2/20/2019 Morning Comments

Good Morning,

After hitting the highest levels since December 17th, the USD Index has given back ground to trade just above its 50 and 100-day moving averages.  On the other hand, energy markets continue to work mostly higher with crude oil hitting the highest levels yesterday since November 20th, with RBOB and Heating Oil achieving similar feats.  The Brent/WTI spread has corrected sharply after hitting the lowest levels since August on January 31.  That spread catapulted to $11.91/bbl on 2/18, the highest trade June before leveling off some since.

More snow falling across the eastern Dakotas, Minnesota, Iowa, Wisconsin and Michigan this morning while rain and rain/snow mix fall in the Mid-South and Ohio.  The only thing most are interested in is when this winter will come to an end, and according to NOAA, not anytime soon.  7-day forecasted precip maps show additional moisture across MN/IA/NE/WI/IL and especially further south, but that is probably in rain form. The snow across the Midwest will add to impressive totals already on the ground, but shouldn’t add to the Northern Plains where it is not needed.  In looking at the Northern Plains region, 98.9% of the region is covered in snow with an average depth of 11.2”.  This is the equivalent of 2.1” of water, a wet winter by most standards in the Plains.  Of most concern, NOAA’s extended maps on temperature show below normal temps through March 5th. Precip does shift below normal by the 8-14, but it will be heat which is needed to slowly bring this snowpack above freezing.

Mixed markets this morning with corn bouncing back nicely by 2-3c, recovering a good portion of the losses from Tuesday.  It is the additional losses in soybeans and wheat following the thrashing Tuesday which is of most concern.  Between soybeans violating their vaunted trendline, and wheat markets splashing to new contract lows, there wasn’t much positive to discuss with these two markets Tuesday.  In our opinion, it felt like the market had finally picked through the bullish narratives in the wheat market which have been present the last couple months.  It looks increasingly unlikely we will achieve the USDA’s export forecast.  Russia has not run out of wheat and will not be restricting exports in the 2018/19 marketing year.  China has not, and most likely will not, buy US wheat in meaningful quantities this year. Major importers are not beating down the door for U.S. wheat as we’ve been told they would, but instead they are stretching supplies to get to the back end of the inverse. If exports do not meet the USDA forecast, then carryout could rise back to levels congruent with the last two marketing years which saw Chicago spot prices in the low 4-handle area.  We are not expecting a return to those price levels, but simply to acknowledge the current state of U.S. supplies.  Big increases in open interest on the selloff with corn up 18,065 contracts, soybeans up 2,758, SRW up 8,225 contracts and HRW up 5,321.

Yesterday’s export inspections seemed to kind of illustrate the problem in wheat.  We’ve been writing since last fall about the monumental task facing the wheat export book.  It is now mid-February, and sales and shipments need to be records to hit the 1.000bbu export forecast. Cash traders have already said we have missed the big March business which leaves April and May.  Export inspections in the week ended 2/14 were 13.1mbu vs. the 25.4mbu needed weekly to hit the USDA forecast.  Total inspections of 578.6mbu are down 10.4% from a year ago while the USDA is essentially calling for a 10% increase.  Not much time to make a 20% swing.  Only one week since the beginning of the marketing year has seen inspections hit the needed level.  Corn inspections totaled 37.1mbu vs. the 45.9mbu needed weekly.  Corn inspections have missed the needed level in 10 out of the last 11 weeks.  Total inspections are up 44.9% from a year ago, but this gap has shrunk from 51.0% ahead two weeks ago.  Soybean inspections continue to chug along at 37.9mbu vs. the 33.2mbu needed weekly.  Total inspections are still down 36% from a year ago, however, while the USDA is calling for a 13.7% reduction.  Soybean inspections have hit the needed level six consecutive weeks.

The Minneapolis spot floor broke back by 5-30c on Tuesday as a better run of cars finally shook loose.  There were 81 cars including one train on the spot floor yesterday, although railroads are still running 10-14 days behind with car placements.  To be sure, these spot floor values are still better than a week ago and some of the better levels of the season.  With the MWH/MWK spread finally breaking the inverse, it is difficult to believe basis has another leg higher.  While producers remain dismayed with the flat price market, they should be inquiring about basis tied to HTA’s or outright basis contracts ahead of an eventual board recovery.  The ability to separate futures and basis can mean a big boost to the final cash price.  The HRW domestic market and spot floor were unchanged Tuesday and have been especially quiet for the last couple of weeks.  SRW and HRW cash remain above delivery equivalence, supporting their respective H/K spreads.  With the bull narrative slowly coming undone in exports, it has us wondering about spreads on the back end of the curve once storage rates drop another 3c/mo.  The WN/WU is trading 68% of full financial carry (LIBOR+200bp) assuming 5c/mo of storage costs.  If the US is going to be relegated to the supplier of last resort in the 2019/20 marketing year, do spreads need to widen out and increase VSR rates?

Egypt’s GASC is tendering for wheat overnight, seeking boats for April 5-15 shipment.  Cash traders suggest French and US-SRW should once again be competitive looking at FOB offers and assuming freight doesn’t change drastically.  Continuing to compete for Egyptian business is a good sign, but French wheat will probably mop up most of the North African business still open for spring.  Black Sea new crop futures settled at $197.75-199.00/MT yesterday, which is $5.38/bu at port.  This would compare with spot HRW prices at the Gulf around $6.18/bushel and new crop bids around $6.30/bushel.  This should illustrate the incentive global importers are being given to stretch supplies until new crop is available this summer.

Otherwise, President Trump made headlines Tuesday after saying trade talks are “going very well.”  More interestingly, he said “these are not just, you know, let’s sell corn or let’s do this… it’s going to be selling corn, but a lot of it, a lot more than anyone thought possible.”  Two things: 1) he mixed up corn and soybeans, or 2) there is a plan for a larger slate of U.S. ag purchases which include corn although that would seem to go in direct contrast to perceived Chinese supply levels.  We aren’t likely to know what’s going on until a final deal is announced, but he does keep things interesting.

Bottom Line:  The washout Tuesday was eye-opening, but not sure if it should have been all that surprising.  The US export book for wheat hasn’t been good, and we are running out of time to meet the USDA objective.  No exports means rising carryout levels.  Plenty of wheat left for sale in the Northern Plains, although we suspect that will be carried into new crop if prices don’t recover.  New crop bean prices of $9.44 don’t look nearly as appealing as the $9.60’s available a week ago, although most producers didn’t like those either.  The insurance pricing period is almost done and corn appears to be the clear winner.  If one is planting more corn this spring, is there a marketing plan for the extra bushels?

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.

2/14/2019 Morning Comments

Good Morning,

Trade talks dominate the financial headlines once again with President Trump suggesting last night he was open to a 60-day extension in the trade war truce now that things appear to be progressing favorably.  Sticking points remaining include making it easier for foreign firms to operate in China.  In China, the state-owned monopolies controlling everything from grain procurement to finance, power, energy, telecommunications and defense manufacturing. It is impossible for American companies to compete with a state-owned enterprise (SOE) which is being so heavily subsidized. In addition, the U.S. wants independent verification China is actually following through on any agreed upon trade deal, something China is not keen to sign on to.  A big round of Chinese purchases of U.S. goods would be great, but it wouldn’t fix anything structurally.  Keep this in mind as details trickle out in coming days.

More blustery cold weather across the Northern Plains this morning with single digit to below zero air temps while wind gusts surge as high as 20-40mph.  The dangerous winter weather will keep logistics on the back foot for railroads.  Precip models this morning are putting several rounds of snow chances the next couple days across the Dakotas, Nebraska, NE-Kansas, Iowa and Missouri.  No real reprieve in the extended maps with both the 6-10 and 8-14 keeping below normal temps in place through February 27th.  Above normal precip is stretched across the Midwest which should keep the snow flying.  A bit early to be worried about a late spring, but the longer the below normal temps stay in place, the longer the spring melt takes to start.  Mostly favorable weather in South America according to the meteorologists we follow.

Weaker markets this morning led lower by wheat which continues to produce erratic trade, especially in Minneapolis where winter weather is impacting logistics and rallying cash markets.  Each year the railroads face tough operating conditions, but this winter has been especially brutal for the combination of severe cold and heavy snow.  Cash traders suggest mills have resulted in double buying their needs in hopes some wheat shows up.  This is supportive in the near-term, but can lead to a swift correction when logistics loosen up.  Otherwise, we await trade talk outcomes with some optimistic we will see another big round of Chinese purchases of US goods.  For what it’s worth, cash traders said yesterday China bought 10-15 cargoes of Brazilian beans for March-July shipment.  This would make sense as U.S. soybeans, even without the tariffs, aren’t competitive into China until August.  This does little to support the 2018/19 soybean export forecast, but probably ups ideas for 2019/20, especially if Brazilian crop estimates continue to bend lower.  Open interest changes include corn up 7,867 contracts, soybeans up 4,307 contracts, meal down 1,757, oil up 4,282, SRW down 5,197 and HRW up 719 contracts.

The story yesterday was in spring wheat with the MWH/MWK spread rallying to +9.00c overnight before easing.  This prompted some elevators in the Northern Plains to roll bids to May to avoid the inverse getting worse.  This puts farmers with hedges against the March in a precarious position as they either roll through the inverse, or take a weakening cash market if one still exists locally.  The Minneapolis spot floor did not roll to the May yet, but did see firmer trades with 14.5% at +185H vs. +160H a week ago, while 15.0% was up 10c to +160H.  This is an opportunity for any elevator who has good logistics and can take advantage of others misfortune.  The strength in Minneapolis is obviously rallying inter-market spreads with the MWH/KWH up to +90.00c overnight, the highest trade since March.  The strength is obviously all on the front-end with new crop spring wheat prices bouncing between $5.85-5.95.  With the spring insurance price currently calculating, these prices are not buying acres in our opinion.  Spring wheat acres will see a bump from lower durum, but the 500,000-1,000,000 acre increase ideas which were rampant last fall seem to have dissipated with November beans north of $9.50.  Adding to the Minneapolis volatility is the fact managed funds in mid-January were net short -11,168 contracts, the largest net short since July.  No telling where this position is today, but likely they were still toting a big short which has put them on the wrong end of the beating stick.

China released January import/export data last night with exports up +9.1% on the year vs. expectations for a -4.1% decline.  The January trade surplus was estimated at $39.1 billion vs. expectations for $25.4 billion.  Chinese exports to the U.S. were down 2.4% on the year while Chinese imports from the U.S. were down 41.2% from a year ago.  Winning trade wars is easy.  A few other highlights included January soybean imports of 7.38MMT which were down 13% from a year ago.  Iron ore imports of 91.26MMT were down 9.0% on the year while coal imports of 33.50MMT were up 20% on the year.  Crude oil imports of 42.6MMT were up 4.8% from a year ago.  A big round of U.S. Ag purchases at the conclusion of the trade talks would be welcomed by advocacy groups, but a one-off purchase does little for long-term business.

We did see weekly ethanol production yesterday which shot back by 62,000bbls/day to 1.029 million bbls/day.  This was the first y/y increase in 12-weeks, and reflects how poorly grind rates have been.  Last week’s especially low production rate was due in part to the severe cold from the week before which does tend to slow production rates.  While the bounce back was encouraging, we still didn’t hit the level needed to achieve the USDA’s recently revised ethanol production forecast.  Ethanol stocks did see a 481,000 barrel drop to 23.466 million, but that is still a seasonal record for this week in February.  Weekly ethanol production has missed the level needed to hit the USDA mark the last 10 weeks in a row and 12 of the last 13.  Weekly gasoline demand last week plunged, also due in part to the winter weather.  There is optimism for ethanol production continuing higher as ethanol prices remain near the highest levels since August.  Unfortunately, even though corn futures have been rangebound, cash markets continue to firm.  The DTN national basis index closed last night at -26H, the strongest since December and up from -30H a year ago.  Still, the ethanol/corn spread is positive for the first time since November as ethanol prices are finally covering the cost of corn.

Bottom Line: We continue to watch logistics across the Plains and want to take advantage of spikes in spring wheat and corn basis.  The weather will ease and railroads will get current, so the strength should be transitory.  Otherwise, spring insurance prices will be set in another couple weeks, providing a critical input for farm marketing plans.  As things stand today, are much less convinced spring wheat acres will see the spike many thought they would last fall when cash prices for soybeans dropped below $7.00 in the Northern Plains.  Durum is likely to shed acres to spring wheat, but economics do not suggest Dakota, Minnesota and Montana farmers are set to really up wheat acres.  With that in mind, if soybean acres prove larger than expected, are $9.60 November futures justified?  This is a question which needs to be answered before the March acreage reports.

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.

2/12/2019 Morning Comments

Good Morning,

The U.S. Dollar Index is trading slightly weaker this morning, working on the first lower close in the last nine sessions.  At the overnight highs, the USD hit the highest values since December 17th.  Clearly, the more dovish stance from the Fed and ideas about easier monetary policy have worn off a bit from earlier this month.  The Dollar Index strength has not gone unnoticed by commodities with the Bloomberg Commodity Index settling yesterday at the lowest level since January 11th.  Sanctions hitting Venezuela are slowing global oil production, but the crude market also has to deal with slowing economic growth in China which is a much larger issue than a bit of dislocation in the South American producer’s supplies.

36 days until the official start of spring, but looking at the Northern Plains and the forecast, one wouldn’t know it.  As noted yesterday, the Northern Plains have snow cover on 99% of its surface area with an average depth of 9.3”.  In addition, the snowpack is cold with NOAA saying the majority of the snowpack temperature in MN/ND/SD is between -4* and 14* above.  Across W-ND and much of N-MT, the snow pack is between -4* and -22*.  Difficult to compare this year and last as snow cover last year held on until May in many parts of the north, but it is something worth monitoring as the calendar flips to March.  Small grain seeding commonly starts in South Dakota the last week in March to the first week of April with North Dakota usually planting by the middle of April if allowed.  The latest 8-14 and Week 3&4 maps from NOAA show below normal temps, taking us out to March 8th.  Fortunately, the Week 3&4 outlook does shift precip potential to below normal for that period, but that could change by the time the outlook rolls forward.

Firmer row crop markets and weaker wheat in what is shaping up to be a Turnaround Tuesday.  The selling pressure in row crops yesterday was concentrated, and a bit disheartening, considering Friday reset balance sheets and allowed markets to shift focus back to South America and forward to U.S. new crop.  There is no overt concern about supplies in the United States, and the constant reminder of Chinese demand slowing is a major concern.  Wheat’s late session recovery was a bit encouraging as the USDA reminded us about the swing business conducted last week to Egypt and Nigeria.  This business absolutely needs to keep happening through May in order to give us any shot at achieving the USDA’s 1.00bbu export forecast.  Also a feature yesterday was the MWH/MWK calendar spread inverting thanks to winter weather, poor movement and surging rail freight.  Difficult to argue flat price needs to be lower when the front month futures price is higher than the second month.  Corn open interest continues to rise, climbing 23,086 contracts yesterday.  Corn open interest is up 68,650 contracts since February 4th as money comes back in following the USDA getting back to work.

Data yesterday did include weekly export inspections which continue poor for corn and wheat bit encouraging for soybeans.  Wheat inspections totaled 20.7mbu which was below the 24.7mbu needed weekly to hit the USDA forecast.  Total inspections of 565.5mbu are down 10.2% from a year ago despite the USDA calling for a 13% y/y increase.  Wheat inspections have hit the needed level just once this entire marketing year.  With only 3.5 months left in this marketing year, shipments have to pick up soon or we have no shot of achieving the forecast, which will push carryout higher.  Corn inspections totaled 29.3mbu, below the 45.6mbu needed weekly to hit the USDA forecast.  Total inspections of 913.7mbu are up 47.5% from a year ago which continues to drift relative to last year.  Corn inspections have missed the needed level for the last three weeks and 10 of the last 11.  Soybean inspections were solid at 39.1mbu vs. the 33.4mbu needed weekly.  Soybean inspections have hit the needed level the last five weeks in a row, although total inspections are down 37.2% from a year ago while the USDA is only calling for a 13.7% decline.  Sorghum inspections are down 71.3% from a year ago.

There were only 15 cars on the Minneapolis spot floor yesterday which followed zero on Friday, five cars last Thursday, 52 on Wednesday, zero last Tuesday and 16 cars a week ago Monday.  88 cars in a week isn’t a great deal of supply, even for the spring wheat market.  The lack of movement helped the MWH/MWK rally to +4.75c overnight, new contract highs and sharply higher than the 6-7c carry available at the beginning of 2019.  This is likely transitory, however, as there is plenty of spring wheat available across the Northern Plains.  This was made blatantly obvious on Friday’s SIAP report which showed wheat stocks both on-farm and off as of December 1.  Given the weather we’ve had since December, probably not a lot changed in this data set.  North Dakota farmers moved just 25 million bushels off the farm between September 1 and December 1 for a draw of just 11.7%.  The 188mbu on farm are the second largest of the last 10 years.  Minnesota on-farm wheat stocks of 57.0mbu are the largest Dec 1 wheat stocks since 2010 and saw stocks from September 1 drop just 2.0mbu!  Montana wheat stocks fell 28% over the period to 112.0mbu which is in-line with recent years.  South Dakota wheat stocks fell the most in the region, down 30.8% from September 1.  On-farm stocks in South Dakota at 28.0mbu are the second lowest on Dec 1 since 2013 and among the lowest levels of the last decade.  Lots of wheat left out there which farmers need to consider if basis does see continued improvement due to the winter weather.

Trade war developments continue to dominate headlines related to soybeans, but the USDA’s data from Friday has us examining the Chinese balance sheet a little closer.  According to the USDA, China will import just 88.0MMT of soybeans in 2018/19, down 2MMT from last month and down over 6MMT from last year.  In addition, crush demand is expected to decline from 90MMT last year to 89MMT this year, down 3.5MMT from their last estimate in December.  These cuts to imports and crush would be the first y/y decline in both categories in 15 years.  Considering the trend line for these imports and crush demand was on an almost parabolic path just a few years ago, it is mind-boggling to think we are now curbing the world’s largest soy consumer into declining growth.  The trade war is not all to blame as we’ve made mention with the African Swine Fever outbreak worse than feared and curtailing the world’s largest hog herd.  Add in China de-stocking and consuming as many alternative proteins as possible and the entire situation gets more believable.

Bottom Line: We continue to watch the spring insurance guarantee prices, and hope you are as well.  The spring insurance prices are shaping up to create quite an acreage decision for Northern Plains producers especially with neither spring wheat nor soybeans screaming for acres.  Corn looks like the clear winner, but infrastructure usually has a say in how many corn acres can be planted in an area with a shortened growing season.  Otherwise, we wait for more trade headlines even though more folks are waking up to the fact the US export window is closing and any trade implications will impact the 2019/20 balance sheet more so than the 2018/19.  The same could be said about any further declines to Brazilian soybean production. 

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.

2/11/2019 Morning Comments

Good Morning,

Another week, another builds up to trade talks between the U.S. and China as well as a potential government shutdown.  It is almost becoming comical at this point as financial media could basically use the same headlines week after week.  Mnuchin and Lighthizer will be in Beijing for another round of high-level talks later this week, although it would shock everyone if meaningful progress was made on the issues of intellectual property theft and technology transfer.  On the border wall and government shutdown, it feels like absolutely nothing has been done during the last three weeks.  President Trump’s State of the Union was well-received, but Democrats are unlikely to budge on giving Trump his wall and a political victory in the process.  Until strides are made on either of these issues, difficult to see financial markets moving in either direction or bringing volatility back to the commodity space.

An active radar this morning with scattered snow showers in the Northern Plains while rain and wintry mix is stringing from the southern plains of OK/KS/TX to Pennsylvania.  Outside of a small area in Texas, the southern plains look very good in terms of soil moisture and a lack of drought conditions.  Despite lower acreage confirmed by the USDA Friday, what wheat is there should have ample moisture reserves to kick off the growing season.  The central and eastern Midwest will remain active and wet this week with multiple rounds of moisture and water-equivalent totals in IL/IN/OH as high as 2.50-3.00”.  The Plains will be mainly dry with the exception of a little light snow.  Temperatures remain below normal the next 14-days, getting us out to February 24th.  Precip in the plains remains mainly above normal throughout.  Snow cover is shown at 98.9% across the Northern Plains with an average depth of 8.9”.

Weaker grain markets across the board on this first full session following Friday’s data dump from the USDA.  For all intents and purposes, the reports were pretty mundane with few outright surprises.  Many took to social media to bash the USDA for releasing such a clunker after a dearth of data the last 60-days.  To that, I would ask if it would have been better for the USDA to make drastic changes the trade would have ripped for being wrong?  To the experts and trolls of Twitter, there simply is no winning sometimes.  I for one am glad to have the USDA back, if for no other reason than to have their extensive resources around the globe back reporting on crop conditions and supply levels in other countries as part of the Foreign Ag Service.  All of the griping aside, it does feel as though the trade can move past the report build up and get back to the focus of South American crop prospects, the never-ending trade war, potential government shutdown in four days, U.S. cash markets and the acreage battle leading up to spring.  Open interest changes Friday on report day saw corn up 14,833 contracts, soybeans up 4,321 contracts, meal down 1,579, oil up 5,605 contracts, SRW down 10,752 contracts and HRW down 3,173.

We took most interest in the December 1st quarterly stocks data as well as the winter wheat planted acreage report.  The changes to corn and soybean production as well as demand estimates were predictable and not all that surprising.  In the winter wheat acreage report, USDA said winter wheat acreage was 31.290 million acres which was under the average trade estimate of 32.128 million, below last year’s 32.535 million and the lowest total acreage since 1909.  HRW acreage was down 723,000 acres from last year while SRW acreage was down 416,000 acres and SWW was down 96,000 acres.  As we wrote leading up to the report, it was going to take a major downward move in acres to make the US wheat balance sheet outright bullish.  The number the USDA gave us was not, on its own, low enough to achieve that status in our opinion.  Our reading of the by-class wheat balance sheet, which we will be expanding on in coming days, does not present an outright bullish scenario using unchanged demand for 19/20 and trend line yields.  If yields fall below trend, HRW and SRW can become supportive.  However, the argument can be made demand by way of exports will be lower in 19/20 thanks to a bounce back in production from Russia, Europe and Australia.  Shipping costs could keep US wheat a little more competitive, but competition should be stronger than it has been in 2018/19.  Winter wheat acreage will change, but this gives us a starting point.  HRS acreage is still very much up in the air, but most had been working off the assumption acreage would be up meaningfully as Northern Plains producers switch from soybeans to HRS.  Recent prices moves are making that much less certain.  The futures spread between November 2019 soybeans and September 2019 spring wheat is around $3.76 this morning which is essentially unchanged from the same level a year ago.  On a cash basis, the DTN National Soybean Cash Index closed Friday at $8.26/bu while the National Spring Wheat Cash Index closed at $5.31/bu.  That spread of $2.95/bushel is weaker than last year’s $3.47/bushel thanks to the weak soybean basis across the Dakotas and N-MN.

Quarterly stocks levels were also of interest to us with corn coming in at 11.952bbu vs. the average trade estimate of 12.092bbu and last year’s 12.567bbu.  The drop in quarterly stocks was due in large part to the larger than expected cut to corn production, while corn feed/residual demand was essentially unchanged from a year ago.  This obviously stood in contrast to the USDA’s prior feed/residual estimate which was up close to 200mbu, resulting in them cutting that line-item Friday by 125mbu.  This is important, as it could set the table for a lower feed/residual estimate heading into the 2019/20 balance sheet.  I honestly can’t remember the last time we had larger than expected feed/residual demand as it seems like the USDA is always cutting their feed number to make the numbers “work.”  Soybean stocks as of Dec 1 were 3.736bbu vs. the average trade estimate of 3.743bbu and last year’s 3.161bbu.  Wheat stocks were 1.999bbu vs. the average trade estimate of 1.957bbu and last year’s 1.873bbu.  Here again, feed/residual demand was implied lower than expected which prompted the USDA to cut that line item by 30mbu.  Oddly enough, the USDA left wheat export demand unchanged at 1.000bbu despite performance data to-date suggesting a forecast closer to 950-975mbu.  Part of the reason USDA likely left their estimate unchanged has been the pick up in demand as of late, including the GASC sale Friday.

Friday’s GASC tender saw Egypt buy 300,000MT of wheat from France, the US and Ukraine.  120,000MT was purchased from France at a C&F price of $260.05-261.65/MT, the US-SRW at $260.00/MT C&F and the Ukrainian at $261.20/MT C&F.  US-SRW was easily the cheapest FOB offer at $234.47/MT vs. $244.50/MT out of France.  This would seem to suggest Chicago wheat futures and physical SRW does not need to get cheaper, provided freight can continue to be obtained at similar levels.  The declining Baltic Dry Freight Index should keep pressure on freight and US wheat competitive into MENA destinations.  The question now becomes whether US wheat will continue to be sold into Egypt and other North African destinations until other Northern Hemisphere new crop comes online in June-July.  As US export data gets updated throughout the month of February, we hope additional swing destination business gets announced, supporting the USDA’s decision to leave their export forecast at 1.000bbu.

Bottom Line: We will continue to dissect the data in coming days and weeks, but honestly it feels as though the trade has moved on.  It might be wishful thinking to believe something of substance will come out of the US-China trade talks this week, but honestly as long as we avoid another government shutdown, will chalk this week up as a victory.  US wheat is competitive.  Acreage is plumbing 110-year lows.  The acreage battle is alive and well.  Domestic corn demand remains suspect. Chinese soy demand continues to slow.  These are the headlines we are interested in coming weeks.

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.

2/8/2019 Morning Comments

Good Morning,

Global stocks fell hard on Thursday after comments from President Trump stating a meeting between he President Xi of China was unlikely before the March 1 “cease fire” deadline on the trade war.  This was accompanied by comments from Treasury Secretary Mnuchin who said “this soybean issue has been exaggerated and there’s a little too much focus on just the purchase of soybeans… We’re really focused on, as we’ve talked about, on the structural issues,” in the China trade talks.  In other words, soybeans are not the focus, but rather intellectual property theft, technology transfer, trade deficit and currency manipulation are driving the bus.  To us, this says don’t expect any more goodwill purchases of soybeans by China, or any other U.S. commodities for that matter.  We also think the most likely course of action is a partial agreement before March 1 to extend the cease fire so talks can continue without tariffs being lifted.  Get comfortable, because as many feared, this trade war doesn’t look like it’s going away anytime soon.

Updated GFS maps this morning keep above normal precip across the Mid-South with regular snow showers moving through the Northern Plains and Midwest.  Temps will remain sharply below normal for much of the Midwest and especially the Northern Plains through the 14-day outlook.  Above normal precip also looks like it will be a feature until the end of February.  South American maps this morning suggest above normal precip across Northern brazil while below normal precip will be the feature in Argentina.  This is about what is needed for dry areas of Brazil and water-logged areas of Argentina.  Temperatures look to be mainly around normal for most of the South American growing areas.

Better markets ahead of the largest USDA data dump in recent memory.  In typical USDA fashion, we will get about two and half hours to sift through the mountain of data and trade it before markets close for the weekend.  Of most interest to us will be the final crop production report for corn and soybeans, winter wheat seedings, Dec 1 quarterly stocks, South American crop estimates and finally WASDE demand estimates.  Regarding the latter, the changes to the corn balance sheet will be of interest to us given ethanol’s continued struggles, the impact of quarter 1 stocks on feed/residual and the change to US corn crop.  The incredibly poor profitability of the ethanol sector could prompt USDA to make a larger cut to estimates than analysts are expecting.  The collapse in wheat futures and spreads on Thursday stood in stark contrast to the rallies in both earlier in the week.  As we write out commentary this morning, however, wheat futures are rallying back as it would appear US wheat was very competitive into Egypt in the latest GASC tender.  Open interest changes yesterday included corn up 18,037 contracts, soybeans up 3,341 contracts, oil up 11,358 contracts, SRW down 1,347 and HRW down 1,739 contracts.

Yesterday we did have export sales data for the week ended 12/27 which were a mixed bag as the USDA slowly gets caught up to current.  Wheat export sales were solid at 21.8mbu vs. the 15.3mbu needed weekly to hit the USDA forecast.  Total commitments of 653.2mbu are down just 9% from a year ago, but the last USDA forecast called for a 10% increase from a year ago.  Of concern is the fact total commitments as a percentage of the USDA forecast stand at 65.3%, the lowest since 2000.  Also, wheat shipped as a percentage of the USDA forecast at 44.6% is the lowest on record going back to 1990.  It looks like we should see at least a 25mbu cut to the wheat export forecast on today’s WASDE.  Corn export sales were 19.8mbu vs. the 32.7mbu needed weekly to hit the USDA forecast.  Total commitments are still up 19% from a year ago, which is ahead of the needed pace, but the fact sales were an eight week low is a bit concerning as we get closer to South American new crop. Soybean sales were 38.6mbu vs. the 22.8mbu needed weekly to hit the USDA forecast.  Total commitments are down 24% from a year ago but have closed to gap from a 30% deficit two weeks ago.  Essentially, our soybean export program is the slowest since 2011 and needs the largest Feb-Aug program on record by 4mbu per week.

We don’t have the final GASC bookings in front of us, but we do have FOB offers and some freight quotes available.  Looking at the FOB offer rundown, US-SRW was easily the cheapest into Egypt at $235/MT FOB, almost $10/MT cheaper than the next offer from France.  There were four cargoes of Russian wheat offered, but it doesn’t look like any of those will be in contention.  In looking at the freight offers, US wheat would be around $25/MT, French at $18/MT, Ukrainian at $12-15/MT and Russian around $12.50-13.00/MT.  If they come in exactly as shown on Twitter, US-SRW should see some business but we aren’t going to stake anything on it until we see final results.  Regardless of what gets booked, it is encouraging to see US wheat offered so competitively, and with calendar spreads remaining tight, could be the norm through the spring.

Bottom Line: Really not much point in discussing anything else until USDA updates us at 11:00.  After the data, the trade should refocus on the trade war, South American weather and US cash markets.  The stage is certainly set for us to break out of our ranges which have been in place for months.  However, options straddles are not suggesting we break out of those ranges before the end of March.  More focus on 2019 acreage as crop insurance pricing rolls on.  The futures ratio between corn and soybeans is not suggesting widespread changes, but when one considers the cash ratio things point toward less soybeans in the Northern Plains.  Most producers north of I-80 are still looking at basis levels of -100H to as much as -140H.  New crop levels are the same.  Difficult to get excited about planting $8.00 cash soybean vs. $3.30-3.50 corn.  Let’s get smarter at 11:00.

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.

2/6/2019 Morning Comments

Good Morning,

Financial markets are largely quiet this morning as many are still dissecting President Trump’s State of the Union and how it may shape 2019.  The highlights were definitely another summit with North Korean dictator Kim Jong Un later this month as well as the President ordering another 3,750 troops to the Mexican border.  The President was light on comments toward the trade war with China as both he and president Xi of China are set to meet in another summit later this month.  The President has solid economic data to support most of his policies at the moment, although further slowing of economic growth in China and the larger global economy could alter plans if that continues later in 2019. The President also remained bullish on US energy production, touting the fact the U.S. became a net energy exporter in 2018 for the first time in our country’s history.  No sign of slowing natural gas, crude oil or coal production anytime soon.

Lots of moisture in the Midwest this morning with snow in the Dakotas while a band of rain and rain/snow mix stretches from central Texas to Ohio and Michigan.  The deep freeze continues in the Northern Plains with highs barely making it above zero across the Dakotas, Montana and Minnesota for another week.  Not until Monday do air temperatures break into the teens in South Dakota and Minnesota.  Wind chill values will be severe the rest of this week, keeping rail and truck transportation slow to non-existent.  The cutoff is severe, however, as just a few hundred miles south into Kansas and Oklahoma, temps are in the 40’s and 50’s.  6-10 and 8-14 day maps from NOAA keep precip above normal and temps below normal which gets us out to February 19th.  Nothing out of the ordinary with South America as weather remains mostly benign and supportive of recent crop estimates.

Quiet, rangebound trade overnight as most of our markets sat in 1-2c ranges as we anxiously await the end of the week reports from the USDA.  We are especially looking forward to the winter wheat seedings report as that will provide much more clarity on what kind of supplies we can be looking forward to later this season.  Importantly, even with lower acreage from a year ago, drought conditions are non-existent across the Plains which is much better than year ago levels.  Soil moisture profiles are full from Megakota to Texas which should get the crop off to a favorable start this spring.  Quarterly stocks will also be the other big focus for us as this gives us a clearer view of Q1-demand on corn and soybeans, although the data will be less useful this year considering it will be over 60-days old by the time we get it.  We will be just 30-days from the next reporting deadline for quarterly stocks.  Mostly quiet on the traded front this week with China off markets for the Lunar New Year.  So far this week, we’ve seen 3.489MMT of soybeans old to unknown and China which is still shy of the 10MMT rumored unless we get more sales notifications the rest of this week.  If the entire 10MMT is recognized, the question becomes whether other destinations will take enough US soybeans to justify the USDA’s current 1.900bbu export target.  At this juncture, we still say no are expecting full year exports between 1.750-1.800bbu.  Corn open interest was up 8,626 contracts yesterday, soybeans up 15,692 contracts, SRW up 2,391 and HRW down 159.

Data was light yesterday as is typical for a Tuesday, although we did get deliverable stocks at the three wheat exchanges.  Chicago wheat stocks fell 1.187mbu to 64.643mbu which compares to 81.638mbu a year ago.  Deliverable stocks in Chicago and the Ohio River remain at multi-year lows, supporting calendar spreads.  Deliverable grades are down 20mbu from a year ago, while non-deliverable grades are up around 3mbu from year ago levels.  This helps explain some of the premium US-SRW has carried in recent GASC tenders.  HRW stocks were 107.297mbu vs. 108.54mbu a week ago and 109.015mbu a year ago.  HRS stocks were up 130,000 bushels to 17.189mbu but were down from 22.019mbu a year ago and remain at the lowest levels for this time of year since 2012.  Speaking of spring wheat, there were zero cars on the Minneapolis spot floor yesterday as winter weather stalls trains and keeps elevator crews inside.  The entire marketing year, mills have been complaining of being plugged and covered up nearby.  Two weeks of poor rail movement can help rectify that pretty quickly. 

Speaking of wheat, difficult to find a more impressive move in grains than that in calendar spreads.  The WH/WK rallied to -0.75c yesterday, the highest trade since September of 2017.  Overnight, the KWH/KWK rallied to -4.75c, the strongest trade since August and tying the strongest levels since March 2017.  We’ve got a good old-fashioned squeeze going on as basis trades at the Gulf have been strong and a majority of the open interest remains in the March contract.  Futures rallying does little for hedged commercial inventories who own 75-80% of the winter wheat crop.  Basis has already rallied to levels which have made US wheat somewhat uncompetitive on the global stage.  That leaves spreads to rally and disincentivize carrying wheat.  The cash carry had already been removed in SRW and with the lack of carry in HRW, that cash carry has also been removed.  At these sort of carries, we should see basis start to weaker as some hedged length gets thrown at the market.  Until basis breaks, however, do not want to be short wheat futures, especially considering spreads inverting might be what is needed to really pry hedged bushels loose.  Never underestimate wheat’s ability to extract pain.

StatsCan released their version of the quarterly stocks report yesterday showing al-wheat stocks on Dec 31 at 23.233MMT vs. 23.4MMT expected by the trade and 23.283MMT a year ago.  Durum stocks were pretty spot on the average trade estimate but above year ago levels of 4.734MMT.  Canola stocks were reported at a record high of 14.553MMT but slightly below the average trade estimate of 14.7MMT but above last year’s 13.869MMT.  Oat stocks were below expectations while barley stocks were sharply below expectations.  Canada has had a solid wheat export program since August.

Crop insurance pricing period off and running with the corn average after three days at $4.03 per bushel which would be the highest average since 2015.  The soybean average price is $9.58 per bushel while spring wheat is $5.91 per bushel.  The spring wheat average price is below last year’s $6.31 per bushel but above 2017’s $5.65 per bushel.  The soybean average price is solidly below last year’s $10.16 per bushel, and would be the lowest since 2016’s $8.85 per bushel.  In this context, the soybean insurance guarantee is only around 45-50c below the 5-yr average despite what most would consider especially bearish fundamentals.  Wheat’s average insurance price over the last five years is $5.89 per bushel while corn is $4.11 per bushel on the 5-yr average.  So assuming the February insurance prices come in near current levels, revenue guarantees should be comparable to the last several years.  Producers should be actively plugging in these prices to their balance sheets to see what kind of profitability exists.  Too often, producers view crop insurance as their protection against their crop being wiped out completely and take a break from marketing until later in the season when production is more assured.  Instead, producers need to view crop insurance as a tool which allows them to market aggressively at levels which make their operation profitable, knowing they have the insurance as a back stop in the event of a wipe out.  By the time production is known, seasonality and odds tell us the highs for the calendar year have already passed and the window to market grain closes swiftly.

Bottom Line: Biding time until we get more export sales announcements from the USDA or data sets are refreshed Friday.  Trade war developments should remain limited this week until China returns from holiday.  Weather remains a major feature in the US as logistics from the Northern Plains and to the PNW remain snarled.  Crop insurance pricing is off and running, and we would argue things aren’t nearly as bad as they are being portrayed by Ag media.  Opportunity exists for producers willing to manage risk with the tools they’ve been provided.  We’ve added tens if not hundreds of thousands of dollars in technology to our planting, spraying and harvesting equipment over the last five years in a quest for more bushels.  What changes have you made to your marketing plan if the results haven’t measured up to the changes you’ve made on the production side?  Not sure anyone should be banking on more Bailout Bucks to save their 2019 balance sheet.

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.

2/4/2019 Morning Comments

Good Morning,

We continue to watch the Baltic Dry Freight Index and its counterparts as they make fresh multi-year lows.  The benchmark index closed Friday at 668.00, the lowest value since 8/12/16.  The complimentary indices such as the Baltic Capesize and Baltic Supramax indices are also making new lows for the move with the former at the lowest level since late November and the latter at the lowest levels since March 2016.  With China being such a large influence on the global freight market, it would stand to reason these indices are a warning signal against a larger slowdown in Chinese economic activity.  This obviously doesn’t bode well for soybean and meat demand. That said, energy markets and shipping typically go hand-in-hand, but crude oil futures are trading at their highest level since Thanksgiving.  Difficult to say which indicator is leading and which is lagging.

Snow across N-ND and N-MN this morning while some rain and wintry mix are present in WI and IL.  Otherwise fairly quiet as we get set for another brutally cold week across the Northern Plains.  High temperatures this entire week across the Dakotas, Minnesota and Montana will be in the single digits with some days not crossing the zero mark.  Windchill values will be -20 to -30 below much of the week as well with on and off snow showers.  This should complicate logistics across the Northern Plains much the way it did last week with trains and crews being prevented from operating in this weather.  There will be a sizable moisture event in the mid-South and eastern corn belt this week with moisture equivalent amounts as high as 3.00” in SE-MO, S-IL, S-IN, AR, KY, and TN.  Well below normal temps will continue for the next 10-15 days across the Northern Plains.

Weaker prices across the grain complex this morning as we round the corner to our first WASDE report since early December.  Markets finished last week on a positive note, although well off the Oval Office highs in which President Trump said China will be buying 5MMT of soybeans per day.  The President obviously misspoke, as China is not planning to buy 180 million bushels of soybeans from the US every day.  However, by the time the final bell sounded, it seemed as though traders were growing more skeptical of the Chinese purchase.  Until the USDA gets caught up with export sales reporting, we don’t really have a solid handle on what they’ve bought out of the 10MMT of “promised” sales.  From a price and availability standpoint, it doesn’t make any sense for China to buy one bushel of soybeans from the U.S. they don’t have to.  Instead, it would make strategic sense to verbally commit to buying U.S. soybeans to placate Washington politicians, while still buying the vast majority of their soybeans from South America. The larger question is how long we can be strung along until cash traders realize the total purchases will fall well short of needed levels? Open interest changes Friday saw corn down 4,678 contracts, soybeans up 4,233 contracts, SRW up 21 contracts and HRW up 4,769 contracts.

Friday did see the first Commitments of Traders data released since mid-December, but this data is essentially worthless in our opinion considering its date.  Knowing the positions of traders from 6-weeks ago doesn’t do you much good unless you’re comparing it to current positions.  Unfortunately, we won’t have current positions until the first week of March, so this data set will be of limited value until then.  During the shutdown, we paid quite a bit of attention to private sentiment indicators like those from sentimentraders.com, and when combined with seasonality, can give a decent view on fund mentality.  Corn and Wheat Optix readings are very middle-of-the-road at the moment with the former at 46 and the latter at 45.  This would be smack dab in the middle of their bullish and bearish readings.  Their Optix reading for soybeans is a bit more supportive a 38, which is just below the 40 reading which denotes bullish sentiment.  However, the reading is still well off the fall lows of 15.00.  On a seasonality basis, February is a strong month for both corn and soybeans.  February is the second strongest month on the calendar for corn, averaging a 1.501% return over the last 30-years. February is the strongest month on the calendar for soybeans, averaging a 1.928% return over the last 30-years.  February is not so friendly to wheat, averaging a -0.890% return, the third weakest on the calendar.

Friday saw some strength at the Gulf for SRW and HRW bids with both going home at the strongest levels of the marketing year.  Bids for 12.0% protein HRW were indicated at +160/165H while SRW was seen at +93/94H for Feb/Mar.  This basis strength is certainly suggestive of ongoing demand for U.S. wheat which is the demand that has been touted since last fall.  Calendar spreads are strong, consistent with the basis strength as the WH/WK rallied to -3.00c overnight and the KWH/KWK rallied to -7.75c.  For the WH/WK, this is the strongest trade since 8/2 while the KWH/KWK is the strongest since 8/8.  The strength in these spreads should also ensure storage rates drop by 3c/mo in both KC and Chicago.  Even once storage rates are decreased to 8c/mo in Kansas City, the KWK/KWN would be trading at 45.6% of full financial carry.  This would drop storage rates to 5c/mo which is where Chicago should find itself once this VSR period is done averaging.  In Chicago, once storage rates are dropped to 5c/mo, the WK/WN would be trading at 23.3% of full financial carry.  Once the storage rates are reduced, could be some decent bullspread opportunities provided the winter wheat crop doesn’t come up short.

Bottom Line:  With China closed for Lunar New Year celebrations, we shouldn’t expect much on the trade front.  Much of this week will be about position-squaring ahead of Friday’s USDA reports.  It will be an intense day with final production of the 2018/19 corn and soybean crop, quarterly stocks, winter wheat seedings and updated production for South America.  Luckily, the trade has a full two hours to digest all of the information and trade it!  Crop insurance pricing is off and running and producers would do well to see where those values track relative to the last couple years.

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.

2/1/2019 Morning Comments

Good Morning,

The first day of trade talks didn’t disappoint, at least not for agriculture as President Trump announced from the Oval Office China would be making another 5MMT purchase of U.S. soybeans in coming days/weeks.  In usual Trump-verbage, the purchase was lauded although we will need to see purchase details to know the true gravity of the situation.  Unfortunately, the issues of intellectual property theft and technology transfer were not addressed but President Trump did say another meeting between he and president Xi would take place in coming weeks to hash out the more important issues.  Until those points are addressed, this trade war will drag on, regardless of what concessions we may or may not get in Ag.  The issue of China being a currency-manipulator has also drifted from the forefront, but could be brought to the surface anytime which would be one more hurdle to overcome.

South American weather continues to pose few threats with Argentina seeing dry weather through the weekend into early next week to allow wet areas to receded.  This will be followed by average rains by the end of next week which will probably be perfectly timed.  NDVI readings for Argentina’s largest three production provinces remain above normal, implying above normal yield potential.  In Brazil, the forecast sees average rains on most of the growing regions the next 5-days.  Extended maps see rains continue at average or above average to the north of Parana but more limited rains to the south of Parana.  Most still looking for a better February for Brazil than January which would support later planted and double crop soybeans as well as the safrinha corn crop which comprises the majority of production.

Stronger markets overnight led by the soy complex as bulls take heart in the comments from the Whitehouse yesterday.  In addition, February is a strong month from a seasonal perspective for both corn and soybeans, so some cyclical buying is likely taking place as well.  According to President Trump, the Chinese have agreed to buy another 5MMT of soybeans, which would be in addition to the 5MMT they’ve already purchased.  In total, the 10MMT would be near the rumored tonnage from back in December when the first news of China coming back to our market was discussed.  If the entire 10MMT is indeed bought, that would make a notable impact on our balance sheet to the tune of 350-360mbu.  However, with Brazilian and Argentine soybeans now trading discounts to US FOB offers, the rest of the world will obviously be buying from South America instead of the U.S.  There hasn’t been enough time or data from the USDA to see if the 1.900bbu export forecast is still appropriate even with the latest round of Chinese assurances.  Regardless, the headlines have kept soybeans in their uptrend and new crop prices are within a dime of the highest levels since early summer.  Spring crop insurance guarantee prices will begin averaging today, and all things equal, markets are not giving a clear signal to switch away from any of the three major crops.  Open interest changes yesterday included corn up 8,658 contracts, soybeans up 5,111, SRW up 3,404 and HRW down 371 contracts.  Corn open interest is up 34,120 contracts this week.

For the first time in over a month, we received an export sales report, although due to the USDA’s inept process of releasing this data, we won’t be current until the end of the month.  For the week ended 12/20, corn, wheat and soybean export sales were all better than expected.  All-wheat sales totaled 19.3mbu vs. the 16.0mbu needed weekly to hit the USDA’s export forecast.  The 19.3mbu were the largest for this week since 2013.  The improvement in sales is a positive, but much work remains to be done.  Total commitments of 631.8mbu account for 63.1% of the USDA’s export forecast which is the lowest on record for the third week of December.  The 16.0mbu needed in sales each week through May would be the largest average sales program since 2000.  Shipments as a percent of the export forecast at 43.1% is also the lowest on record going back to 1990.  So we have to sell and ship a record or near record amount of wheat to make the USDA’s guess look good.  Corn export sales totaled 66.7mbu vs. the 33.8mbu needed weekly to hit the USDA forecast.  The 66.7mbu is the largest week of export sales for this week since 1995.  Soybean export sales were record large for this week at 87.8mbu vs. the 22.2mbu needed weekly to hit the USDA forecast.  Total commitments of 1.099bbu are down from last year’s 1.483bbu and the lowest since 2011.  Export shipments of 588.7mbu as a percentage of the 1.900bbu export forecast at 30.99% would be the lowest since 1990.  The warm fuzzies being felt by the Chinese agreement to buy soybeans is great, but our soybean balance sheet needs a record finish to prove the USDA correct.

We posted several NDVI maps for Argentina yesterday to our Twitter account with Cordoba, Santa Fe and Buenos Aires all showing above normal NDVI values.  NDVI doesn’t always correlate perfectly with yield, but it definitely suggests favorable growing conditions compared with last year and average.  The USDA will update their Argentine corn production forecast next week, but we think it could rise by at least 2MMT if acreage remains unchanged.  A 2MMT bump in production would include a yield of 8.56MT/ha which would be a new record above 2016/17’s 8.37MT/ha.  It would also allow exports of up to 28-29MMT while still maintaining a roughly 62-63% exports/total supply ratio as has been the case the last 10-years.  On soybeans, we bumped the national average yield to tie the record yield in 2014/15 and 2016/17 of 3.17MT/ha.  This would see total production up at 58.6MMT assuming acreage does not drop due to flooding.  This would allow crush to rise several million tons from the current 43MMT estimate from the USDA and still maintain a solid ending stocks level.  A lot of the 2018/19 Argentine balance sheet depends on what their actual level of old crop stocks are.  Some are suggesting those stocks are as small as 4-6MMT while the USDA sees them at 16.85MMT as of 4/1/19.  Given the drought last year, and the importing of US soybeans, we would error toward the low side which could limit Argentina’s ability to push exports and crush.

Wheat basis continues to firm at the Gulf and domestically.  HRW bids at the Gulf yesterday for 12.0% protein were reported at +163H which would be a new high for the marketing year.  Russian wheat prices are pushing themselves out of major export business, but the US will have to contend with a more competitive Europe as Germany, France and the Baltic States still have wheat to sell.  Remains to be seen if China ends up buying some US spring wheat which basis would not indicate today.  Domestic values of spring wheat are firmer this week, but this has as much to do with the severe cold as anything.  After a brief 1-2 day warmup this weekend, the cold will slam the Northern Plains once again next week.  Mills who have been plugged as of late will start to see the weather affect inbounds.  Supporting the basis has been firmer time spreads with the WH/WK rallying to -4.75c overnight, the highest trade since mid-January.

Bottom Line: Headlines surrounding the trade talks appear to be driving trade at the moment.  We are receiving USDA data once again, but its usefulness is somewhat limited at the moment until data sets get current.  Nonetheless, demand was strong at the end of December, and if this rolls through January, current prices should be appropriate.  Will be lots of focus on new crop prices during the month of February and farmers need to be paying attention.  What do these prices do for you?  What do prices 20c lower do for you?  Start answering these questions now.

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.

1/30/2019 Morning Comments

Good Morning,

Day two of three for the freezer door being left open across the Midwest.  Current air temperatures across the Midwest range from -19* in Green Bay, WI to -35* in Grand Forks, ND.  Interesting to see air temps in Anchorage, AK at 34* above zero this morning with Greenland at 3* above zero.  Wind chill values are -40 to -60* across the Midwest this morning with another day of severe cold expected tomorrow before a warm up into the weekend.  Next round of precip moves into the Midwest late in the weekend, bringing 0.50-0.75” totals to Iowa, Wisconsin, Illinois, Indiana, Ohio and Michigan.  The Plains have a small chance at snow but mostly dry the next 7-days.  Below normal temps and above normal precip will be the norm during the 6-10 and 8-14 day outlooks.  Despite the severe cold snap, doesn’t seem to be much concern over winterkill in the United States due to adequate snow cover. 

Higher markets across the board this morning as grains continue to mark time until the USDA and CFTC begin piecemealing out their data sets.  As we understand it today, weekly export sales will be released over the next four weeks beginning Thursday with data from December 20th.  Assuming the government doesn’t shutdown again on February 15th, we should be current on export sales by February 22nd.  The CFTC will be releasing data starting with the oldest data set first, releasing a week each Friday and Tuesday as they did during the shutdown in 2013.  It will take until March 8th for the CFTC to get caught up which is particularly frustrating considering they have all of the data and could release it immediately.  What are they guarding against regarding releasing all of the data at once?  The only positions anyone really cares about are the current ones.  Why don’t they just take their time and string the fun out until May? I digress.  Today also markets the start of the latest round of negotiations between the U.S. and China, although Trump Administration officials seem to be setting expectations low for a deal.  Every statement released seems to remind us a deal doesn’t need to get done until March 1st, implying one won’t get done until March 1st.  Call me a cynic, but I still don’t think agriculture is high on the list of priorities for Mr. Trump, Mr. Mnuchin, Mr. Lighthizer and especially Mr. Ross.  Open interest changes yesterday saw corn up 21,928 contracts, soybeans up 1,160, SRW up 8,838 and HRW down 595 contracts.

Yesterday saw weekly deliverable stocks data which continues to see CBOT and KCBT stocks drawn down while MGEX holds steady.  CBOT wheat stocks fell 1.396mbu to 65.830mbu which compares with 82.996mbu a year ago.  OH-River stocks are off more than 10mbu from a year ago.  KCBT stocks were off 917,000 bushels last week to 108.544mbu which compares with 110.387mbu a year ago.  MGEX stocks were down 4,000 bushels last week, the first draw in stocks in six weeks.  Total stocks of 17.059mbu in Minneapolis/Duluth are down from 21.537mbu a year ago and would be the lowest stocks for the last week in January since 2012.  The combination of lower deliverable stocks and the extreme cold of January has helped the MWH/MWK rally to -2.50c yesterday, tying contract highs before backing off to -3.75c this morning.  Minneapolis spot floor trades were up 20-30c for 14.5% yesterday at +120/130H.  15.0% was down 35c to +115/150H.  The cold should help basis hold to firm as movement grinds to a halt.  Cash spring wheat still feels cheap compared to the other classes of wheat although the Northern Plains is always holding more physical than the market thinks.

Egypt’s GASC bought 360,000MT of wheat yesterday from Romania and France at $261.34-264.95/MT C&F.  US-SRW was the cheapest FOB offer at $243.00/MT, but this was up $5/MT from the last tender despite the more preferential tender terms which had cash traders wondering if commercials are having a difficult time coming up with the quality?  HRW was offered at $249.00/MT C&F which was even further out of contention.  There were four offers from Russia totaling 235,000MT but those offers were up $5/MT from the last tender as well.  The lack of Russian wheat sold into Egypt lends a lot of credibility to the idea stocks of wheat near Russian ports are depleted.  With near record high wheat prices in Rubles, would appear Russia will be out the market until new crop.  The inverse in Russian wheat is severe with May Black Sea wheat futures trading at $254.25/MT vs. June at $225.25/MT and July at $210.00/MT.  Importers will do everything they can to buy as little US wheat as possible and get to the cheaper new crop prices.  With US exports still running such a large deficit, it will be difficult to attain the USDA’s December export estimate of 1.000bbu.

A few South American data points released yesterday including Mato Grosso winter corn planting progress.  As of January 25th, planting progress was 15% complete which is about two weeks ahead of average and one week ahead of last year.  Brazil’s soybean crush industry association , ABIOVE, released their estimate of the country’s soybean crop yesterday.  The group sees the soybean crop at 117.9MMT vs. 120.9MMT last and is below CONAB’s 118.8MMT.  The general grouping of estimates as of late has been between 115-117MMT.  They see Brazil’s 2019 calendar year exports at 70.1MMT vs. 73.9MMT previously and 83.9MMT in 2018.  Crush is expected at 43.2MMT which would be a new record and sharply above 2018’’s 33.9MMT and 2017’s 41.8MMT.  Much of that export/crush forecast will be predicated on Chinese demand, especially as it relates to the ASF virus.

Bottom Line: We need a major announcement from the USDA or the trade talks to move us out of recent ranges.  Otherwise, we will continue consolidating with volatility dropping as we await more clarity on final South American crop size.  Spring acreage ideas are a moving target, but in our opinion, new crop prices are not doing nearly enough to move acreage away from soybeans to wheat and corn.  Not that wheat or corn desperately need acres, but soybeans certainly don’t need them.  February is a strong month from a seasonal perspective for both corn and soybeans, something which should be kept in mind as we price the spring crop insurance prices.  Once those prices are set, farmers should have a good baseline to work from, and unless things change drastically over the next month, corn insurance prices will be the highest since 2015.  The volatility factor could have a lot to say about the actual cost of the insurance, however.

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.

1/28/2019 Morning Comments

Good Morning,

It’s China week and it’s also USDA re-open week.  The former will take place on January 30 and 31.  The latter we aren’t quite sure when it will happen.  The re-open wasn’t spelled out very clearly in a letter from USDA Chief Economist Robert Johansson on Friday, but he did say the February WASDE will be released as scheduled on February 8th.  Back-logged export data will begin to trickle out this week which could provide a good deal of volatility if a bunch of export sales are announced via the daily reporting system.  The reversal in volatility will be a welcome reprieve from the doldrums our markets have been trading in the last 3-4 weeks.  The February WASDE will also be released in conjunction with the delayed winter wheat seedings report and the Dec 1 Quarterly Stocks reports.  Will be quite the report day, especially as we will be closer to the March 1st stocks deadline than the December 1st one.

South American growing weather is more important to the global balance sheets at the moment, but the weather everyone will be talking about this week is certainly in the U.S. Midwest.  The coldest wind chill values since the mid-1990’s will grip the corn belt Wednesday and Thursday as the “feels like” numbers hit -50 and -60 below zero.  The obvious concerns will be livestock and to a lesser extent dormant winter wheat in the SRW and eastern HRW belts.  Logistics will also be a concern as farm-gate and rail movement grinds to a halt.  The cold snap breaks by the weekend, although below normal temps will still be the feature into the first week of February.  Precip will be above normal in the 6-10 and 8-14 day outlook, especially over the eastern corn belt.  The U.S. Drought Monitor continues to look exceptional as we have an eye toward spring.

Mixed markets this morning with grains firmer and soybeans weaker as traders gird their loins for battle this week.  As noted above, this week should be an interesting week of trade with more headline risk than we’ve had since before Christmas.  The Foreign Ag Service will be issuing export sales data, and if a bunch of back-logged data all comes at once, algorithmic traders could be thrown for a loop.  On the other end of the spectrum, if all the data is released, and the totals are disappointing in terms of what China actually bought, futures could react negatively.  One has to remember, we’ve been getting lip service about the millions of tons of corn, soybeans and wheat the Chinese have bought since Christmas.  If none of that actually took place outside of a few million tons of soybeans, will be difficult to justify these and higher prices.  South American crop production estimates seem to have stabilized with improving weather.  Unless February and March turn off problematic, it appears very likely South America will produce more than enough corn and soybeans to meet world demand.  The other big headline from the weekend was African Swine Fever being discovered in Mongolia.  Contrary to popular belief, they do eat more than beef there.  The virus either came in from smuggled Chinese hogs or wild board.  Regardless, ASF continues to spread as China can’t seem to contain the deadly virus.  This does not bode well for soybean and meal demand.  Open interest changes Friday saw corn down 8,025 contracts, soybeans down 3,706 contracts, meal up 3,452 contracts, oil down 616, SRW up 4,601 contracts and HRW down 203.

On Friday, we received Canadian export data for the month of December.  This data set is important to us given the lack of export data from the U.S. and also the ability to track at least in part Chinese demand for wheat.  August-December all-wheat exports totaled 9.470MMT vs. 8.168MMT a year ago, a 15% bump vs. the USDA calling for a bit more than a 9% jump.  Non-durum exports of 8.013MMT are up from 6.602MMT a year ago.  Wheat exports to China in December totaled 439,600MT, up from 153,400MT a year earlier.  Marketing-year-to-date exports to China of 991,700MT are up 138% from the same period a year ago.  This bodes well for China buying US-HRS if/when a trade deal is agreed upon on.  Despite massive inventories, China still needs at least some quality wheat for blending purposes.  Other large y/y increases for Canadian wheat exports included Indonesia up 38% from a year ago, Mexico up 14% and Peru up 20.  August-December canola exports totaled 4.357MMT, down slightly from last year’s 4.623MMT.  Barley exports of 994,100MT are up from last year’s 770,300MT.

Charts on Twitter this weekend showing domestic prices of Russian Milling Wheat hitting the highest levels since the summer of 2016.  These prices come despite the fact the Russian Ruble has actually been strengthening as of late relative to the U.S. Dollar.  This supports the notion the Russian Ag Minister plans to regulate interior prices of wheat via rail subsidies, keeping wheat away from export channels if need be.  One analyst implied that production could have possibly been overstating production the last few years as Russia produced record crop after record crop.  As domestic prices rally, it should continue to support export values taking Russian offers out of contention in MENA destinations.  Black Sea wheat futures are trading at the highest levels since 12/27 but we should see prices rally toward fall highs at $255-257/MT if Russia is truly scraping the bottom of the bins. 

A couple data points from Brazil over the weekend including IMEA reporting Mato Grosso soybean harvest progress at 25.6% complete vs. 9.7% average.  This supports the soybean loadings for January which were reported at 2.65MMT month-to-date, up 22% from 2018.  It is thought February loadings could set a new record north of 6MMT.  Last week, FOB offers showed Brazil and Argentine soybeans below US-Gulf offers.  This makes additional purchases from China without a guarantee attached to them via a trade deal problematic.  Why would China continue to buy U.S. soybeans at a premium to South American soybeans if they don’t have to?  The entire goal from the Chinese side of the table was to de-stock and take as few U.S. soybeans as possible until South American production came on-line.  Well, they accomplished that task, and reaching for U.S. soybeans now will just result in a larger food bill.  Despite this, soybeans have maintained their uptrend dating back to September with a distinct set of higher lows.  March soybeans specifically traded and closed above its 200-day moving average on Friday for the first time since June 7th.  A market which can’t go down probably has a reason for it.  Raises the bar for trade negotiations this week between the U.S. and China.

Bottom Line: Let’s get some data out and recalibrate prices.  Export sales and commitments of traders data are the two pieces we are looking forward to most as it will give us a chance to see how commercials have been positioning during the month of January.  The February WASDE will be important, but it probably takes a back seat to the winter wheat seedings and Quarterly Stocks in our opinion.  Grain markets would do well to have a bunch of demand hit newswires as part of export sales announcements.  If we come up short, bears aren’t likely to take it easy on the bulls.

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.