Outside Markets as of 5:35am: Dollar Index down 0.0570 at 80.5870; Euro is up 0.00140 at 1.36090; S&P’s are down 2.75 at 1919.00; Dow futures are down 15.00 at 16,707.00; 10-yr futures are down 0.19%; The Nikkei closed up 0.66% at 15,034.25; The DAX is down 0.23% at 9,927.55; The IBEX-35 is down 0.17% at 10,808.80; The Russian MICEX is down 0.92% at 1,450.99; Gold is up $2.20 at $1246.20; Copper is down $3.30 at $313.75; Crude Oil is down $0.08 at $102.39; Heating Oil is down $0.0076 at $2.8697; Paris Milling Wheat is unchanged at €190.25/MT.
European stocks continue to hold near 6yr highs, while the US holds near all-time record highs in the S&P as inflation data shows a weak recovery in Europe. The EU said inflation climbed a weaker than expected 0.5% in May, slower than the 0.7% rise in April. The European Central Bank meets Thursday and is expected to adopt at least one monetary easing measure at their monthly meeting. The most likely is a cut to the refinancing rate. In China, the HSBC purchasing managers index rose to 49.4 in May from 48.1 in April, but remains below the 50.0 contraction/expansion line. In the US today, April factory orders are expected to show an increase of 0.5%, adding to the 0.9% gain in March. May total vehicle sales are expected to edge higher to 16.10 million from 15.98 million in April. March vehicle sales posted a 7-yr high of 16.33 million, which is a positive sign for the US consumer.
A system is working across SW-SD and C-NE his morning, otherwise radar returns are quiet. Additional moisture will flare up later this afternoon and into tonight for the WCB, where E-NE/S-IA are expected to see strong rains of 0.50-2.00” and isolated amounts as high as 3.50”. Some moisture could be in SD, but the focal point of the storm is along the NE/IA border. This system pushes East Wednesday while another even pops in the west in SD/ND/W-NE where totals of 0.25-0.80” are expected. This will be followed later in the week (Fri-Sat) by an event focused on E-KS/W-MO and SD where again totals could be heavy. The 5-day forecasted precip map for all of these systems is included below. 6-10 and 8-14 day maps are starting to show some change finally with below normal temps encompassing the entire Midwest, and precip is beginning to shift down to normal from above the last several weeks. All in all, weather remains pretty ideal for planted crops.
Lower board following yesterday’s mostly lower closes thanks to nearly ideal growing weather, planting progress which is mostly wrapping up, unnerved managed fund longs and a favorably developing world wheat crop. The grain markets are in need of fresh catalyst to stop the bleeding, and the firm cash markets and spreads in corn don’t seem to be doing the job just yet. The crop progress report released yesterday afternoon confirmed the solid start to the year with the corn crop being rated 76% G/E vs 63% last year and would mark the best crop conditions in 7-yrs. The only states below their 5-yr averages are KS, TX, OH and IN. Corn planting progress is estimated at 95% complete, although northern states still show some notable acres left with ND still having 14% unplanted, MN 7%, WI 14%, MI 19%, OH 12% and PA 20%. That would leave 2.811 million acres left in these 6-states..
Soybean planting seems to be chugging right along, and based on the fast start, it would appear some of the aforementioned corn acres are already being planted to soybeans. Nationally, soybeans are 78% planted vs 55% last year and 70% on the 5-yr average. Most northern states are close to averages with only MI showing a decent gap behind average. ND is 63% planted vs 63% average which would hint at acreage switches there. Spring wheat planting progress is 88% complete vs 80% last year and 88% on the 5-yr average. ND made big progress last week with a 23% jump to 83% seeded vs 81% average, although N-MN is 84% complete vs 95% average. National winter wheat conditions held steady at 30% G/E and vs 32% last year. TX improved 2% G/E which likely reflects a bit better yields than expected as harvest gets rolling. Early harvest reports have been showing low yields, as expected, with high moisture and high protein. Sunflower planting in the Dakotas is climbing back to normal with SD at 26% vs 8% last year and 27% average while ND sits at 29% vs 19% last year and 39% average.
Corn basis remains the name of the game with cash having to continue strengthening to try and get any physical bushels to move while the board sinks. Cash traders reported CIF NOLA corn for May traded at +78N on Friday, and was rebid +75N against +80N offer. This is around 15-20c above gross CN delivery equivalence and is behind the strengthening of the CN/CU corn spread to a high of +10.00c during yesterday’s session. Premium strength isn’t limited to CIF with ECB basis strengthening yesterday. Decatur, IL is paying as high as +25N for June corn, Ingredion basis is inverted to July and other ECB rail destinations are firmer. PNW basis closed the week last week 4c better to +104N, and HETX is firm at +82N. The DTN National Corn Basis Index closed last night at -21N vs -37 on April 17th There is not enough corn moving from the farm gate to satiate demand against incredible end user margins. Basis will have to keep firming, and spreads keep rallying to try and stop the board drop or get commercial entities to pitch hedged length. So far, current basis and inversions have not done the trick. The only caveat is the pending Goldman index fund roll which starts Friday which could pressure the front end. A lot of in’s and out’s on this one. Keep your mind limber.
A quick aside, pit traders noted 9,000 CZ14 $3.20 puts traded on the screen yesterday at 0.50c. Will dig into put open interest this evening to see if there are any other big changes.
Some interesting livestock developments worth sharing. The feeder cattle/corn ratio is trading at 42.79 this morning, which would be the highest level since October 2006. In addition, the front-month feeder/live spread hit $54.52/cwt last week, a fresh all-time record high. While this is good for the cow/calf producer, the gains in feeders are outpacing the drop in corn, pushing the continuous cattle crush spread to all-time record lows. This remains a concern for corn demand, although nothing untoward reflecting itself in southern plains corn basis. Something to monitor.
Quite a few changes in Friday’s COT data, but I won’t labor through the entire report now. Worth noting, the small spec has pushed their positions in corn and soybeans to the largest net shorts 8/17/2010 and 4/13/2010, respectively. This while the large spec still holds sizable net longs in both. What do the small specs know the large specs don’t? Fairly sizable index fund buying in Chicago wheat with funds buying 13,701 contracts over the last 8-weeks to push their net long to 147,207 contracts.
Global wheat prices remain a source of pressure with Russian FOB prices for 12.5% protein trading around $258/MT last week while new crop offers are around $262-265/MT FOB. Both would be down $2-5/MT on the week. Pakistan bought 100,000MT of Black Sea wheat for fall delivery between $286-291.50/MT C&F. These prices remains sharply under US replacement. Chicago wheat spreads remain in sharp downtrends, reflecting improving crop ideas and likely getting set to trigger a VSR-storage increase during the next cycle. The DTN National HRW basis index closed last night at -40 vs -20 a year ago. 13/14 unshipped wheat sales total 83.3mbu, the 2nd largest since May of 1995 with the old crop year officially over. We are likely to miss the USDA’s current old crop export target.
Bottom Line: Taken as a whole, crop progress, weather and fund longs all suggest additional pressure in the grains. Cash basis and spreads in corn don’t agree with the selling, but the spec selling is overpowering the commercial buying at current. Wheat harvest is picking up steam, and global values remain well under US replacement. Soybeans can’t move very far from $15.00 given the total lack of rationing evidence. Technicals look tough, and the trends are lower for corn and wheat. Hard to argue with a lower open, although the farmer will remain disengaged at current price levels.
Good Luck Today.
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