Outside Markets as of 5:35am: Dollar Index up 0.1570 at 80.8140; Euro is down 0.00490 at 1.35400; S&P’s are down 3.75 at 1946.50; Dow futures are down 21.00 at 16915.00; 10-yr futures are down 0.05%; The Nikkei closed down 0.85% at 14,994.80; The DAX is up 0.15% at 10,023.82; The IBEX-35 is unchanged at 11,164.60; The Russian MICEX is down 0.21% at 1,482.22; Gold is down $.40 at $1253.50; Copper is down $1.45 at $302.90; Crude Oil is up $0.40 at $104.81; Heating Oil is up $0.0041 at $2.8950; Paris Milling Wheat is up €1.00 at €191.75.
The trend in global equity markets remains decidedly up following the positive economic data received around the globe. Europe is adding additional monetary stimulus, Japan’s first quarter growth was stronger than expected, China saw an improvement in exports and the US produced a stronger than expected jobs report. Overnight, China’s May CPI report rose sharply, +2.5% y/y from +1.8% in April but still remained below the Chinese government’s inflation target of +3.5%. On Wednesday, the market is unanimously expecting OPEC to leave its production target unchanged at 30 million barrels per day. Oil inventories in the industrialized world in April fell to the lowest level for that time of year since 2008. Saudi Arabia has kept its production steady at 9.5-10.0 million bpd for the past year, but rumblings think it could be increased to 11.0 million to increase global inventories.
Rain moving across the central corn belt and Dixieland this morning, adding to the nice rain totals received in the WCB and southern plains yesterday. The 7-day observed precip map really hits home the favorable growing weather Midwest crops have been growing in. The next 7-days will continue to bring rain to US growing regions with heavy totals in many areas of the Midwest. Over the next 3-days, rain will impact ND/N-MN as well as separate systems in KS/OK and more in the ECB with localized totals pushing near 2.0”. Follow up rains for the Northern Plains will be seen this weekend, concentrated mainly in ND/W-MN/E-SD. 6-10 maps from NOAA keep above normal precip in place for the Northern Plains, and normal to below temperatures, so no threats as of yet. 8-14 has a similar look to it.
Yesterday, many in the trade were bringing up a high pressure heat ridge in the forecast for the period June 18-25. The presence of the ridge suppresses rainfall and brings warm to hot conditions into the plains and western corn belt. The ridge line being discussed by forecasters reaches into southern South Dakota, southern Minnesota and southern Wisconsin during peak intensity. Some ridge building is expected, but most don’t believe it will be a long-lasting feature, or very threatening. The discussed ridge is beyond the 8-14 day map from NOAA, so confirmation can’t yet be verified by the government. A ways off to have a lot of confidence in, but be aware the trade is discussing the possibility.
Mixed trade inside recent ranges for most, although corn continues to knock on new lows for the move in many of its contracts. Aside from the very early discussion of the aforementioned ridge, there just doesn’t appear to be a problem anywhere in the US. With ideal weather, the market will assume crop potential is increasing, not decreasing. In addition to the weather, yesterday corn was dealt another blow by China as it announced it wasn’t approving any additional import permits for US-DDGs due to the presence of the unapproved GMO trait MIR-162. These actions pretty much guarantee the 12mbu of corn export sales still on the books to China will be canceled, and a large portion of the 142mbu in the unknown category are susceptible as well. In addition, trade publications report China still has plans to auction off another 2.5MMT of corn from strategic reserves. China’s actions certainly suggest they have plenty of corn for the time being, but their market price and the import parity still suggest there is more than meets the eye.
Crop progress reports out yesterday with a good deal of data to be digested. The corn condition rating unexpectedly fell 1pt to 75% G/E, but remains the 3rd best in the last 15 years behind 2007 and 2010. Conditions fell 6% in NE which is probably due to the severe storms which rolled through last week. The first soybean condition report put 74% of the nation’s crop in the Good/Excellent category which would be the second highest of the last 30-years, behind only 2010. Planting progress is now 87% complete, ahead of 81% average and northern states are now at or ahead of averages. The national spring wheat condition rating came in at 71% G/E vs 61% at this time last year. All states are ahead of last year except for WA which is at 31% G/E vs 72% a year ago. The spring wheat rating is just below the 5 and 10-yr average. Winter wheat conditions were unchanged, and national harvest is at 9% complete. OK is 26% complete vs 37% a year ago, while KS and TX did not report. The heavy rains in the southern plains as harvest advances is about the only concern in the US right now from a weather standpoint. A big slug of HRW which doesn’t meet milling specs would be good for the spring wheat farmer.
The next big fundamental market driver will be Wednesday’s June WASDE report which expects old crop corn and wheat inventories to rise, while soybeans are expected to ease slightly. With feed demand likely to remain steady until after the June stocks report at the end of the month, exports and ethanol demand have been running strong enough to hold steady if not bump slightly higher. I wouldn’t expect big changes out of old crop corn stocks levels, but if anything a slightly decrease could be seen, so I am going against the average estimate of 1.164bbu vs 1.146bbu last month. Shouldn’t see much for changes in wheat or soybeans, although both crush and exports on soybeans are still running stronger than the USDA implied levels, so an increase there wouldn’t be unwarranted. Their problem lies in adding in supply after already penciling in record soybean imports.
Interesting to see strength in many N/U calendar spreads when looking down the list of contracts, despite the still ongoing index fund roll. The CN/CU has firmed overnight by 0.75c to +4.25c, and continues to reflect strong cash markets. PNW corn shuttles are now bid +118N for June trains, vs +100N 10-days ago. Similar strength has been seen in HETX, Chicago and St. Louis. KC spreads remain decidedly up, but there still hasn’t been any strength in basis to support it. Still a bit early to be rallying on harvest delays, although keeping an eye on quality sentiment will prove worthwhile. KC has also been gaining on Chicago and MPLS, putting in new contract highs against Chicago in the July and September contracts. This makes sense as the SRW crop appears to be getting larger while the HRW crop battles rain.
A quick aside on technicals: this analyst doesn’t put a great deal of stock into moving averages other than keeping track of where they’re at as the managed fund crowd places a great deal of importance on them. As support and resistance candidates, they usually prove unreliable, but as a trend indicator they’re helpful. Corn, soybeans and wheat are all trading at or below their 50-day moving averages collectively for the first time since November. This is not lost on Wall Street.
Bottom Line: Some early morning strength is being witnessed in the row crops, and one can’t really argue with a bounce day-to-day. Crop development is favorable, news flow is mostly negative and funds have more interest in selling than buying right now. Wednesday’s report may shift the focus back to old crop momentarily, but the overall trend in our markets is down for the time being. The marketing year is young, but balance sheets need to be stressed tested against lower prices.
Good Luck Today.
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