Weekly Cash Comments

Cash Commentary-

Grain basis got a big boost this week as harvest nears completion and barge rates continue to sink lower. On the week, US average corn basis was up 3 cents a bushel while soybeans advanced 4 cents a bushel.

River terminals were big gainers this week as barge freight costs continued to come down. On the week, barge rates along the IL River slipped 8 cents a bushel and are off nearly 40 cents a bushel from their seasonal high set back at the end of September. As a result, corn basis along the river terminals climbed 8 cents a bushel, while soybeans was up nearly 7 cents a bushel.

Harvest for corn and beans is reaching the final stages, with corn in the Upper Midwest still left to cut. Areas of MN & WI saw little strength this week as harvest pressure still exerts some localized pressure in these areas. Likewise, bean cutting is causing some pressure in the Upper Midwest and the Mid-Atlantic as double crop beans get cut there.

For end users, corn plants were up a robust 4 cents a bushel on average as a group. In Ohio, 4 of the 7 corn plants there had better than 10 cent basis advances on the week. For soy plants, basis levels were solidly higher as end users bid up from the harvest lows. Gains on average were 6 cents a bushel for soy crush plants on the week.

Look for basis levels to continue to improve rapidly over the next 6 weeks as harvest wains and flat to lower futures prices keep farmers on the cash market sideline.

Futures Commentary-

Grains were mixed this week as wheat advanced nearly 25 cents a bushel while soybeans fell 20 cents a bushel. Corn continued to struggle to find direction, posting only a modest 2 cent gain on the week.

Wheat continued to climb higher, taking out the 100-day moving average this week on concerns about weather issues in the US Plains and globally. Argentina’s wheat crop was pegged at 9.5 MMT by the exchange there, putting it below USDA’s latest forecast of 10.5 MMT and last year’s production of 11.75 MMT. In Australia, the wheat crop could face quality downgrades as parts of the country’s eastern grain belt are forecast to receive heavy rains in the days ahead, potentially damaging the crop which is ready for harvest. Dry weather in September and above average temperatures this month have already curbed yields of high-protein Australian prime hard wheat in the world’s fourth largest exporter of the grain. In Ukraine, the winter wheat crop has seen 40% below normal precipitation and little rainfall is expected in the next two weeks as temperatures remain at or below freezing.

For corn, crop harvest continues to sail along without any major hiccups as the US reached 75% done. Export sales this week were a welcome surprise at over 700,000 MT surpassing expectations for this first time in over a month. However, corn continues to significantly lag behind the pace needed to reach USDA’s annual forecast of 250 MB. Export business for US corn is expected to pick up as competition from South America wains in the coming months, but given the extent of the deficit, it seems likely USDA will need to lower their forecast for corn exports.

In soybeans, crop harvest is nearly completed at 87% as of last Sunday. Yield reports continue to point to a surprisingly good crop which has analysts likely looking for a higher production estimate in upcoming USDA crop reports. In Brazil, planting there continues to be benefited by rains that are aiding in crop development. Estimates so far put the Brazil crop at over 100 MT up from last year’s crop at 96 MMT. On the export front, China continues to be an aggressive buyer of US soybeans, with weekly export sales again topping the 2 MMT mark and surpassing analyst expectations.

Morning Comments – October 30

Grains were higher overnight with wheat and soybeans posting the biggest gains of 4 cents a bushel, while corn was fractionally higher. In outside markets, crude oil & S&P futures were higher while the US dollar index was weaker.

Wheat continues to climb higher, taking out the 100-day moving average overnight. Weather concerns in Ukraine, Russia, and Australia continue to be supportive of wheat. After the close yesterday, Argentina’s wheat crop was pegged at 9.5 MMT by the exchange there, putting it below USDA’s latest forecast of 10.5 MMT and last year’s production of 11.75 MMT. In Australia, the wheat crop could face quality downgrades as parts of the country’s eastern grain belt are forecast to receive heavy rains in the days ahead, potentially damaging the crop which is ready for harvest. Dry weather in September and above average temperatures this month have already curbed yields of high-protein Australian prime hard wheat in the world’s fourth largest exporter of the grain.

USDA’s weekly export sales report was for the first time above expectations for all three commodities. However, corn continues significantly lag behind the pace needed to reach USDA’s annual forecast by 250 MB. Export business for US corn is expected to pick up as competition from South America wains in the coming months, but given the extent of the deficit, it seems likely USDA will need to lower their forecast for corn exports.

S&P futures (ESZ5) are closing in on the 2,100 mark, which would be a full recovery from the sell-off triggered by China’s weakness in August. A report on personal spending today will help investors assess the strength of the economy, as will a continuation of company earnings reports.

Crude futures (GCLZ5 / QMZ5) held steady overnight, poised to post the first weekly gain in three weeks despite a supply glut that has tested storage capacity and hammered company results. The potential gain, driven by smaller-than-expected builds in U.S. oil stocks, was widely viewed as a temporary boost in a market that is awash with oil and staring down sluggish economic growth in key markets such as the United States and China.

 

Morning Comments – October 29

Grains were mostly steady overnight as corn and wheat were gravitating towards unchanged while soybeans was up a penny.  Stock futures and crude oil were lower giving back some of yesterday’s gains.

Yesterday, EIA showed a drop in ethanol production for the week of 7,000 barrels per day, down to 944,000 barrels per day. At this time of year production levels for ethanol generally increase until the end of the year so seeing even a one-week drop is problematic for demand bulls.

In overnight news, Egypt tendered for more wheat and although the results have not been announced the lowest offer was from Poland at $195.84 FOB. The last Egypt wheat deal went to Russia and Romania. Jordan also announced a tender to buy hard milling wheat but that deal is expected to go to Europe. And the Korea Feed Association rejected all offers on a tender to buy corn, stating that prices were too high.

In outside markets, the Fed announced no change in interest rates yesterday, but said economic indicators on housing and business investment were improving, helping to offset employment issues and global weakness. As such, analysts are leaning more to a rate hike in December as a result of the Fed’s guidance, versus Q1 in 2016 prior to yesterday’s announcement. S&P futures (ESZ5) initially sold off following the announcement but recovered to close the day higher.

The cost of crude oil (GCLZ5 / QMZ5) fell on Thursday as traders took profits after prices rallied in the previous session, driven by smaller-than-expected crude stockpile growth in the US. On Wednesday, the EIA said the nation’s crude stockpile grew by 3.4 million barrels last week, below the estimate of a 4.1 million-barrel increase by the industry group API. However, US oil output, whose booming growth in the past few years has fueled the global glut of crude, rose slightly last week. While US production peaked in April at 9.6 million barrels a day, it has remained stable around 9.1 million for the past few weeks.

USDA WEEKLY EXPORT SALES (in thousand metric tons)

Actual Expected
Corn 708.8 300-500
Soybeans 2,156 1,600-2,000
Wheat 550 350-550

Morning Comments – October 28

Grains drifted lower overnight as ample supplies and limited demand news kept prices listless. In outside markets, S&P futures were marginally higher as was crude oil, while the US dollar was down.

An outlook for rain in OK/KS and into the soft red wheat territory of the Midwest has eased fears of dry weather for the winter wheat crop. In Australia, hot and dry weather is expected to take its toll on the wheat crop there as it goes through filling stage. USDA’s Ag Attaché pegged the Australia wheat crop at 24 MMT, below USDA’s forecast of 27 MMT. Forecasters look for little relief in the El Nino induced weather pattern as the next 10 days show spotty chances for moisture.

In Brazil, soybean planting continues to be running without significant problems. Farmers in southern Brazil have had heavy rains but that has reportedly had little impact on crop development so far. In central Brazil where it has been dry, forecasters are looking for 2 to 6 inches of rain over the next two weeks, which should be beneficial for planting.

Overnight, Russia’s ag minister announced that if the Russian Rouble stabilized, the government would remove the export tax on wheat leaving the country for global markets.  News also suggested that Chinese buyers would stop buying US DDGS amid worries that Beijing may launch another anti-dumping probe into imports of the feed ingredient. China is the world’s top buyer of DDGS, a by-product of corn ethanol that is used by feed mills as a substitute for corn and soymeal. China imports almost all of its needs from the United States.

In S&P futures (ESZ5), traders await clues from the Federal Reserve about the timing of a U.S. interest rate increase. A rate hike at the Fed’s two-day policy meeting which ends later on Wednesday is virtually priced out due to underlying concerns over a slowdown in China and the broader impact on global growth.

In crude oil (GCLZ5 / QMZ5), prices were off sharply on Tuesday after US congressional leaders proposed to sell 58 million barrels of oil from US emergency reserves over 6 years starting in fiscal year 2018 to help pay for mandatory budget spending cuts.  API crude stocks released late Tuesday showed inventories at the Cushing, OK delivery hub fell 748,000 barrels, but official estimates from EIA will be released later this morning.

 

Morning Comments – October 27

Wheat and corn gave back some of their gains overnight from yesterday’s rally, while soybeans recovered some of the losses from Monday’s session.  Crude oil continued to fall, reaching its lowest price since August 27 while S&P futures were modestly lower.

Wheat posted an 18-cent gain in Monday’s trade, fueled by concerns of flooding in Texas, and dry weather in the US Plains. After the close, USDA’s crop progress report showed 47% of the winter wheat crop was in good-to-excellent condition, which was lower than last year’s reading of 59%.  USDA also showed harvest was moving fast, with corn at 75% harvested while soybeans reached 87% harvested.

Weekly export inspections were impressive for soybeans this week, coming in at 2.6 MMT versus trade expectations of 1.8 to 2.1 MMT. Meanwhile corn and wheat exports continue to come in at the low end or below expectations. YTD exports for corn are 26% behind last year’s pace and wheat is 18% off. USDA expects both crops to see exports roughly unchanged year-on-year, so a lagging trend is problematic.

S&P futures (ESZ5) and the US Dollar index (DX-MZ5) dipped on Tuesday, as investors locked in some of the sharp gains seen over the last month ahead of the Federal Reserve’s policy meeting and results from Apple. The Fed begins their two-day to discuss the need for an interest rate hike. Markets are pricing in only around a 7% chance of a rate hike this week, but will be watching be for clues to whether “lift-off” could come at its next meeting in December.

Crude oil (GCLZ5 / QMz5) continued to be pressured falling below $44 a barrel for the first time since late August. API will release their inventory report this afternoon while EIA will release their report Wednesday morning. Analysts look for a 5th straight week of higher stocks with the average estimate pointing to a 3 million barrel increase in crude oil inventories.

Morning Comments – October 26

Grains were mixed overnight with wheat posting the biggest gains, advancing 6 cents overnight while corn was fractionally higher. Soybeans gave up 3 cents in the night session.  In outside markets, stock index futures were mildly weaker while crude oil showed a small advance.

Wheat was buoyed by missed rain forecasts in the Plains.  While Texas is likely to see significant precipitation over the next week, areas to the North are not.  Dry weather also is persisting in Russia. In international deals, overnight Ethiopia announced it was tendering for 1 MMT. The deal is expected to go to Black Sea or EU markets.

In corn and beans, remnants of Hurricane Patricia are expected to hit the Midwest in coming days which could slow the tail end of the harvest season. The path is projected to put rains of 2 to 4 inches in the Mississippi River and Ohio River regions. USDA will announce the latest harvest progress numbers after the close of trade today. Last week corn was 59% harvested while soybeans stood at 77% harvested.

Global markets are mixed, with some green being seen in Asia, and Europe modestly lower. After a major rally at the end of last week, S&P index futures (ESZ5) are taking a breather on Monday morning, down about 0.15%.The FOMC meets this week, with very few expecting the central bank to hike rates.

Crude oil (GCZ5 / QMZ5) were modestly higher in night trade but still below $45 a barrel. Goldman Sachs said crude oil prices could drop sharply lower as refined product storage sites come close to maximum capacity, further adding to a glut that has already seen crude prices fall by more than half since June 2014.  Goldman said that inventories were already “too close for comfort”, bearing the potential for a sharp fall in crude prices.

Weekly Cash Comments

Cash Commentary-

Grain basis was mostly muted this week as average corn and soybean basis posted fractional increases on the week.

Harvest continued to keep a lid on basis levels as last week farmers harvested another 15% of the corn and soybean crop in a 7-day period. Soybean harvest should be reaching the tail end of the season, while corn still has a few more solid weeks of cutting to go. Weather looks good for much of the Midwest, but forecasters look for Hurricane Patricia, currently off the coast of Mexico, to filter into the Upper Midwest by early next week which could stall corn harvest. The rain may not be welcome for farmers, but river depths are at low levels and are causing barge delays. Early in the week, a barge blockage north of Quincy, IL on the MS River put traffic there on hold for two days. Since being cleared, barge rates have come down precipitously in the later part of the week.

At the Gulf, export basis bids for beans were off 6 cents this week which pushed bean basis lower at river terminals by 4 cents a bushel. Conversely, basis bids for corn along the river were up nearly 6 cents a bushel. End users were mostly flat this week with both corn and soybean plants mostly unchanged on basis. Look for basis levels to start improving as we enter the later stages of harvest and farmer sales dry up on overall price weakness.

Futures Commentary-

Grains were mostly lower on the week with wheat leading to the downside on an 11-cent decline while soybeans posted a 6-cent loss. Corn managed to buck the trend with a modest 3-cent advance.

Corn and soybean harvest continued to be brisk this year, with USDA reporting.  Corn was at 59% planted this week versus 42% last week, while soybeans were 77% vs 62%. Overall, supply issues continue to keep prices from holding onto any prolonged rally.

Internationally, forecasts called for rain in Russia which seemed to alleviate fears over winter wheat planting and germination, while wetter weather in Brazil is expected to help planting conditions for soybeans. Analysts expect Brazil to produce a better than 100 MMT crop, up from 96 MMT last year and USDA’s latest forecast of 97 MMT.

Demand side stimulus for grain was especially paltry this week for corn and wheat. Thursday’s weekly sales report underscored the bull’s dilemma – corn export sales for the week totaled a paltry 248,000 MT versus trade expectations of 450,000 to 650,000 MT, and year-to-date sales are 35% below last year, all the while USDA expects annual exports to be virtually unchanged from last year.  In wheat, sales were slightly above expectations of 300- to 500,000 MT coming in at 359,000 MT. But, even so, YTD wheat sales lag the pace needed to reach USDA’s annual estimate.

For soybeans, export demand continues to be bullish news. Weekly export sales surpassed expectations for the third week in a row coming in at 2.1 MMT versus analyst estimates of 1.2 to 1.8 MMT. In addition, at the end of the week USDA announced sale of 463,000 MT to unknown destinations. But overarching supply concerns won the tug of war for prices this week.

Morning Comments – October 23

Grain markets were mixed overnight with wheat stronger, and corn and beans slightly weaker to unchanged. In outside markets, S&P futures and oil were higher.

Yesterday brought a round of good demand news for soybeans, but that couldn’t stop prices from dropping over 6 cents a bushel. Better than expected weekly export sales of 2.1 MMT versus trade expectations of 1.2 to 1.8 MMT along with a USDA announced sale of 463,000 MT were positive signs of underlying demand, but overarching supply concerns won the tug of war yesterday. In Brazil, analysts are still pointing to a better than 100 MMT crop as planting season kicks into full swing.

Overnight, China’s central bank cut its benchmark lending rate and reserve requirements for banks, stepping up efforts to cushion a deepening economic slowdown. The one-year lending rate will drop to 4.35% from 4.6% effective Saturday the People’s Bank of China said on its website on Friday. Reserve requirements for all banks were cut by 50 basis points, with an extra 50 basis point reduction for some institutions. The PBOC also scrapped a deposit-rate ceiling. This provided some bullish response in overnight trading for commodities helping to ease fears about China’s slowdown.

Corn continues to flounder from lackluster demand. Thursday’s weekly sales report underscored the bull’s dilemma – export sales for the week totaled a paltry 248,000 MT versus  trade expectations of 450,000 to 650,000 MT, and year-to-date sales are 35% below last year, all the while USDA expects annual exports to be virtually unchanged from last year.

Oil prices firmed slightly overnight, finding support from brighter economic data and a global stock market rally after the European Central Bank signaled more stimulus. Along with China reducing its interest rate and easing monetary policies, ECB President Mario Draghi said on Thursday that new euro zone initiatives could be unveiled as soon as December to stoke the economy.

Morning Comments – October 22

Overnight markets were generally higher with grains, stock futures and crude oil all posting positive gains.

Wednesday saw soybeans break through and close above $9 and strong demand has helped ease talks of growing US supplies.  However, the looming South American crop is a potential rally killer as well. Brazil’s new soybean crop that is currently being planted is expected to produce a record 100.6 MMT, up from the 96.2 MMT in 2015, local analyst Agroconsult said on Wednesday. Planting is expected to accelerate in the coming weeks as rains are forecast to turn more frequent as Brazil moves into its rainy season, the analyst said in its first forecast of the new crop.

Industry analysts in China think the country will buy about 50 percent less corn for state stockpiles in the 2015/16 season than the previous year as local governments offer subsidies to encourage processors to use more domestic grain.  Beijing will buy 40-50 MMT of corn for state stocks during a six-month purchasing period that starts next month, compared with 83 million in 2014/15, the analysts said.

Overnight, Japan bought nearly 100,000 MT from the US of food quality wheat and 35,000 MT from Canada in a regular tender that closed overnight.  Last week, the same tender saw the US only getting 64,000 MT on the deal.

S&P futures (ESZ5) were higher overnight ahead of a host of key earnings reports and economic data. Dow components 3M, Caterpillar and McDonald’s report results before the bell, while technology majors Microsoft, Alphabet, AT&T and Amazon are due to report after the close. U.S. data scheduled for Thursday includes unemployment benefits claims. The data is expected to show last week’s claims increased to 265,000. Existing home sales are expected to have grown 1.4 percent to an annual rate of 5.38 million units in September.

Oil prices (GCLZ5 / QMZ5) rebounded Thursday with investors bargain hunting after oil fell to near three-week lows this week. The gains came despite mixed news on U.S. inventories, underscoring how used to bad news the crude market has become. The U.S. Energy Information Administration reported Wednesday that domestic crude oil inventories expanded by more-than-expected 8 million barrels last week. Inventories in the U.S. remain near levels not seen for this time of year in at least the last 80 years, adding further pressure to the already oversupplied global market.

WEEKLY EXPORT SALES (in thousand metric tons)

Actual Expected
Corn 248 450-650
Soybeans 2,100 1,200-1,800
Wheat 359 300-500

 

Morning Comments – October 21

Grains were listless overnight with little directional bias in the market. In outside markets, S&P futures recovered some of the losses from Tuesday, while crude oil printed its lowest price since October 2nd.

On Tuesday, corn reached a 5-week low at $3.72, but has since managed to move slightly higher as prices look to stabilize from a spat of selling. Harvest pressure seems to be limiting any prolonged rally and the lack of significant demand in the export market seems to be putting a lid on the rallies.

Some dryness issues in Ukraine & Russia are helping underpin the market as well. Ukraine’s ag minster on Tuesday said wheat acres there are likely to fall to 5.5 million hectares versus 6.2 that were previously expected as a result of dry conditions. In Russia, farmers have delayed winter grain sowing due to dry weather, analysts and traders said on Tuesday, signaling higher risks for next year’s crop in one of the world’s key wheat exporters.  A lack of rain has been reported since September by some of Russia’s southern regions, the main areas for wheat exports to North Africa and the Middle East.

S&P futures (ESZ5) were modestly higher and reached their highest point since Aug 20. Earnings data for Q3 has turned out better than expected so far. Some 32 S&P 500 companies are due to post results today. Of those that have reported so far, 43 percent have beaten sales estimates while 74 percent have beaten earnings targets.

Oil (GCLZ5 / QMZ5) prices fell on Wednesday following a big build in U.S. crude inventories that fed concerns demand may not be enough to absorb one of the largest global surpluses in modern times. The American Petroleum Institute reported on Tuesday a rise in U.S. commercial crude stocks of 7.1 million barrels to 473 million barrels in the week to Oct. 16, trumping expectations for an increase of 3.9 million barrels.