5/5/2014 Morning Comments

Good Morning,

 

Outside Markets as of 5:45am: Dollar Index down 0.0130 at 79.5000; Euro up 0.0001 at 1.38710; S&P’s down 7.25 at 1867.25; Dow futures are down 60.00 at 16,387.00; 10-yr futures up 0.13%; The Nikkei closed down 0.19% at 14,457.51; The DAX Is down 1.36% at 9,425.71; CAC 40 is down 1.11% at 4,408.76; The Russian MICEX is down 0.96% at 1,292.36; Gold is up $11.80 at $1314.70; Copper is down $1.00 at $306.00; Crude Oil is up $0.47 at $100.23; Heating Oil is down $0.0019 at $2.9204; Paris Milling Wheat is up €2.50 at €217.75.

 

Global equity markets are kicking off this week on a lower note following weaker than expected manufacturing data out of China.  The HSBC Index of Chinese manufacturing rose by 0.1 point to 48.1 in April, below estimates of 48.4 and the preliminary level of 48.3.  Readings below 50.0 point towards economic contraction.  Fed chair Janet Yellen will speak before the Joint Economic Committee of Congress Wednesday, and 74 companies of the S&P 500 report earnings this week.  So far 68% of the companies have exceeded earnings estimates, beating the 63% long-term average.  The situation in Ukraine didn’t get any better over the weekend, and President Obama and German Chancellor Merkel on Friday gave Russia a deadline of the Ukrainian elections on May 25th to back off on Ukraine or they would launch “stage three” sectoral sanctions against the Russian economy.

Scattered precip falling across several of the Great Lakes states this morning after weekend moisture fell in MT and upper-Midwest.  Zero moisture fell south of I-70, and temperatures yesterday in many spots in OK/TX hit 100*.  Wichita, KS broke its record for earliest date hitting 100* by almost a month according to several weather gurus.  100’s will be present in TX again today with widespread mid to upper-90’s in OK/KS.  The 90’s/100’s will be present through Tuesday before moderating slightly.  Most of the corn belt will see 70’s and 80’s with fairly open weather until the next batch of moisture moves into the upper-Midwest Tuesday into Wednesday.  Fieldwork will then be impacted in the western corn belt mid-week before rain moves into the central belt Thursday-Saturday.  Big progress should be made until then.  Extended maps looking drier for much of the Midwest.  Eastern HRW areas have chances of moisture later in the week, but dry western and southwestern areas look to miss the majority of this week’s precip.

 

Sharply higher out of the overnight gate led by wheat markets as Chicago jumped 25c at the highs before easing to hold 10-12c gains this morning.  After freezing temps Thursday/Friday in the southern plains, wheat country saw temps soar over 100* this weekend to effectively scorch whatever crop was still left. The map below from NOAA shows how many days areas in OK/TX have gone without significant rain, and it pretty much tells the story.  In addition, tensions over the weekend in Ukraine suggest the fighting is nearing one of Ukraine’s major grain-export ports of Odessa which had been the fear all along.  Financing is also said to be harder to come by for Ukrainian farmers, but that will be more of a concern for corn and sunflowers.  The market was also armed with the KS wheat tour results which showed the state’s crop at 260mbu, the lowest production estimate since 1996.  The average yield was estimated at 33.2bpa, the lowest since 2001.  All of the wheat contracts have now broken above their March highs, and several have left gaps on daily and intra-day charts.  Close only charts won’t look as impressive considering how far off the highs we’re currently trading.

The aforementioned are all supportive reasons for the wheat market, although there are several bearish factors working against wheat right now as well.  For starters, Friday saw wheat deliveries at all three major exchanges including 135 KC wheat by ADM and Cargill.  Minneapolis continues to see deliveries and re-deliveries with no strong commercial stopper.  Domestic basis levels have been declining as wheat futures continue to rally, in-keeping wheat deliveries and showing physical wheat has softening demand even if paper wheat is in high demand.  World production areas are also enjoying very favorable weather as evidenced by the fact US wheat futures continue to gain on Paris Milling Wheat while Europe enjoys good growing weather.  KC wheat has now overtaken Paris by $7.03/MT, and is trading at the largest premium to Paris since October.  This has in effect made US wheat uncompetitive to Egypt as well as Latin America.  We will also get grain stocks data as of March 31st from StatsCan today which analysts think will show all wheat at 21.5MMT, the largest since 1994 and up 49% from last year.  Also, wheat/corn spreads are hitting new life of contract highs with KWZ/CZ pushing over $3.50/bu last night.  This should effectively reduce wheat feeding to 0, and be reflected in updated balance sheets later this week when WASDE unveils their first 14/15 marketing year estimates.  Lastly, several traders have expressed doubt about the current demand estimates for the world balance sheet.

Weekly crop progress reports will be watched closely this afternoon with 5-yr average corn planting progress estimated around 40%.  Seems like the market is looking for something around 25-30% thanks to the wet weather last week.  Despite that, the market doesn’t seem real concerned about the US farmer getting the corn planted given his ability to plant corn quickly.  The delays in spring wheat seeding in ND/N-MN also seem to be hinting at ideas of more soybean acres there, but time will tell.  Commitments of Traders data released Friday showed large specs back to being net long 200,543 contracts of corn, and have erased their net short position in Chicago wheat to flat there.  Worth noting, on the wheat rally, the gross commercial long (end users) have sold wheat, taking their position to long 57,256 contracts, the smallest since 12/13/2011.  Not very comforting when the “smart money” isn’t panicking and buying wheat.

Soybean market still grappling with ideas of distressed Brazilian soybeans trading into the US-Midwest.  Based on cash traders quotes, Brazilian soybeans shouldn’t yet be working in IA/IL/IN crush centers by about 20-40c depending on ocean freight quotes.  Still, between what’s landed and in the lineup, total imports on the books to date look like something around 420,000MT, or about 15mbu.  The USDA is likely to take marketing year soybean imports up another 10-20mbu to continue making the balance sheet work.  Export inspections data will be watched closely today to make sure we’re still on track to hit the USDA’s objectives.

 

Bottom Line: Firmer grains and oilseeds to begin the week as traders continue to grapple with a shrinking US wheat crop, but an increasing world crop.  Corn planting is occurring when and where it can, and enough progress is being made to keep the market from hitting the panic button just yet.  Soybeans remain tight on old crop, but might be picking up acres in the north thanks to the weather.  A wise trader once said “farmers should like $6 corn, $8 wheat and $12 beans.”  Well we’ve got two of the three on the board right now.  Stay nimble.

 

Good Luck Today.

 

Days SInce Rain 5-1

 

 

Tregg Cronin

Market Analyst

Tregg.Cronin@halocommodities.com

www.halocommodities.com

@5thWave_tcronin

 

 

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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