5/12/2014 Morning Comments

Good Morning,


Outside Markets as of 6:15am: Dollar Index down 0.0530 at 79.8500; Euro up 0.00130 at 1.37580; S&P’s are up 7.25 at 1880.75; Dow futures are up 57.00 at 16,582.00; 10-yr futures are down 0.10%; The Nikkei closed down 0.35% at 14,149.52; The DAX Is up 0.93% at 9,670.87; The IBEX-35 is up 0.54% at 10,543.60; The Russian MICEX is down 0.03% at 1,370.96; Gold is up $7.60 at $1295.20; Copper is up $6.60 at $314.90; Crude Oil is up $0.44 at $100.44; Heating Oil is up $0.0237 at $2.9305; Paris Milling Wheat is down €2.75 at €204.50/MT.

Global equities are mostly firmer to start the week despite renewed tension in Ukraine after Pro-Russian forces in eastern Ukraine declared victory in a disputed referendum Sunday.  The referendum vote for independence was conducted amidst chaotic and sometimes violent conditions, rendering its outcome next to useless, but these facts didn’t provide Ukraine any solace. The political farce increases the chances the US and Europe could unleash another round of sectoral sanctions, but markets don’t seem too concerned today.  The Bloomberg Economic Surprise Index reached a 3.5 month high on Thursday of 0.092, showing better than expected data as of late.  Data points in the US this week will include April Retail Sales (+0.4%), The May Empire Manufacturing Survey (+4.7-6.0), April Housing Starts (+3.7 to 981,000) and Consumer Confidence (+0.4 to +84.5).  John Deere reports earnings Wednesday.

Rain over the weekend and more rain this morning across Midwest growing areas as fieldwork is pretty much at a standstill from one of the corn belt to the other.  Over the weekend, multiple states saw 1.0”+ totals fall with a big portion of KS receiving solid rainfalls and milder temperatures.  W-NE even saw snow last night and this morning.  Rainfall the next 5-days will be heaviest in the eastern corn belt where totals as high as 1.5-3.0” is expected to fall.  The WCB will be a bit drier, but still has chances of intermittent showers through mid-week.  No real heat to speak of like many states would like to see, although temps in the southern plains will moderate nicely with the highest temperatures in TX the next 5-days in the 80’s to lower 90’s while KS sees mainly 60’s with a few low 70’s.  In driving from C-SD to the Twin Cities over the weekend, definitely a lot of planting and fieldwork left to accomplish.  ND/SD/MN is in need of heat and a lack of rain for about 7-10 days to get caught up.  Below normal temps remain the feature through the 6-15 day period for the upper-Midwest.  Precip is mixed.


A wild overnight open for wheat last night which saw a 22c range within the first 15 minutes of trade thanks to better than expected rainfall in KS over the weekend, milder temperatures this week and the realization from Friday’s USDA data the world isn’t running out of wheat even if the US crop is small.  Corn and soybeans have seen both sides through the evening with USDA data still being digested by market analysts.  The one theme resonating with the trade, however, is Friday’s data was very heavy on forecasts and rather light on reality.  Weather is the most important feature moving forward, which is why tonight’s crop progress report will be a focus for corn, bean and wheat planting.  US corn planting progress is expected to be near 55-60% complete tonight vs 55% on the 5-yr average thanks to huge progress in the central belt before the rains.  Bean planting is expected between 15-20% vs 23% avg.

Wasn’t a great deal of weekend news besides the Ukraine situation and the concern over a disruption of exports.  Again, to-date, there has been no disruptions to trade flows to speak of.  While much of the WASDE data has already been analyzed, there are a few points worth sharing.  Obviously the big headline surprise was 13/14 corn ending stocks at 1.146bbu vs the average trade guess of 1.314bbu.  The USDA took the very aggressive stance of increasing exports 150mbu to 1.900bbu.  While doable, the burden of proof is now squarely on the market as sales need to average 12.5mbu a week and shipments need to average 41mbu a week.  Over the last 33-years, only 5-years saw shipments average over 40mbu from May-August.  It should be noted, however, commitments and shipments to this point are tracking 2009/10 pretty closely, a year in which we saw exports eventually total 1.979bbu.  The bump in ethanol production of 50mbu is also going to need weekly production to average 929,000bbls/day vs the previous 3-month average of 901,000bbls/day.  With feed left unchanged, it feels as though the old crop corn balance sheet got as bullish as it possibly could which begs the question of what’s left to rally us further?  World corn ending stocks of 187MMT are the largest since 1999/00.  Hard to argue with the 14/15 balance sheet too much at this point, although few analysts are using the USDA’s record setting yield of 165.3bpa, instead opting for something closer to 163.0 which shaves 150mbu.

One other note on corn, as has been noted in this space as of late, corn basis really isn’t reflecting the tightness illustrated in the balance sheet which is one more reason to be skeptical of the new S&D numbers producing another round of new highs.  Keep an eye on the CN/CU and CU/CZ for clues as well.

On wheat, the winter wheat production number obviously stole the show, coming in at 1.403bbu, 65mbu under the average trade guess.  KS production was estimated at 260mbu, the smallest state-wide crop since 1996 and the third smallest crop since 1968.  The projected 14/15 carryout of 540mbu would be the smallest since 2007/08, although many are taking issue with the 170mbu feed/residual estimate considering the 10-yr average on wheat feeding is 198mbu and wheat/corn spreads are hitting multi-year highs.  In the world picture, supplies are more than adequate so far, although a lot of growing weather remains in front of the market.  The troubling thing for a lot of folks is the fact the winter wheat production number was such a bullish surprise, but spreads didn’t react in-kind.  The KWN/KWU traded weak Friday and overnight, pushing down to -5.25c this morning.

The USDA did what they had to in order to make the soybean balance sheet work thanks to record imports of 90mbu.  This will prove a tall task over the next four months, with several analysts slow to adopt the USDA’s large import forecast.  Nonetheless, this week will see April NOPA crush which will give us a clue as to whether the USDA’s crush forecast of 1.695bbu is low or high.  Exports at 1.600bbu are probably still too low considering commitments are near 1.640bbu and widespread cancelations have yet to take place.  On new crop, almost no one is comfortable with the USDA’s current yield assumption of 45.3bpa.  The current record yield occurred in 2009/10 which was 44.0bpa.  Since 2009, not a single year has been over 44.0bpa, let alone 45.0bpa.  Nonetheless, supplies have the potential to swell dramatically if all of the 81.4 million planned acres actually get planted.  Combined with large SAM production, world soybean ending stocks are set to hit 84.2MMT in 14/15, which would be a 29.0% stocks/use ratio, both of which would be new all-time records.

On the export front, US corn remains the cheapest world FOB supply through July by $2.76-3.94/MT under both Brazil and Argentina.  Brazil is the cheapest source in August by $4.72/MT.  DDGs exports in March totaled 1.2MMT, a new all-time record with China accounting for 50% of the total.  Despite the cancelations of US corn, China seems to be replacing it with DDGs and sorghum.  Still need feed grains it would appear.

KCBT wheat basis was sharply weaker on the rally Friday with all protein grades lower by 5-23c.  The discount of 13.0% HRS to 13.0% HRW is now $0.46/bu which is the largest discount since 1995.  This should start to resonate with world buyers such as Brazil and Nigeria, although it takes time for world flour mills to switch grinds just like it does US mills.  More chatter about European wheat working into Mexico and the US over the weekend with those supplies around $30-40/MT cheaper than US replacement.  US supplies are definitely small, but there isn’t much else for wheat bulls to hang their hats on right now with bearish charts, cheap global supplies and wheat/corn spreads sitting at historic lows.  The break overnight seems to suggest the rally is running out of steam without further impetus.


Will take a closer look at COT data and charts tomorrow, but suffices to say specs still loaded up in the grains yet selling their position in soybeans.


Bottom Line:  Weaker trade to begin the week as traders realize the Friday print in US wheat production might have factored in a worst-case scenario, planting progress isn’t as far behind as it was a couple weeks ago and specs remain quite long in the grains.  Weather is still the most important factor right now, and provided the crops get planted, moisture isn’t a bearish feature long-term.  The ebb and flow of soybean imports and exports will also remain a headline grabber.  Technicals are looking heavy for many contracts to start the week.


Good Luck Today.


RFC 5-12


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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