12/4/2014 Morning Comments

Good Morning,


Outside Markets as of 6:50am: Dollar Index down 0.0370 at 88.9260; Euro up 0.00050 at 1.23160; S&P’s are up 1.75 at 2074.25; Dow futures are up 15.00 at 17,912.00; 10-yr futures are unchanged; The Nikkei closed up 0.94% at 17,887.21; The DAX is up 0.51% at 10,023.72; The IBEX-35 is down 0.02% at 10,873.20; Gold is down $6.90 at $1201.80; Copper is up $2.45 at $289.65; Crude Oil is down $0.53 at $66.85; Heating Oil is down $0.0122 at $2.1212; Paris Milling Wheat is down €2.50 at €184.50/MT.

Tepid global equities overnight as central banks opted to leave benchmark lending rates unchanged and President Putin tries to shift blame from himself to “evil speculators” for his country’s economic woes.  Unemployment claims in the US today are expected to drop 18,000, partially reversing the last three weeks’ rise of 35,000.  Unemployment claims are also 47,000 above the 14-1/2 year low of 266,000 posted in the week of October 10th.  This Friday’s employment report is expected to show a payroll increase of 230,000 after yesterday’s ADP private payroll data showed an increase of 208,000 which was slightly below expectations at 225,000.


As quickly as wheat seemed to rally, it appears set on giving it back.  Following two-day gains of 43c, March Chicago wheat has now fallen 26c and is on pace for its third straight losing session in a row.  Since the market got excited about potential export restrictions out of Russia, a lot has happened in the wheat markets.  In no particular order, Russia offered wheat in the recent GASC tender, even though they were not awarded the winning business.  LDC delivered 600 contracts against the KWZ, blowing the KWZ/KWH spread out to  -12.25c in the process.  The US and Australian wheat farmer leaned in hard to the rally with fresh sales as evidenced by sharply weaker Aussie basis and softer US domestic markets.  After covering the vast majority of their short position, it would appear managed funds have also filled their bellies with longs at the same time index funds are piling out of commodities due poor YTD performance.  All of the aforementioned helped cap the wheat market, and may relegate us to range bound trade moving forward.  Soybeans breached the $10.00 area, although recovered decently in the last 18-hours.  Corn looks fine as long as it defends the $3.75 area basis March futures.

In the GASC tender announced yesterday, Egypt bought 175,000MT of wheat from Romania and Ukraine for Jan 1-10 shipment.  Average price was $271.24/MT C&F.  120,000MT came from Romania at $260.17/MT FOB and 55,000MT from Ukraine at $257.50/MT FOB.  Russian wheat was offered at $264-264.57/MT FOB, which was the highest European/Black Sea offer, but was still sharply below the lone US offer at $286.55/MT.  The US wheat was 71c/bu above the winning offer, and 41c/bu above the Russian offer.  So despite firm domestic, and even export basis, US wheat continues to lose out on major international tender business.  The idea of potential Russian export restrictions caused futures to rally on ideas of improved US export business, but we’re still 40c above a country which might not be exporting February forward.

Export sales this morning were mostly a positive for row crops, although wheat continues to muddle along.  Corn sales were reported at 1.17MMT (45.98mbu), soybeans at 1.18MMT (43.35mbu), wheat at 319,200MT (11.72mbu), soymeal at 226,800MT and soybean oil at 25,100MT.  Net cancellations of 66,000MT were seen in wheat by Brazil, which should certainly be viewed as a negative.  Quality issues out of South America were another supportive block under wheat, and if that quality driven demand slows we’ve got even more wheat in the states looking for a home.

Adding to wheat’s woes this morning was our neighbor to the North coming out with their latest production estimates which seemed to heap further bearishness on the recent wheat rally.  Statistics Canada pegged all wheat output at 29.28MMT vs. the average trade guess of 27.8MMT and up from last month’s guess at 27.5MMT.  The big jump came from spring wheat which was estimated at 21.221MMT vs. last month’s 19.936MMT.  To say this was a surprise is an understatement.  Canola production also took a decent jump to 15.555MMT from 14.079MMT last month, but still well below last year’s 17.965MMT.  Oats production was up marginally to 2.907MMT from 2.685MMT last report.  One thing to remember with the larger Canadian wheat production and stocks is the quality concerns reported this year.  This may keep US basis from being squashed in the near-term, but still nothing bearish about rising production estimates by Northern Hemisphere producers this late in the game.


Bottom Line: 3-days after looking like it had all the ammunition to keep edging higher, wheat is grasping for supportive news.  Technicals aren’t outright bearish, but topping action is present on most contracts.  Soybeans haven’t seen a lot of follow through selling through $10.00, and looks as though a recovery might be underway.


Good Luck Today.




Tregg Cronin

Market Analyst






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