6/10/2014 Morning Comments

Good Morning,

 

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.

 

RFC 6-10

 

Tregg Cronin

Market Analyst

Tregg.Cronin@halocommodities.com

www.halocommodities.com

@5thWave_tcronin

 

 

COMMODITY TRADING INVOLVES RISK AND MAY NOT BE SUITABLE FOR ALL RECEIPIENTS OF THIS EMAIL. Neither the information presented, nor any opinions expressed, constitutes a solicitation for the purchase or sale of any commodities. The thoughts expressed in this email and basic data from which they are derived are believed to be reliable, but cannot be guaranteed due to uncertainty about future events and complexities surrounding commodity markets. Those acting on the information are responsible for their own actions.

6/9/2014 Morning Comments

Good Morning,

 

Outside Markets as of 6:00am: Dollar Index up 0.0960 at 80.5080; Euro is down 0.00240 at 1.36230; S&P’s are down 1.75 at 1947.50; Dow futures are down 8.00 at 16924.00; 10-yr futures are off 0.16%; The Nikkei closed up 0.31% at 15,124.00; The DAX is up 0.07% at 9,993.98; The Russian MICEX is up 0.34% at 1,490.05; Gold is up $3.40 at $1255.90; Copper is down $2.15 at $302.95; Crude Oil is up $0.57 at $103.22; Heating Oil is up $0.0016 at $2.8728; Paris Milling Wheat is unchanged at €193.00/MT.

Quietly mixed global equity markets after solid job growth figures Friday in the US and last evening in Japan.  Japan’s government reported the economy grew at an annualized rate of 6.7% in the Jan-Mar quarter, up from earlier estimates of 5.9%.  Friday, the May employment report showed employers adding 217,000 jobs and the unemployment rate eased to 6.3%, bolstering ideas of an expanding US economy.  Based on futures trade this morning, the S&P 500 could trade to new record highs again this morning.

Two separate bands of moisture this morning with one moving across NE/S-SD and another working across TX/OK/AR.  3-day rainfall totals over the weekend shows heaviest amounts in W-NE where as much as 6.0-8.0” fell locally.  Otherwise nice rains fell across N-TX/OK/W-KS and several central corn belt states.  Not sure whether the moisture is adding benefit to TX/OK where combines are trying to roll, but it is definitely helping recharge soils which is the chief concern.  Fair amount of rain around the next 5-days with KS to see widespread rainfall as well as E-TX/MO/IL/IN/MN/ND.  Crop progress reports this afternoon will clue us in about remaining acreage, but at this point I think most of the areas will welcome the moisture.  Nothing overly threatening in the 6-10 or 8-14 day forecasts.

 

Mostly weaker overnight trade as major growing regions received healthy rainfall over the weekend, and more is forecast the coming 7-days.  Crops which are planted are developing in nearly ideal conditions, and crop progress reports this evening should reflect the same.  Each passing day marks one day closer to what looks like robust corn and soybean crops, provided weather remains non-threatening.  That’s a big if, which is why new crop prices can’t head for “0” straightaway.  Farmer selling has been very muted as the board prices aren’t enticing, and the calendar doesn’t say July 9th or August 9th.  Unfortunately, however, the managed money funds have been leaving our space in healthy numbers, and that money flow is enough to keep prices under pressure without a catalyst.

Friday’s Commitments of Traders Report showed the largest sell pressure in soybeans in which funds dumped 23,508 contracts to bring their net long to 60,914, the smallest since November 5th.  Their selling has actually slowed down in corn in which they only sold 2,799 contracts to put their net long at 116,166 contracts, still the smallest since March.  An interesting tidbit in soybeans, the small spec has now amassed a net short of -68,934 contracts, the largest on record going back to 1/2/2007.  The small spec in corn is net short -173,597 contracts which would be the largest net short since July 2010.

A couple spreads worth watching this week will be the SN/SX, the CN/CU and the KC spreads  The SN/SX is getting perilously close to violating some chart support, and even though I think there is fundamental merit in owning this spread during the month of June, the weakness during the fund roll is taking its toll.  The GSCI index roll will continue through Thursday, but this weakness could be a buying opportunity as a play for continued tightness in soybeans.  The CN/CU has also been pressured thanks to the various index product rolling length forward.  Given the strength in basis and the continued lack of farmer movement, another run towards the high single digits wouldn’t be surprising.  The KC spreads have been showing a lot of strength lately despite the index roll and expanding harvest in the southern plains.  Haven’t seen anything untoward on basis to prompt the move, so watching closely to see the impetus.  This strength in the wheat spreads could be signaling a near-term bottom in futures, but more confirmation is going to be needed.

 

Bottom Line: expect a weaker open on ideal growing conditions, but futures have shaved off a lot of premium in a short amount of time and some consolidation wouldn’t be unwarranted.  We are still a ways from key pollination weather, let alone putting a crop in the bin.  Yet, prices can still drift sideways to lower.  This week will see an updated WASDE report which could put some of the focus back on old crop and provide some stabilization.  We need a production problem somewhere in the world, and right now we’re still searching for it.

 

Good Luck Today.

 

Tregg Cronin

Market Analyst

Tregg.Cronin@halocommodities.com

www.halocommodities.com

@5thWave_tcronin

 

 

COMMODITY TRADING INVOLVES RISK AND MAY NOT BE SUITABLE FOR ALL RECEIPIENTS OF THIS EMAIL. Neither the information presented, nor any opinions expressed, constitutes a solicitation for the purchase or sale of any commodities. The thoughts expressed in this email and basic data from which they are derived are believed to be reliable, but cannot be guaranteed due to uncertainty about future events and complexities surrounding commodity markets. Those acting on the information are responsible for their own actions.

6/6/2014 Morning Comments

Good Morning,

 

Outside Markets as of 5:40am: Dollar Index up 0.0950 at 80.4660; Euro is down 0.00280 at 1.36300; S&P’s are up 2.00 at 1940.50; Dow futures are up 31.00 at 16,849.00; 10-yr futures are up 0.14%; The Nikkei closed down 0.01% at 15,077.24; The DAX is up 0.18% at 9,965.45; The IBEX-35 is up 0.92% at 10,976.30; The Russian MICEX is down 0.53% at 1,462.84; Gold is down $0.20 at $1253.10; Copper is down $3.25 at $305.80; Crude Oil is up $0.24 at $102.72; Heating Oil is up $0.0090 at $2.8887; Paris Milling Wheat is up €1.25 at €192.25.

The European Central Bank didn’t disappoint yesterday, announcing a wide range of monetary easing measures, although they stopped short of promising it would engage in a full-scale quantitative easing program like the US Federal Reserve.  The ECB announced four measures, the focus of which included cutting its refinancing rate by 10bp to 0.15%, cutting the marginal lending facility by 35bp to 0.40% and cutting the deposit rate by -10bp to -0.10%.  At the end of the day, the ECB’s moves should be successful in bringing down short-term money market rates and providing more liquidity.  After the announcement, the Euro dropped to 1.35020, the lowest since February before recovering.  The focus of this morning will be the employment situation report which is expected to show 215,000 jobs added in May, and the unemployment rate increasing 0.1 to 6.4%.

Showers moving across W-SD, OK and N-TX this morning, adding to the nice totals witnessed this week.  The weekend is expected to produce moderate to heavy rainfall from one end of the plains to the other with heaviest totals occurring in OK/N-TX where as much as 5.25” is forecast in W-OK/N-TX.  Still, the majority of KS should see 0.50-2.00” with similar totals in NE, while SD is slated for the southern edge of this storm and totals in the southern part of the state near 0.75”.  The central to southern Midwest should also see decent precip this weekend, keeping in place the favorable growing conditions throughout the heartland.  Temperatures are expected to remain mild the next 15-days, keeping any sort of weather threat out of sight until June 20th.  While the rain can’t fix the HRW crop, falls crops are going to benefit greatly from the upturn in moisture down south.

 

Mixed to better overnight markets this morning following the sell off yesterday.  It has seemed that every day this week one could have made money by selling an unchanged to higher market in the morning as prices have given way to heavy selling pressure as the day wears on.  All three major market charts are now taking on a technically weak tone, fundamental support from old crop demand isn’t enough to combat ideas of large new crop production and after an impressive start to 2014 for agriculture commodities, most have pared gains substantially.  YTD, corn is still up 6.5%, soybeans 11.4%, wheat 0.7%, oats 0.5%, soymeal 12.4% and bean oil 0.3%.  Over the last month, however, corn is down -13.1%, wheat -17.6%, bean oil -9.1%, oats -0.9%, soybeans +0.2% and soymeal up 3.0%.  If you don’t think index and managed money funds have taken notice of this slow down and turn, think again.  Regardless of what old crop fundamentals we throw at corn and soybeans, if the flow of money remains out thanks to technicals and weather, there won’t be a reason to turn these entities into buyers.  Sentiment has turned bearish and that will keep the trend steady to lower in the near-term.

Yesterday, Bloomberg released a survey showing a poll of analysts pegging the EU wheat crop at 145.9MMT vs. the EU’s latest official guess of 144.98MMT.  If proven correct, this would be the largest wheat crop in 6-years, and adds to a plentiful global supply.  Couple that with the euro trading to a four-month low yesterday, and the competitiveness of the European wheat market becomes readily apparent.  Fortunately for the US, the historic levels at which Paris/KC and Paris/CHI were trading at have narrowed substantially.  As of this morning, the front-month Paris/KC spread was trading at -$2.11/MT, near the highest levels since April, but still below the 50/100/200-day MA.  Paris/CHI is trading at $38.33/MT.  On a FOB basis, French wheat was quoted last night at $247.19/MT FOB vs US-SRW at $239.48/MT and US-HRW at $315.63/MT FOB US-GX.  Still a lot of work to do in order to steal any business away.

Soybeans seem like they’re the only bright spot in our markets as of late, and it was interesting to note the July board crush relative to years past during yesterday’s session.  As of this morning, the July soybean board crush was trading at 47.0c/bu vs 1.3c/bu at this time in 2013.  In 2012, we were trading at 67.0c/bu.  What’s interesting is the difference in both crush demand and total demand between these years.  For 13/14, the USDA sees crush at 1.695bbu vs 1.689bbu last year and 1.703bbu in 11/12.  Total demand this year is pegged at 3.390bbu vs 3.098bbu last year and 3.155bbu in 11/12.  The record export program of 13/14 is seen using 1.600bbu, the vast majority of which has already left the country.  That means a smaller percentage is left to feed crush, yet the actual crush margin is still running well ahead of last year and not enticing crushers to slow grind to any serious degree.  The tightness hasn’t been solved.

Almost seems a waste to write about every day, but corn basis continues to firm each and every day while the board sinks.  The difference with yesterday’s session, however, is the reversal in corn spreads witnessed as the index roll really ramps up today.  The CN/CU traded to a high of +6.00c yesterday before closing at +4.75c.  The GSCI index roll begins today and continues the next 5-days.  There has undoubtedly been front-running, and probably a fair amount of the index itself being rolled, so substantial pressure here forward given the basis moves seems less likely.  PNW corn shuttles firmed to +115N vs +112N a day before. HETX and Chicago were also firmer.  Not a great deal of change in KCBT protein scales while MGEX has generally appreciated for 14.0% protein.  Chicago wheat calendar spread have been hitting contract lows this week as production ideas on SRW increase.  Basis flat to better.

Next week will see the release of the June WASDE report, and one of the focal points will be the US corn production forecast.  Given the weather-to-date, an increase in production is expected, acre depending.  A Bloomberg survey shows the US corn crop at 13.939bbu, an all-time record, and compared with the previous government forecast of 13.935bbu.  Many are still questioning the USDA’s current yield estimate of 165.3bpa, but hard to argue for or against on June 6th.  A lot of grass between the ball and the hole, germination and pollination.

 

Bottom Line:  Markets appear as though they want to be firmer out of the gate this morning, although that’s been a losing bet nearly every day this week.  A short-covering pop to close the week might be appropriate, but much work is needed to flip even the shortest term trend upwards.  Wheat production ideas have bottomed and are probably getting larger, and the row crop potential is as good as it can be on June 6th.  It’s hard to argue with ideal weather and fund selling, even if we are nowhere near harvesting new crop.  Keep watching basis and spreads for signs of a near-term bottom, and review marketing targets against a range of yield assumptions often.  Still plenty of opportunities and we’re just writing the initial chapter in the 14/15 book.

 

Good Luck Today.

 

 

Tregg Cronin

Market Analyst

Tregg.Cronin@halocommodities.com

www.halocommodities.com

@5thWave_tcronin

 

 

COMMODITY TRADING INVOLVES RISK AND MAY NOT BE SUITABLE FOR ALL RECEIPIENTS OF THIS EMAIL. Neither the information presented, nor any opinions expressed, constitutes a solicitation for the purchase or sale of any commodities. The thoughts expressed in this email and basic data from which they are derived are believed to be reliable, but cannot be guaranteed due to uncertainty about future events and complexities surrounding commodity markets. Those acting on the information are responsible for their own actions.

6/5/2014 Morning Comments

Good Morning,

 

Outside Markets as of 5:50am: Dollar Index down 0.0850 at 80.5790; Euro up 0.00090 at 1.36080; S&P’s are down 0.75 at 1925.00; Dow futures are up 4.00 at 16,722.00; 10-yr futures are up 0.15%; The Nikkei closed up 0.08% at 15,079.37; The DAX is down 0.05% at 9,921.51; The IBEX-35 is up 0.23% at 10,780.60; The Russian MICEX is down 0.41% at 1,469.73; Gold is unchanged at $1244.30; Copper is down $0.20 at $309.10; Crude Oil is down $0.30 at $102.34; Heating Oil is up $0.0064 at $2.8545; Paris Milling Wheat up €0.75 at €192.00/MT.

Very quiet financial markets this morning ahead of the European Central Bank policy decision later this morning.  Most analysts think the bank will provide a variety of growth measures to stimulate growth after a string of disappointing economic data which suggests the EU is slowing more than anticipated.  Sentiment in the US ahead of tomorrow’s nonfarm payroll data has also soured slightly following yesterday’s release of the ADP private payroll data which showed employers adding 179,000 workers to their payrolls, well short of the 210,000 expected and the weakest hiring in four months.  The consensus estimate for tomorrow’s nonfarm report is 215,000 jobs added.  Today will see weekly unemployment claims released which are expected to show a 10,000 increase to 310,000.  Continuing claims are seen at 2.625 million, down 7,000 claims.

Heavy showers rolling across S-NE and KS this morning with additional precip falling in the Red River Valley of the Northern Plains.  Rains moved through most of W-SD last night bringing light totals to most locations, while a sizable system finished up in the ECB as well.  When one stops and looks at the past 7-day accumulated precip, the constant talk of “ideal weather” becomes clear.  As the map below shows, almost every area which grows corn in the corn belt has received 1.00”+ in the last week with several in the heart of the corn belt receiving upwards of 3.0”.  Additional precip is expected over the weekend with the heaviest rains to fall in the southern Midwest and southern Plains.  Most of KS is slated for 1.00-5.00” of rain.  The Northern Plains will also see additional precip in the 0.50-1.00” range.  6-10 and 8-14 remains ideal with below normal temps and above normal precip forecast.

 

Mixed, choppy trade overnight with most contracts seeing two-sided trade.  Hard to know exactly what to make of yesterday’s session in which healthy early-day gains were given up in favor of lower closes in corn, and marginal gains in wheat.  Corn continues to struggle with the dichotomy of strong old crop demand and cash basis, yet ideal growing conditions for the new crop.  Each day the board drifts lower, cash corn basis firms further.  The apparent exodus of managed money longs out of corn is making the task of securing physical corn supplies by end users rather difficult.  As happens occasionally in our markets, there is plenty of paper selling, but a real dearth of physical selling.  The former doesn’t crush well into ethanol or bacon strips.  Weekly ethanol data and monthly April import data released yesterday were both supportive influences to row crop prices.

Cash corn markets firmed further yesterday with PNW corn shuttle premiums inching up another 2c to +112N for JJ and +115U for Aug, and compares with +100N a week ago.  FOB UP Grp-3 basis firmed to +3N vs -3N a week ago, and HETX held at +90N vs +81N a week ago.  Destination ethanol basis is also sharply better than a week ago with Cedar Rapids posting +3N vs -3N a week ago, and ADM-Marshall around a nickel better over the last week.  Ingredion corn basis is up 5c w/w to +15N for shipment by June 15th.  CIF bids are actually steady vs a week ago.  The aforementioned, while battling the index fund roll, is having a positive effect on spreads with the CN/CU firm overnight o +5.75c, up 1.75c, while the CN/CZ is up 2.75c overnight o +5.50c.  The new crop size proxy of the CN15/CZ15 does continue to weaken, suggesting the market is cognizant of the good growing weather.  That spread is trading +12.75c overnight, off from its high-water mark of +28.75c on May 7th and off from +17.50c on June 2nd.

Weekly ethanol production continues to roll along, posting the 2nd highest weekly production of 2014.  935,000bbls/day were averaged last week, up from 927,000bbls/day the week before and well better than the 896,000bbls/day needed to reach the USDA’s ethanol demand for corn estimate.  Stocks have been on the rise, however, with last week showing a 761,000bbls build to 18.25 million bbls, the highest stocks level since March of 2013.  While margins remain excellent, this build up in stocks may temper production ideas, and could possibly keep the USDA from increasing their marketing year corn-for-ethanol estimate of 5.050bbu.  With gasoline demand continuing to run near the higher end of the 5-yr range, however, it is plausible these stocks levels will begin to draw down in coming weeks.

April census import data was released yesterday during the session, and while old news, was viewed as supportive for the soybean market.  During the month of April, the US imported 7.1mbu of soybeans, well below ideas of 10-12mbu.  This places increased importance on imports rising May-Aug in order to justify the USDA’s record soybean import level of 90mbu during the 13/14 marketing year.  In order to hit the 90mbu target, imports will have to average 14.88mbu/mo May-Aug vs the highest month on record of 12mbu in July of 2013.  It seems as though each time we think the US soybean balance sheet has the right to take a breather, we throw additional bullish data at the market.  Without record imports, our balance sheet doesn’t work to get us to September 1st. Crush margins remain strong relative to a year ago, and beans continue leaving the country on a weekly basis.

The wheat market can’t seem to catch a break with news from Reuters yesterday Egypt had relaxed a tough rule on wheat imports which could promote more sales from France.  In January, Egypt imposed a moisture content specification which excluded French wheat from GASC’s tenders, but the grain buyer said that specification has been eased so Egypt can take advantage of the plummeting wheat price.  The moisture spec was dropped to 13.0% in January, while the average moisture content of the 2013 French wheat crop was 13.5%.

Reuters also carried an article this morning talking about Argentine farmer hoarding, and the possibility of increased soy sales in June/July to repay farm loans.  Government figures show growers have sold 33% of the current soybean crop vs 36% in 2013 and 48% on average over the last four years.  Argentine farmers are also battling a low-protein crop this year which is making hitting soymeal specifications difficult.  Argentina is the world’s largest exporter of soymeal.

As discussed on wheat yesterday, corn is really without solid technical support until the January lows around $4.20 basis July and $4.35 basis December.  On-Balance-Volume continues to head deeper into negative territory, a sign volume is firmly on the side of the bears, and open interest has been rising on the most recent leg lower from May 22nd.  A lower close this week will mark the fourth straight week of lower prices, and July corn would need to mount a rally over $4.82 in order to flip trends back up and give any confidence about a near-term bottom being in.  Friday’s Commitments of Traders data should show continued paring of managed money longs, but until they see a weather threat it will be difficult to turn them into buyers again.  The old crop demand story, however real, isn’t tangible enough to fund managers the way weather forecasts are.  Trends remain down.

Export sales estimates to be released this morning are expected at -100/+150TMT on old crop wheat, 200-650TMT new crop.  Corn is seen at 300-650TMT old, 50-240TMT new.  Soybeans are seen at -125/+100TMT old, 500-1,050TMT new.  Meal at 0-215TMT old, 25-220TMT new.  Oil at 0-25TMT old, and 0-10TMT new crop.  Some of the ranges on these estimates are so ridiculous I’m not sure why they’re even reported some weeks.

 

Bottom line:  A broken record we have, but until the tune changes it’s what the market wants to sing.  Ideal growing conditions, expanding southern plains wheat harvest, large global wheat crops, still healthy fund longs and terrible chart action.  The supportive influences of strong cash markets, solid end user margins and a lack of soybean rationing just aren’t enough to turn the tide just yet.  We need a weather threat, and today we don’t have it.  Still a long way to pollination, but it’s going to feel like it if this board action continues.

 

Good Luck Today.

 

RFC 6-5

 

Tregg Cronin

Market Analyst

Tregg.Cronin@halocommodities.com

www.halocommodities.com

@5thWave_tcronin

 

 

COMMODITY TRADING INVOLVES RISK AND MAY NOT BE SUITABLE FOR ALL RECEIPIENTS OF THIS EMAIL. Neither the information presented, nor any opinions expressed, constitutes a solicitation for the purchase or sale of any commodities. The thoughts expressed in this email and basic data from which they are derived are believed to be reliable, but cannot be guaranteed due to uncertainty about future events and complexities surrounding commodity markets. Those acting on the information are responsible for their own actions.

 

 

6/4/2014 Morning Comments

Good Morning,

 

Outside Markets as of 5:45am: Dollar Index down 0.0340 at 80.6110; Euro is down 0.00100 at 1.36140; S&P’s are down 2.75 at 1919.25; Dow futures are down 14.00 at 16,699.00; 10-yr futures are down 0.01%; The Nikkei closed up 0.22% at 15,067.96; The DA is down 0.17% at 9,902.40; The IBEX-35 is down 0.61% at 10,711.20; The Russian MICEX is down 0.01% at 1,472.75; Gold is up $1.50 at $1,246.00; Copper is down $4.70 at $09.00; Crude Oil is up $0.62 at $103.28; Heating Oil is up $0.0016 at $2.9503; Paris Milling Wheat is up €1.75 at €191.50/MT.

Global equity markets are drifting back from recent highs as the high-risk market events of Thursday’s ECB meeting and Friday’s employment situation report loom.  Most investors are anticipating a cut in interest rates from the European Central Bank as inflation data for the 18-country bloc slows and deflationary risks need addressed.  In the US Friday’s non-farm payrolls report is expected to show 220,000 jobs added during the month of May. Today’s ADP private payroll report is expected to show an increase of 210,000, down slightly from April’s 220,000.  The market is expecting the unemployment rate to increase slightly to 6.4% from last month’s 6.3%.

Rain moved across the WCB and Northern Plains yesterday and last evening as expected, bringing 0.25-1.00” in central and southern SD, while E-NE and most of IA saw slightly heavier totals with some localized amounts as high as 3.0”.  Some severe weather was noted with the system as well.  This same cell is working across N-MO/IL/IN this morning with heavy rains expected.  Additional moisture is still expected over the next 30-days, mainly in the central and northern plains, while the ECB will also see heavy rainfall during the period.  The southern plains will see good chances for rain this week as well with portions of E-KS/E-OK/S-MN looking at totals anywhere from 1.50-8.00”.  Parts of MO have been running short on water during May with some reporting locations at 25-60% of normal precip.  Temperatures still expected to cool to below normal the next 15-days.

 

Higher prices almost look odd on the screen this morning, but a relief bounce appears to be at hand with firmer grains and oilseed prices to start the day.  If wheat can manage a positive close today, it will be just the second higher close in the last 19 sessions.  Unfortunately, July Chicago wheat is devoid of major support until the $6.00 level, and probably even the February corrective lows or the beginning of the rally in January.  Corn’s performance has been nearly as bad, and soybeans are trying to claw back a portion of their 20c losses yesterday, although soybean charts still look the best by far across the grain room.  A consolidation pattern has set up once again in soybeans with key areas of support and resistance coming in at  $14.50 and $15.36.  While that range seems wide, anything in between will be a short-term trend inside an intermediate consolidation pattern and a long-term up-trend.

Overnight news included Russia’s Deputy Ag Minister lowering the grain harvest forecast to 96.8MMT from 100MMT previously.  The previous forecast of 100MMT did not include recently acquired Crimea.  Russia’s 2013 cleanweight harvest of 89.3MMT was up 30% from the drought reduced 2012 harvest. Bloomberg carried a story this morning about wheat rebounding from 3-month lows as the reduced price may spur demand.  Unfortunately, Black Sea prices remain below US-SRW, and sharply below US-HRW.  France’s wheat prices on a FOB basis are also below US replacement, so a big up-tick in demand might not be around the corner.  In addition, Chicago wheat is still at 125% of the weight adjusted price of corn, while KC wheat is at 145%.  Neither price relationship promotes the feeding of wheat, and should take further demand away.  Wheat/Corn should stay seasonally weak through June.

An updated look at end-user margins this week supports the strength witnessed in corn basis the past month. The US composite broiler price rose to new, all-time record highs of $1.2109/lb this week, helping push broiler crush margins to new highs of 95.96c/lb.  Ethanol margins remain robust at $1.35/gln vs $0.90/gln at this time last year, and hog crush margins are still solid at $146.26/hd vs $78.53/hd at this time last year. The black eye of the corn demand story remains the cattle feeder with margins at $96.97/h vs $203.64/hd in 2013, and margins below $100/hd thought to be sharply negative.  Feeder cattle prices simply remain too high relative to fats and corn.  Corn spreads eased yesterday and overnight amidst more passive long index fund rolling to the September.  This will continue with the GSCI roll beginning Friday.  A more clear look of the cash market may have to wait until they’re done.

The beat goes on in cash corn with all major rail destination markets firmer on yesterday’s break, and major ethanol plants also firmed corn basis for most summer slots.  A more thorough discussion of corn basis will follow later this week, but suffices to say the US farmer is content to wait on the development of his new crop before puking remaining old crop supplies.  This does remain a risk to the market, however, as corn stocks as of June 1st are expected to be around 3.700-3.800bbu vs. 2.674bbu at this time last year.  It is no secret the farmer did a better job of marketing and moving soybeans than corn, and we’ve got around a billion bushels more corn in the country than a year which needs to find a home prior to September 1st.  When the farmer decides to move his remaining length, and how orderly the process is will be one of the focal points of this summer.

Softer CIF soybean and Brazilian paper markets yesterday after the SAM farmer rewarded the market Monday.  Spot Brazilian paper was said to be changing hands yesterday at -35/-40N vs -32N a week earlier.  CIF was thought to be down 3-5c.  Several large crush facilities rolled bids from the July to the August, which is usually bullish the spread as commercials are unwilling to take on additional short July exposure.

Maps below show May 2014 vs May 2013 as a percent of normal precip.

 

Bottom Line:  Expect better prices today as the market lets off a relief rally following 2-weeks of lower prices in grains.  Old crop corn demand remains stout as evidenced by cash basis and spreads.  New crop is developing well.  A similar situation is present in soybeans.  At some point we’ll reach the tipping point where the market is comfortable with the amount of remaining old crop, but that day is not today.  Keep an eye on weekly ethanol production at 9:30 for a continued gauge of this important demand component.

 

Good Luck Today.

 

30-day % of Normal May 2014 6-4 30-day % of Normal May 2013 6-4

 

Tregg Cronin

Market Analyst

Tregg.Cronin@halocommodities.com

www.halocommodities.com

@5thWave_tcronin

 

 

COMMODITY TRADING INVOLVES RISK AND MAY NOT BE SUITABLE FOR ALL RECEIPIENTS OF THIS EMAIL. Neither the information presented, nor any opinions expressed, constitutes a solicitation for the purchase or sale of any commodities. The thoughts expressed in this email and basic data from which they are derived are believed to be reliable, but cannot be guaranteed due to uncertainty about future events and complexities surrounding commodity markets. Those acting on the information are responsible for their own actions.

 

6/3/2014 Morning Comments

Good Morning,

 

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.

 

HPC 6-3

 

Tregg Cronin

Market Analyst

Tregg.Cronin@halocommodities.com

www.halocommodities.com

@5thWave_tcronin

 

 

COMMODITY TRADING INVOLVES RISK AND MAY NOT BE SUITABLE FOR ALL RECEIPIENTS OF THIS EMAIL. Neither the information presented, nor any opinions expressed, constitutes a solicitation for the purchase or sale of any commodities. The thoughts expressed in this email and basic data from which they are derived are believed to be reliable, but cannot be guaranteed due to uncertainty about future events and complexities surrounding commodity markets. Those acting on the information are responsible for their own actions.

 

5/30/2014 Morning Comments

Good Morning,

 

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.

 

Soil Moisture 5-30

 

Tregg Cronin

Market Analyst

Tregg.Cronin@halocommodities.com

www.halocommodities.com

@5thWave_tcronin

 

 

COMMODITY TRADING INVOLVES RISK AND MAY NOT BE SUITABLE FOR ALL RECEIPIENTS OF THIS EMAIL. Neither the information presented, nor any opinions expressed, constitutes a solicitation for the purchase or sale of any commodities. The thoughts expressed in this email and basic data from which they are derived are believed to be reliable, but cannot be guaranteed due to uncertainty about future events and complexities surrounding commodity markets. Those acting on the information are responsible for their own actions.

 

 

5/29/2014 Morning Comments

Good Morning,

 

Outside Markets as of 5:40am: Dollar Index down 0.1570 at 80.4140; Euro is up 0.00260 at 1.36190; S&P’s are up 1.25 at 1910.25; Dow futures are up 14.00 at 16,641.00; 10-yr futures are up 0.05%; The Nikkei closed up 0.07% at 14,681.72; The DAX is down 0.07% at 9,932.44; The IBEX-35 is down 0.50% at 10,703.60; The Russian MICEX is up 1.41% at 1,446.00; Gold is down $5.90 at $1253.80; Copper is down $2.20 at $315.15; Crude Oil is up $0.27 at $102.99; Heating Oil is up $0.0029 at $2.9333; Paris Milling Wheat is up €0.50 at €193.00.

Muted equity markets overnight as most await updated growth and jobs figures out of the US this morning.  First up, weekly unemployment claims are expected to decline 8,000 claims to 318,000, reversing part of last week’s 28,000 claim jump.  Continuing claims are expected to drop 3,000 to 2.65 million.  Next Friday’s payroll data for May is seen adding 217,000 jobs, down from April’s 288,000.  Traders are expecting this morning’s first revision of Q1-GDP to be revised lower to -0.5% from the originally reported +0.1%, while Q1 personal consumption is seen inching higher to +3.1% from the first estimate of +3.0%.  Pending home sales for April are expected to jump 1.0% m/m, adding to the +3.4% increase witnessed in March.  The market is expecting a 250,000 bbl rise in crude oil inventories on this morning’s EIA report.

Quiet Midwest radar this morning ahead of the weekend’s pending storms.  The initial rains will impact E-MT/W-ND later today into tonight with additional rainfall hitting W-SD by Friday.  The system is expected to track east Saturday into Sunday with N-MN seeing heavy rains of 2.0”+.  Totals have been reduced for SD, although Sun-Tue is still seen as producing rainfall for the majority of SD/MN/IA/E-NE with heaviest totals seen in SE-SD and along the MN/WI border with 1.7-1.8” expected.  KS is forecast to see another decent shot of rain by mid-week next week, although coverage and placement are uncertain this far out.  The major change to the weekend/early week system is a shifting of the heaviest totals north and west to E-ND/N-MN from the SD/ND border.  Planting progress will be interrupted in the N. Plains.  No major changes to the 6-10 and 8-14 day outlooks from NOAA as of yet.

 

Don’t call it a bounce, but wheat markets are firmer this morning for what seems like the first time in a month.  To be more precise, if July Chicago wheat manages to close positive today, it will be the first higher close in eight sessions and the second higher close in sixteen.  Wheat is due for a relief bounce as fundamental data still doesn’t suggest a bottom is in.  Harvest is expanding in the south, adding harvest pressure, world FOB values remain sharply cheaper than US stem, cash markets are softer and Black Sea wheat areas are facing less threatening weather than a week ago.  On the technical front, July Chicago wheat has retracement support around $6.28 as well as the February highs around $6.24.  Otherwise, this looks like a technical bounce in an “oversold” market to use the correct technical parlance of our times.  July soybeans are trading back through $15.00, but within recent ranges.  Corn charts mirror wheat charts.

Just glancing down the list of world FOB values shows a person how far from being competitive US wheat is.  At the close yesterday, French FOB Rouen wheat was offered $244.67-248.76/MT, while FOB Russian 12.5% protein wheat changed hands for Aug/Sep at $258/MT.  For comparison purposes, US-SRW CIF put replacement at $249.40-250.50/MT, while 12.0% pro HRW CIF TX-Gulf was offered $322.98/MT FOB.  So on a grade-by-grade basis, French wheat is beating SRW by $4-6/MT, while Black Sea wheat of quality is cheaper than US-HRW by $60/MT on a FOB basis.  Even Argentine wheat has been coming down in recent weeks with offers last night around $375/MT FOB vs $400/MT 2-weeks ago.  Still not competitive, but coming down from the plateau they’ve been on for months.  Australia continues to receive rain in most regions aside from Southern Australia and values are following world numbers.

On a side, should be noted the sharp drop in KCBT basis yesterday with all classes of wheat losing 15-25c yesterday alone.  12.0% protein bids were seen at +90/100N vs +115/125N a week ago and +132/142K a month ago.  TX-Gulf bids also fell for HRW with those sliding 5c to +143/140N.  Expanding harvest and lack of competiveness on the world stage is definitely having an influence.  MPLS 14.0% protein wheat on the spot floor was seen yesterday at +125/135N vs +135/150N a week ago.

Reuters ran article two days ago talking about the 9.2mbu of SAM soybeans unloaded or about to unload at US ports.  They also said another 12.6mbu is either loading or waiting to load to head to the US.  For comparison purposes, the US exported 3.3mbu of soybeans in the latest reporting week, and will crush roughly 28mbu per week Jun-Aug.  The SAM imports on the books should get us into July, leaving 6-8 weeks until the next marketing year.  When one looks at the imports from this perspective, it becomes clear the level of SAM soybeans heading to the US shouldn’t move the demand needle nearly as much as it will sell headlines.  All of the SAM soybeans imported plus those waiting to sail would only replace 2/3’s of one week of US crush.  As noted yesterday, C-IL cash crush margins remain about $0.30/bu higher than a year ago, so no slowdown looks imminent if supply can be sourced.

The Rogers Index Fund roll begins today while the Goldman roll begins June 6th.  Were it not for these two large indices picking their length off the front end and hurling it at the back end, one would assume corn spreads would be quite a bit better than current levels based on recent CIF trades.  Lack of movement anywhere in the system has pushed the river corridor above gross July delivery equivalence, which should be bullish the spread.  Yet, hard to want to step in front of 100,000+ contracts being rolled the next 7-10 days.

Export sales are delayed until tomorrow, but weekly ethanol production will be released at 10:00am this morning.  It will be important to see production maintain a grind near 920,000bbls/day to feel confident about the USDA’s recently revised estimate.

 

Bottom Line:  Technical bounce for wheat, while soybeans still come to grips with the fact SAM imports won’t totally solve the problem, and we’ve got 2.5 months until the earliest US new crop supplies become available.  US wheat isn’t competitive, and it looks increasingly likely we’ve found a bottom in US wheat production estimates.  World supplies are developing well, and planting progress in the North remains the only other big unknown.  Corn basis and spreads suggest a near-term bottom might be at hand, but at the end of the day corn weather is good and acres won’t be known for another month.

 

Good Luck Today.

 

 

Tregg Cronin

Market Analyst

Tregg.Cronin@halocommodities.com

www.halocommodities.com

@5thWave_tcronin

 

 

COMMODITY TRADING INVOLVES RISK AND MAY NOT BE SUITABLE FOR ALL RECEIPIENTS OF THIS EMAIL. Neither the information presented, nor any opinions expressed, constitutes a solicitation for the purchase or sale of any commodities. The thoughts expressed in this email and basic data from which they are derived are believed to be reliable, but cannot be guaranteed due to uncertainty about future events and complexities surrounding commodity markets. Those acting on the information are responsible for their own actions.

5/28/2014 Morning Comments

Good Morning,

 

Outside Markets as of 5:35am: Dollar Index up 0.0820 at 80.4340; Euro is down 0.00120 at 1.36220; S&P’s are up 4.50 at 1913.75; Dow futures are up 36.00 at 16,690.00; 10-yr futures are up 0.12%; The Nikkei closed up 0.24% at 14,670.95; the DAX is up 0.09% at 9,950.11; The IBEX-35 is up 0.26% at 10,742.00; The Russian MICEX is up 0.52% at 1,424.65; Gold is down $0.60 at $1265.10; Copper is up $0.85 at $318.60; Crude Oil is up $0.21 at $104.32; Heating Oil is up $0.0056 at $2.9450; Paris Milling Wheat is down €1.25 at €191.75.

Quietly mixed equities overnight as the S&P 500 hit fresh record highs again yesterday.  What’s interesting, or troubling depending on your position, is the S&P 500 is the only major index out of the four (Dow, S&P, Russell, NASDAQ) which is hitting fresh highs.  Several trade publications have pointed out volume on the rally has been especially light, raising red flags about its sustainability.  On last Friday’s fresh record high, only 23 stocks of the 500 in the S&P closed at new highs, just 4.6% of the total membership. 30-yr mortgage rates fell to a fresh 7-month low last week of 4.14%, which was down 44bp from the 3-yr high hit back in August of 2013 at 4.58%.  The current mortgage rate is 74bp above the 3.40% seen a year ago.

Popcorn showers scattered around the Midwest this morning, but no organized activity to speak of.  The first post-Memorial Day weekend models certainly provided some color yesterday afternoon, bringing in a sizable moisture event for the WCB and Northern Plains later this week. Moisture will finish up in the east by tomorrow, and then systems will move into ND Thursday with both Dakotas seeing moisture Friday into Saturday. The weekend will bring more precip with much of SD seeing 0.50-3.50” for the 3-day period ended Monday.  The same event moves into MN/IA/WI Tuesday into Wednesday.  The total forecasted precip for the 7-day stretch is in the map below.  If this verifies, there should be a fair amount of acreage which gets enrolled in the PP program.  6-10 and 8-14 day maps keep the ideal weather in place with above normal temps and precip through June 10th.

 

Ugly session yesterday followed by more of the same in grains overnight while the soy complex is clawing back just less than half of yesterday’s losses.  Themes remain the same, regardless of how repetitive they seem to be getting: ideal growing conditions for planted crops, lack of competitiveness on the world wheat export market, tight old crop soybean balance sheet and planting progress which has caught back up to averages after a sluggish start.  While planting progress looks close to average, I think this could be a bit misleading considering the date, forecast and remaining acreage in ND/N-MN.  As of last night, 88% of the nation’s corn crop had been planted, spot on the 88% 5-yr average.  But in ND, only 67% of the crop has been planted, leaving 973,000 acres unplanted as of Monday.  In MN, there are 1.634 million, in WI 1.353 million, MI 1.245 million and OH 1.147 million unplanted corn acres.  In total, these five states have 6.35 million unplanted corn acres with PP dates to be hit by all five this week.  Farmers can choose to keep planting, but lose 1% of their maximum coverage rate each day past the PP date.  Weather where the crop is planted is ideal, and shouldn’t be marginalized, but the June acreage report is shaping up to have a few surprises.

Soybean planting progress came in above expectations at 59% planted vs the 5-yr average of 56%.  Notable laggards are the same 5-states as in corn, although still lots of time for soybeans to be planted, and obviously some of the aforementioned corn acres could, and will, get switched to soybeans if seed is readily available.  On spring wheat planting, decent progress was made last week with 74% of the crop planted vs the 5-yr average of 82%.  40% of ND remains unplanted, while 33% of MN is unplanted.  North Dakota accounts for roughly 46% of the total US spring wheat production, so these 2.3 million acres are incredibly important.  The forecast below looks as though planting could get shut off into June.  Winter wheat conditions stabilized last week, moving up 1pt to 30% G/E vs 31% last year.  HRW and SWW conditions remain well below averages while SRW conditions remain favorable.

The other notable feature yesterday was the strength in corn basis and spreads as the board continued to sink.  Farmer selling has shut off with fieldwork taking precedence or current prices just not encouraging much selling.  This should limit significant downside from current levels given end user profitability, but there is still a very large amount of corn on-farm the farmer has to move this summer.  When and how this corn moves will prove very interesting for our cash markets and spreads.  CIF corn bids for afloats are worth +70N against no offer, FH-June +64N.  Call these up 3-5c w/w.  Iowa corn processor basis was also firmer by 2-5c yesterday from week ago levels.  PNW rail corn is holding +100N, while HETX shuttles are bid around +78/80N.  The CN/CU and CN/CZ are weaker overnight, but firmed to 6-session highs yesterday.  As a general rule of thumb, when cash basis and spreads are firming in unison, it’s always a good idea to stress test outright short futures deployment.

Speaking of end user profitability, US Composite Broiler prices moved to new all-time record highs again last week of $1.2062, up from $1.167 the week prior.  As discussed last week, this is due in part to poultry’s competitiveness with beef and pork as an alternative protein source, but also due to the big demand by almost all fast food restaurants now offering breakfast, raising the demand for egg whites and yolks.  Ethanol and hog crush remains strong, although cattle crush is slipping to some of the lowest levels on record as feeder cattle prices remain too high relative to fats.  Cash crush margins for soybean processors in C-IL remain north of $0.90/bu, suggesting little rationing taking place in that sector.  Certainly feels like we’re headed for a mid-summer moment of panic in the soybean market based on the pace we’re crushing and exporting.  Time, and spreads, will tell.

It was reported several places last night the Bureau of Meteorology said the odds of an El Nino weather event later this year held at 60% this month, raising the odds of a drier than average growing season in Australia’s wheat belt.  Results are mixed on its effects during the US growing season, but generally a drier than average Australia and SE-Asia result from this phenomenon.

Worth noting the difference in fund positions going into the growing season this year vs last year.  Last year, funds were short -5,000 contracts of corn, long 60,000 soybeans and short -67,000 Chicago wheat for a net position of -12,000.  This year, funds are long 145,000 contracts of corn, 75,000 contracts of soybean and short -13,000 Chicago wheat for a net position of +207,000.  This 200,000 contract swing is important considering the growing weather to date, the better planting progress to date and the poorer technical picture as we roll the calendar over to June.  Funds need a reason to stay in their current positions.  Whether acres in the northern states is enough remains to be seen.

Ethanol production will be delayed until tomorrow at 10:00am due to the Memorial Day holiday.

 

Bottom Line:  Mixed start, but two-sided trade in all of the major Ag’s wouldn’t be too big of a surprise given the beating witnessed recently.  Corn basis and spreads are firming with outstanding end user profitability on top of a US farmer uninterested in current prices.  The farmer can’t hold out forever, but in the short-term, basis and spreads should provide some board support.  Soybeans can’t break too much given the pace we’re using soybeans at and the relative eternity until the end of the marketing year.  The HRW crop is done getting smaller, and the board will have hard time rallying on a 750mbu HRW crop if the US is the only wheat problem in the world.

 

Good Luck Today.

 

HPC 5-28

 

Tregg Cronin

Market Analyst

Tregg.Cronin@halocommodities.com

www.halocommodities.com

@5thWave_tcronin

 

 

COMMODITY TRADING INVOLVES RISK AND MAY NOT BE SUITABLE FOR ALL RECEIPIENTS OF THIS EMAIL. Neither the information presented, nor any opinions expressed, constitutes a solicitation for the purchase or sale of any commodities. The thoughts expressed in this email and basic data from which they are derived are believed to be reliable, but cannot be guaranteed due to uncertainty about future events and complexities surrounding commodity markets. Those acting on the information are responsible for their own actions.

5/27/2014 Morning Comments

Good Morning,

 

Outside Markets as of 5:30am: Dollar Index down 0.1560 at 80.2370; Euro is up 0.00250 at 1.36510; S&P’s are up 8.75 at 1905.75; Dow futures are up 73.00 at 16,659.00; 10-yr futures are down 0.04%; The Nikkei closed up 0.23% at 14,636.52; The DAX is up 0.33% at 9,925.42; The IBEX-35 is up 0.30% at 10,720.00; The Russian MICEX is down 2.46% at 1,413.66; Gold is down $8.30 at $1283.60; Copper is up $0.55 at $317.30; Crude Oil is down $0.27 at $104.08; Heating Oil is down $0.0140 at $2.9409; Paris Milling Wheat down €1.75 at €191.00.

Weekend elections in Ukraine saw the election of Petro Poroshenko, the West’s preferred candidate, but this didn’t bring a unified Ukraine.  Ukrainian troops killed dozens of rebels, and began airstrikes in certain locations.  Poroshenko has a fortune of some $1 billion according to Bloomberg.  In the US this week, there will be seven appearances by Fed officials, $96 billion of T-note auctions and today’s durable goods orders which are expected to show a decline of -0.7% and -0.1% ex-transportation.  Increases of 2.5% headline and 2.1% ex-trans were witnessed in March. Today also sees May US consumer confidence which is expected to be up 0.7 to 83.0.

Several systems on the radar this morning including widespread rain in E-TX, and scattered showers in the upper-Midwest and Great Lakes.  The long awaited rain event in the southern plains came through over the weekend with best totals recorded in C-TX where as much as 6-8” fell locally.  Most areas saw the rain forecasted, although W-KS/E-CO looks to have been left a little light based on the radar return maps shown below.  Overall, the rains will be welcome for fall crops and cotton, although benefit to the wheat is uncertain.  It didn’t hurt, that much is for sure.  Shower activity will continue this week with several systems forecast.  The best rains for the Midwest will occur in the central/east corn belt and the Northern Plains where ND could see up to 3.2” in the southern part of the state over the 5-day run.  6-10 and 8-14 days maps still show above normal precip and temps for the Midwest.

 

Ugly evening session for the Ag markets following the long Memorial Day weekend with July KC wheat working on its 8th lower session in the last nine days.  Soybeans are seeing the largest nominal losses, but price remains well inside recent ranges with uptrends still intact.  Planting progress should have rolled hard for areas up against PP dates over the weekend and later this week, but areas already completed are seeing nearly ideal conditions across the major corn producing states.  Planting progress on tonight’s report is expected between 88-92% on corn vs 87% average, and soybeans are expected at 55-65% vs 54% average.  Spring wheat progress will be watched closely as well with PP dates approaching and ND only 25% planted as of last Monday.  2013’s slow spring had 55% of the crop planted as of last week.  How the rain impacted the HRW crop will also be of interest on the condition score.

Paris Milling Wheat continues to trade under heavy pressure and is now down to the lowest level since February.  Over the weekend it was reported France’s soft wheat crop is rated 75% G/E vs 67% last year, and 76% of the crop is heading which is about a full week ahead of average.  Combine this with the fact Paris/KC spreads are still trading near the largest discount in 2-years and it isn’t difficult to see the kind of export year it’s shaping up to be.  On a side, new crop wheat sales as of mid-May now total 129.9mbu, the third largest of the last 5-years and heavily favor HRS at 45.7mbu.  With current inter-market cash spreads and expected production distribution, HRS sales could see a big advancement in 2014/15.

Friday’s COT data confirmed the price trend of the last week with substantial selling witnessed in both corn and Chicago wheat.  Large specs sold 55,865 contracts of corn last week, taking their net position down to 145,237 contracts, the smallest since March 11th.  In Chicago wheat, funds sold 17,261 contracts to flip their net long to a net short of -13,856 contracts, the largest short position in 9-weeks.  The old crop demand story for corn and soybeans has kept funds interested in Ags with large long positions, but the ideal growing conditions for new crop was going to make at least a partial exodus only a matter of time.  One only needs to go back 4-5 months to a time when funds were wielding a 150-200,000 contract net short position in corn and a -100,000 contract short in Chicago wheat to see how quickly positions can reverse when sentiment turns.  The current chart picture for December corn and July Chicago wheat aren’t going to make any fund feel comfortable with their current positions.  Major chart damage was inflicted last week with little for substantial support for another 10-20c.

Worth keeping an eye on this week will be the 3.5MMT of corn set to be auctioned from state reserves in China on May 29th, as well as the 300,000MT of soybeans which were to be auctioned today although I haven’t seen any results yet.  Over the weekend, one prominent mid-south researcher released their updated balance sheets and maintained their 94mbu carryout for soybeans citing a crush and export pace that is simply unsustainable.  The USDA’s latest 13/14 soybean carryout projected was 130mbu and a 3.8% stocks/use ratio.  NOPA’s latest member crush data for April showed the daily rate of US soymeal consumption was 83,000 tons, which was slightly larger than February and March and well above last year’s 78,000 tons.  With record livestock prices, meal rationing is proving more difficult in 2014.  Last year, July soymeal ended up rallying to $535.50 by expiration, and it is difficult to see how we will accomplish this rationing task with lower meal prices and higher livestock feeding profitability.  It would appear old/new inverses and outright flat price performance to the upside isn’t over just yet.

On the week, CIF corn premiums were down 2-5c, PNW firmer by 5-8c and Argentine corn premiums firmer.  Argentina’s harvest continues to be hampered by wet weather with only 31% of their crop harvested vs 71% average, while soybeans are 70% harvested vs 93% last year.  Their March corn exports were only 620,000MT, the smallest March since 1995.  Quality concerns will also begin showing up.  Brazilian soybean premiums were softer w/w as farmers sell into the rally.  Spot beans are around -33N, with Argentina at -25N.  CIF SRW was 3-5c firmer w/w.

 

Bottom Line: Soft start to the week for our Ag markets as we battle large fund long positions, excellent crop weather for what’s planted, expanding southern plains harvest and a poor technical outlook.  Our markets need to give the funds a reason to defend their positions in corn and wheat or else another leg lower looks inevitable.  We are very much in weather markets, but right now the weather is ideal.  Don’t lose sight of marketing objectives just because of a rough few sessions.  They don’t call this the silly season for nothing.

 

Good Luck Today.

RFC 5-27

 

Tregg Cronin

Market Analyst

Tregg.Cronin@halocommodities.com

www.halocommodities.com

@5thWave_tcronin

 

 

COMMODITY TRADING INVOLVES RISK AND MAY NOT BE SUITABLE FOR ALL RECIPIENTS OF THIS POST. Neither the information presented, nor any opinions expressed, constitutes a solicitation for the purchase or sale of any commodities. The thoughts expressed in this email and basic data from which they are derived are believed to be reliable, but cannot be guaranteed due to uncertainty about future events and complexities surrounding commodity markets. Those acting on the information are responsible for their own actions.