4/29/2014 Morning Comments

Good Morning,


Outside Markets as of 6:30am: Dollar Index down 0.0230 at 79.6630; Euro is up 0.00050 at 1.38570; S&P’s are up 6.25 at 1872.25; Dow futures are up 48.00 at 16,445.00; 10-yr futures are down 0.23%; The Nikkei closed down 0.98% at 14,288.23; The DAX is up 1.12% at 10,415.60; IBEX-35 is up 0.92% at 10,415.60; The Russian MICEX closed up 1.07% at 1,313.08; Gold is down $8.70 at $1290.30; Copper is down $0.55 at $308.75; Crude Oil is up $0.60 at $101.44; Heating Oil is up $0.0143 at $2.9588; Paris Milling Wheat is down €0.50 at €214.50.

Mostly better global equity markets this morning with much chatter related to the fresh sanctions put on Russian companies and individuals by the US, although debate rages whether the sanctions were hard-hitting enough.  17 companies and seven Russian officials were targeted, although the US stopped short of announcing sector-wide sanctions, preferring to keep those in their arsenal.  Archer Daniels Midland announced Q1 earnings this morning of $0.55/share, up from $0.46/share a year ago, but slightly missing analyst estimates.  Corn processing operating profit increased $64 million on strong results from ethanol, and oilseeds earnings were also solid thanks to firm margins at its soybean crush facilities.  Transportation and Ag Services were the weak links.  The Financial Times ran a story this morning about investors returning to passive long index vehicles in 2014.  The link can be found here: http://www.ft.com/intl/cms/s/0/cf516ab4-ced9-11e3-8e62-00144feabdc0.html?ftcamp=crm/email/2014429/nbe/USMorningHeadlines/product&siteedition=intl#axzz30H3T3gmz The negative correlation from equities are making Ag markets a sought after space.

More moisture falling this morning across the Midwest with rain in the central belt and snow storms in the west.  Models this morning continue pointing towards a wet week with very little fieldwork expected until next week.  The latest 5-day forecasted precip map is shown below.  NOAA maps continue to park below to much below normal temps across the Midwest during the 6-14 day period.  This pushes cooler than average temperatures out to May 12th which will remain a concern for uniform emergence of corn seeds.  At the end of the day, however, rain in Iowa isn’t bullish longer-term, especially when some of the WCB states were still showing various stages of drought.


Mixed markets following yesterday’s gains by most contracts, although wheat is under light pressure thanks to the systems moving across KS this morning which weren’t expressly forecast.  Headline grabbers include comments from the KS wheat tour currently working its way across KS and N-OK.  The executive director of Plains Grains, Inc. said the non-irrigated wheat is toast in S-KS/N-OK.  Yesterday’s crop progress reports were also of great interest with the national winter wheat index seeing a 1% decline to 33% good/excellent.  SRW and SWW mostly improved while HRW declined with the largest decline seen in MI where the crop dropped 8pts.  KS fell 3pts G/E and saw its P/VP go up 5pts.  HRS planting remains slow with 18% planted vs 11% last year but behind the 30% average. SD is progressing normally, but ND and MT are slower than average.

Corn planting progress was pegged at 19% complete vs 6% last week and 28% average.  Next week’s 5-yr average is 40%, and this year shouldn’t come anywhere close to that given the week’s moisture.  Oats planting progress remains woefully slow with just 34% planted vs 46% last year and 63% average.  Emergence is seen at 12% vs 45% average.  Sugar beet planting progress was shown at 16% vs 17% last year and 47% average.  Soybeans were 3% planted vs 4% average.  Last year the US farmer planted 43% of the corn crop in one week, and several analysts continue to point towards July temperature and moisture as far more important than planting date in determining yield.  One would certainly have to agree with that based on last year.  Forecasts do look drier next week, so the panic button is being pressed yet, but better cooperation from the weather is going to be needed.

Many were scratching their heads on the soybean rally yesterday, looking for news to blame the strength on.  CIF soybean bids were up 1-3c yesterday, and FOB Brazilian premiums climbed 10-15c from last week’s distressed sales levels.  The pop in basis levels accompanied chatter on Friday Chinese crush margins have been improving.  This along with comments from Bunge’s CEO suggesting the cancelations and defaults of Brazilian soybeans by Chinese crushers should run its course in the next 2-3 months all supported futures.  In addition, the SK/SN spread jumped 4.5c yesterday ahead of first notice day Wednesday as traders realize the ability to utilize delivery warehouse supplies won’t be available until mid-July once the May goes off the board.  Armed with strong crush margins, the 8.5c spread is a “cheap” cash call against not being able to source soybeans in IL during May and June.  Cash sources reported ADM rolling cash bids from the May to the July at several crush and ethanol plants yesterday.  This too is supportive of the CK/CN and SK/SN.  Any opportunistic or outright bearspreads still in play should be reviewed as FND approaches.  One other note about the stronger US and Brazilian soybean basis is the incredibly weak Argentine soybean basis.  Cash traders are reporting very low protein levels in the Argentine crop which is forcing sizable discounts to get the crop sold.  This could limit Argy meal imports into the US if it can’t meet quality specs.

While missed by this analyst, worth noting the 38 delivery certificates of HRW canceled in Salina, KS on Friday.  This supported the KWK/KWN, and the overall wheat complex.  KC continues to lead the wheat strength on ideas of declining crop production, and this has helped KW/MW and KW/W inter-market spreads hit new contract highs.  In fact, the KWK/WK spread hit +83.00c yesterday which was the highest level for a front-month KC/Chicago spread since November 2011.  Calendar spreads also suggest the KC crop is getting smaller as the KWN/KWU is up 3.5c in the last 11 sessions, and the KWK15/KWN15 is up 15c in the last 2-weeks.  Despite this, when comparing other drought-ridden years, the strength of KC over MPLS and CHI usually doesn’t last until expiration with seasonal weakness setting in for KC as we near harvest.  Keep this in mind for any inter-market hedging decisions.

Several news outlets commented on the declining crop prospects in Syria this year with the worst wheat crop expected in 40 years.  Analysts on the ground aren’t sure if there crop will make 1MMT, a level not breached since 1973 and would compare with 3.5MMT on average.  Drought is the primary driver, but the raging civil war is also preventing supplies and inputs from being sourced by the countries farmers.

Lastly, one source reported GAFTA (Grain and Feed Trade Association) issued an advisory yesterday morning that China’s National Bio-safety committee supposedly approved MIR-162 (Agrisure Vipterra) earlier this month for import.  However, the strain must still pass the Chinese Ministry of Agriculture for full approval which won’t consider the issue until June.  Still a positive step, although it hasn’t stopped China from canceling US bought corn boats.


Bottom Line:  Back and fill in wheat as we await more news from the KS wheat tour, while corn and soybeans can remain firm on strong basis and supportive spreads.  The US farmer is either planting or sitting, but he’s not selling grain until more is planted or the moisture abates and grain can be hauled.  Commodities are enjoying a resurgence in investor appetite, and the news flow remains more positive than negative at current levels.  Still, the crop will get planted eventually.  Review marketing objectives and targets early and often.


Good Luck Today.


HPC 4-29


Tregg Cronin

Market Analyst






COMMODITY TRADING INVOLVES RISK AND MAY NOT BE SUITABLE FOR ALL RECEIPIENTS OF THIS POST. 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.


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