Just as many inside the industry have been forecasting, bankruptcies here in the U.S. associated with oil and gas are dramatically on the rise. The folks at Haynes and Boone have compiled some interesting data that shows billions and billions of secured and unsecured debt is going underwater. The company recently tracked 90 North American oil and gas producers that have filed for bankruptcy since the beginning of 2015. These bankruptcies, including Chapter 7, Chapter 11, Chapter 15, and Canadian cases, involve approximately $66.5 billion in cumulative secured and unsecured debt. As of August 1, 2016, 48 producers have filed bankruptcy so far this year, representing approximately $49.3 billion in cumulative secured and unsecured debt. With oil prices falling below $40 in the first week of August, all indications suggest more producer bankruptcy filings will occur during 2016. Please read all of their data at Haynes & Boone Oil Patch Bankruptcy Monitor.
Soybean bears are talking about weaker Chinese crush margins and U.S. export sales starting to perhaps slow down a bit. There’s also talk of some new-crop bushels starting to come out of the fields down south. Keep your eye on the Chinese demand story. I suspect if the export sales start to slow and the demand headlines fade, the trade will become overwhelmed with exclusive talk abut record setting production. Remember, there’s several reputable insiders now forecasting a 50 bushel per acre U.S. yield average. Producer who are going to have a large amount of overage should be thinking long and hard about locking in the basis and or making cash-sales on the extra-bushels. Being able to bank profits in today’s environment is nothing to cry about. I continue to like the thought of reducing overall exposure.
USDA bumped their weekly crop-condition estimate a hair higher form 74% to 75% rated “Good-to-Excellent”. Top-Producing states such as Iowa, Illinois and Minnesota are all rated 83% “Good-to-Excellent” or better which is giving credence to the USDA’s overall record setting yield estimate. Michigan improved by +3% on the week; Indiana and Ohio by +2%; Minnesota, South Dakota and Tennessee +1%. States seeing crop-conditions tick back bit this past week included: Colorado down -3%; Kentucky -2%; Missouri, Nebraska and Pennsylvania -1% all other states left unchanged. I also took the time to compare USDA crop-conditions currently with those posted back in the record setting year of 2014. Wisconsin is +20 point better than in 2014; Minnesota +16 better; Kansas and Kentucky +14, Colorado +9; Iowa +8; Nebraska +4; Illinois +3; North Dakota +1. States that are estimated to currently b e battling poorer conditions than in 2014 are: Ohio -29 worse this year; Pennsylvania -28 worse than in 2014; South Dakota -18; Michigan -16; Arkansas -12; Tennessee -10; Texas -9; and Missouri -8. As both a producer and a spec I remain patient, looking for this market to trade in a sideways type channel between $3.20 and $3.85 during the next several weeks. For what it’s worth the corn harvest in Georgia was reported at 55% complete; Texas 47% complete; South Carolina 37% and Mississippi 14%. Look for the harvest to now start aggressively moving to the North.
Corn continues to make small uphill strides, but most technical gurus suspect the bulls will start to run into much more difficult terrain somewhere between $3.46 and $3.56 per bushel vs. the DEC16 contract. Demand remains extremely strong and many suspect the USDA’s current export estimate is still well underestimated. There’s also some questions now being raised about the ethanol demand estimate, with margins remaining strong there’s several sources who argue the USDA number may need to be bumped a hair higher. The bottom-line however is that this market is still not trading “demand,” rather staying primarily focused on U.S. production, which is easily being called record large. The bulls continue to talk about “tip-back” and “low-kernel” depth, while the bears say there’s simply not enough wide-spread problem areas in this years crop, so the record large yield of 175 plus bushels is justified. I had the guys in the office put together a graphic that shows how this year’s yield estimate compares with each state’s previous record yield. As you can see below, not only are several states looking at harvesting a new record yield, but many of the other states are not that far off. There’s just really no section of the U.S. that’s getting hammered this year. Meaning combined as a nation we are better than we’ve been in any year previously. With this type of supply coming into the pipeline, I suspect it’s going to be extremely difficult to aggressively rally corn prices anytime soon. I’ve had folks ask me if I thought we could get new-crop DEC16 prices back to $4.00? As of right now I would have to say “no”. Perhaps we could get back to the $3.70 or $3.80 range prior to the contract expiring, but $4.00 seems like a million miles away at this point…unless we see some type of unforeseen macro tailwind for commodities as a whole. A bullish unforeseen catalyst could be a Russian military strike in the Black Sea region, or perhaps a Trump victory in the U.S. Presidential race. There’s a lot of moving parts right now, so don’t give up hope. Just understand from a traditional fundamental and technical perspective the odds of an aggressive rally back to $4.00 during the next 90-days seems to be a bit of a stretch. Remember the DEC16 options expire November 25th, meaning we only have three-months until expiration.
There seems to be a bit more buzz circulating inside the market around the massive rains and flooding that have hit many Chinese towns and cities during the past three months. Here is a VIDEO I’ve received several times the past couple of weeks. I’ve also included below a map from the USDA showing where most Chinese production is located.