0.25” in the WCB while 0.50-1.30” looks likely in the ECB.  Odds are good the moisture in the west will fall as snow, but could be rain in the east.  Temps in the 6-10 and 8-14 day are mostly below normal.  After that system, below normal precip looks to move back in for the entire Midwest through December 14th.  It feels as though we have been writing about dry weather in the Midwest and Plains for a while now, and the 30-day percent of normal precip map would confirm that idea.  Major moisture deficits have developed in the southern plains, northern plains and WCB.  Obviously moisture needs are quite low at this time of year with the exception of recently emerged winter wheat, but the trend is more the concern.

 

A little bit better markets this morning as we open December on a firmer note with much of the trade eager to put November behind us.  That would be true for more than one reason as December is rather strong seasonally for much of the Ag room with this month being the strongest seasonally of the entire calendar year for corn.  According to www.sentimentrader.com, over the last 30-years, corn has posted an annualized return in the month of December of 3.992%.  For Chicago wheat, December is the third strongest month of the year at 1.874%, while soybeans have the weakest seasonal return of +0.124%.  Worth noting, according to the site, soybeans have the strongest month from a seasonal perspective in November at annualized return of 2.083%.  For the month of November, January soybeans closed up 1.0c/bu, but had a total range of 41c.  During the last session of the month, with grains up and soybeans down, additional open interest came off.  SRW wheat saw open interest down 10,468 contracts, corn was down 3,646 contracts, HRW wheat was up 583 contracts and soybeans were up 8,608 contracts as the market closed lower.

You would have been hard pressed to find a bigger talker yesterday than the huge deliveries in Chicago wheat and corn to a lesser extent.  The confusion came from the fact cash SRW wheat is trading above delivery equivalence by quite a margin, implying there should not have been any or very many deliveries at all.  Then word began to spread the wheat Anderson’s delivered (10.0mbu in total) was not milling quality due to low falling number.  That in itself raises its own set of questions as the applicability of it being able to be used in the delivery process.  Nonetheless, the 2,000 fresh registrations and subsequent deliveries blew the spread out from a close of -18.25c on Wednesday to a close of -23.75c yesterday and the WZ/WH trading down to -24.75c this morning.  The real question comes down to depth of demand as the hot SRW barges at the Gulf are probably not more than a few deep.  In addition, the strong Toledo mill bids posting +25H for December delivery could probably be covered up with the amount of wheat delivered.  6.0c on 10.0mbu, however, isn’t a bad day’s work.  There were no additional registrations last night, with 1,520 contracts being redelivered.  The concerning thing is no strong commercial stoppers have yet showed up which means the contracts could continue circulating, keeping pressure on the WZ/WH spread.  Both commercials and managed funds are interested in protecting roll yield in the wheat market, and until that is threatened, upside will be difficult to come by.

The other big surprise was Cargill registering a fresh 880 contracts of corn the night before last along the Illinois River , which also found no strong commercial stoppers.  There were 1,286 deliveries last night, bringing the month-to-date total to 2,490 with registrations expected to circulate for a while with cash below delivery equivalence.  In HRW, it was a fairly quiet FND with only 55 contracts delivered, but last night there were 300 fresh registrations in Wichita which helped total deliveries push to 556 contracts.  HRW is the lone commodity with a strong commercial stopper, however, as Cargill stepped in for 526 of the 556 contracts which should leave very few outstanding after today.  Cash market activity yesterday makes this completely understandable.  MGEX also provided some interest with CHS Hedging delivering 200 contracts on FND which had no strong stoppers.  Then last night, there were an additional 200 contracts registered, and the total delivered went to 398 contracts.  The issuers the last two nights have been CHS and LDC, the two largest commercial players in the spring wheat market with no one of note stepping into stop them.  Usually worth paying attention to when those to make a statement.

As noted above, HRW cash was strong on the spot floor again yesterday with ORD’s to 12.80% up 3-23c with 11.60% up 39c in one day.  11.0% protein wheat is indicated at +115/130H vs. +125/140Z a week ago with the spot floor rolling at -18.00c.  In other words, the bid side would be around 8c stronger than week ago levels.  12.0% pro is now indicated at +205/220H vs. +197/212Z a week ago, and 13.0% pro is called +248/263H vs. +268/283Z a week ago.  With the basis strength we are seeing as we get set to close the calendar year, many are asking what the availability of protein wheat will be like in 2018?  We have 6-months before new crop HRW will be showing up in the southern plains!  The domestic market is doing its job to ration demand, but the high basis levels being paid to get the quality desired and to pull the bushels from hedged inventories are also making our exports difficult to price into major import destinations.  The MGEX spot floor was mixed with 14.0% up 5-20c at +110/150H while 14.5% pro was down 10c to +110H and 15.0% was up 15c to +175/190H.

In other wheat news, cash traders are buzzing about the monster storm about to hit Australia which could threaten an already drought-reduced crop with quality-threatening rains.  The Australian bureau of meteorology said rain in Victoria and NSW could range anywhere from 50-250mm with Victoria expected to see the most rainfall.  There is the potential some spots could see as much as 2.00” an hour with loss estimates anywhere from 1.0MMT to 3-4MMT.  Best estimates figure 50% of the wheat in New South Wales and Victoria is still out in the field, but major progress is being made ahead of the storm to try to minimize losses.  The concern over a loss of quality, when so many major exporters are already facing quality/protein issues, is reflected in the spread between ASX futures and Chicago wheat futures which has blown out to nearly A$80/MT.  The storm begins Friday and continues through Sunday which could make for an interesting evening session.

Data out yesterday included export sales which were disappointing for nearly everything.  Wheat sales were abysmal at 6.8mbu vs. the 14.1mbu needed weekly.  Total commitments continue to slip relative to a year ago with total commitments at 630.7mbu vs. 693.2mbu a year ago, a deficit of 9% vs. a deficit of 5% two weeks ago.  Corn sales totaled 23.6mbu vs. the 26.3mbu needed weekly, the lowest sales total in nine weeks.  Total commitments of 867mbu are now down 27% from a year ago at this time.  Soybean sales totaled 34.6mbu vs. the 25.3mbu needed weekly but were the second lowest total of the marketing year behind last week.  Total commitments of 1.263bbu are down 18% from a year ago as the deficit grows despite the fact we are expected to sell and ship 3% more this year.

 

Bottom Line: A new month, and new opportunities, although the weight of the large deliveries sloshing around will continue to hang over the market.  South American weather will continue to be a focal point as they try to finish the second half of their planting campaign.  US exports continue to sport deficits with the pace expected by the USDA.  This needs to change in order to prevent further negative sentiment creeping into our space.

***I will be off markets Sunday through Wednesday as I make my annual pilgrimage to the DTN Ag Summit in Chicago to talk marketing with producers.  There will be no comments posted Monday-Wednesday.  Any comments or questions can be sent directly to Kevin and the guys at Halo Commodities.***

 

Good Luck Today.

 

Tregg Cronin

Market Analyst

Tregg.Cronin@halocommodities.com

www.halocommodities.com

@5thWave_tcronin

 

 

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

11/29/2017 Morning Comments

Good Morning,

 

An interesting article from the US Energy Information Administration yesterday which said the ratio of natural gas production relative to crude oil in North Dakota has been gradually rising since 2008, but has accelerated since 2014.  Total crude oil production peaked in the Bakken at around 1.2 million bpd in December of 2014, but dropped to 1.07 million bpd as of August 2017, accounting for rougly 11% of total US crude oil production.  While oil slowed, natural gas production continued to grow, reaching a record high of 1.94 billion cubic feet per day in August, which has the energy equivalence of about 334,000 bpd of crude oil.  To be clear, North Dakota still produces more than three times as much energy from crude as it does natural gas, but finally using the excess natural gas is definitely a step in the right direction.  In previous years, around 35% of the state’s natural gas withdrawals were the result of being flared rather than marketed.  Based on recent data, it is reasonable to assume that figure has been cut by as much as 40%.

Wide open weather in the Midwest, and remaining so until mid-week next week in the central and mid-south parts of the Midwest.  The Plains and WCB will be without moisture another week.  The system midweek next week in the south should bring 0.50-1.00” totals to much of MO/S-IL/S-IN/OH/KY/TN/AR and the Northern Delta.  Temps slowly work themselves colder over the next 10-15 days with below to much below normal temps occurring in the aforementioned areas receiving moisture.  The Northern Plains will cling to above normal temps in western stretches through the end of the period.  Precip should remain below normal for the Plains states.  Still waiting on a couple fronts to work through Argentine growing regions the next 4-5 days, which was part of the soy weakness yesterday.

 

Mixed markets this AM with corn and wheat trying to add to small gains from yesterday, while soybeans post modest losses in follow through from their Turnaround Tuesday.  Unfortunately, because of how severe the selloffs in corn and wheat have been, it will be next to impossible to call strength in either commodity a recovery or a reversal for quite some time.  With respect to March Chicago Wheat, we need trade above the 4.33-4.35 to simply call things a correction, and would really need to see trade above 4.50 to be wading into the camp of a more serious reversal.  In March corn, there is a significant amount of resistance at the 3.55-3.58 level which should prove difficult to overcome.  Further, corn would need to trade above 3.65-3.68 before a change in trend could be established.  These technical parameters need to be kept in mind when gauging relative strength in corn and wheat.  Trends in soybeans remain up from a longer-term scale, but upside momentum has been lost and a sideways range between $9.68-10.00 has developed.  Additional open interest continued to be peeled away in corn with total O/I down 30,038 contracts yesterday as December interest continues to plummet ahead of FND.  Soybean open interest fell 3,334 contracts yesterday, SRW wheat was down 2,569 contracts and KC wheat was down 3,076 contracts.  Minneapolis wheat fell hard yesterday before recovering late with an expectation open interest dropped sharply during the session.  MGEX doesn’t release open interest data until later in the session, but the price action of late has raised odds for significant deliveries on FND when registrations go to the exchange this afternoon.

News of China buying US corn has been in the headlines for the past several sessions, and while there is more than likely some validity to it, some context is also necessary.  The rumors on newswire services suggest China may have bought 10-12 corn cargoes for 2018 arrival, amounting to around 700,000MT.  The transactions are taking place because of the price spread between domestic and imported corn which is said to be around $35-45/MT.  However, China buying corn should come as no surprise given the USDA already has China penciled in to import around 3.0MMT of corn in 2017/18, and the fact China usually imports a good portion of their annual TRQ quote which was set at 7.2MMT this past year.  In 2016/17, the US exported 807,000MT of corn to China.   If Chinese imports surprised to the upside, and they ended up importing closer to 3.0-5.0MMT of US-only corn, then that would certainly be price positive.  The USDA is currently forecasting a 17/18 corn export forecast of 1.925bbu which would be down 368mbu from last year, and a chief reason why carryout is expected to grow by 192mbu.  Finding a way to improve exports is exactly what the corn balance sheet needs, but needs to be put in context.

Deliverable stocks reports were released yesterday morning with combined HRS supplies in Duluth/Minneapolis dropping 154,000 bushels to 23.506mbu which compares to 25.233mbu a year ago.  As mentioned earlier, there is growing concern MGEX deliveries could be heavier than earlier expected.  Open interest in Minneapolis has dropped 12,018 contracts, or around 14.5%, since hitting a recent peak on November 8th.  The huge liquidation has caused the MWZ/MWH spread to blow out from a recent lows around -15.00c to a low of -19.50c this morning.  In Chicago, deliverable stocks fell 734,000 bushels to 94.127mbu vs. 95.871mbu a year ago.  Given basis strength, and where WZ/WH is trading relative to full carry, there isn’t expected to many deliveries on FND.  Adding to that sentiment, is the fact 10 registrations were canceled last night in Conant, OH.  There are only 103 outstanding registrations in SRW warehouses, or 515,000 bushels.  Not all that comforting for a 500mbu supply-sized market.  In Kansas City, total deliverable stocks fell by 1.466mbu to 117.203mbu vs. 108.548mbu a year ago.  The HRW spot floor rolled to the March yesterday, so changes to the previous day are not applicable, but based on where the board was trading, premiums looked to have picked up around 5c on the roll.

In Egypt’s GASC tender yesterday, they ended up buying two cargoes of Russian wheat vs. the nine offers they received.  The average Russian FOB price for the purchased wheat was $193.15/MT, down $1.50/MT since the last tender and the lowest purchase price on a FOB basis since early October.  One could look to the purchase price of Russian wheat over the last two months and find a large reason for the board pressure.  When the world’s largest wheat exporter continues to drop prices to attract business, other exporters who focus on quality have no chance to hit swing business.  From a delivery standpoint, Egypt has purchased exclusively Russian wheat for January, December and November with just 60,000MT of the total 470,000MT purchased in October coming from Ukraine.

 

Bottom Line: The USDA also released their annual long-range baseline numbers yesterday which we will dig into tomorrow.  Bottom line is they continued to see a drop in wheat acres next year, and the row crop projections point toward growing balance sheets in 2018/19.  Otherwise, the focus remains on South American weather and the pace of Chinese buying.

 

Good Luck Today.

 

Tregg Cronin

Market Analyst

Tregg.Cronin@halocommodities.com

www.halocommodities.com

@5thWave_tcronin

 

 

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

11/28/2017 Morning Comments

 

Good Morning,

 

Wide open Midwest radar this morning, and should remain that way until late in the weekend.  The Plains will be dry for the next 7-days, with above normal temps allowing remaining harvest efforts to be wrapped up.  The central belt and Great Lakes sees chances for moisture Sunday/Monday with 0.10-0.50” expected in MO/IA/IL/IN/S-MI/IN.  Temps remain above normal in the 6-10 day, but definitely start to see a cool off in the 8-14.  The precip pattern also looks to be making a major change with much above normal precip expected across the Plains, western and central corn belt during the 6-10.  The moisture improvement holds in the 8-14, but is more centered over the eastern plains and MO/AR.  A major pattern change would be welcome for the Midwest as severe moisture deficits have shown up across many states, the worst of which would be N-TX/OK/KS/MO/AR/IA/NE/CO.  In South America, dry weather continues to dominate Argentina and S-Brazil, with dryness expected to continue until the end of next week in Argentina.  Moisture deficits are beginning to cause concern, although limited given planting is still occurring in most of Argentina which will be touched on below.

 

Easier markets again this morning as corn and wheat add to losses posted yesterday while soybeans attempt to give back everything gained on the first day of the week.  Volumes were meaningful yesterday on the first full session after the Thanksgiving Holiday, which also makes it difficult to discredit new contract lows in wheat contracts and a retest of lows in corn.  Interestingly enough, corn and wheat open interest have been falling as of late, partly due to option expiration and partly due to first notice day on Thursday as traders exit positions held in the December contract.  Given the recent weakness, rising open interest as funds add to short positions would be the expected outcome.  Corn open interest fell 26,726 contracts yesterday, again partially due to continued opex related moves, while soybean open interest rose 9,211 contracts, Chicago wheat fell 4,374 contracts and KC wheat was up 2,461 contracts.  There’s nothing supportive about new contract lows, and export programs which remain weaker than needed.  The next driver of price will be December deliveries, or lack thereof, as well as the ongoing vigil on South American weather.

Weekly crop progress was released yesterday afternoon, and will be the last report of the season until they start back up in April of 2018.  Despite the outrage over crop conditions this growing season, the end of the weekly progress reports does signal the onset of winter and the slowdown in news flow.  Corn harvest was estimated at 95% complete vs. 96% expected, 90% last week and 98% average.  Largest progress remaining would be in WI at 81% complete vs. 90% average, MI at 84% complete vs. 88% average and OH at 87% complete vs. 96% average.  Winter wheat conditions fell again this week, down 2pts to 50% G/E vs. 58% G/E a year ago.  Biggest declines were witnessed in HRW states with TX -5pts, KS -5pts, OK -7pts, CO -7pts and MT -3pts.  ID and OR were also down 7pts and 5pts, respectively.  SRW states mostly saw improvements.  While a very poor indicator of final yields, it is impressive to see some of the y/y changes in HRW conditions.  More than anything, it speaks to the continued dryness being witnessed in these states than it does anything about the drop.  KS is down just 1pt from a year ago, but MT is down 44%, SD down 33%, OK down 23%, ID down 23% and TX down 5%.  CO is up 19% and NE is up 6%.  National emergence progress was estimated at 92% vs. 88% last week and 92% average.

Inspection data was also released yesterday for the week ended 11/23, and nothing seemed all that impressive to me.  Wheat exports totaled 12.7mbu vs. the 19.6mbu needed weekly to hit the USDA export forecast.  Total exports are 453.5mbu which are down 5.9% from a year ago.  Corn shipments were just 25.1mbu vs. the 39.6mbu needed weekly.  25mbu is close to the seasonal pace needed, but exports will need to ramp up to 40mbu/wk at the end of December/January to take advantage of Brazil’s switch to soybeans and have a chance at hitting the forecast.  Total exports measure 285.4mbu which are down 42.3% from a year ago.  Soybean shipments totaled 58.0mbu which is above the 35.6mbu needed weekly, but continue to see the deficit with a year ago advance.  Total exports measure 768.2mbu which are down 13.5% from a year ago while the USDA is calling for a 3.4% increase in exports.  Both sales and inspections are of concern in soybeans.  From this point forward, we need to sell 25.5mbu of soybeans per week through the end of August to hit the USDA forecast.  This would be above the 18.0mbu pace during 16/17, as well as the 19.1mbu in 15/16 and the 11.1mbu pace in 14/15.  Similarly, the pace of exports per week needs to average 35.6mbu through August which would compare with the 32.5mbu average pace in 16/17, 29.7mbu in 15/16 and 28.7mbu in 14/15.  Both are doable, but would require record second half export programs to achieve.  The clock is ticking.

Speaking of soybeans, much is being made of the dryness in Argentina and how that is helping support futures.  One thing worth pointing out, however, is the fact planting progress hasn’t even crossed the 50% complete threshold.  Soybean planting as of the latest available data on 11/23 was 41% complete vs. 39% last year and 42% average.  Corn planting progress was estimated at 50% complete vs. 48% last year and 48% on the 5-yr average.  As we saw in the United States this year, however, some caution is warranted about making too much of dryness early in the growing season.  With any real concern in Argentina, meal should be the leading indicator, which it has been in terms of flat price.  Meal spreads have been weak, however, with the SMZ/SMH tying contract lows this morning as futures are off 0.88%.

Egypt’s GASC issued another snap tender overnight, pouncing on the most recent board weakness in the US.  FOB offers this morning look to include six cargoes of 55-60,000MT and three Romanian offers.  Russian offers look to be the cheapest by quite a margin with $192.99-199.00/MT seen from Russia and $199.49-203.99/MT FOB from Romania.  The slot is for January 11-20 shipment.  Algeria also issued a tender for a nominal 50,000MT of milling wheat for Jan/Feb 2018 shipment with a tender deadline later today.  Based on FOB indications last night, Argentine wheat would be the cheapest offer by a wide margin if anyone is willing to sell it.  Plenty of quality and quantity risks to juggle.  Otherwise US-HRW and French wheat are within $2.00/MT of each other, but it continues to be the stiff US basis levels keeping our wheat from connecting.  The domestic market remains in the driver seat in the US.

 

Bottom Line: Trends are down in corn and wheat, but still up in soybeans with managed fund positions in the latest COT data reflecting the same.  Domestic demand for corn remains strong from livestock feeding margins and continued record ethanol output.  Yet, it is the export pace we get caught up in so often given we have twice weekly updates on the pace of that program.  The concern is larger for wheat given 50% of the wheat we produce is intended for export, and that program remains just ho-hum.  18/19 is when wheat balance sheets get interesting, but not so for corn which could balloon further based on current acreage ideas.

 

Good Luck Today.

Tregg Cronin

Market Analyst

Tregg.Cronin@halocommodities.com

www.halocommodities.com

@5thWave_tcronin

 

 

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

 

11/22/2017 Morning Comments

Good Morning,

 

Deere & Co. released Q4 earnings this morning, topping estimates and flying in contrast to the down beat ag-economy reports out there.  Earnings per share were announced at $1.57 per share vs. estimates for $1.44 while income rose 79% to $510.3 million and total sales were up 25.5% to $7.09 billion.  Financials said a stronger showing from construction was seen with “the economic fundamentals affecting the construction and forestry industries in North America are cause for continued optimism,” according to Investor’s Business Daily.  In addition, Deere cited improvement in farm equipment sales, singling out South America as “experiencing strong gains.”  Despite them singling out South America, US and Canadian equipment sales rose 23% in the fourth quarter, while sales in other markets jumped 30%.

Snow and rain/snow mix across North Dakota this morning, otherwise the Midwest is devoid of moisture.  A mainly dry stretch for the Midwest the next 5-days with the next shot of precip occurring Monday/Tuesday in the Northern Plains.  Moisture from the storm is expected around 0.10-0.20” in SD, but as much as 0.41” in ND which could be significant snow if it falls in that form.  The corn belt should be mainly dry the next 7-days, which should aid late harvest efforts there.  Temperatures remain well above normal the next 10-14 days across the entire Midwest and Plains, but especially across the southern plains.  Precip remains below normal in the 6-10 day, but the 8-14 sees moisture push to above normal for the WCB and down into the eastern areas of the southern plains.  This would be welcome news, but needs to verify first.  Main focus in South America remains Argentine dryness the next 10-days.

 

Mostly better markets the day before Thanksgiving with another low-volume day expected as we square positions ahead of opex Friday.  Grains continued to see open interest declines, which could be attributed to opex as well as outright liquidation of the December contract ahead of FND.  Corn open interest fell 13,206 contracts, soybeans were up 3,590 contracts, Chicago wheat fell 10,463 contracts and KC wheat was down 3,172 contracts.  After pushing to within 17,000 contracts of an all-time record, corn open interest has now fallen 40,534 contracts over the last three sessions.  Despite that, when one looks at a price chart with open interest overlaid, a person can get a real sense of how much speculative short interest rests below the $3.45 level.  Could make things interesting with option expiration Friday considering the 350 strike has 54,269 contracts of puts and calls open while the 340 strike has 42,938 contracts of puts and calls (35,363 puts) open.  For Chicago wheat, the largest open interest lies at the 430 strike with a combined 16,696 contracts of puts and calls.  The 420 strike is meaningful at 10,147 contracts.  The December soybean serial options have 8,245 contracts open at the 1000 strike.

Yesterday on the Minneapolis spot floor, there were 53 cars including two trains vs. 54 cars a year ago.  Trades saw 14.0% pro down 20c on the low side to +120/160Z which compares with +125/150Z a week earlier.  15.0% pro traded up 25c on the low side to +200/210Z which compares with +175/200Z a week ago.  Much of the focus of late has been on the red hot cash markets related to HRW, but we believe we will see similar strength in spring wheat which may be getting going as we speak.  Bushels were obviously depressed this year due to the Northern Plains drought, but where yields were good in northeast ND and N-MN, protein levels were quite poor.  Average protein levels for the crop don’t look too out of line, but achieving desired protein levels will require blending droughty wheat with low protein wheat from the north.  Adding to the potential protein story is the Canadian crop which has been known to be below normal for a while, but finally has hard evidence to support it from the Canadian Grain Commission.  There were two different reports released, one for No. 1 Canada Prairie Spring Wheat which showed an average protein level for all of the Prairies at 12.3%, while the report containing No. 1 Canada Western Red Spring showed the Western Prairies at 13.5% and the Eastern Prairies at 13.0%.  This compares with 2016 at 13.7% and 13.8%, respectively and 13.8% and 13.7% in 2015, respectively.

Deliverable stocks released yesterday showed a 30,000 bushel build in hard red spring stocks to 23.660 million which compares with 25.526 million a year ago.  In Chicago, total wheat stocks fell to 94.861 million from 95.379 million a week ago and 96.039 million a year ago.  Total non-deliverable grades are slightly higher in Chicago this year at 7.173 million bushels vs. 5.663 million a year ago.  In KC, stocks were down marginally at 118.669 million bushels from 118.914 million a week ago and well above 108.782 million last year.  Non-deliverable grades in KC are up noticeably at 4.069 million vs. 2.675 million a year ago.

One other story worth noting yesterday was the news Russia’s meteorological service said yesterday they had measured pollution of a radioactive isotope nearly 1,000 times the normal levels in the Ural Mountains.  Both Russian and Kazakh state agencies denied anything untoward at any of their facilities, but French regulators at the nuclear safety institute IRSN said a radioactive cloud of pollution over Europe indeed indicated something had taken place.  Some wire services said wheat was catching a bid on the news and the possibility Russian wheat could become contaminated and therefore not wanted by global importers.  Can’t say as there is any truth to that idea, at least not yet, given Russia’s benchmark wheat was $1.00 lower while Paris/EU futures closed up €0.50/MT yesterday and is up the same today.  FOB offers out of Russia should plummet if there were anything to be concerned with.  While something to talk about, believe it will take more than an errant headline to displace Russia as the world’s largest wheat exporter this year.

 

Bottom Line: Focus for most is on South America, and especially the dryness in Argentina.  If the dryness rolls forward, soymeal should be the leader as Argentina is the world’s largest soymeal exporter.  The strike levels of most interest for Friday are identified above with 350 corn probably the most noteworthy.  Otherwise, corn and wheat basis keeps working higher, keeping spreads firm and seeming to give futures little reason to set back materially.  Producers need to be looking ahead to 2018 early and often given the acreage mix ideas already being floated.

 

Good Luck Today and Have a Happy Thanksgiving!

 

Tregg Cronin

Market Analyst

Tregg.Cronin@halocommodities.com

www.halocommodities.com

@5thWave_tcronin

 

 

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

11/21/2017 Morning Comments

Good Morning,

 

The big energy news this morning is the controversial Keystone XL pipeline clearing another hurdle on its way to being built.  The Nebraska Public Service Commission voted 3-2 in favor of allowing the pipeline to pass through the state but insisted on an alternative route to the one proposed by TransCanada.  TransCanada first filed for government approval of the pipeline back in 2008, but it has faced numerous protests, presidential rejection by President Obama, etc.  The Nebraska decision was the last major obstacle needing to be cleared for the pipeline to move forward, but there are still legal challenges which promise to keep the pipeline on ice for a while longer.  Crude oil is up 0.23% this morning, but still well inside the $55.00-58.00 range since the beginning of the month.

A few snow flurries in NE and MN while a rain shower or two are working across IA.  The rest of the Midwest is quiet.  Mostly dry weather through the balance of the week with a shot at moisture Friday for much of the Northern Plains.  Should be warm enough to fall as rain, but totals should be less than 0.10”.  Temperatures look to remain above normal the next 14-days for the entire Midwest while the 6-10 keeps moisture below normal as well.  The 8-14 sees a major shift in moisture chances, however, with the Midwest and Great Plains flipping to above normal precip for the period.  This would be welcome news for the southern plains which are running major moisture deficits over the last 30-45 days, hurting emergence and early development for the HRW crop.  Argentina is trending drier and is becoming a watch point for many private forecasters.  Brazil remains in good shape.

 

Mostly weaker markets this morning in follow through selling from yesterday for the wheat and soybean market, while corn attempts to give back all that is gained yesterday.  A real mixed bag on open interest yesterday, making it difficult to get a read on managed fund changes.  Corn open interest fell 9,843 contracts with prices slightly higher which was probably managed funds lightening up after seeing the size of the net short from the COT data Friday.  Soybean open interest rose 1,088 contracts, SRW wheat was down 3,482 contracts and HRW wheat was up 1,879 contracts.  Volumes were on the lighter end of things and should continue to decline as desks get vacated closer to the Thanksgiving Holiday.  Markets will still be open Friday which is the day Dec options expire.  Lots of interesting technical chart points worth discussing, but the bottom line is downtrends remain in place for both corn and wheat.

Data yesterday included the weekly crop progress report which put corn harvest at 90% complete vs. 83% last week, and 95% average.  Largest deficits exist in WI at 69% complete vs. 85% average, MN at 90% complete vs. 97% average, CO at 86% complete vs. 94% average, IN at 87% complete vs. 95% average and OH at 79% complete vs. 91% average.  As the chart below shows, there are around 2.478bbu left to harvest according to NASS which would be the most since 2014, but well below the levels from 2008 and 2009.  Incredible to think that this week in 2009 still had 8.232bbu out in the field.  Other data on the progress report included soybean harvest at 96% complete vs. 97% expected, 93% last week and 97% average.  A jag left in WI, MI and IN.  Winter wheat conditions declined another 2pts this week to 52% G/E vs. 54% expected and 58% last year.  Declines were witnessed across the board and are actually surprising the declines weren’t worse.  WA fell 11pts G/E, NE was down 7pts, OK down 4pts, TX down 5pts, MO down 2pts, OH down 2pts and MI down 7pts.  Advances were seen in SD up 5pts, ID up 3pts, IL up 7pts, CO up 3pts and IN up 2pts.  This is the lowest weekly conditions score since 2012, and would put 2017 below both the 5 and 10-yr averages.  Obviously needs to be pointed out there is very low correlation between fall conditions and final yields.  Emergence was pegged at 88% vs. 84% last week and 88% average.

The other big data from the weekend was of course the COT data with most looking to see just how large the managed fund short had grown.  Last week, funds old another 27,350 contracts to bump their net short to -264,349 contracts.  This would be just a hair below the previous record short of -265,394 contracts set in March of 2016.  Another view we wanted to look at was the size of the manage fund short relative to the size of each year’s corn crop.  That produced a value of -9.07%, meaning funds are net short just over nine percent of the crop which is also below the -9.67% set in March 2016.  The reason we took a look at this is to compare the size of the managed fund short position vs. the farmer long position.  To get a sense of the amount of hedged bushels by the farmer/elevator we took the gross commercial short position as a percentage of the crop which yielded 25.11%.  There is nothing impressive about the 25.11% figure as can be seen in the chart below.  Relative to history going back to 2007, we are a hair above three years, well above 2013, and below every other year with 2006, 2007, 2010 and 2011 posting figures much higher than this year.  Would have to characterize the farmer/elevator position as “under-hedged” relative to history, but not all that out of line with the last two years.  Bottom line is the farmer long is much larger than the fund short, which was the main point of the exercise.

Funds flipped back to a net short position of 11,411 contracts last week, but that could have easily been covered with the fund buying Friday.  Commercials continue to hold healthy ownership in futures in soybeans relative to history for this date.  Funds bought wheat last week with a total of 10,480 contracts of HRW to take their net short down to -16,128 contracts.  Commercials sold 13,055 contracts combined, but the gross commercial long remains just a touch off the record level from the week before.  In Chicago wheat, funds bought 12,855 contracts which was nearly identical to the amount they sold the week before.  Their net short remains healthy at -131,950 contracts.  Managed funds spent the week buying in Minneapolis as they added 2,351 contracts to put their net long at 6,664 contracts, the largest since September 12th.  Across the entire Grain and Oilseed complex, funds are net short -364,145 contracts, the largest net short since June 6th.

Otherwise, the basis train continues to roll higher on corn and wheat, with the latter’s cash market dubbed “on fire” by most.  Of the locations tracked, 16 which had firmer corn basis w/w, three were weaker and four were unchanged.  The other interesting phenomenon is the fact WCB corn basis has firmed quite a bit more than their ECB counterparts, and in a lot of cases are firmer than levels at this time a year ago.  ECB locations, whether rail or processor, are almost uniformly weaker than a year ago.  Wheat basis is sharply better than a year ago, especially in the southern plains which is seeing the effects of back-to-back low protein crops.  Colby, KS is called -85Z vs. -115Z a year ago, Hutchinson, KS is called -45Z vs. -100Z a year ago, and Kansas City is indicated at -40Z vs. -75Z a year ago.  There is a lot of consternation by the farmer on what to do with these basis levels considering the rally they’ve been on, but the fact there are still decent carries out to next spring and summer?  Here-in lies the problem.  Normally, basis rallies which eventually rallies the spread, followed by higher futures to inject hedged or farmer length into the market to cool cash.  That’s not happening this year because the delivery warehouses, mainly in Kansas, are full of sub-11.0% protein wheat, a grade not wanted by domestic mills.  In other words, end users can’t just buy the spread, or the board, and take delivery because it isn’t the class of wheat they desire.  This is causing somewhat of a breakdown in our normally efficient futures/delivery mechanism.  The other side effect is the fact exporters are now buying back sales and turning them into the domestic market which is paying more.  This will further push us out of the export grids for major importers, and could pinch export commitments moving forward.

Speaking of exports, inspections were uninspiring once again this week with wheat at 9.5mbu vs. the 19.3mbu needed weekly.  Total inspections measure 440.8mbu vs. 472.9mbu a year ago, a deficit of 6.8%.  Corn shipments totaled 24.9mbu vs. the 39.3mbu needed weekly.  Total shipments measure 259.2mbu vs. 462.1mbu a year ago, a deficit of 43.9%.  Soybean shipments were solid but not compared to a year ago.  Shipments this week were 78.3mbu vs. the 36.3mbu needed, but were 98.3mbu a year ago.  Total shipments now stand at 704.9mbu, down 12.5% from a year ago.

 

Bottom Line: Not expecting a lot of fresh news or big cash market moves to really impact futures given the abbreviated week.  Option expiration will probably be a negative influence on grains, if it is anything.  The wheat market is experiencing the dichotomy of tons of bushels with the wrong quality characteristics, both here in the US and abroad.  We likely haven’t seen the last of wheat’s fireworks considering it is only November 21st, and the next new crop bushels won’t be available in the Northern Hemisphere until May.

 

Good Luck Today.

Tregg Cronin

Market Analyst

Tregg.Cronin@halocommodities.com

www.halocommodities.com

@5thWave_tcronin

 

 

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

11/17/2017 Morning Comments

Good Morning,

 

WTI crude oil is looking to close higher for the first time in four sessions, up 1.63% this morning as buyers reemerge.  The spread between Brent and WTI has been narrowing, and is continuing to do so this morning with the premium held by Brent at $6.02/bbl, the tightest since the end of October.  The spread has also dropped right down to the 50-day moving average, an indicator this spread hasn’t traded below since July.  Equities continue to maintain their premium over commodities as the S&P 500 is trading at a ratio of 30.14 to the Bloomberg Commodity Index.  This is just off highs set in October at 30.36 and the all-time record high of 30.67 set in June.  Prior to 2013, the ratio had never been over 11.00, and since February the ratio hasn’t been under 27.00.  Not difficult to see where the money flow has gone.

Some wintry mix is moving across the Dakotas this morning, predominantly in South Dakota, and isn’t expected to amount to more than 0.10” of moisture.  NE and IA will also see some moisture in the next 24-48 hours, but the heaviest precip will be in the ECB once again, complicating the tail end of harvest.  Over the next week, IL/IN/MI/OH are expected to receive 0.50-2.00” of moisture in one form or another.  Still plenty of corn harvest left to bring in for those states.  Otherwise, the Plains and WCB will be mainly dry in the next 7-days before chances late week next week.  Above normal temps for the 6-15 day period, and below normal precip for most until the Northern Plains turn above normal in the 8-14.  The latest forecast from the International Research Institute for Climate and Society at Columbia University kicked out their latest climate forecast which now puts odds of La Nina formation at 76% during Nov/Dec/Jan.  This would mean cool and wet for the Northern United States, but it is the impact on South American weather everyone will take most interest in.  La Nina can mean warmer and dryer in the main production areas of Brazil.

 

Firmer markets this morning led by wheat as we once again try to claw back some of wheat Wednesday took away in value.  It is now clear, several days removed, the downtrend channels are still very much intact in Chicago and to a lesser extent KC.  Nothing much has changed in wheat: cash markets still very firm, managed fund short positions have likely continued to grow, spreads are still flirting with a VSR segment removal (although less likely today), and winter wheat acres look set to decline for the sixth year in a row.  Yet it’s the threat of Russian exports taking even more US demand than they already have which seems to have fund sellers emboldened in their positions.  Wheat saw some short-covering yesterday, but the open interest train rolled higher in row crops.  Corn open interest rose 16,114 contracts to 1,727,716 contracts, the largest since 2/18/11, and just 17,542 contracts from the all-time record set on 2/17/11.  The open interest rise came as most corn contracts hit fresh contract lows throughout the curve.  Former support-turned-resistance at the 3.42-3.44 level will be a major focal point on an rally attempt as a fair amount of open interest has been added below that level.  Still, most managed fund positions have plenty of equity in them.  Soybean open interest rose 7,082 contracts with price down 4.25c as O/I continues to claw back the November option expiration related drop.  Chicago open interest fell 3,709 contracts while KC wheat was down 59 contracts.

Data yesterday included weekly export sales which were ho-hum for grains and a bit disappointing relative to expectations in soybeans.  Wheat sales totaled 18.0mbu which was above the 13.6mbu needed weekly to hit the USDA export forecast.  Total commitments of 616.6mbu are down 5% from last year at this time, which is right in line with the USDA forecast.  By-class sales were led by HRW at 8.8mbu, followed by HRS at 4.9mbu, both of which are above the needed pace.  Corn sales totaled 37.4mbu which is above the 26.9mbu needed weekly, but still a bit slow seasonally.  Total sales of 800.8mbu are down 26% from a year ago.  Soybean sales measured 40.6mbu vs. the 25.7mbu needed weekly, but compares with same week sales of 51.7mbu a year ago.  Total commitments of 1.197bbu are down 15% from a year ago while the USDA continues to call for a 3.4% increase y/y.  This remains the most troubling export forecast of all from the USDA given how seasonal the soybean export season is compared to corn and wheat.  Unless South American production runs into issues, this forecast may have more downside than upside, breaking a well-established trend for USDA underestimating demand.

Soybean calendar spreads remained weak yesterday and overnight with several tying contract lows.  The SF/SH continues to bounce off contract lows at -11.25c, accounting for 68.0% of full financial carry (LIBOR+300bp).  The SH/SK continues to sit at contract lows as well at -9.75c, 58.7% of full financial carry.  While soybean cash and spreads remain weak, corn has definitely turned the corner with CZ/CH trading at the highest level since 9/12/17 this morning.  In addition, PNW corn bids have been firmer nearly every day this week without a corresponding rise in BNSF rail freight.  Last part November bids were called +80Z last night while FH-Dec was +78Z and Jan was called +82/83H.  Compare these with +60Z, +75Z and +70/72H a week ago.  Until elevators finish storage programs or switch the focus from filling ground storage to loading trains, however, the basis appreciation in the country could be a bit slow.

Analytics firm Informa Economics released their latest acreage ideas yesterday during the session.  Would have to call most of their estimates in-line with trade ideas, but not really anything the market is going to focus on at the moment.  They see 2018/19 corn acreage at 91.415 million acres vs. last year at 90.429 million, and the second largest since 2013/14.  If that kind of acreage number is used, with a 4-yr average yield of 172.35, production is 14.491bbu vs. 14.576bbu this year, but total supplies balloon to 17.025bbu, the largest on record.  Carryout for 18/19 assuming record feed/residual demand, record ethanol demand and a 75mbu increase in exports would come in at a staggering 2.525bbu.  Really need those extra corn acres don’t we?  Soybean acres are estimated at 89.627 million, down from 90.207 million this year as the record soybean acres in the Northern Plains and WCB see a bit of rotation.  The soybean balance sheet looks a lot like the corn balance sheet with an acreage number like that.  Total supplies would be 4.895bbu with a yield of 50.0bpa vs. 4.755bbu this year.  We have a hard time increasing exports in 2018/19 when this year’s forecast looks difficult to achieve.  If exports are unchanged at a record 2.250bbu, carryout would come in at 560.54bbu vs. 429.5mbu this year.

Informa pegged all-wheat acreage at 45.625 million, down from 46.012 million this year.  Within all-wheat, winter wheat acreage is seen dropping from 32.696 million to 31.923 million, while other spring wheat is up to 11.335 million from 11.009 million.  First blush would be a few less winter wheat acres and probably a few more spring wheat acres, but plenty of time to sort that out.  Using their acres with a yield of 48.0bpa and harvested acreage of 86.0%, production hits 1.885bbu vs. 1.740bbu this year.  Assuming unchanged demand at this point gives us a carryout of 798mbu, a 3-yr low and continuing to move in the right direction.  The all-wheat balance sheet doesn’t jump off the page at a person, but there are plenty of reasons to be encouraged in the by-class balance sheet.  HRS will remain tight in 18/19 unless farmers increase acres more than 20%.  HRW has the potential to lose more acres than most are counting right now, and the fall emergence and moisture situation is far from ideal.  SRW acres are a big question mark given the delayed corn harvest in the ECB.

 

Bottom Line: Lots of interest in this afternoon’s COT data to see if managed funds now hold a record short position in corn, and are nearing a record net short in Chicago wheat.  Even if those two are confirmed, one has to remember the equity the funds have in these positions and how much it would take to force them to liquidate.  Record net shorts held by the managed funds aren’t as concerning as the most likely record long held by an undersold US farmer.  That will hang over the market on rallies, which could also limit basis appreciation further.  Volume should decline into the Thanksgiving holiday.

 

Good Luck Today.

Tregg Cronin

Market Analyst

Tregg.Cronin@halocommodities.com

www.halocommodities.com

@5thWave_tcronin

 

 

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

11/16/2017 Morning Comments

Good Morning,

 

Nothing on the radar again this morning.  It seems like I’ve written that a lot lately, but nowhere has it been drier than the southern plains over the last 30-days as the map below shows.  The HRW belt has seen essentially zero moisture since early September, which is causing problems with emergence and establishment before winter.  Fortunately, the month of September was rather wet for the southern plains, and subsoil moisture levels are still solid despite the past month of precip.  Nonetheless, weather groups are putting about 10% of the HRW crop at risk for poor establishment heading into dormancy.  The ECB will see rain chances toward the weekend, otherwise a dry week ahead for the Midwest.  Above normal temperatures and below normal precip encompasses the entire Midwest and Plains region the next 15-days, which won’t provide much relief for the HRW.

 

 

Steady to better markets this morning as wheat attempts to stabilize after yesterday’s downdraft.  Almost everyone on social media found themselves looking around during wheat’s selloff yesterday as there didn’t seem to be anything glaring behind the move.  The only “news” anyone could point to was Egypt issuing another wheat tender, but this time had reinstated their “zero ergot” policy.  This will likely mean a complete lack of offers with the exception of Russia, but even they might not want to deal with the theatrics.  Otherwise, Brazil was said to be close to importing Russian wheat, but had not received final approval fromt their Ag Ministry.  In addition, Russian wheat would be subject to the non-Mercosur import tax, which likely keeps the Black Sea wheat out until Argentina has exhausted exportable supplies.  Either way, that Brazilian business would have went to the US during the last marketing year, but the lack of protein in the US is pushing basis levels up to the point where importers are looking elsewhere.  Lastly, and to a lesser extent, the Russian Ruble was a good deal weaker yesterday, trading down to the weakest level since August 4th as crude oil continues its short-term down trend.  Open interest saw another big jump as fresh shorts continue piling into grains, but volume was fairly subdued on the break.  Corn open interest rose 12,268 contracts, soybeans were up 3,292 contracts, SRW wheat was up 3,211 contracts and HRW wheat was up 2,985 contracts.  Corn open interest at 1,714,936 contracts is now the highest since February 18th, 2011, and is just 30,322 contracts from the all-time record set on February 17th, 2011.

As we posited on social media yesterday, the frustrating thing with the wheat market is total lack of confirmation by either basis or spreads.  Both are trading like a market which wants to rally, not selloff.  For example, domestic HRW trades were firmer again yesterday with 12.0-12.2% both up 12c with 12.0% now +197/212Z vs. +195/210Z a week ago.  This follows 11.0-11.20% trading up 10-24c the day before with 11.0% pro now +119/134Z vs. +105/120Z a week before.  Spring wheat spot floor trades were also better with 14.0% pro cars trading up 15-25c to +140/175Z vs. +125/150Z a week ago.  15.0% pro was up 10c to +175/210Z vs. +181/188Z a week ago.  SRW also joined in the fun with Toledo mills pushing bids to +25/30H, NW-OH mills up to +20H, and warehouse bids as high as -5Z with that wheat deliverable at -10Z.  SRW barges didn’t show any change, but if one needed to buy a barge it would be at the offer or better.  Z/W spreads in KC and CGO mostly maintained their uptrends, although it looks as though WZ/WH will run out of time to trigger a VSR segment removal.  The MWZ/MWH has been trading weaker, however, down to -14.50c yesterday and this morning, tying contract lows.

We wrote about the world corn market earlier this week, and the fact that Chinese ending stocks are finally in decline, but the rest of the world is seeing ending stocks rise.  We mentioned the wheat situation is the exact opposite.  The majority of the world’s wheat stocks, around 67.5% to be exact, sits in four countries: China, India, Russia and the United States (CIRU).  As the chart below shows, the share of these four countries as a percentage of total wheat stocks is now the highest since 1999/00.  The share of world wheat excluding these four countries is 32.45%, the lowest share since also since 1999/00.  But it’s not just the share that’s tight, it’s the ending stocks/use ratio which is at 15.32%, the second tightest on record going back to 1982/83.  As we’ve discussed before, China’s wheat stocks are not available to the market, and still require high quality wheat from the US, Canada and Australia to be blended up.  India was an importer last year, and will import wheat this year, so also not a threat to unload stocks on the market.  Russia and the US are two of the three largest exporters and will gladly export up to capacity and quality constraints.  All of the aforementioned puts greater onus on 2018/19 as acres look set to decline in the United States, and Russia could be counted on to an even greater extent.  But as cash markets are showing us, Russia can’t be counted on to supply everything to everyone, and winter’s arrival could really shake up the global wheat trade.

While very old news at this point, Monday’s COT data showed large specs adding to their already ballooning Chicago wheat short.  Funds added 12,810 contracts to their net short to put them at -144,805 contracts.  This position now accounts for 76.4% of the largest net short ever put on by managed funds, and they’ve undoubtedly added to this net short since the last COT data and the selloff yesterday.  On the opposite end of the spectrum, the gross commercial long now owns 166,833 contracts, the second largest position on record.  Same trends are true in KC with funds now short -26,608 contracts, the largest since September 2016 while the gross commercial long is a new all-time record at 110,800 contracts.  The boat is getting very loaded to one-side, but that in and of itself is not enough to turn the tide.  Just plenty of dry power for when it does turn.

Data yesterday included October NOPA crush data which was solid and in-line with expectations.  Monthly crush was 164.242mbu vs. the average trade estimate of 164.5mbu, 136.4mbu last month and 164.6mbu a year ago.  Soybean oil stocks totaled 1.224 billion pounds vs. estimates for 1.410 billion pounds and 1.343 billion a year ago.  The soybean oil yield was 11.54lbs/bu, the first yield to have new crop bushels, which was below last month’s 11.78lb/bu and last year’s 11.61lbs/bu.  Also released yesterday was weekly ethanol production which eased slightly to 1.054 million bbls/day from 1.057 million bbls/day the week before, but is still well better than the level needed weekly to hit the USDA’s estimate.  Weekly ethanol stocks rose by 152,000bbls to 21.497 million bbls.  Stocks remain well above levels posted a year ago.

 

 

Bottom line: Export sales later this morning which could help set the early tone, although don’t believe any additional business from the latest selloff would be represented in this week’s numbers.  Our markets are clearly in “go find demand” mode, which will come from lower prices.  It shouldn’t be a surprise we need lower prices to stimulate demand when grain supplies are the largest in 30-years, but it has still caught most off guard.  Soybeans will retain risk premium for South American growing weather for now, but could look to shed some of that if there are no issues into December.

 

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.