5/21/2014 Morning Comments

Good Morning,


Outside Markets as of 5:45am: Dollar Index down 0.0810 at 79.9590; Euro is down 0.00040 at 1.36920; S&P’s are up 3.75 at 1871.75; Dow futures are up 3.00 at 16,371.00; 10-yr futures are down 0.06%; The Nikkei closed down 0.24% at 14,042.17; The DAX is up 0.14% at 9,652.56; The IBEX-35 is up 0.23% at 10,477.60; The Russian MICEX is down 0.14% at 1,423.64; Gold is down $0.90 at $1293.70; Copper is down $2.40 at $312.10; Crude Oil is up $0.70 at $103.03; Heating Oil is up 0.0062 at $2.9521; Paris Milling Wheat is unchanged at €199.75/MT.

Easily the biggest financial market news overnight was the deal reached with Russia and China agreeing to a long-term natural gas contract by way of a new pipeline.  The contract agreement is for Gazprom to supply 38 billion cubic meters of gas annually over the next 30-years, although the major sticking point in the decade worth of talks , price, wasn’t discussed.  Gas will start to flow in four to six years after the construction of the $22 billion pipeline linking Siberian fields and China.  The agreement was reached on a state visit by President Putin to China.  Given Russia’s poor state of financial affairs as of late, I wonder if Russia requested any form of down payment?  China would certainly seem to be the winner of the whole Ukraine/Russia situation.  Today will see the release of the minutes from the April 29-30 FOMC meeting with investors looking to see if the committee began discussing its eventual exit strategy from its five years of non-standard monetary policy.

Not much in the way of moisture on the radar this morning with many looking forward to the weekend rain event, especially farmers in the southern plains.  The map below shows the 7-day forecasted precip map, and while the totals might be a bit exaggerated, this event could be the best chance of moisture in the southern plains in months if not years.  The majority of the rain will begin tomorrow into Saturday, while another round moves in early next week.  Other than delayed progress in the north, the forecast for those with planted crops is proving nearly ideal.  Moisture is expected to remain above normal, and temps are moving to above normal as well providing heat and water to emerging crops.  This fact will not be lost on the markets, aside from the uncertainty of PP acres in the north.  While difficult to have much faith in at this point, the 3-month outlook from NOAA released 5/15/14 is calling for normal/below temps for the Midwest with a cooler bias for SD/MN/ND, and normal/above precip with the above biased over NE/SD/WY/CO/UT.  Again difficult to have much faith in, but worth keeping track of.  No changes to note in the Black Sea forecast.


Mixed overnight trade in the grains with wheat and corn softer while soybeans are posting 5-8c gains.  The feature yesterday was the sharp price reversal in wheat, and to a lesser extent corn, as the session wore on with wheat contracts closing in the red despite 10-15c gains earlier on in the day.  Pick your reason on the reversal: southern plains moisture, beginning of wheat harvest in the far south, favorable conditions in Europe, managed fund long in wheat, etc.  More than likely a combination of all three and a realization that with the recent Egypt and Iraq tender business, the US is so far out of the market we might be doing too good of job rationing demand.  The real question with the discussed moisture event in the southern plains is will it do any good, and will it cause quality issues in the already mature wheat?  KC wheat continues to correct against MW and W.

Overnight, China released April import data which showed wheat imports at 373,606MT, up 83% y/y and the Jan-Apr period up 147% y/y.  The US shipped no wheat to China in April, but Aussie and Kazakhstan imports were higher vs a year ago.  Corn imports from the US totaled 8,508MT, down 97% from a year ago, with Jan-Apr imports down 39%.  Ukrainian corn imports were 50,300MT, up sharply while YTD they’ve shipped 243,787MT.  Soybean imports also chugged along with total April imports at 6.502MMT, up 63% y/y and Jan-Apr imports of 21.8MMT up 41% y/y.  Brazil supplied 3.949MMT, up 70% in April, while the US sent 2.523MMT, up 53% y/y.

One important feature worth noting is the recent run to all-time record prices in poultry, joining pork and beef to give the US consumer record meat prices in all three major categories.  The US National Composite Weighted Average Broiler price hit $1.167/lb last week, the highest on record and more than double the price from the early 2000’s.  The Financial Times ran an article earlier this week talking about the sharp increase and the scarcity of egg whites with egg whites now commanding a higher price than yolks for the first time in years.  When one stops and thinks about it, this makes sense considering every fast food chain in America is now offering some form of breakfast including Taco Johns and Taco Bell.  The low-cholesterol egg white sandwiches have become a mainstay on breakfast menus.  Truly interesting we’re raising the price of the entire meat spectrum from the highest end choice beef cut, to the lowest priced egg white sandwich at McDonald’s.  Either way, broiler profitability is at record highs, and the expensive meat prices should ensure continued demand for feed products to finish these various animals.  Won’t be an consolation for the consumer, however.

Corn basis off the west coast keeps firming with May-Jul corn shuttles now worth +97N vs +87/89/92N a week ago.  FOB UP Grp-3 rail basis has improved 6c w/w, and HETX basis is now +76/81/82N for MJJ vs +76N for MJJ a week ago.  Cheap ocean freight, weak rail freight and weeks of depressed basis levels seem to be helping corn find a home on the export market.  CIF corn bids are largely unchanged to maybe a skosh weaker with spot boats called +59/63N.  New crop soybean bids continue firming, and for good reason with the recent Chinese buying for 14/15.  PNW soybean shuttles are now bid +153/150/146X/F for OND vs +143/143/140X/F a week ago.  Gulf bids could be called 3-6c better.  Start that program back up.  Pro scales on KCBT are a mixed bag with lower pro weaker and higher pro firmer w/w.  Minneapolis 14.0% basis is firmer by 5-10c w/w.

There are a few troubling observations in the corn market, similar to wheat before its recent plunge.  For starters, the recent COT data has showed a real slowing in large spec buying with the group sitting on a net long of 201,102 contracts.  This would compare with the 6-year average of 105,650 contracts.  In the options pit, sizable put buying has been witnessed with the 480 puts open interest rising 27% over the last two-weeks to 14,122 contracts.  What’s more, implied volatility has been dropping as price has come off the highs, falling from over 30% at the end of March to 21.74% yesterday afternoon.  This shows little excitement about the easing prices.  In addition, On-Balance-Volume, which is a cumulative running total of up-day volume vs down-day volume has dropped to -657,118 contracts, the lowest level since 12/10/13, and really the first time we’ve gone negative since price bottomed in January.  This essentially says the volume on down days has overtaken the volume on up days which highlights the stronger resolve on those lower days.  Combine all of the aforementioned with favorable weather forecasts and the stage isn’t set for managed funds to increase their long exposure.  If they begin paring their long position, and farmers begin to feel more comfortable with their new crop prospects, one has to wonder who is going to be there to buy?  Of course, with December corn nearing the $4.60 spring guarantee price, farmer selling could begin to slow with the government put nearing ITM status.

EIA data at 9:30 with ethanol production data to be watched closely to see if the 929,000bbls/day level needed is achieved.


Bottom Line:  Mixed markets to get going with weather forecasts continuing to be the focal point.  Lots of questions need to be answered in regards to the southern plains moisture: will it do any good?  Will it cause farmers to rip up wheat and plant something else? Will it cause quality problems?  Time will tell.  Otherwise the old crop story remains supportive for corn and soybeans, while new crop months should continue to feel pressure from nearly ideal forecasts.  The market is still searching for that tipping point from old crop to new crop.  We’re not there yet as evidenced by soybeans.


Good Luck Today.


HPC 5-21


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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