Outside Markets as of 5:45am: Dollar Index down 0.0440 at 80.4500; Euro is up 0.00080 at 1.36100; S&P’s are down 1.75 at 1916.25; Dow futures are down 7.00 at 16,674.00; 10-yr futures are down 0.14%; The Nikkei closed down 49.34 at 14,632.38; The DAX is down 0.03% at 9,935.88; The IBEX-35 is up 0.29% at 10,765.60; The Russian MICEX is down 0.59% at 1,438.83; Gold is down $2.80 at $1254.30; Copper is up $1.00 at $315.45; Crude Oil is down $0.38 at $103.20; Heating Oil is down $0.0070 at $2.9127; Paris Milling Wheat is down €0.50 at €191.00/MT.
Mostly easier global equity markets as we limp into the weekend following weaker than expected growth data yesterday in the US. Yesterday the Commerce Department said the US economy contracted by 1.0% in Q1, far worse than the -0.1% initial estimate. Blaming the weather has been the popular thing all spring. In Japan, the yen gained vs the dollar after reports showed Japan’s consumer price index rose 3.2% in April, the highest inflation rate since 1991. Bloomberg ran a story earlier this week which highlighted the collapse in volatility across the major asset classes (stocks, bonds, forex, oil and gold). The average among those assets is now the 2nd lowest on record going back 20-years, bested only by a few days in November 2006. Fine sense of complacency setting in across our various markets.
Pretty quiet radar across the Midwest this morning ahead of the well discussed rain event in the WCB and Northern Plains this weekend. Rain will begin later today across W-SD and ND where heaviest totals look to be as high as 1.70” in NC-SD. Rain will move across the whole area through Monday with 3-day totals in W-NE/NC-SD/E-ND/N-MN approaching 2.50” according to this morning’s models. The system moves east and south early next week bringing a general 0.50-1.00” to many areas of the central/east corn belt. Another system is being touted in days 6-7 which could bring rain to the central and southern plains. Totals look similar to this weekend’s storm in localized areas. Still no change to the greenhouse-esque forecast with above normal temps and precip expected in the 6-10 and 8-14 from NOAA. Below is the current soil moisture ranking from NOAA.
Another day, another lower board with July Chicago wheat looking for its eighth straight lower close and the 16th lower close in 17 sessions. The lack of competitiveness of US wheat with other global exporters was discussed here yesterday, and this morning several news sources are reporting Russia is withdrawing most of its troops from the border with Ukraine. Like it or not, the market has to date seen no evidence of any supply disruptions from either Ukraine or Russia, and their crops do not appear as though a lack of financing will have an impact. Therefore, the market is rightfully extracting the premium we pumped in for that very reason in addition to favorable crops developing around the globe. Add in softer cash markets due expanding harvest in the south, managed funds exiting or going short and terrible technical action and we’ve got the recipe for a market like we’ve seen. One could argue the wheat/corn spread is still too wide with WZ/CZ sitting at $2.00 and KWZ/CZ sitting at $2.72/bu. Those spreads remain seasonally weak into mid-June before bottoming post-harvest. Market still watching HRS planting progress in the north, but this doesn’t seem like enough to stabilize and rally.
Quickly on the topic of acreage in the north, many trying to quantify acreage losses on corn and spring wheat. Most carrying 0.50 million acre loss on both crops in the north which seems as fair as anything. Worth pointing out regardless of the size of the cut, final HRS acres have come in below March prospective plantings 7 out of the last 10 years, suggesting strongly acreage will come down some, especially considering the weather. On corn acreage, however, final planted corn acres have been above March intentions in 6 out of the last 10 years, and soybean plantings have been under March intentions in 8 out of the last 10-years. The aforementioned suggests corn acres could rise, HRS and soybean acreage could fall. That’s looking in the rear view mirror, however.
Weekly ethanol production keeps pumping along with yesterday’s update showing 927,000bbls/day, up slightly from last week’s 925,000bbls/day and the highest production level in six weeks. This was also better than the 899,000bbls/day needed to hit the USDA’s updated ethanol production forecast. The most impressive statistic from the weekly update was on gasoline demand which showed US gasoline demand at 9.31 million bpd for the week ended May 23rd. This was 4% above a year ago, the highest of 2014 and higher than any single week in 2013. This bodes well for the summer driving season we’re about to enter, and certainly puts support under ethanol demand and ethanol margins. As of May 30th, we have no reason to doubt the USDA’s ethanol production forecast, and it could quite possibly be in need of upside correction in coming WASDE reports.
While still on the topic of corn, we’d be remiss without discussing the strength witnessed in corn spreads yesterday and the strength being seen overnight. With cash surging at almost every demand location, the CN/CU has in kind started to rally, hitting +7.50c overnight, the highest level since March 7th. The CN/CZ has pushed to +8.00c, the highest since mid-May. This is due to CIF premiums screaming for corn and river basis now trading 7.8-11.1c above gross delivery equivalence through LH-June. Given those calculations, the CN/CU looks fair priced above 8.0c. The US farmer is not selling corn right now for either old or new crop. He doesn’t like the old crop price, and he isn’t willing to sell new crop until his crop is further along the development curve. If the market wants corn, then basis should rally. Check. After that, spreads should tighten. Check. Last but not least, futures should follow suit and produce a price which engages the farmer to turn palms in. Waiting. Most industry participants don’t think the US farmer reengages until $5.15-5.25 basis July futures on old crop, $5.00 on new crop or until pollination reaches 50%. Stress test short futures deployment given the aforementioned.
Export sales will be released this morning with wheat sales expected at 0-200TMT for old, and 160-500TMT new. Corn is seen at 300-600TMT of old crop, 50-400TMT new. Soybeans at -100/+100TMT old and 300-900TMT new. Soymeal sales are expected at 50-160TMT old, and 75-220TMT new. Soyoil sales are seen at 10-25TMT old and 0-10TMT new.
Following is a link to yesterday’s episode of the Agweb.com radio show “Market Rally” with Chip Flory in which he and I discuss acreage, soybean demand and world wheat dynamics. http://www.agweb.com/multimedia/market_rally/
Bottom Line: Lower open to cap off what has been a lower week for our grain markets. Week-to-date, July Chicago wheat is down 22c, July corn is down 9c and July soybeans are down 17.75c. Weather remains the largest fundamental driver with corn developing well, soybeans possibly gaining acreage and HRW estimates bottoming. Corn demand remains robust, however, and the cash markets are suggesting we shouldn’t press futures any lower than current levels. Positive trade in corn wouldn’t be a surprise considering the signals basis and spreads are throwing off. Old and new crop remain two divergent stories in corn and soybeans, and being short old crop isn’t something I want to be a part of at current levels.
Good Luck Today.
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