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AgResource Daily Farm Marketing Advice for Tuesday: 1/ No new advice.
Mixed has been the morning in Chicago, with neither the bulls nor the bears having much excitement as summer draws to a close. Seasonally, it’s bottom picking time, but whether the wheat market especially can garner lasting support will in large part be a function of Russia’s interior market over the next 1-3 weeks. ARC does estimate managed funds’ position in Chicago wheat this AM at a net short 70,000 contracts, which prior to 2016 was rather large. Funds’ position in corn is pegged at net short 50,000 contracts, with funds net short an estimated 30,000.
US exporters sold 226,000 MTs of corn to Mexico, and 198,000 MTs of soybeans to China. South American exporters will continue to attract record demand, but traditional importers (Mexico, namely) no longer have much incentive to replace US corn with South American origin, particularly with Brazilian corn offered at/near parity with the US through December.
Egypt secured 235,000 MTs of wheat for early October delivery from Russia and Ukraine. Egypt paid $187/MT, basis fob, which is generally in line with fob quotes Monday evening, and which confirms the Black Sea quality wheat market at $178-183/MT into November. This compares to comparable Gulf HRW at $183/MT for October. Gulf basis is higher this week following Harvey’s impact on the coast, but on paper US wheat is still highly competitive.
The spot ethanol production margin, basis futures, rests at $.80/Gal, a 4-month high and vs. $.70/Gal a week ago. Just as important, spot RBOB has rallied to a $.24/Gal premium to ethanol. The incentive to boost blending hasn’t been this great since mid-2015. The EIA’s weekly report on Wednesday should include steady ethanol production, and another modest draw in crude, gasoline and ethanol stocks.
Stats Canada will release its August crop report Thursday morning. ARC expects Stats Can to reveal Canadian wheat production at 24-25 MMTs, with canola production estimated at 17.5-18.5 MMTs. USDA pegs Canada’s wheat and canola harvests at 26.5 and 20.5 MMTs, respectively. Canola futures this week have followed the soy market to very marginal losses, but canola maintains a premium of $55/MT to soy, vs. a slight discount on this week a year ago.
Crude is down $.60/barrel at midday, spot gasoline futures have rallied further to $1.76, EU wheat futures look to settle €.75-1.00/MT weaker, though amid a new 2.5-year high in the euro, European cash grain markets will be little changed this evening. The market is largely ignoring new lows for this move in the US dollar, but ARC views it as important longer term.
Midday GFS Weather Model Update: The midday GFS is a little quicker with Harvey’s conclusion, which should wrap up in the next 72 hours. Additional heavy rainfall worth 2-6” will impact LA, AR, W TN and W KY. The GFS then features yet more Gulf activity Sep 5-7, which will again impact E TX, LA and MS. Virtually no rainfall is offered to the heart of the Corn Belt over the next 10 days. Temps will be rather variable over the next two weeks, particularly across Canada and the US Northern Plains, but the bottom line is that overnight lows at times will fall into the upper 30s and 40s across the Dakotas, MN and MI into Sep 12th. High temps will also reach into 90s across the W Plains. 10-day precip is below.
AgResource Market Comment: The market in recent weeks have been digesting larger than expected global supplies – Russian wheat has been especially surprising. Funds’ next move will hinge upon NASS’s Sep yield estimates, while the US wheat market is working to boost its share of world trade to a multi-year high.
AgResource Daily Cattle Analysis: Cattle futures closed higher on Monday and a steady outlook is offered for early trade this morning. The Cattle on Feed report did not offer a bearish surprise, and cattle futures traded to strong gains just after the open, and were from $1.45 to $1.80 higher at the close. October was back above its 200 day moving average at the close, and December marked the best close in more than 3 weeks. Cash cattle markets were quiet through Monday, with trade expected to hold until later in the week. Beef cutout values were firm on moderate demand and moderate to heavy offerings.
The latest USDA forecast puts per capita beef disappearance for the 4th quarter at 15 Lbs, 1 Lb more than a year ago, and the largest since 2008. The price model in the chart plots the relationship between per capita disappearance and the quarterly average cattle price. The model projects an average price of $93-97 versus the USDA’s forecast of $110-116, and the CME at $110. December cattle back to $112-114 should be used for 4th quarter sales.
US Weather Pattern Discussion: The EU & GFS remain in good agreement, and very few changes were made to the Central US outlook into mid-September. The forecast is a bit warmer in the 11-15 day period; cool temps will be sustained, but no hard frost in indicated outside of pockets of the Canadian Prairies in the next two weeks. NOAA’s 5-day outlook is attached.
The remnants of Hurricane Harvey in the next few days will travel northwards along the MS River, producing heavy and in many cases flooding rain as it travels. Precip accumulation through Sat/Sun is estimated at 7-9” in parts of LA, AR and MS, and totals of 4+” will be spread across the entirety of the Delta, as well as W TN and far W KY. The remainder of the Central US will be near completely dry, as the upper air pattern has not budged in the face of the season’s first hurricane. A broad Ridge/Trough pattern will remain intact, and the arrival of a fairly deep low pressure Trough aloft SE Canada and the Great Lakes early next week will keep temps across the C and E Midwest some 5-10 degrees below normal.
AgResource Daily Farm Marketing Advice for Tuesday: 1/ No new advice.
6:30 AM CDT CBOT Prices: Nov soybeans are down 5.75 cents at $9.355, Dec corn is down 2.75 cents at $3.4825 while Dec Chi wheat is down 4.0 cents at $4.24.
Good Morning! Grain and soy futures this AM are weaker, again in moderate volume, following better soy crop ratings in NASS’s weekly release, and as the EU and GFS models are a bit warmer across the Northern Plains and Upper Midwest in the first 10 days of September. 28,000 contracts of Dec corn, 14,500 contracts of Nov beans and 8,000 contracts of Dec CME wheat changed hands so far. Crude is up .10/barrel, EU milling wheat futures have followed the US to modest losses, Malaysian palm oil is down 25 ringgits and the US dollar is down sharply again, posting yet new lows for the move.
Bean GD/EX ratings through last Sunday improved 1%, with conditions-based yield models also marginally higher, and the general consensus seems to have centered on a corn yield of 165-168 Bu/Acre and bean yield of 47-49 Bu/Acre, which is up slightly from trade guesses in late July/early August. The US will no doubt avoid major losses, save for some areas of the Plains, amid relatively improved growing conditions in August.
Still, we caution that the risk of below normal temps in September is intact, and the Delta’s forecast remains rather wet into early next week.
The remnants of hurricane Harvey will travel northwards in the next 4-5 days, tracing a path along the MS River. Rainfall accumulation through Sat/Sun is projected as high as 5-9” in LA, AR, MS, W TN and far W KY. Quality issues will be only regional, but a fairly lengthy delay in harvesting there is anticipated. Just 25% of beans in AR were gathered as of Sunday.
The remainder of the Central US will be dry and cool throughout the next 10 days. Overnight lows are pegged in the 40s across the Dakotas, MN and WI Sep 5-8 (with a few days in the upper 30s across Southern Canada) but a hard frost is so far not indicated. A slight warming of temps is forecast thereafter.
Serbia on Monday cuts its corn crop estimate 3.5 MMTs (nearly 50%) to just 4.5 MMTs. This by itself is not overly newsworthy, but neighboring countries Romania, Bulgaria and Ukraine have experienced very similar growing conditions since early summer. Rainfall in Ukraine since July 1st rests at just 15-80% of normal, with much of E Ukraine seeing just 15-30%. Ukraine’s cash corn market shows no sign of major changes in crop size, but neither is Ukrainian corn overly cheap compared to US origin.
South American basis levels continue to inch higher, with Argentine corn now offered 40 cents over futures for nearby arrival (vs. negative basis just weeks ago). Brazilian corn is still offered at parity with US origin. Argentine soy basis also continues to rise, with very few soy offers noted in South American beyond October. The US will return as the world’s dominant soy exporter in early autumn through Feb/Mar of 2018.
Egypt is seeking wheat for early Oct shipment, but otherwise news is lacking – and enthusiasm from both the bulls and the bears will be lacking until NASS’s Sep crop report.
NASS is fully expected to lower total US wheat production by 20-30 Mil Bu in its Small Grains Summary in late September, and end stocks in the months ahead are likely to be pulled below 900 Mil Bu for the first time in any WASDE report since 2015. This is completely a function of a downward revision to spring wheat harvested area – which has been left untouched so far, but abandonment is pegged far too low as evidenced by the graphic at left. Spring wheat GD/EX ratings on Aug 1st were the lowest on record. There’s a decent correlation between crop ratings and abandonment, particularly in years when GD/EX ratings were below 40% in late summer.
NASS protocol has limited changes to abandonment in July & August, but a fairly sizeable adjustment is expected in September. Amid ongoing drought in Canada, the US HRS balance still appears to be very tight.
AgResource estimates spring wheat abandonment at 8%, vs. the USDA’s 3.7%, and pegs HRS harvested area at 9.4 Mil Acres, vs. the USDA’s 9.9. A slight reduction in yield is also forecast. We have no major disagreements with the USDA’s demand estimates, and so HRS stocks in 2016/17 will fall to just over 100 Mil Bu, down 30 Mil from the USDA’s Aug forecast and down a hefty 132 Mil (56%) from last year. Much of the recent collapse in spring wheat futures is attributed directly toward the decline in other classes, as MGE wheat’s premium to CME and KC futures has been rather firm at $2.40-2.70 since July, but as winter wheat probes for a bottom, extreme caution is warranted in being bearish higher protein/quality wheat.
HRS stocks/use will be the lowest since 2007 and third lowest since 1987. ARC maintains that the goal is to slow demand and attract acreage in 2018 through price.
Certainly spring wheat futures’ premium to other classes needs to be sustained at $2.40+, and so fair value through early 2018 is pegged at $6.30-7.30, basis spot MGE futures. The graphic below charts the % change in cash prices in Minneapolis since July 1 this year and in 2006/07. Harvest-based weakness in the wheat market as a whole is noted, but a post-harvest recovery is probable beyond mid/late September. Highs were likely scored in spring wheat futures and cash markets in July, but a bearish outlook is not advised. As end users face very tight stocks in winter/spring, we expect basis rallies and for cash prices at principle markets to test $7.50-8.00/Bu.
Spring wheat seasonal trends in normal years turn broadly positive in Sep anyway, and so we urge end users to extend wheat/flour coverage on any further break.
Midwest Drier Again; Delta Much Wetter: Previously the remnants of Harvey were expected to stay confined to TX, LA and parts of MS through the week ahead, but the major forecasting models have expanded heavy rainfall coverage to include a bulk of the Delta region through Fri/Sat. The EU model’s latest 5-day precip forecast is attached, and notice that accumulation upwards of 7-9” looks to impact W LA, AR and W TN through the period. Limited moisture is forecast elsewhere. Temps will maintain a cooler than normal bias through Sep 12th – something that needs close monitoring.
In the near term, Harvey will linger in SE TX/LA through mid-week. Thereafter, the system’s remnants will travel northward along the MS River, bring very heavy rainfall with it. Bean harvesting in LA is just 25% finished; bean harvest in AR has just started.
Again ARC mentions – and this is contributing to Harvey’s strength – that the Central US upper air pattern has not been much affected by the season’s first major hurricane. A broad NW flow will persist for another 10-12 days, and a rather deep low pressure Trough is indicated aloft Southeast Canada & the Great Lakes Sep 5-10. This will allow much cooler air to be funneled into the region, and there are hints of overnight lows in the 30s across the Canadian Prairies, ND, MN and parts of WI late in the 11-15 day period. The GFS may be overdone with this outlook, but a pattern of sub-normal temps will linger in the background. NOAA’s temp outlook is at left, and crops across the Northern US demand an extended growing season. Recall normal frost dates in ND & MN occur around Sep 15-20.
Hogs opened the week lower and selling accelerated as October slipped under last week’s low, and at the close, both October and December contracts were at the lowest levels since last December. The hog index was down $1.17 at $78.23, and the weekend slaughter data projects another $1.47 lower for Tuesday. Negotiated hog trade was $1.20 lower from Friday, while the pork cutout was off $.31 at $86.10. The belly market continues to implode and was down more than $6.
Scheduled loads were down slightly from a week ago, but still indicate that this week’s kill will likely top 2.3 million head. Our best guess is that the week’s actual kill will likely be closer to, or above last week as packers try to make up for next week’s holiday.
October and December hogs are very oversold, though the fundamental outlook for the hog market remains bearish on record supplies. Short covering rallies back to $60 or better offer the next opportunity for 4th quarter sales.
Soybeans were higher overnight and 3-4 cents lower at the close. Soy product markets traded mixed, with soymeal inching lower, while soyoil futures finished lightly mixed around unchanged. Commodity fund traders sold 3,000 soybean and 2,000 soymeal contracts, and bought 1,000 contracts in the soyoil market.
Soybean export inspections were supportive, and were the largest since early April, at a 20 week high of just over 26 Mil Bu. With 1 reporting week remaining in the old crop marketing year, cumulative export inspections are 13% more than a year ago, and now total 2,096 Mil Bu.
After the close, NASS reported that 61% of the US soybean crop was rated as either good or excellent versus 60% a week ago. Crop ratings increased in 9 states, declined in 6, and were unchanged in 3. The largest increase was again in SD, where GD/EX has increased from 25% to 49% in 5 weeks. However, the SD crop is still the lowest rated state.
Our best guess is that the final soybean yield lands under the August estimate. Chinese demand is expected on breaks, and we think price risk is limited ahead of harvest.
US & EU wheat futures ended moderately to sharply lower, as this week’s Russian yield data suggests final crop size could exceed 85 MMTs. This, of course, will not be available to world market amid lack of rail lines & wagons, but world sentiment remains bearish on bulging Black Sea surpluses. However, as evidence by the updated world fob price chart, the US still working to be the world’s low cost supplier, and Aussie/EU premiums to US origin are widening. As such, we maintain that the USDA’s EU, Canada & Australian export forecasts are too high; the US export forecast is too low.
And like corn, other than Russian yields, there’s very little fresh news available. Crude fell noticeably on the loss of near term refinery capacity, through Russia’s currency ended slightly stronger. The Aussie dollar today also rallied and is testing a multi-week high. Strength there, and in the euro, will further add to exporters’ woes.
There’s little else to add other than seasonal weakness should end by early Sep, and the US is no doubt buying world market share are current prices. Spring wheat harvesting as of Sunday reached 76% complete, and the N Hemisphere harvest will be ending in the next 2-3 weeks.
Harvey’s impact in the market was limited to spot gasoline and ethanol (ethanol production & blending margins continue to rally), while Farm Journal’s crop tour results lacked excitement of any kind. Volume today was mediocre, and should remain as such over the next 1-2 weeks, and we all await early S Midwest harvest results.
Crop conditions this week are unchanged at 62% GD/EX, vs. 75% a year ago, and the debate over whether yield is at the upper (169) or lower (165) end of the most probable range will continue. Crop maturity has reached 60%+ in TX & NC, and harvest progress in LA, MS and MS as of Sunday was pegged at 87%, 51% and 27%, respectively. Yield results out of the Delta have so been about as expected, with LA farmers posting results of 170-185.
Otherwise, blend margins have hit new 2-year highs this evening, and Brazilian ethanol’s premium to US Gulf origin rests at 18%, up slightly on the previous week and recall Brazil’s new tariff on imports from the US will be 20%. This tariff, on the margin, will slow demand but the US-Brazilian spread will still be watched with interest.
The coming lack of news will keep price ranges rather narrow, and Dec corn below $3.50 is viewed as an opportunity for end users.
A New Era in Agriculture | Cereals Europe Event
Dan Basse | 2015