5/1/2014 Morning Comments

Good Morning,


Outside Markets as of 5:45am: Dollar Index down 0.0240 at 79.4500; Eurp is up 0.00050 at 1.38750; S&P’s are up 1.25 at 1879.25; Dow futures are up 10.00 at 16521.00; 10-yr futures are down 0.06%; The Nikkei closed up 1.27% at 14,485.13; The Russian MICEX is up 0.09% at 1,306.01; Gold is down $12.00 at $1283.90; Copper is down $4.35 at $302.95; Crude Oil is down $0.51 at $99.24; Heating Oil is down $0.0196 at $2.9085; Paris Milling Wheat is closed.

Much of Europe is closed today due to the May Day Holiday. Delivering those baskets is serious business.  Mixed bag of global news otherwise with China’s April purchasing manager’s index rising a touch to 50.4 from 50.3 in March, and remained above the 50.0 contraction/expansion line.  Portugal is set to exit its three-year €78 billion bailout without an emergency backstop which is a remarkable turnaround for a country who six months ago seemed destined for a second bailout.  The IMF approved a $17 billion load for Ukraine over the next two years in a solid stamp of approval by western nations.  In the same breath, the IMF cut the Russian 2014 GDP forecast to 0.2% from 1.3% in 2013 thanks to capital outflow of $100 billion.  Further sanctions could put the nail in the recession coffin.  Weekly jobless claims in the US are expected to drop 9,000 to 320,000.  Also on the economic docket today are ISM Manufacturing Index for April (54.3), March Personal Spending (+0.6%), March Personal Income (+0.4%) and April total vehicle sales (16.2 million).

Light shower activity in MN this morning, otherwise the Midwest is mostly quiet.  Mostly dry weather will occur in the Midwest the next two days before a light system impacts SD on Saturday evening with totals expected around 0.10-0.20”.  The system looks to park over the upper-Midwest Sunday-Tuesday bringing shower activity to ND/SD/MT with the heaviest totals in MT.  The light band will extend from SD through S-MN to IL/IN/S-OH.  Additional precip is being shown by NOAA this morning moving in Tue-Thur focused on the same areas: MT/ND/SD/ but impacting MN/WI as well.  Totals will be heavier with the mid-week system.  The entire 7-day precip forecast is shown below.  Should this confirm, spring wheat planting will fall further behind averages.  6-10 and 8-14 day maps show more of the same with below normal temps for the northern plains, above normal for the lower Midwest and above normal precip for the entire Midwest.  The real question is how much planting progress can occur in between showers to make the moisture a positive rather than a negative?  Current forecasts should remain mostly favorable for price, especially the acres in question in ND/N-MN.


Weaker Ag markets to begin the month of May, led by beans down 10c on the front end following five straight days of.  Despite the constant barrage of market chatter over ongoing soybean imports from South America, the soy complex has been able to weather the storm fairly well as crushers remain armed with solid cash crush margins in the central corn belt.  In addition, CIF bids have actually appreciated this week with spot bids sitting around +68/70K vs +65/66K a week ago.  Traders will also be watching today’s export sales report for any cancelation activity, although nothing in cash markets or spreads the last week would suggest widespread cancellation activity.  Grains are also taking a breather this morning with both corn and wheat sitting on marginal gains for the week.  Weather forecasts remain supportive for both markets with too cool and wet in the Midwest for planting, and zero moisture forecast in the southern plains the next 7-days.  Many areas will hit 90* this weekend south of I-70.

Day 2 of the Kansas Wheat Tour produced an average yield of 30.8bpa on 271 stops vs. last year’s 37.1bpa.  Mark Hodges, executive director of Plains Grains, estimated extreme drought will limit OK wheat production to 66.5mbu on an average yield of 18.5bpa vs last year’s 105mbu crop.  If true, one analyst said this would be the first time the OK wheat crop had been below 70mbu since 1957.  Day 1 of the KS wheat tour produced an average yield 21% below last year while Day 2 was 17% below last year.  The production data so far is certainly supportive of recent KC futures gains, although it should be pointed out the crop is about 2-weeks behind average on development which can lead to more ambiguity of production guesses.  Either way, the news flow supports new contract highs in KC/CHI and KC/MW, and seasonal strength in wheat is also strong during May.  Charts are supportive, and there doesn’t seem to be a reason to step in front of this market just yet, although incremental sales on the rally when marketing targets are obtained is solid risk management.

Export sales estimates for this morning peg corn at 350-725TMT old, 150-625TMT new; wheat at 100-425TMT old, 200-450 new; soybeans at -250/+100 old, 200-450TMT new, meal at 50-190 old and 0-100 new.  Soy oil is seen at 0-50TMT old and 0-20TMT new.  Lots of confusion about the corn export program and the lack of strength in basis for upper-Midwest elevators.  At current, the vast majority of the current export program is occurring out of the Gulf, not the PNW.  This is due in large part to the unreliable rail service (and expense) as well as the Chinese program which continues to get canceled week after week.  This has created an excess amount of corn in the upper-Midwest with a lack of homes.  The few ethanol plants north of I-90 have been able to source all the corn necessary, and railroads have been reluctant to move corn East to the corn belt or south to Gulf, not wanting to congest the situation further.  This leaves elevators unwilling to bid for corn, and farmers holding old crop waiting for basis appreciation which hasn’t yet happened.  Until the central/east cornbelt shows signs of needing corn, or an export program develops off the PNW, corn basis looks to remain weak for the current time frame.

Ethanol production data remained solid yesterday at 898,000bbls, down from 910,000bbls/day last week but right at the level needed to hit the USDA’s marketing year forecast.

Deliveries overnight included 9 corn, and 113 Chicago wheat.  Minneapolis sees 143 re-deliveries and 106 fresh deliveries.  All of the re-deliveries in MPLS are Seg accounts, not commercials, as are the stoppers.  No big sponsors in MGEx.


Bottom Line: Export sales should help set the tone, although markets are due for a corrective day considering the strength witnessed this week.  All of the grain markets remain in uptrends with charts looking strong.  Weather forecasts are supportive to price for both wheat and corn, and the soybean market appears comfortable with the amount of soybeans currently pointed at the US.  Considering a lot of the soybeans won’t arrive until June or later, it is imperative basis and spreads remain stout to encourage remaining bean supplies to head to the crush plants.  Nothing as of yet to suggest managed funds are willing to abandon well entrenched long positions in the Ag markets with so much growing weather still in front of the market.  Weather forecasts will continue to be the focal point.


Good Luck Today.


HPC 5-1


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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