1/25/2019 Morning Comments

Good Morning,

The focus in the United States for weather is definitely the current cold snap as well as the one scheduled for midweek next week.  The thrust of the cold will come Tuesday night into Wednesday morning with overnight lows dipping down as low as -22 to -25 below zero in Minnesota and North Dakota while large sections of Iowa will be as low as -12.  The below zero temps extend east into Illinois, Indiana and Ohio.  SRW areas will be the chief concern with snow cover this morning looking light to non-existent in MO, S-IL, IN and parts of OH.  Kansas and Oklahoma are also light on snow cover but temps in those states look to remain above zero and in some cases in the teens.  There will be some moisture in the SRW belt ahead of the cold which could mitigate some or the risks.  Winterkill and freeze damage is always difficult to assess until spring but it is worth keeping an eye on given lower acreage ideas.

Mixed to weaker markets this morning with only corn able to muster any strength.  The reversal in wheat yesterday left blemishes on many charts as several contracts made new highs for the move and hit the highest level since mid-December.  There wasn’t any specific news that we could find as it felt as though the trade is simply tired of rumors and wants facts.  We are unlikely to see any facts or confirmations until the USDA reopens, which doesn’t appear to be anytime soon.  As we’ve made note of, volatility is declining amid the lack of data and capital flight with March corn volatility yesterday settled at 13.56% vs. 15.36% a week earlier.  ATM straddles for March are suggesting futures remain in recent ranges for the next 30-days, so buckle up for a wild and crazy February.  Spring crop insurance pricing will begin next week and December corn at $4.00, November soybeans at $9.55 and September Minneapolis at $5.92 don’t seem to be fighting for acreage in any particular fashion.  There will be less soybean acres simply from attitudes this past season but the swing shouldn’t be as large as originally feared.  Unless spring wheat acres are down from last year, we think we it will be too many and Minneapolis should tighten its spread with Kansas City.  Open interest changes yesterday saw corn up 16,335 contracts, soybeans up 557 contracts, meal down 241 contracts, oil up 252, SRW up 1,629 contracts and HRW down 440.

Overnight saw a host of official Chinese data on December and full-year 2018 imports and exports.  Several are worth noting.  January-December corn imports were 3.521MMT, up 4,036% from 2017 as imports from Ukraine increased.  Despite gigantic perceived stocks, China still has a need for feed grain imports both from a quality standpoint and a logistical standpoint.  Soybean imports in December were 5.720MMT, down 40% from a year earlier while Jan-Dec imports of 88.029MMT were down 7.8%.  That is a tough pill to swallow as the great bull run in Chinese soybean demand is finally over thanks to a combination of trade war and African Swine Fever.  Only a few years ago, economists and analysts were projecting a parabolic trendline for Chinese soybean imports which could never be satisfied.  The global soybean balance sheet needs China to get back on track in 2019.  Wheat imports in December were 217,513MT, up 20% from a year earlier while Jan-Dec imports were 2.876MMT, down 33%.  Crude oil imports were up 10% in 2018, natural gas imports were up 76% in 2018 and Jan-Dec coal imports were down 95% on the year.

We saw weekly ethanol production yesterday which is one of the only data sets we still get.  Production fell 20,000bbls/day to 1.031 million bbls/day, missing the level needed to achieve the USDA forecast for the seventh straight week.  Weekly ethanol production has missed the level needed in nine out of the last ten weeks.  Looking at year-to-date production, it is likely full year ethanol demand for corn is down 50mbu from the latest USDA estimate in December.  Run-rates have been slow because of poor profitability, and import/export data of ethanol is not available due to the government shutdown.  Ethanol stocks were up 150,000bbls despite production being down.  Total stocks of 23.501 million did slip below year ago levels, but remain especially large from a seasonal perspective.  Seasonally, stocks tend to build into March, and if that holds true this year could see stocks at record large levels for the foreseeable future.  The ethanol/corn spread (ethanol multiplied by 2.85 minus the price of corn) remains in negative territory, indicating ethanol is not covering the purchase price of corn.  Until this spread turns around, it is difficult to envision ethanol production returning to record run-rates.

Parana’s state ag agency released an updated estimate of soybean production, cutting the number to 16.8MMT from 19.1MMT in December while CONAB’s last estimate of Brazilian production had Parana at 19.2MMT.  This is helping full Brazil estimates close in on 115MMT.  In our opinion, a 115MMT production number is not an immediate call to action for bulls as Argentina production is still expected to be up 18MMT from a year earlier.  Paraguay production is seen unchanged from a year ago, so the three-country region should still be up at least 10MMT if Argentina doesn’t get any larger and Brazil is indeed a 115MMT type-affair.  Combine this with the fact Chinese imports of soybeans fell in 2018, and should remain weak to begin 2019, and there would appear to be more than enough soybeans in South American and the world.  So it begs the question, do soybeans need to do much more to the upside unless production is trimmed a good deal more?

Bottom Line:  Another session which feels like prices will go nowhere.  Because of the government shutdown, it feels as though we are stuck between Thanksgiving and Christmas when volumes and volatility dry up.  Trade war headlines remain the largest driver, even more so than South American production.  Unless a searing drought takes hold in February, would appear South America will have adequate production of corn and soybeans this year.  Lots of grain left on farm and unpriced at the elevator which will blunt rally attempts.

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.

1/23/2019 Morning Comments

Good Morning,

Trade war.  Trump Administration. Headlines. Posturing. No action.  Should about cover outside market headlines of the last 24-hours.  Otherwise we continue to watch the strength in the Russian Ruble which is trading at the strongest level against the USD since December 12th.  In opposite fashion, the Brazilian Real continues to weaken, trading at 3.79:1 against the USD this morning.  Yesterday, the USDBRL hit the weakest level of 2019.  Russian wheat offers continue to slowly march higher as origination becomes more difficult which should promote competitiveness of US wheat.  Brazilian soy offers are already undercutting US soy, and the weaker currency will promote more farmer selling, all things equal.

Rains in the forecast for eastern production areas of Brazil ahead of what should be a fairly dry and warm stretch in the 6-10 and 8-14 day.  According to several forecasters, now through the end of January will be peak stress for the areas hardest hit.  However, it should all be kept in context.  As Commodity Weather Group pointed out yesterday, the driest areas of Brazil which are of most concern have had “only” two inches of rainfall over the last two weeks.  This is less than 50% of normal, but 2” over a two-week period should be more than enough to sustain a growing soybean plant.  Granted, some of the soybeans are reaching maturity, and additional rainfall will have limited impact, but we often forget what is “normal” in terms of rainfall for Brazil is often much more than what is normal in the United States.

Firmer markets across the board this morning as grains bounce back from the hefty reversals posted in several markets.  One can find the exact moment newswires started running headlines from the Financial Times and Wall Street Journal yesterday which said the Trump Administration was canceling preparatory meetings this week ahead of more high-level discussions next week.  The reasoning for the cancellation according to the Trump Administration was because the two sides still remain quite a ways apart on the issues of intellectual property theft and state-owned investment.  Without a better offer on those issues, there would be no point in meeting.  This has always been the concern as those close to the grain trade get excited about possible Chinese purchases but then realize where grain falls on the pecking order of the trade war.  While China has made purchases of U.S. grain, without the USDA, we don’t know if this is a few cargoes or something more meaningful.  It would surprise us if a serious deal is done before the March 1 deadline.  Wheat markets continue to show relative strength on headlines out of Ukraine and Russia, as well as chatter about increased export demand.  Corn open interest changes yesterday saw O/I up 16,760 contracts, soybeans up 6,666 contracts (fitting), meal up 925, oil up 3,530, SRW up 4 and HRW down 6,323 contracts.

Data continues to be light, although we did have export inspections which gives us something to track in the way of demand.  Wheat inspections totaled 19.0mbu vs. the 23.4mbu needed weekly to hit the USDA forecast.  Wheat inspections have hit the needed level only once this entire marketing year.  Total inspections are down 10.4% from a year ago at 514.5mbu while the USDA was calling for close to an 11% increase in December.  We will have four months to inspect and ship a little under 500 million bushels when the calendar turns to February.  On an encouraging note, we did see two cargoes of wheat inspected for Egypt out of the Gulf.  These included one cargo of HRW and one cargo of SRW, lending credence to the idea of wheat trading to private Egyptian millers.  Corn inspections totaled 43.6mbu vs. the 46.1mbu needed weekly.  Corn inspections haven’t achieved the level needed eight straight weeks.  Total inspections of 810.1mbu are still up 61% from a year ago, but we shouldn’t count on the same size program May-August as last year given an expected rebound in South American maize crops.  Soybean inspections were solid at 40.8mbu vs. the 34.8mbu needed weekly.  Total inspections of 716.8mbu are down 39.6% from a year ago while the UDSA is calling for a 12.6% reduction.  This is outdated forecast from December with most in the trade looking for 1.700-1.850bbu of exports.  We did see six cargoes of soybeans inspected for China last week with two out of the Gulf and four out of the PNW.  This makes eight total for the 2019 calendar year.  Also, sorghum inspections totaled 2.6mbu which was above the 2.2mbu needed weekly and the first-time inspections have hit the needed level in eight weeks.  The total was almost exclusively to one panamax to Spain.

Chatter yesterday morning about Ukraine’s Ag Minister issuing a decree to the country’s exporters they are getting close to the 8.0MMT cap of milling wheat exports agreed upon last fall.  According to cash traders, Ukraine has shipped around 83% of that total.  Total wheat exports can be 16MMT, but only 50% can be milling wheat which would mean Ukraine may only be participating in the feed space for the remainder of the marketing year.  Combine this with news from Russia about the government wanting to influence domestic grain price via rail subsidies, and it isn’t difficult to see the strength out of the Black Sea.  As mentioned in the open, strength in the Russia Ruble to one-month highs is also limiting producer selling.  Spot US-HRW FOB offers around $6/MT cheaper than Russian, while offers for April are $9/MT cheaper and May offers are $11/MT cheaper.  Most major importers have February needs booked and are o to March/April, so the extraordinary demand needs to be showing up now to get out the door by the end of May.  The KCBT spot floor was 1-6c weaker for 11.0-12.8% protein yesterday.  Minneapolis spot floor values were up 5-20c for 13.5% and down 10c on the bid side for 15.0% pro at +85H.  Domestic mills remain covered up with spring wheat nearby and aren’t all that interested in bidding up deferred slots.  Farm-gate movement from the Northern Plains has been very light and with the cold snap and recent snow, isn’t going to be any better until at least February.

We continue tracking nitrogen prices as we get closer to spring planting and the insurance pricing period.  Spot UREA swaps at the Gulf have turned sideways as of late at $269.00/MT which is near the lowest levels since August and well off the $320.00/MT highs from October.  April and May swaps are down at $255-257/MT.  UAN swaps have seen a fair bit of weakness as of late with spot swaps at $193.00/MT vs. $215.50/MT on ½ and highs above $225/MT in late October.  UAN swaps are at their lowest levels since mid-September.  It should be noted, even with the weakness, both UREA and UAN are still above the range which contained price action from mid-2015 to mid-2018.  So while the price direction is moving the way of the farmer, nitrogen costs are still likely to be well up from the past several years unless fertilizer continues to decline straight into spring.  Most retailers in the country are not reflecting the swap weakness being seen, instead sitting on higher priced inventory acquired this fall.  Much like gas stations, their prices aren’t likely to fall until they need to reach for more and the cheaper prices are still available.

Bottom Line: Likely to see some price recovery today with the trade remaining especially sensitive to headlines.  The roller coaster that has become the trade talks are wearing everyone thin with each headline seemingly contradicting the last one.  Ag groups continue to express support for the Trump Administration and its mission, but if they fumble negotiations which cost us exports again this year, that support isn’t likely to be so steadfast.  Producers need to be taking a long look at the rangebound price action of old crop as well as new crop prices above $4.00 and $9.50 on corn and soybeans, respectively.  What do these prices look like compared to breakevens?  What kind of stress-testing have you done to your balance sheet?  Do prices have to rally to make you profitable and can you handle lower prices from here?  These are questions that need to be asked and answered so a proper marketing plan can be devised.  As 2018 showed us, the most well-laid plans can go right out the window with a few tweets here and there.  Regardless of politics, don’t leave your marketing plan in the hands of folks 1,000 miles from the corn belt.

Good Luck Today.

Tregg Cronin

Market Analyst

Tregg.Cronin@halocommodities.com

www.halocommodities.com

@5thWave_tcronin COMMODITY TRADING INVOLVES RISK AND MAY NOT BE SUITABLE FOR ALL RECEIPIENTS OF THIS EMAIL. Neither the information presented, nor any opinions expressed, constitutes a solicitation for the purchase or sale of any commodities. The thoughts expressed in this email and basic data from which they are derived are believed to be reliable, but cannot be guaranteed due to uncertainty about future events and complexities surrounding commodity markets. Those acting on the information are responsible for their own actions.

1/22/2019 Morning Comments

Good Morning,

The US Dollar Index is higher this morning, continuing its recovery stemming from the January 10th lows.  The selloff from the December highs measured almost exactly 61.8% of the rally from 93.8140-97.7110 at 95.3027.  The USD has yet to reclaim a prior corrective high such as the 1/2 highs at 96.9580 which would indicate the selloff from the December highs was corrective ahead of a resumption of new highs.  Therefore, we continue to view the current recovery as simply a bear market correction ahead of what should be new lows below 95.0290.  Another level to keep in mind would be the 61.8% retracement of the 97.710-95.0290 selloff at 96.685.  A recovery above that retracement level or the 1/2 corrective highs would mean a retest of the 97.7110 highs are imminent. 

Decent rains fell across South American growing regions over the weekend, but there are still areas of concern as we look to close out the month of January.  Northeast Brazil will remain the area of chief focus with stress building in 1/3 of corn and soy area there.  Argentina could also use a break from the rains, although it is always difficult to worry too much about excessive rains as opposed to no rain.  Extended maps keep mostly below normal precip and above normal temps across much of northern Brazil.  16-30 day guidance sees drier Argentine weather and wetter Brazil, even offering some relief for northeast Brazil.  Top end estimates definitely seem to be off Brazil, but at this stage, it does not look as though substantially below trend yields should be expected.

Mixed to weaker markets this morning as trade gets fired back up following the Martin Luther King Jr. holiday.  There weren’t a lot of market breaking developments over the long weekend, although political commentators seemed to balk at the Chinese offer to buy $1 trillion worth of US goods and services over the next six years.  The plan announced Friday would eliminate the trade deficit between the US and China within six years, but US negotiators reportedly wanted to deficit gone within two years.  That seems like an extreme timetable, and one China is not likely to be able to satisfy.  The Brazilian Real and Bovespa Index (Brazilian stock exchange) should be good indicators on any deal which gives preferential treatment to US goods.  In other words, both of those markets should tank as the Brazilian economy has been predicated on satisfying Chinese demand and would face recession or depression conditions should a larger agreement take place.  Otherwise, our grain markets remain mostly rangebound with declining volatility as capital heads to the sidelines without guidance from the USDA.  It looks as though no January reports will be issued, and we would even be surprised if the February WASDE will be issued without an end to the government shutdown by the beginning of next week.  Open interest changes on Friday’s rally included corn up 10,018 contracts, soybeans up 2,870 contracts, meal up 1,289 contracts, oil up 2,756 contracts, SRW wheat up 789 contracts and HRW up 5,508 contracts.

Much of our weekend was spent reading stories about the worsening African Swine Fever outbreak in China and how soybean and meal demand are headed lower.  Reuters reported last week there have been 900,000 pigs culled due to the virus, which is a fraction of the 500-700 million pigs in China.  However, actual cull numbers are thought to be much higher, especially as dead pigs continue to wash up on the shores of Hong Kong and Taiwan.  Particularly gruesome YouTube videos of the disposal of infected pigs were pulled from the website last week and reminds us just how far behind China actually is from becoming a mature, developed economy.  Accompanying the ASF stories, JC Intelligence said December crush was 7.5MMT, down 12.2% from December 2017.  This puts OND crush down 6.5% from the same period in 2017 and is casting serious doubt on the USDA’s 90MMT soybean import forecast.  If we extrapolate the drop in crush to the full-year import forecast, soybean imports for China would drop to 84.15MMT.  Those are tons directly off the balance sheet of the United States and also Brazil, which puts more competition to non-Chinese destinations.  If one remembers, the USDA’s 1.900bbu export forecast is supposedly based on no additional Chinese demand.  If Chinese demand drops, and there are more bushels from South America to compete with, the USDA’s 1.900bbu export forecast looks even less believable.  Most in the trade are using something between 1.700-1.850bbu at the moment.

Lots of chatter about US wheat demand last week with rumors late in the week about Egyptian private mills buying HRW as well as potential business done into North Africa.  US-HRW premiums were firmer at the Gulf on Friday, up 1-3c from trades on the previous Monday.  Russian rumors also continue to permeate the trade, although no one is exactly sure what they mean or how they will impact trade flows.  Russia remains competitive into MENA, and until they aren’t, there isn’t much reason to believe they won’t export 34-37MMT of wheat.  The US-HRW balance sheet needs the Algeria’s and Saudi Arabia’s and Brazil’s of the world to take wheat, otherwise our 1.00bbu export forecast has no chance of being achieved.  Fortunately, spreads were firmer with the higher futures and basis last week, adding some credibility to the rumors.  The KWH/KWK traded to -9.00c Friday and overnight, the strongest trade since August 8th.  MWH/MWK traded to the highest level since mid-December.  Rumors of Chinese interest in US-HRS persist, but without confirmation from the USDA, difficult to put them in export tables.  Spring wheat remains well inside a long-term declining trend channel dating back to September.

Jumping back to Chinese soy and the ASF outbreaks, yesterday China confirmed their full-year GDP growth of 6.6% which is the lowest in 28-years.  The 6.6% growth was in-line with estimates, but unsettling to Chinese central planners.  The Q4 growth of 6.4% was the lowest since the global financial crisis.  The trade war is certainly having an effect, and while we don’t want to see China’s slowing affect global growth, it could bring them to the bargaining table sooner.  At any rate, the growth figures reiterate the concern over slowing soybean crush demand, ASF notwithstanding.

Bottom Line: Multiple reports of capital heading to the sidelines with the US government shutdown keeping data sets to a minimum.  This will be a drag on volatility and opportunity.  With a higher than normal percentage of corn and soybeans still on-farm or unpriced, it will make it difficult for sustained rallies.  A week and a half until we start pricing February crop insurance guarantees and the focus shifts to 2019 whether we like it or not.  What is the plan for unpriced 2018 bushels and where are we prepared to sell 2019 bushels?  If you haven’t thought about it, now is the time.


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.

1/11/2019 Morning Comments

Good Morning,

 

The government is shutdown and it is looking likely it will never open again.  The end.  In all seriousness, the shutdown doesn’t look like it is going to end anytime soon.  After today, this will be the longest government shutdown in history, eclipsing the mark President Bill Clinton and the Republican-led Congress achieved back in the mid-1990’s.  The US Dollar Index still has our attention as the downtrend remains firmly in place and next level of support is down at the corrective lows from 10/16 at 94.7870.  After that, the September lows around 93.8140 would be expected to lend support.  In broad terms, a weak US Dollar is supportive to commodities priced in US Dollars, but specifically, the link between a weak dollar and higher grain prices is soft at best.  Too many folks blame the US Dollar for any and all price action when other news is lacking.

Extended maps for Brazil continue to paint a picture of above normal temps and below normal precip for much of the northern half of the country.  It is easy to see why crop production estimates are falling, although the herd mentality is usually at fault in such situations.  On the other end of the spectrum, Argentina continues to receive above normal precip and normal to below normal temps.  Crop production ideas are rising, and the reports of localized flooding are almost always overblown in such situations.  In the US, rains across the southern plains this morning as soil moisture profiles such be brimming in KS/OK/TX.  There is barely a stitch of drought conditions across this region, far different than last year.

 

Grains are higher this morning, bouncing after yesterday’s drubbing across the Ag room.  There as no abrupt change in the weather for South America yesterday, so it felt like traders tired of the narrative China was going to buy substantial amounts of US Ag products without confirmation.  Until the government reopens, we aren’t going to see confirmation of any of the rumored buying.  Cash and spread activity would certainly not suggest there has been a great “Chinese grain robbery” while the government was sleeping, so the larger risk would be the government reopens and export commitments fall well short of the rumored totals.  In addition, while Brazilian crop estimates are falling, we feel Argentina is rising and could be largely offsetting the losses to the north.  Add in the fact Chinese imports are still be called well lower than USDA’s last estimate and South American total supplies could be well larger than needed for current flat prices.  Also felt like traders were waking up to the fact new crop soybeans at $9.50-9.60 are too high to shed acres to corn and wheat, especially as the latter battles weak basis levels and soft demand.  Open interest changes yesterday saw corn up 4,497 contracts, soybeans up 5,844 contracts, meal down 3,108 contracts, oil up 10,441 contracts, SRW up 606 contracts and HRW down 5,265 contracts.

The big news yesterday was CONAB releasing their latest Brazilian soybean production figure which they cut to 118.8MMT vs. 120.2MMT previously and 119.3MMT last season.  Plugging this figure into our balance sheet does look as though it would require some level of rationing on exports, although only around 2MMT as it stands today.  Brazil carries out almost nothing, shipping every available bushel they can with storage infrastructure lacking.  With that in mind, we could see exports falling to 79MMT or so on a USDA marketing year or 73.5MMT on a local marketing year.  Both figures would still be a record level of exports by a fair margin while still allowing crush to be just 2MMT below last year’s record.  On the other side of the spectrum, we think there is no reason to not be raising Argentina’s soybean yields to near the record levels of 2014/15 or 2016/17.  If that is done, production could rise around 3MMT from the last USDA estimate with carryout rising to 44.449MMT on a USDA marketing year basis, a new record by almost 10MMT. On a local marketing year basis, which more accurately reflects carryout at the end of the season, Argentina would have over 21MMT of stocks, or 771 million bushels.  That is just 200mbu below the U.S. which is a new record.  Argentina would obviously be able to supply more exports than the 8.750MMT the USDA currently has pegged.  In fact, exports could nearly double and still provide an adequate level of carryout, easily covering any deficit out of Brazil.  In total, the South American production situation does not look all that dire to us, especially if the fire and brimstone in southern Brazil doesn’t persist into spring.

While still on soybeans, China’s government was out overnight reiterating their estimate for marketing year soybean imports at 83.65MMT vs. 94.13MMT last year and USDA at 90MMT.  Obviously, China has a vested interest in making it appear as though soybean demand is down and stocks are plentiful.  On the off chance they are correct, however, and Chinese imports are almost 7MMT below USDA, South America will have way too many soybeans left over to compete with the US to other destinations.  As noted above, Brazil will not store soybeans because they do not have the infrastructure.  Their prices will go to a level which clears inventory and that will almost assuredly be below US offers.  Argentina can and will store soybeans, but they will also crush at capacity which will compete directly with US meal supplies into Europe and Asia.  Even if we split the difference, and Chinese imports are 86MMT, that’s still another 3MMT of supplies they don’t need and 7MMT lower than last year while record production is achieved in both hemispheres.  Not difficult to see the resistance at current soybean prices with these narratives in mind.

The results of the recent GASC tender has us rethinking our stance on Russian supplies.  The narrative for the last couple months has been Russia would run out of exportable surplus by Dec/Jan, and the extraordinary business into MENA would show up.  That is not happening, and Russia continues to sweep up on these high profile tenders.  The pace of US wheat exports had picked up before the government shutdown, but it was still too slow to justify a 1.00bbu export program.  It is much more likely to be 950-975mbu if the demand remains constant into May/June.  Therefore, carryout is still likely to climb on subsequent WASDE reports, whenever they start to be issued again.  Either Russian production was higher than estimated, or carry-in stocks were larger than anyone gave them credit for.  Regardless, Russia continue to dominate the world wheat market as their quality and reliability improve.

 

Bottom Line: A bounce into the weekend as we absorb yesterday’s selloff.  Grains were on a nice bounce, running into farm gate selling and bulls running out of buyable narratives.  We can’t go up on rumors every day, especially when cash markets aren’t justifying the rumor buying.  It is likely China has bought US grains, but probably not to the level spoken.  We are also shifting focus to new crop where soybeans are not priced to shed acres, corn prices above 4.00 are profitable for most and no one knows what actual winter wheat plantings are.

 

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.

 

1/9/2019 Morning Comments

Good Morning,

 

Trade negotiations between the US and China re progressing smoothly with media outlets reporting the discussions have been extended into an unplanned third day.  The news was accompanied by a tweet from the President which read trade talks were “going very well.”  China seems more eager to reach a trade deal as economic data as of late has confirmed the world’s second largest economy is slowing.  US job growth remains strong, but key gauges of manufacturing and service activity both missed expectations last month.  What remains to be seen is how China addresses the issues of intellectual property theft and forced transfer of technology in Chinese companies.  Until those two issues are addressed, everything else is just window dressing which will go back to how things were before.

More rain in Argentina the last couple days and additional rainfall this week in Argentina as localized flooding in the northeast becomes a concern.  Temperatures are seen average to below for the next 7-10 days, so other than some localized flooding, Argentina continues to be in very good shape.  Brazil is much more subjective.  Dryness remains a concern in southern and eastern growing regions while elsewhere conditions seem favorable.  The 6-10 day outlook this morning is currently putting 0.50-1.50” in most of the growing regions, which is an improvement for MGDS, Sao Paulo and Goias.  Only Minas Gerais and the eastern 1/3 of Goais look to see totals of less than 0.50” with worsening dryness in those states.  Minas Gerais accounts for around 5% of total soybean production while Goias consists of around 12% of total production.

 

Higher prices across the Ag room this morning as trade optimism reigns supreme.  The market has been feasting on a steady diet of rumors for the last week to ten days, but with media outlets reporting the trade talks are progressing well, it seems like there may be some teeth to some of these rumors.  If China does come in a purchase some of the rumored totals (5-8MMT of corn, 6MMT of wheat, 5-8MMT of soybeans), flat price would have no choice but to rally, especially wheat as there is no Chinese demand penciled into trade grids at this time.  Until that happens, however, we need to treat these rumors with a grain of salt until cash markets begin to appreciate.  Spread activity is certainly not suggesting any extraordinary demand.  Corn prices are getting into territory which have found selling pressure in the past, and it feels like there is a fair amount for sale above $3.85.  Each day closer to February gets us one day closer to spring crop insurance pricing.  As we discussed yesterday, we do not believe there will be near the shift in acreage away from soybeans if prices remain near current levels and near current differentials with other crops.  Open interest changes yesterday included corn up 8,922 contracts, soybeans up 10,264 contracts, meal up 4,809, oil up 4,152 contracts, SRW down 4,261 and HRW up 1,769 contracts.

Lots of wheat business around this week, so no wonder that market has had good support underneath it.  Algeria bought wheat below replacement costs yesterday at around $260-262/MT C&F but origins and exact tonnages were not available.  US-HRW should have been competitive, or at least competitive enough to keep a foot in the door until shipment time when origin actually gets assigned.  Egypt’ GASC is tendering overnight with offers coming mainly from France, U.S. and Argentina.  No Russian offers were listed as most remain out for Orthodox Christmas.  If US-HRW was able to sneak out a few cargoes here, that would be a victory.  Traders didn’t think SRW would be offered as quality and hitting specs becomes an issue.  This is part of the reason why US-SRW to China in the tonnages spoken doesn’t fit as finding that amount of SRW to meet stringent Chinese specs would be difficult.  China could have all the HRS and HRW they want, but finding 3MMT of SRW and SWW would be a challenge.  Also on China, there is some concern about hitting China’s ergot spec on HRS with the ergot conditions across North Dakota this year.  China’s ergot tolerance is 0.01% while milling specs in the U.S. are 0.05%.  Still think it is doable if the price is right.  Minneapolis spot floor values shot higher for 15.0% protein yesterday with the bid side up 70c to +150H.  The cars were said to be good west coast spreaders, so will wait for more volume to get excited.

Elsewhere in wheat, we got deliverable stocks reports yesterday, one of the only data sets we are still receiving.  Chicago area wheat deliverable stocks fell 838,000 bushels on the week to 68.788mbu which compares with 85.929mbu a year ago.  Our attention was brought to the Chicago-specific wheat stocks which fell to 7.898mbu last week compared with 10.059mbu a year ago and would be the lowest stocks in Chicago proper since at least 2009/10.  By the end of the marketing year, assuming calendar spreads remain relatively tight and encouraging movement, stocks could be at some historically low levels.  KCBT stocks fell 967,000 bushels to 112.766mbu, but are still 693,000 bushels larger than a year ago.  Minneapolis/Duluth stocks rose 578,000 bushels last week to 16.411mbu, the third straight week of increases but remain well below the 22.026mbu from a year ago.  To begin the year, deliverable supplies are the lowest since 2012.

We remain impressed by the delivery activity in soybeans this cycle.  Overnight, there were another 1,142 contracts delivered which brings the month-to-date total to 7,454 contracts.  This is now over 37 million bushels which have been delivered against the January, marking one of the largest delivery cycles in recent memory.  If the demand were surging at the Gulf, which would in-turn support cash basis, we wouldn’t be seeing this heavy of delivery activity.  The fact no strong commercial stopper has surfaced whatsoever isn’t a good sign for cash moving forward.  Calendar spreads remain near 75% of full financial carry through July, so again, no call to action for bulls from a physical standpoint.

 

Bottom Line: We will get weekly ethanol production out later this morning, but that is likely to continue the recent slowdown due to poor margins.  Corn needs to be careful at current prices and higher as there is plenty of farmer corn for sale and domestic demand remains less than stellar.  Exports have been the bright spot, and are still well ahead of the pace needed, but South American competition will be much stronger April-August this year.  We need some confirmation of the Chinese buying rumors, but until the government reopens, not sure how that is going to happen.  Basis remains volatile across the Midwest, and producers need to be paying attention to both basis and futures, not just flat price.  Most contracts are in the middle of well-established ranges making the next move somewhat of a coin flip.

 

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.

1/9/2019 Morning Comments

Good Morning,

 

Trade talks will dominate headlines today, but we are more interested in what the US Dollar Index is doing and saying as a result.  Yesterday, the USD traded sharply lower, continuing the downtrend which began on 12/14.  Momentum indicators are sharply lower, suggesting the move is showing no signs of slowing down.  From a longer-term, weekly perspective, the US Dollar index is showing a textbook bearish divergence in momentum stemming from the highs August and the highs made in December.  The entire fall and early winter rally was done on declining momentum, an early sign the move was running out of steam.  There really isn’t a lot of support for this market between spot levels and the October lows.  Throwing this against the larger back drop of the current trade war and Fed policy, is the weakness in the US Dollar Index signaling a breakdown in trade talks or a move to easier monetary policy?

 

Grain markets are higher this morning, led by corn and SRW wheat as the latest round of trade rumors suggested China will be in the market for not only US soybeans but also corn and wheat.  At this point, and with no government to confirm, almost all of these rumors need to be treated with a grain of salt until cash markets respond in kind of the government reopens.  The tonnages being spoken are intriguing with 1-2MMT of corn and 3.0MMT each of HRS and SRW.  If those sort of numbers were traded, we would see a sharp response to cash off the PNW and at the Gulf for SRW.  The spring wheat market could probably handle such a purchase, but the SRW balance sheet would be hard pressed given China’s stringent requirement on test weight.  Still, where there is smoke, there is often fire.  If trade talks have a breakthrough, and additional good will purchases are made for strategic reserve, wheat would benefit mightily.  Otherwise, we are trading South American weather which is ambiguous enough to keep premium in the market.  With the USDA closed, CONAB’s update of Brazilian production on Thursday will be one of the more important figures during January.  Open interest changes yesterday saw corn up 6,333 contracts, soybeans up 1,191 contracts, meal up 3,631 contracts, oil down 3,290 contracts, SRW up 3,959 and HRW up 1,633 contracts.

Data remains light, although we did see weekly export inspections as the FGIS still has funding.  Wheat inspections totaled 9.6mbu vs. the 23.0mbu needed weekly to hit the USDA’s objective.  Total inspections of 475.3mbu are down 12.5% from a year ago.  Last week’s inspections were the lowest of the marketing year which is not unusual given the holiday break.  Corn inspections of 19.7mbu were low vs. the 45.9mbu needed weekly.  Total inspections remain 61.3% ahead of last year, although that gap has narrowed from 72.3% two weeks ago.  Soybean inspections totaled 24.7mbu vs. the 35.1mbu needed weekly to hit the USDA objective.  Total inspections remain 41.6% behind a year ago a consistent gap over the last month.  The 1.3bbu worth of export shipments remaining for soybeans look daunting without a large-scale purchase from China in the next few weeks.  There is not threat of the USDA cutting the soybean export forecast as long as they remain closed, but when they reopen, that number will be ripe for a cut without a pickup in business.

Lots of tender business for wheat this week including Syria, Algeria, Bangladesh, CCC in for Yemen, Taiwan, Jordan and Morocco.  The most focus will be on Algeria as US, Baltic and German offers are all within a few dollars per tonne of one another.  Argentine offers would also be competitive, but difficult to believe they will be considered after the rejection last week.  The tender is for a nominal 50,000MT, but Algeria often buys 400-600,000MT at a time which might be difficult for any one European country to supply.  EU wheat exports through January 7th remain 25% behind a year ago, but many have made mention of the fact their data sets are likely lagging actual performance.  Even if they are 10% better, however, EU exports would still be down 17.5% from a year ago while the USDA’s latest estimate is calling for basically unchanged exports.  Difficult to project full-year EU wheat exports above 18MMT vs. USDA last at 22-23MMT.  With that in mind, hard to imagine Europe competing heavily for the Algerian business.  The USD weakness this week also isn’t hurting a thing.

As we near February 1, we remain mindful of new crop prices as December ’19 corn trades near $4.04, November ’19 soybeans trade near $9.60 and September ’19 spring wheat trades at $5.86.  The current new crop soybean/new crop spring wheat spread is trading at $3.74/bu this morning, the strongest level since April of 2018.  Similarly, new crop spring wheat/new crop corn spreads are within 5-10c of the weakest levels for the contracts, meaning spring wheat is soft relative to corn.  Both of those spreads are not arguing for higher spring wheat acreage across the Northern Plains as has been the talk most of the fall.  Add in the fact nitrogen costs will be up almost across the board, and the economics of spring wheat vs. corn and soybeans gets even worse.  So we must ask the question, what will the soybean balance sheet look like if we don’t see 5-6 million acres shifted away from beans to other crops?  If we see only a 3.1 million acre drop in soybean acreage, along with trend line yields, our carryout grows to 1.050bbu vs. 957mbu this year, and that is assuming 70mbu of additional crush demand and 100mbu of additional soybean export demand.  An argument could be made exports need to be higher if a trade deal is done, but we will cross that bridge when we get there.  Even with record soybean exports of 2.200bbu, carryout would still be around 850mbu.  This also begs the question of what the corn balance sheet looks like with only two million additional acres instead of four?  With two million additional acres and a record yield of 179.0bpa, our carryout grows to 1.825bbu vs. 1.787bbu this year but would remain below the psychologically important 2.0bbu mark.  We also have feed demand higher, ethanol demand higher and exports down by 150 million bushels.  Ethanol profitability remains a major sticking point until current economics turn around.

 

Bottom Line:  Feels like there is enough trade-talk optimism and Chinese purchase rumors to keep us higher in the near-term.  If negotiations yield guaranteed purchases of US commodities, then we’ve probably got more rally left in these markets.  If we get another continuance, and South American weather doesn’t get worse, difficult to see another leg higher.  Lots of inputs being purchased and planting decisions being made ahead of the spring insurance pricing.  We don’t think acreage is going to move as much as some would like it to.

 

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.

1/4/2019 Morning Comments

Good Morning,

 

Global equities are surging this morning, supported by optimism toward trade talks next week between China and the U.S. as well as moves by the PBoC overnight.  China’s central bank cut the required reserve ratio for commercial banks by 0.5 percentage point effective January 15th with a similar amount to be cut on January 25th.  This is to encourage commercial banks to lend more or their funds and in-turn stimulate the Chinese economy.  Later this morning, we will see the December employment situation report which is expected to show 177,000 jobs created in December.  The unemployment rate is expected to stabilize at its recent low of 3.7%.

No big updates to South American weather with rains expected to keep soil moisture in decent shape in Argentina and most of Brazil the next 10-days.  Most are still expressing concern about dryness rebuilding in southern Brazil by mid-month, however.  6-10 and 8-14 day maps show below normal precip and above normal temps over a large swath of Brazilian production areas which we are going to go with until proven otherwise.

 

Grains are higher across the board this morning with most contracts working on their first higher weekly close since the first week in December.  Wheat has been one of the strongest legs this week on ideas of better export demand which we have no confirmation of with the government closed.  Still, FOB offers and freight spread assumptions certainly suggest US-HRW is competitive into many major importers, and even China got thrown into the rumor mill this week regarding spring wheat.  As we discuss below, China’s demand for spring wheat is certainly alive and well, so the fact they’d be interested in diversifying suppliers isn’t unreasonable.  Still Chinese soy purchase rumors around, but we remain unimpressed with the tonnage, especially when held up to delivery activity.  Corn news is quiet and not all that supportive as ethanol plants continue to be idled amid poor operating margins.  Open interest changes on the rally saw corn up 7,982 contracts, soybeans down 4,693 contracts, meal down 917, oil down 2,420 contracts, SRW down 4,439 contracts and HRW up 255 contracts.

Canadian export data for the month of November was released in the last week or so with wheat shipments for the month at 1.591MMT vs. 1.671MMT in October.  Exports were above the 1.464MMT from November 2017, however.  Crop-year-to-date exports of 6.423MMT are up 20% from a year ago, while durum exports are down about 19.7%.  Of interest to us were exports to China which came in at 155,000MT for the month and are at 552,100MT for the year-to-date.  The November exports were up 156% from November a year ago, and YTD exports to China are up 110% from the same period a year ago.  Cumulative exports are over double the next largest export total to China at this point in a marketing year.  China has taken a bit more No.2 CWRS than No.1 CWRS, but the split is pretty close.  CWRS has been carrying a healthy premium to US-HRS most of the marketing year, so China reaching for some spring what, provided the tariff situation is squared away, would not be all that unreasonable.  August-November exports of oats, barley, soybeans and lentils are all ahead of a year ago while canola and pea exports are lagging 2017/18.

FC Stone issued their latest guess on Brazilian soybean production, cutting their estimate to 116.25MMT.  This would be the lowest estimate we’ve seen in print by anyone who actually has a presence in the country.  This seems aggressive but would be just below a lot of other estimates grouping around 117MMT.  A number of 117MMT or below would require export estimates to be pared back based on our read of the balance sheet.  We prefer to look at the Brazilian balance sheet from a local marketing year basis which begins Feb 1 and ends Jan 31.  This gives a more representative feel of Brazilian supplies left over before new crop.  Based on a production number of 116.25MMT, and unchanged USDA demand, Brazilian soybean carryout would actually go negative by 4.075MMT.  This is obviously untenable and would require exports to be cut.  That said, Argentine exports could easily be 3-4MMT larger than current USDA estimates as their projected ending stocks on a local basis are up around 18.5MMT, the second largest on record.  It would take extra incentive to get those bushels to export given taxes, inflation and farmers who prefer to store well into the next marketing year.  The supplies are there would be the point.

There were another 1,100 re-deliveries of January soybeans overnight, bringing the month-to-date total to 4,021 contracts.  There has been no good commercial stopper yet, so these should continue circulating until last trade date.  Month-to-date deliveries are over 20mbu which is around 1/3 of the rumored Chinese purchases of soybeans this week.  Puts their buying into perspective.

 

Bottom Line: Firmer across the board and finally putting in a solid week of trade.  I believe we should get weekly ethanol production as that agency still has funding, but exports will continue to be a no-show.  Wheat got cheap enough for long enough to get some business done, we just don’t know to whom.  Soybeans are in the discovery phase for South American production with ideas being tweaked lower.  We aren’t ready to subscribe to some of these low-ball estimates, but they need to be monitored.  If the lost demand from Brazil gets made up in Argentina, then there isn’t anything to rally about.  The boats need to leave our shores to matter.

 

Good Luck Today.

 

 

Tregg Cronin

Market Analyst

Tregg.Cronin@halocommodities.com

www.halocommodities.com

@5thWave_tcronin

1/3/2018 Morning Comments

Good Morning and Happy New Year,

 

Before taking our holiday break, the U.S. government had shutdown due to an inability to pass a budget.  The U.S. government is still shutdown and the world has not ended.  If too much time goes by, people might realize the world can survive without Washington D.C.  At any rate, we continue to watch the USD Index which is stronger again today following Wednesday’s surge higher.  Looking at charts while markets were closed, we actually thought the USD had a particularly bearish technical tilt, especially from a weekly standpoint.  The USD violated long-term trend line support on Monday before recovering above that level yesterday, but momentum studies from a weekly perspective are showing a textbook bearish divergence in momentum.  Forex, Federal Reserve Interest Rate policy and trade policy will be the driving forces in 2019 in our opinion and if given the choice, we can envision more scenarios where the USD breaks sharply from current levels than ones where it rallies appreciably higher than current levels.

Quite a mix of rain and snow in the southern plains this morning which also stretches across the Delta and up the Mid-Atlantic.  Following a particularly nasty winter storm in the Northern Plains over the weekend and earlier this week, weather looks mostly favorable for the Midwest the next 10-15 days with limited precip and mostly above normal temps.  The US Drought Monitor looks substantially better than it did a year ago at this time and the soil moisture profile is brimming almost everywhere.  In South America, most growing areas of Brazil and Argentina have seen rain the last 7-days but it is the forecast for the next 10-15 days which is a concern, particularly in Brazil.  Dry areas have been reduced to 15% of total production areas, but dryness is expected to rebuild by mid-month as above normal temps and mostly below normal precip is the norm. With how early soybeans started to be harvested this year, making generalizations about the weather in Brazil this year will be difficult.

 

Mixed markets this morning with grains higher and the soy complex a bit weaker.  Strength in soybeans Wednesday caught the attention of most as dry forecasts for Brazil as well as chatter about China beginning to purchase U.S. soybeans again supported.  Cash traders suggested the tonnage was in the 1-2MMT range, which would push total purchases up around 5MMT.  5MMT was the number alluded to when China said they would allow Sinograin to refill strategic reserves.  This could mean the 5MMT will be all the purchase made until a larger trade deal is completed.  If that is indeed the case, it is tough to view the purchases as bullish given 150-180mbu isn’t going to get us up to even the current 1.900bbu export forecast held by the USDA, in our opinion.  Still, purchases of any kind are good, and with Brazilian weather turning at least two-sided, it is enough to halt sell pressure for the time being.  In grains, cash sources continue to talk about U.S. wheat being competitive into Egypt, Algeria, Saudi Arabia and several other major destinations.  This is being offset by fears over the implementation of the Trans Pacific Partnership which goes into effect Sunday.  This will see tariffs reduced for Australian and Canadian wheat into Japan but nothing done with tariffs on U.S. wheat.  According to U.S. Wheat Associates, Australia and Canada will see an immediate 7% drop in tariffs which will go to 12% by April and after nine years of the partnership the cut will be as large as $70/MT.  Very unlikely we will see the present situation persist forever, but Japan does not seem high on the list of priorities with trade tensions in China raging.  Taking it a step further, even if Japan is addressed, agriculture isn’t likely to be on the front-burner.  Beef will be the other commodity hit hardest by the lack of participation in TPP.

Has been a lot of chatter lately about soybean acres across the Northern Plains switching to spring wheat among other crops.  In the last week or so, NDSU released their preliminary 2019 crop budgets for a host of crops including soybeans and spring wheat.  We pulled the budgets for the south-central, south-west, northern-valley and north-west crop districts to see what the profitability looked like between the two crops.  In south-central North Dakota, spring wheat is projected to return -$6.96/acre assuming a yield of 43bpa and a market price of $5.62/bu.  Soybeans see a return of +$13.15/ac assuming 31bpa yields and $8.05 cash.  Spring wheat is profitable in southwest-ND a +$6.36/ac at 38bpa yields and $5.53 cash but soybeans are returning $29.29/ac assuming 29bpa soybeans and $7.95 cash.  In the northern valley, spring wheat is showing returns of +$4.09/ac vs. soybeans at +$13.46/ac.  Northwest ND sees spring wheat at a -$7.48/ac with 37bpa yields and $5.52 cash vs. soybeans at +$18.84/ac.  So despite the historically terrible basis levels across North Dakota, it doesn’t look nearly as cut and dried for acres to switch from soybeans to spring wheat.  Until the futures board pushes new crop back over $6.00/bu, we could see a status quo on acres, although there is likely to be some switching from soybeans to minor and specialty crops.  This should be somewhat of a relief considering 5-10% more spring wheat acres as most have been assuming would result in one of the heaviest spring wheat balance sheets in 30-years.

Very light on data with the government still closed, although we did see weekly deliverable stocks.  In Chicago, total wheat stocks fell another 1.416mbu to 69.262mbu which compares with 86.426mbu a year ago.  The lower weekly stocks levels combined with improved export demand and stronger basis levels are definitely supporting stronger calendar spreads.  As the VSR calculation period continues to average, the WH/WK is currently trading an average of 35% of full financial carry which would reduce storage rates further to 5c/mo.  In Kansas City, wheat stocks fell 1.272mbu to 113.737mbu but are still above last year’s 111.827mbu.  In Minneapolis/Duluth, stocks rose by another 1.147mbu after rising by 488,000 bushels last week.  The last two weeks broke a streak which went back to the first week in November of weekly stock draws.  Total wheat stocks of 15.833mbu are still sharply below last year’s 21.900mbu and are the lowest for year-end since 2011.  There have been almost no shipments from either Duluth or Minneapolis since the holiday break according to the daily status reports, so it will be interesting to see what stocks do once we get a full week of business under our belts.

Jumping back to acreage discussion for a moment, one other thing to consider with respect to cropping rotations is the higher cost of nitrogen vs. last year and the last several years.  Across the Northern Plains, urea prices are anywhere from $25-75/ton higher than a year ago while 28% UAN prices are up $15-30/ton but expected to be as much as $50/ton higher by spring.  Very few people can offer justification for the higher N costs but even fewer expect them to fall by spring either.  Considering spring wheat takes nearly as much nitrogen as corn does to produce an adequate yield goal, this could impact planting decisions if producers haven’t locked in inputs already.  As the chart below shows, spot UREA swaps at the Gulf have corrected over $40/ton since the highs put in this fall but spot prices remain above the high end of the range which capped prices dating back to the summer of 2015.

 

Bottom Line: Grains trying to add premium this morning but still well inside recent ranges for corn and wheat consolidating just above recent contract lows.  Without the government, unfortunately we don’t have a good handle on what we are selling or who we are selling it too outside of cash market activity.  Wheat spreads remain firm, so doesn’t feel as though futures need to retest contract lows in our opinion.  Corn’s range looks iron clad for the foreseeable future between 3.67-3.87.  Soybeans likely cling close to $9.00, waiting on more SAM weather and Chinese purchase announcements.

 

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.

 

12/28/2018 Morning Comments

Good Morning,

 

A few lingering snow showers this morning in the Plains, otherwise the Midwest has mainly cleared out from yesterday’s winter weather.  Mostly dry weather the next 72-hours before the Northern Plains sees additional snow chances.  Temps will be well below normal the next couple days before a one-day reprieve and more below normal temps next week.  Extended maps are mainly dry the next 10-14 days while temps are mostly normal across the Midwest.  In South America, soaking rains will keep soil moisture in decent shape for both Argentina and Brazil the next 10-days.  There are some concerns about too heavy of rainfall in Argentina as well as some dry patches in west-central and south-central Brazil.  Overall, it seems like one has to get nitpicky to find a major issue with South American growing weather outside of Paraguay.

 

Grain markets are firmer this morning across the board, being led higher by soybeans and wheat which are both up around 0.50%.  Never a great deal of news the week between Christmas and New Year’s, and even less so this year with the USDA closed.  Several in the trade reported yesterday weekly export sales would not be reported but EIA weekly ethanol production would be later this morning.  Weekly ethanol data isn’t likely to be supportive given the still difficult margin structure across the industry.  Normally, we would get Census export/import data for the month of November next week but the FAS website says it will not be updated until funding has been restored.  That report would have provided key information on whether ethanol exports have slowed further amid the trade war and energy market collapse.  More ambiguity coming to South American soybean production estimates.  Feels like the range of ideas is drifting lower for Brazil with most between 117-122MMT vs. 125-130MMT a couple weeks back.  Still should be more than enough soybeans to meet global demand, especially with demand concerns out of China related to ASF.  Open interest changes yesterday saw corn up 515 contracts, soybeans down 13,265 contracts, meal down 1,232 contracts, oil up 3,821, SRW up 3,058 and HRW up 960 contracts.

A couple other production estimates worth noting, Rosstat increased their estimate of Russian wheat production to 72MMT vs. 70MMT previously and the USDA at 70MMT.  Using this updated production forecast, the USDA’s current export estimate of 36.5MMT looks much more comfortable.  This would put ending stocks for Russia at 7.468MMT which is just below the 5-yr average of 7.953MMT.  It would also put exports at 43.2% of total supplies which is still a new record but only marginally above last year’s 43.02%.  Looking ahead to 2019/20, if we plug in a bit higher acreage and a production figure of 75MMT with unchanged demand, ending stocks would come in at 5.968MMT.  Our view is these are adequate ending stocks levels but doesn’t leave a great deal of room for a weather issue.  In addition, a 36.5MMT export figure would likely require another year of global importers looking to either the U.S., Argentina or other major exporter to fill in supply gaps if global demand sees its usual increase.  European and Australian production should be higher in 2019/20 but the current Russian balance sheet doesn’t appear to have an immediate call-to-action for bulls in our opinion.

The other crop estimate of note yesterday was the European Commission upping their view of the 2018/19 EU corn estimate.  They increased the figure to 67.5MMT which was up 5MMT from last month and compares with the USDA at 60.4MMT.  Leaving USDA’s demand estimates unchanged, this would boost EU corn ending stocks to 13.863MMT which would be the largest on record.  The EU will not carry out that much corn, instead dropping imports from the current 21MMT figure which is the largest since 1981/82.  The increase in production undoubtedly comes from the Eastern European countries like Romania and Bulgaria.  Lower imports into the European Union should mean more Ukrainian corn available to compete with U.S. and South American supplies into the Middle East and Southeast Asia.  Depending on the size of the drop in imports, it could also mean the EU moves back to a net exporter of wheat and corn after being projected to be a net importer of grains for the first time since 2007/08.

Several in the trade talking about index fund rebalancing which would include selling Kansas City and Chicago wheat.  We go through this exercise every year and it rarely amounts to much other than some slight influence on calendar spreads.  More salient is the current VSR calculation period in Kansas and Chicago which is pricing both markets to drop storage rates by 3c/mo.  Once Chicago storage rates have been dropped to 5c/mo, they can go no lower although it is interesting to note the WK/WN calendar spread using 5c/mo for storage costs is still only trading 55% of full financial carry.  Hopefully, this tighter carrying charge environment prompts continued SRW exports and allows warehouses to flip inventories which have been on-hand for multiple years.  Combine this with the potential for smaller winter wheat acres and the wheat market continues to build a case for support underneath current prices.

 

Bottom Line: Just not a lot to discuss and difficult to take anything away from price action this week given the lack of participation.  Once the calendar flips to 2019, focus will be solely on Chinese purchases of U.S. Ag products and South American weather.  Without a significant weather event in either Argentine or Brazil which shaves production meaningfully, it’s hard to justify spot soybean prices above $9.00 and corn prices above $3.90.  Lots of reluctance for producers to look at 2019 new crop prices with so much unpriced 2018/19 grain but that doesn’t mean it’s not worth discussing.  Inputs have shown a great deal of movement vs. a year ago with diesel prices sharply lower, fertilizer sharply higher, seed mainly cheaper and chemical all over the board.  Rents in general seem to still be coming down and a recalculation of ROI might show some surprises.

 

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.

12/27/2018 Morning Comments

Good Morning,

 

Equity futures are back on the defensive this morning, trading off nearly 400 points on the DJIA following the single largest nominal gain in the index’s history.  At the close, the DJIA was up 1,086 points, or nearly 5.0%.  After two weeks of sharp losses, all of which were attributed to the current administration, it seemed as few bothered to note the large surge.  Energies also came surging back with crude oil closing up $3.69/bbl for its largest percentage gain in almost a decade.  It remains to be seen whether yesterday’s gains were the aberration or a near-term bottom.  For all the fanfare, the USD Index remained inside the range present for the last several weeks.  We continue to watch the Brazilian Real which is trading at 3.93:1 against the USD this morning, inching back toward 4.00:1.  In addition, the Russian Ruble is back over 70:1, just ticks away from the September lows at 70.62 which was the weakest trade since March of 2016.  Weakness in these two currencies specifically will make competing against their grain exports more difficult.

As the kids would say, the U.S. radar is lit fam.  Huge swaths of snow and rain are blanketing the Midwest and Plains this morning, impacting travel and adding stress to livestock.  The worst hit areas are or have received rain in the last 24-hours which is switching to snow amid freezing temperatures.  The precip will be accompanied by high winds today with gusts across the Dakotas pushing past 40mph.  The snow map below shows snow cover across most of the Northern Plains after having been largely dry the last 30-days.  Once the current system moves out tomorrow morning, the rest of the 7-day period will be largely dry for the Midwest.  The Delta and Mid-South will remain especially wet with 2-5” expected by this time next week.  Extended maps are mainly dry in the 6-10 and 8-14 day with temps near normal.  Watching developing heat across southern Brazil in the extended forecast while northern Brazil looks below normal on precip.  No pressing issues, but these two themes need to be monitored closely.

 

Higher grain markets across the board this morning as we bounce from yesterday’s bloodbath.  The selloff was led on a nominal basis by beans and wheat, but the percentage losses were largest in Minneapolis wheat.  Many traders pointed to a Wall Street Journal article published in the last few days outlining some of the outcomes of the Trans Pacific Partnership which are set to be implemented in 2019.  Among these are tariff reductions for Australia and Canada which the U.S. will not enjoy.  More on this below.  The selling pushed March Minneapolis to new contract lows, and little exists in the way of support between spot levels and the $5.23 lows from July.  Very little corn and soybean news yesterday outside of posturing about Chinese purchases.  Most traders are confused whether daily export sales announcements would happen with the government closed?  Export inspections were released yesterday, but it isn’t clear if export sales will be published this week or EIA ethanol production data.  We have seen government shutdowns last 12-18 days before over the last several decades, so it isn’t unreasonable to think the government could remain closed up to the January WASDE.

Regarding the TPP, multiple articles cited a figure of roughly $67-68/MT as the tariff reduction Canada and Australia would enjoy on their wheat exports the U.S. would not.  The 11-member TPP will begin on December 30th, which will result in tariff reductions for Canada, Australia, New Zealand and Chile.  The Japanese wheat market is one of the most coveted in the world because of their consistency in purchases.  Japan buys regularly, regardless of price, unlike many of the Middle Eastern importers who try to time their purchases with lows in the market.  The U.S. is trying to negotiate a bilateral trade deal with Japan directly which could limit the impact of the TPP tariff reductions, but nothing has been done on that front.  With Chinese trade negotiations and the border wall front and center, highly unlikely U.S. wheat exports are very high on the totem poll at the Whitehouse.  Spring wheat exports off the PNW would probably be hardest hit as those supplies compete directly with Canadian Western Red Spring wheat.

Export inspections were released yesterday despite the government shutdown.  Wheat export inspections dropped back below the needed level after having hit the level for the first time all season last week.  Wheat inspections totaled 20.0mbu vs. the 22.1mbu needed weekly to hit the USDA export estimate.  Total inspections are now 450.5mbu, down 14.1% from a year ago vs. the USDA calling for a 10.5% increase.  Sales have improved, which needs to occur before shipments can pick up, but the marketing year is now half over with more than 50% of the export estimate left to ship.  Corn inspections were 39.2mbu vs. the 44.9mbu needed weekly.  Corn inspections haven’t achieved the level needed in four weeks.  Total inspections of 668.8mbu are still up 72.3% from a year ago, providing quite a bit of breathing room.  Soybean inspections of 23.9mbu were below the 34.7mbu needed weekly and the lowest since early October.  Inspections of 581.3mbu are down 41.8% from a year ago while the USDA is only calling for a 12.6% reduction.  Another export reduction is surely forthcoming without a pickup in export demand.

We are now five sessions into the variable storage rate calculation period for the H/K spreads in Chicago and Kansas City.  Chicago is averaging around 34-35% of full financial carry while Kansas City is averaging around 44-45% of full financial carry.  As it stands today, both spreads would lead to a reduction in storage rates with Chicago dropping from 8c/mo to 5c/mo while KC would drop from 11c/mo to 8c/mo.  When it looked likely Chicago would reduce storage rates from 11c/mo to 8c/mo back in November, this led to a surge in buying on the front-end of the curve as managed funds realized the easy carry game was coming to a close.  It remains to be seen whether this could happen again in Kansas City if it indeed looks likely storage rates will drop.  Part of the reason wheat exports have been so slow are the lucrative carrying charges in KC.  The first step in getting commercials to part with hedged inventory is taking away the incentive to store wheat.  A reduction in storage rates will be a good first step.  Quickly, after having declined for the last two months, deliverable stocks of spring wheat in Duluth and Minneapolis finally rose last week by 488,000 bushels.  Total wheat stocks of 14.686mbu compare with 21.900mbu a year ago and remain the smallest for this week since 2011.  Will be interesting to see if a seasonal low spot has been hit or if this is simply related to reduced movement around the holidays.

 

Bottom Line: Turnaround Tuesday on a Thursday because Tuesday wasn’t Tuesday and Thursday is like Wednesday.  Makes sense right?  Remains to be seen what government reports we get this week and how much impact they’ll have with trading desks half-staffed and the government partially open.  Bullish headlines are fleeting and without more Chinese purchases, not sure what props this market up.  Even if China buys, we’re not sure we would know about it with the government closed.  Continue to watch basis and spreads or short-term direction.

 

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.