11/19/2014 Morning Comments

Good Morning,


Outside Markets as of 6:15am: Dollar Index up 0.0850 at 87.6590; Euro unchanged at 1.25370; Japanese Yen off 0.61% to 117.59; S&P’s are up 0.50 at 2049.00; Dow futures are up 4.00 at 17,655.00; 10-yr futures are down 0.15%; The Nikkei closed down 0.32% at 17,288.75; The DAX is up 0.42% at 9496.43; The IBEX-35 is down 0.03% at 10,429.70; Gold is up $2.20 at $1199.30; Copper is up $1.00 at $300.20; Crude Oil is up $0.26 at $74.90; Heating Oil is up $0.0179 at $2.3805; Paris Milling Wheat is down €0.75 at €172.50/MT.

After passing the House with ease, the Keystone XL Pipeline bill failed in the Senate with Republicans failing to muster enough votes to pass legislation for the international oil highway.  The measure was defeated 59-41, narrowly missing the 60 votes needed, although Senate Republicans have already said this will be brought back up once the new Senate convenes.  According to people close to the matter, there will be 63 “yes” votes next Congress, and the magical 67 votes needed to override a Presidential veto is in reach.  Elsewhere, the Japanese Yen fell to a fresh 7-yr low against the Dollar after the BOJ maintained its ultra-loose monetary policy.  In the US today, October housing starts are expected to show an +0.8% increase to 1.025 million units, adding to the +6.3% increase seen in September.  Building permits are expected to rise +0.9%, adding to September’s +2.8% gain.

Some snow working across the Great Lakes this morning, although mostly quiet elsewhere in the Midwest.  While not widespread, a snowstorm which pushed over upstate New York dumped up to 6-ft. in some areas, claiming the lives of six people.  Still mostly dry around the Midwest until Saturday when moisture begins to drum up in TX/OK/AR, which will intensify over the weekend to dump moisture over MO/MS/AL/GA/SC/TN and up into the Great Lakes.  The forecast for just Saturday-Monday is shown below.  Temps retain their cooler bias through the 6-10 day, although a mild warm up to normal temps is seen during the latter part of the 8-14 day period.  Pecip slips to normal then to below normal late in the 8-14 for a big section of the Plains and Midwest, while the far Northern Plains still show above normal precip.


Weaker Ag markets once again this morning, with Chicago wheat leading percentage losses so far today.  As noted in yesterday’s commentary, the real demand led story has been meal and soybeans, supported by firm cash markets, firm spreads, non-commercial buying and poor railroad performance.  In the case of corn and wheat, supplies have always been plentiful, and while domestic demand appears to be stout, neither have a solid export program to speak of.  Wheat also appears to have run into some fairly major chart resistance and failed so far.  The buying being done by funds in both corn and wheat has been short-covering, which can start a rally by itself, but usually can’t sustain one.  The fact more feed wheat is being imported in the US-SE is also not a positive for corn or wheat.  Bulls need to be fed daily, and the trough is getting somewhat empty.

Starting first with the rumor mill, it was reported yesterday the vessel Peace Garden was set to load 45,000MT of French feed wheat for discharge in Wilmington, NC.  Similar to the soymeal from Argentina, nothing has shown up in Wilmington shipping manifests, although the ship is currently moored at a French port.  This would add to the 25,000MT of British Feed wheat which finally unloaded earlier this month in Wilmington.  This is bullish corn or wheat as the US still has feed wheat, and the import of foreign supply leaves that much more available domestically.  It is truly a sad state of affairs when it is cheaper to ship wheat from Europe to North Carolina than it is to rail wheat/corn from Ohio to North Carolina, and similarly cheaper to ship meal from Argentina to North Carolina than rail meal from Indiana to North Carolina at a time in which we have record corn and soybean supplies.

Switching gears a bit to South America, the latest plating progress statistics were released yesterday, and while improving, remain behind average.  Of most concern has been Brazilian soy plantings which jumped 16% w/w to 62% planted vs. 72% last year and 74% average.  Brazilian corn planting advanced 10% to 76% vs. 92% last year.  Brazil has now planted 40% of their soybean crop in the last 2-weeks, marking the largest 2-week jump in 15 years.  Of developing concern is the delays to Argentine planting with just 22% of the soybean crop vs. 28% last year and 32% average.  On corn, Argentina has planted just 38% vs. the delayed 40% of last year and well short of the 61% average.  Argy corn planting is the slowest in the last 20-years, and soy planting is the slowest of the last 10-yrs.  This could mark an opportunity for Brazil to continue supplying corn and soybeans into Argentina’s usual time slot next summer.

Morgan Stanley issued a note to clients earlier this week talking about looming acreage cuts on the January WASDE reports due to the stubbornly wide spread between current NASS data and official FSA statistics.  According to the bank, they see corn acreage eventually falling 2.1 million acres, while soybeans could slip as much as 1.4 million.  Several analysts were calling for cuts as large as these earlier this fall, but have since given up that fight since the October reconciliation.  Adding to the lack of clarity this year is the fact FSA offices have been devoted to livestock disaster payments as well as educating and signing up farmers for the new Farm Bill.  Extensions have been granted in many counties and states until December 31st, which could leave the matter unresolved until the January 12th reports.  It’s out there, although hard to read too much into it just yet.

Despite the futures decline this week, it is worth noting the corn basis strength this week.  Processors such as Ingedion are up 2-3c for Nov/Dec and 3-4c for JFM.  ADM-Marshall is up 6c w/w, while ADM-Columbus and ADM-Cedar Rapids are up 20c and 9c w/w, respectively.  Group-3 rail basis out of NE is up 7-10c for the Nov/Dec slots, while HETX basis is up 10c for Nov/Dec.  Evansville and Columbus trains are up 2-10c from Friday levels, and even PNW shuttles are up 4c for Nov/Dec although this is likely spill over support from the domestic market.  CIF corn bids are not going along for the ride, however, with spot barges pegged +74/77Z and Dec at +75/78Z vs. +77/78Z and –/80Z going home Friday.  This is why the CZ/CH has set back to -13.25c, and why the board doesn’t appear to be paying attention.  Ethanol and feed margins are solid, but there is no corn export program and until there is, processor basis strength doesn’t look like it will be able to stem the tide right now.

While on the subject of CIF bids, it is noteworthy that the CIF NOLA soybean market now has a 2c cash carry from Nov to Dec, which obviously doesn’t suggest a tight market.  This can readily be seen in the SF/SH which has swan dived from -2.75c a week ago to -7.75c this morning.  The export pull the last 3-weeks has been astonishing, setting records for weekly shipments twice.  Yet, spreads and barge freight act as though our soybean market is well supplied.  This should be a red flag for bulls, and also speaks to the farmers role in recharging the pipeline.  The cash market reflecting a carry isn’t a reason to buy.

Last, but certainly not least, the ethanol market continues to trade a premium to the Gasoline market on the front-end, which is a rather unusual occurrence.  The December/December RBOB/Ethanol spread is currently trading at -0.00580c/gln, just off lows near -0.03/gln yesterday, and would be the weakest trade since Mar/Apr.  This a concern as the RBOB/Ethanol spread is a direct representation of discretionary blending.  The 50/100/200-day moving averages for this spread are up around 56-70c gallon premium ethanol.  As with exports, the last thing this corn market needs is to take away additional demand when we need it more than ever.  Be watchful on today’s weekly production report for any sign of slowing grind or building stocks.  Export demand and poor rail performance are the likely culprits, but the corn market could be the one feeling the pain.


Bottom Line:  Weaker markets once again look to be the order of the day, as fresh bullish inputs seem to be lacking.  Meal basis is still firm, we’re still exporting and crushing soybeans, but the farmer has sold a lot of grain on the rally, and all of that supply might be finding its way to desired parties.  Wheat is running into chart resistance, and can’t rally everyday on winterkill threats.  We need exports for corn and wheat or swoon we will.


Good Luck Today.


HPC 11-19

Tregg Cronin

Market Analyst






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