Outside Markets as of 5:40am: Dollar Index down 0.1570 at 80.4140; Euro is up 0.00260 at 1.36190; S&P’s are up 1.25 at 1910.25; Dow futures are up 14.00 at 16,641.00; 10-yr futures are up 0.05%; The Nikkei closed up 0.07% at 14,681.72; The DAX is down 0.07% at 9,932.44; The IBEX-35 is down 0.50% at 10,703.60; The Russian MICEX is up 1.41% at 1,446.00; Gold is down $5.90 at $1253.80; Copper is down $2.20 at $315.15; Crude Oil is up $0.27 at $102.99; Heating Oil is up $0.0029 at $2.9333; Paris Milling Wheat is up €0.50 at €193.00.
Muted equity markets overnight as most await updated growth and jobs figures out of the US this morning. First up, weekly unemployment claims are expected to decline 8,000 claims to 318,000, reversing part of last week’s 28,000 claim jump. Continuing claims are expected to drop 3,000 to 2.65 million. Next Friday’s payroll data for May is seen adding 217,000 jobs, down from April’s 288,000. Traders are expecting this morning’s first revision of Q1-GDP to be revised lower to -0.5% from the originally reported +0.1%, while Q1 personal consumption is seen inching higher to +3.1% from the first estimate of +3.0%. Pending home sales for April are expected to jump 1.0% m/m, adding to the +3.4% increase witnessed in March. The market is expecting a 250,000 bbl rise in crude oil inventories on this morning’s EIA report.
Quiet Midwest radar this morning ahead of the weekend’s pending storms. The initial rains will impact E-MT/W-ND later today into tonight with additional rainfall hitting W-SD by Friday. The system is expected to track east Saturday into Sunday with N-MN seeing heavy rains of 2.0”+. Totals have been reduced for SD, although Sun-Tue is still seen as producing rainfall for the majority of SD/MN/IA/E-NE with heaviest totals seen in SE-SD and along the MN/WI border with 1.7-1.8” expected. KS is forecast to see another decent shot of rain by mid-week next week, although coverage and placement are uncertain this far out. The major change to the weekend/early week system is a shifting of the heaviest totals north and west to E-ND/N-MN from the SD/ND border. Planting progress will be interrupted in the N. Plains. No major changes to the 6-10 and 8-14 day outlooks from NOAA as of yet.
Don’t call it a bounce, but wheat markets are firmer this morning for what seems like the first time in a month. To be more precise, if July Chicago wheat manages to close positive today, it will be the first higher close in eight sessions and the second higher close in sixteen. Wheat is due for a relief bounce as fundamental data still doesn’t suggest a bottom is in. Harvest is expanding in the south, adding harvest pressure, world FOB values remain sharply cheaper than US stem, cash markets are softer and Black Sea wheat areas are facing less threatening weather than a week ago. On the technical front, July Chicago wheat has retracement support around $6.28 as well as the February highs around $6.24. Otherwise, this looks like a technical bounce in an “oversold” market to use the correct technical parlance of our times. July soybeans are trading back through $15.00, but within recent ranges. Corn charts mirror wheat charts.
Just glancing down the list of world FOB values shows a person how far from being competitive US wheat is. At the close yesterday, French FOB Rouen wheat was offered $244.67-248.76/MT, while FOB Russian 12.5% protein wheat changed hands for Aug/Sep at $258/MT. For comparison purposes, US-SRW CIF put replacement at $249.40-250.50/MT, while 12.0% pro HRW CIF TX-Gulf was offered $322.98/MT FOB. So on a grade-by-grade basis, French wheat is beating SRW by $4-6/MT, while Black Sea wheat of quality is cheaper than US-HRW by $60/MT on a FOB basis. Even Argentine wheat has been coming down in recent weeks with offers last night around $375/MT FOB vs $400/MT 2-weeks ago. Still not competitive, but coming down from the plateau they’ve been on for months. Australia continues to receive rain in most regions aside from Southern Australia and values are following world numbers.
On a side, should be noted the sharp drop in KCBT basis yesterday with all classes of wheat losing 15-25c yesterday alone. 12.0% protein bids were seen at +90/100N vs +115/125N a week ago and +132/142K a month ago. TX-Gulf bids also fell for HRW with those sliding 5c to +143/140N. Expanding harvest and lack of competiveness on the world stage is definitely having an influence. MPLS 14.0% protein wheat on the spot floor was seen yesterday at +125/135N vs +135/150N a week ago.
Reuters ran article two days ago talking about the 9.2mbu of SAM soybeans unloaded or about to unload at US ports. They also said another 12.6mbu is either loading or waiting to load to head to the US. For comparison purposes, the US exported 3.3mbu of soybeans in the latest reporting week, and will crush roughly 28mbu per week Jun-Aug. The SAM imports on the books should get us into July, leaving 6-8 weeks until the next marketing year. When one looks at the imports from this perspective, it becomes clear the level of SAM soybeans heading to the US shouldn’t move the demand needle nearly as much as it will sell headlines. All of the SAM soybeans imported plus those waiting to sail would only replace 2/3’s of one week of US crush. As noted yesterday, C-IL cash crush margins remain about $0.30/bu higher than a year ago, so no slowdown looks imminent if supply can be sourced.
The Rogers Index Fund roll begins today while the Goldman roll begins June 6th. Were it not for these two large indices picking their length off the front end and hurling it at the back end, one would assume corn spreads would be quite a bit better than current levels based on recent CIF trades. Lack of movement anywhere in the system has pushed the river corridor above gross July delivery equivalence, which should be bullish the spread. Yet, hard to want to step in front of 100,000+ contracts being rolled the next 7-10 days.
Export sales are delayed until tomorrow, but weekly ethanol production will be released at 10:00am this morning. It will be important to see production maintain a grind near 920,000bbls/day to feel confident about the USDA’s recently revised estimate.
Bottom Line: Technical bounce for wheat, while soybeans still come to grips with the fact SAM imports won’t totally solve the problem, and we’ve got 2.5 months until the earliest US new crop supplies become available. US wheat isn’t competitive, and it looks increasingly likely we’ve found a bottom in US wheat production estimates. World supplies are developing well, and planting progress in the North remains the only other big unknown. Corn basis and spreads suggest a near-term bottom might be at hand, but at the end of the day corn weather is good and acres won’t be known for another month.
Good Luck Today.
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