Outside Markets as of 5:30am: Dollar Index down 0.1560 at 80.2370; Euro is up 0.00250 at 1.36510; S&P’s are up 8.75 at 1905.75; Dow futures are up 73.00 at 16,659.00; 10-yr futures are down 0.04%; The Nikkei closed up 0.23% at 14,636.52; The DAX is up 0.33% at 9,925.42; The IBEX-35 is up 0.30% at 10,720.00; The Russian MICEX is down 2.46% at 1,413.66; Gold is down $8.30 at $1283.60; Copper is up $0.55 at $317.30; Crude Oil is down $0.27 at $104.08; Heating Oil is down $0.0140 at $2.9409; Paris Milling Wheat down €1.75 at €191.00.
Weekend elections in Ukraine saw the election of Petro Poroshenko, the West’s preferred candidate, but this didn’t bring a unified Ukraine. Ukrainian troops killed dozens of rebels, and began airstrikes in certain locations. Poroshenko has a fortune of some $1 billion according to Bloomberg. In the US this week, there will be seven appearances by Fed officials, $96 billion of T-note auctions and today’s durable goods orders which are expected to show a decline of -0.7% and -0.1% ex-transportation. Increases of 2.5% headline and 2.1% ex-trans were witnessed in March. Today also sees May US consumer confidence which is expected to be up 0.7 to 83.0.
Several systems on the radar this morning including widespread rain in E-TX, and scattered showers in the upper-Midwest and Great Lakes. The long awaited rain event in the southern plains came through over the weekend with best totals recorded in C-TX where as much as 6-8” fell locally. Most areas saw the rain forecasted, although W-KS/E-CO looks to have been left a little light based on the radar return maps shown below. Overall, the rains will be welcome for fall crops and cotton, although benefit to the wheat is uncertain. It didn’t hurt, that much is for sure. Shower activity will continue this week with several systems forecast. The best rains for the Midwest will occur in the central/east corn belt and the Northern Plains where ND could see up to 3.2” in the southern part of the state over the 5-day run. 6-10 and 8-14 days maps still show above normal precip and temps for the Midwest.
Ugly evening session for the Ag markets following the long Memorial Day weekend with July KC wheat working on its 8th lower session in the last nine days. Soybeans are seeing the largest nominal losses, but price remains well inside recent ranges with uptrends still intact. Planting progress should have rolled hard for areas up against PP dates over the weekend and later this week, but areas already completed are seeing nearly ideal conditions across the major corn producing states. Planting progress on tonight’s report is expected between 88-92% on corn vs 87% average, and soybeans are expected at 55-65% vs 54% average. Spring wheat progress will be watched closely as well with PP dates approaching and ND only 25% planted as of last Monday. 2013’s slow spring had 55% of the crop planted as of last week. How the rain impacted the HRW crop will also be of interest on the condition score.
Paris Milling Wheat continues to trade under heavy pressure and is now down to the lowest level since February. Over the weekend it was reported France’s soft wheat crop is rated 75% G/E vs 67% last year, and 76% of the crop is heading which is about a full week ahead of average. Combine this with the fact Paris/KC spreads are still trading near the largest discount in 2-years and it isn’t difficult to see the kind of export year it’s shaping up to be. On a side, new crop wheat sales as of mid-May now total 129.9mbu, the third largest of the last 5-years and heavily favor HRS at 45.7mbu. With current inter-market cash spreads and expected production distribution, HRS sales could see a big advancement in 2014/15.
Friday’s COT data confirmed the price trend of the last week with substantial selling witnessed in both corn and Chicago wheat. Large specs sold 55,865 contracts of corn last week, taking their net position down to 145,237 contracts, the smallest since March 11th. In Chicago wheat, funds sold 17,261 contracts to flip their net long to a net short of -13,856 contracts, the largest short position in 9-weeks. The old crop demand story for corn and soybeans has kept funds interested in Ags with large long positions, but the ideal growing conditions for new crop was going to make at least a partial exodus only a matter of time. One only needs to go back 4-5 months to a time when funds were wielding a 150-200,000 contract net short position in corn and a -100,000 contract short in Chicago wheat to see how quickly positions can reverse when sentiment turns. The current chart picture for December corn and July Chicago wheat aren’t going to make any fund feel comfortable with their current positions. Major chart damage was inflicted last week with little for substantial support for another 10-20c.
Worth keeping an eye on this week will be the 3.5MMT of corn set to be auctioned from state reserves in China on May 29th, as well as the 300,000MT of soybeans which were to be auctioned today although I haven’t seen any results yet. Over the weekend, one prominent mid-south researcher released their updated balance sheets and maintained their 94mbu carryout for soybeans citing a crush and export pace that is simply unsustainable. The USDA’s latest 13/14 soybean carryout projected was 130mbu and a 3.8% stocks/use ratio. NOPA’s latest member crush data for April showed the daily rate of US soymeal consumption was 83,000 tons, which was slightly larger than February and March and well above last year’s 78,000 tons. With record livestock prices, meal rationing is proving more difficult in 2014. Last year, July soymeal ended up rallying to $535.50 by expiration, and it is difficult to see how we will accomplish this rationing task with lower meal prices and higher livestock feeding profitability. It would appear old/new inverses and outright flat price performance to the upside isn’t over just yet.
On the week, CIF corn premiums were down 2-5c, PNW firmer by 5-8c and Argentine corn premiums firmer. Argentina’s harvest continues to be hampered by wet weather with only 31% of their crop harvested vs 71% average, while soybeans are 70% harvested vs 93% last year. Their March corn exports were only 620,000MT, the smallest March since 1995. Quality concerns will also begin showing up. Brazilian soybean premiums were softer w/w as farmers sell into the rally. Spot beans are around -33N, with Argentina at -25N. CIF SRW was 3-5c firmer w/w.
Bottom Line: Soft start to the week for our Ag markets as we battle large fund long positions, excellent crop weather for what’s planted, expanding southern plains harvest and a poor technical outlook. Our markets need to give the funds a reason to defend their positions in corn and wheat or else another leg lower looks inevitable. We are very much in weather markets, but right now the weather is ideal. Don’t lose sight of marketing objectives just because of a rough few sessions. They don’t call this the silly season for nothing.
Good Luck Today.
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