Outside Markets as of 5:30am: Dollar Index up 0.0430 at 80.0360; Euro is down 0.00120 at 1.36990; S&P’s are down 2.00 at 1880.25; Dow futures are down 14.00 at 16468.00; 10-yr futures are up 0.02%; The Nikkei closed up 0.49% at 14,075.25; The DAX is down 0.19% at 9,640.72; The IBEX-35 is up 0.14% at 10,440.60; The Russian MICEX is up 0.04% at 1,414.38; Gold down $1.30 at $1292.50; Copper is down $0.95 at $315.75; Crude Oil up $0.11 at $102.22; Heating Oil is up $0.0022 at $2.9431; Paris Milling Wheat is up €2.50 at €199.75/MT.
Lightly mixed global markets this morning, but European sovereign bond prices continue to find themselves under a fair amount of pressure. For most of 2014, Eurozone periphery debt, like that from Greece, Italy, Spain and Portugal, has enjoyed a very strong start with many of the aforementioned yields trading to decade or even historic lows. Many investors scratched their heads at this considering we are barely removed from the European debt crisis. Most of the former PIIGS are still skating on very thin ice, garnering much of their strength from ideas of continued monetary easing by the European Central Bank. Former Russian President and current Prime Minister Dmitry Medvedev told Bloomberg Russia and the West are slowly moving toward another cold war as sanctions continue to be ratcheted up. Ukrainian Presidential elections will take place later this week.
Scattered showers across the Great Lakes Region this morning, otherwise mostly quiet across the Midwest. Most moisture will be confined to the eastern corn belt the next couple of days before the long awaited moisture arrives in the central/southern plains Friday. In the first round of showers, a general 0.25-0.50” is expected to fall across KS/NE/Panhandle/N-TX, but the heavier moisture comes over the weekend. The 7-day forecasted precip map is below with the majority of the moisture in the Plains falling Friday night through Monday. No matter what the stage of the crop is, the moisture will be welcome for an area witnessing its third year of drought. NOAA’s 6-10 and 8-14 day maps are finally beginning to show widespread above normal temperatures across the Midwest which will be well timed for improving emergence. Precip looks to remain above normal which will be ideal for planted crops.
On the global weather front, there continues to be discussion on the blocking pattern setting up over the Commonwealth of Independent States (CIS), including parts of Ukraine, Kazakhstan and parts of Russia. Models haven’t been updated this morning, but yesterday’s analysis showed the blocking pattern remaining in place for the next week to ten days which will follow dry conditions which have been in place for months in some of these areas. Highest temperatures will be seen in Kazakhstan with 90’s to near 100 degrees. There are chances for rain in the Black Sea region next week, which could provide relief for some of the aforementioned areas. I don’t think the situation is at a critical breaking point just yet, but it should be monitored as wheat moves through its development stages in some of the countries.
Relief rally overnight in wheat and corn while soybeans continue to add to their impressive gains yesterday. The sharp midsession rally yesterday in the complex had many fundamentalists scrambling as domestic and export cash markets appeared rather steady yesterday. Some mentions about frost on early planted beans last week were made, although this didn’t fit with the front-end led strength. Likely a combination of large spec buying, and possibly a bit of Chinese pricing. One of the next big features will be the index fund roll during the first week of June in which index funds will be rolling a large portion of their 144,679 contract net long in soybeans. Add to it the 83,132 contracts held by the large spec , and there is plenty of reason to watch the SN/SQ and SN/SX in coming sessions. CIF NOLA soybeans largely steady yesterday with spot boats called +73/85N. One market observer did mention analytic firm Informa was now using a 94mbu old crop soybean carryout which is obviously untenable. Informa doesn’t believe the carryout will get that small, simply that imports and inverses will have to make sure it doesn’t happen based on current exports and crush margins.
Crop Progress report out yesterday afternoon with most of the numbers coming out as expected with corn planting progress pegged at 73% complete vs 76% average, and solidly above last year’s 65%. Largest laggards continue to be ND/MN/WI/MI with an estimated 11 million unplanted corn acres in these four states. Soybean planting progress was estimated at 33% vs 38% average and 21% last year. ND is 5% vs 25% average, MN at 16% vs 45% average, WI at 16% vs 45% average and MI at 8% vs 26% average. Spring wheat planting jumped to 49% complete vs 64% last year and 68% on average. Solid progress was made last week in the north, although weekend showers likely slowed progress. ND is 25% planted vs 55% average, and MN is 20% planted vs 72% average. All other states are near averages. Spring wheat can be planted into June, but obviously that’s not ideal. Tough call on HRS acreage.
Winter Wheat conditions slipped again this week with the national rating falling 1% to 29% G/E. Largest declined were witnessed in NE (-7%) and SD (-5%). Conditions are now solidly below 2013 and 2011 and are the lowest since 1996. National winter wheat heading progress was estimated at 57% vs 44% last week and 58% average with TX at 89%, OK at 96% and KS at 71%. The question now becomes with the southern plains wheat already heading out, what will the below moisture actually accomplish? Headed wheat has its yield potential already determined. Russian spring planting is progressing normally with 64.2% of total planned area planted. Spring wheat planting is 50.7% complete on 6.7 million hectares which is 2.2 million more than year ago. Spring acreage is expected to be up 1.7% y/y with the Ag Ministry using a grain harvest of 97MMT which would include recently annexed Crimea.
Began looking at Black Sea production and export estimates yesterday given the aforementioned blocking pattern, although much is conjecture at this point given dependency on weather forecasts. Nonetheless, while qualms can be made about Ukraine and Russia, the real country worth focusing on seems to be Kazakhstan, even though much of their wheat production isn’t harvested until August-September. They’ve been receiving 50-80% of normal precip for months, yet the USDA is still penciling KAZ wheat production at 14.5MMT vs 13.94MMT last year and 9.84MMT the year before. A few MMT difference in Kazakhstan isn’t going to upset the world wheat balance sheet, but the entire region begs attention. The Black Sea is the low cost supplier to MENA, and trade flows out of that region have far reaching consequence. Near-term weather forecasts are especially important.
No change to the global corn export situation with the US remaining the cheapest FOB source through July. CIF NOLA corn is pegged at +65N for JJ, while Argentina sits at +90N for June, +72N for July and Brazil is +70N for July and +60U for August. PNW and HETX corn basis continues to slowly improve, although corn spreads have been in a downtrend the last week which isn’t a fundamentally bullish input. CN/CU is trading at +1.75c overnight vs +7.00c on the 12th, and the CN/CZ is now at +1.25c vs +10.5c on the 12th.
Bottom Line: Expect firmer markets today for the duration as wheat and corn bounce from depressed levels in technical fashion while soybeans continue to struggle with their impossibly tight balance sheet. Market participants will be watching the southern plains rains closely this week as to what it means for overall production figures. The corn market is now close to 75% planted by May 20th, and ahead of last year with better weather to date. The northern plains states will remain a sticking point as farmers weigh switching crops, PP and continuing to plant. Plenty of wrinkles to get through the next 6-weeks, but old crop corn demand remains robust, soybeans are tight and the wheat situation is still playing out, both in the US and abroad. Stress test your marketing plans against current levels and +/- 50c to see what 2014 looks like, and do it often.
Good Luck Today.
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