Outside Markets as of 5:45am: Dollar Index up 0.0660 at 80.9390; Euro is down 0.00150 at 1.34500; S&P’s are down 4.50 at 1976.25; Dow futures are down 32.00 at 16,966.00; 10-yr futures are down 0.02%; The Nikkei closed up 1.13% at 15,457.87; The DAX is down 0.50% at 9,745.28; The IBEX-35 is up 0.46% at 10,910.80; Gold is up $4.00 at $1296.70; Copper is up $0.60 at $327.25; Crude Oil is down $0.05 at $102.03; Heating Oil is up $0.086 at $2.8878; Paris Milling Wheat is unchanged at €181.00/MT.
Global equities are lightly mixed to close the week after favorable economic data in the US yesterday, and more on tap this next week. Weekly unemployment claims fell to an 8-1/2 year low yesterday of 284,000, a sign the labor market is set to build on the strong unemployment reports the last 3-months. Economic data out today will include June durable good’s orders which are expected to show an increase of +0.5% and +0.5% ex-transportation. The US Dollar Index continues to trade strongly, rising to 80.9830 in the overnight session, the highest since the June 5th high of 81.0200. Should the Index take out the June 5th highs, we would be trading at the highest levels since early February, a negative for commodities. Managed funds have already been leaving commodities in favor of equities, and this won’t help that trend.
Big system moving across MN/WI/IA/IL this morning after it dropped rain in SD/ND/NW-IA overnight. Best rains were in E-SD and NW-IA. This system should drop heavy totals on the central/east corn belt, and given the stage of development should go a long ways toward “making this crop.” One more soaking rain in August might be about all this corn crop needs. The next 3-days precip will be concentrated in the ECB with totals to the tune of 0.75-3.50”. Next week best precip chances belong to the southern plains where CO/KS/OK/TX all have the chance at 0.50-1.50” amounts. These rains will be key for recharging ahead of HRW planting in 60-days. NOAA models for the 6-10 and 8-14 suggest below normal precip for the Northern Plains and below normal temperatures for the entire 2/3’s of the US east of the Rockies. This forecast is a concern for soybean pod-set in the WCB and Northern Plains.
Softer markets with the exception of wheat as the market reacts to the system moving across parts of the central corn belt. There were several themes at work yesterday during the session which helped the soybean rally, and pressured corn. With the former, both old and new crop soybean sales as well as soymeal sales continue to exceed expectations. The 8.3mbu of old crop soybean sales compares with the -3.9mbu of cancelations we need to see weekly just to hit the USDA’s recently revised export forecast. Commitments now stand at 1,684.2mbu, a full 64mbu above the USDA’s entire year projection. While some sales will eventually be rolled to new crop, we’re still adding commitments. It would seem we plan to crush and export every available soybean the USDA “found” on the June 30th stocks report. New crop soybean sales were also impressive at 90.1mbu, taking commitments to 541.4mbu for the 14/15 year and have now surpassed 13/14’s total at this point of 513.3mbu. This had been a sticking point with bears, that new crop soybean sales were lagging last year despite USDA expectations for a 55mbu increase. Now export commitments have moved 5.4% ahead of last year, vs the 3.3% growth year over year with more sales likely to be announced in coming days.
Soymeal sales also continue to beat expectations with another 93,900MT of old crop commitments added yesterday to take sales to 94.9% of the USDA’s marketing year objective with 10-weeks left in the marketing year. More impressive continues to be the new crop commitments which added 348,900MT to push NMY sales to 2.957MMT vs. 1.065MMT at this point last year. We’ve already sold nearly a third of 13/14’s commitments and the marketing year is 2-months from beginning. This suggests demand is likely to remain strong during 14/15, and live up to current USDA billing. The real wild card is yield, which the USDA and other firms are counting on being a record. While the acreage will provide an ample buffer, the 13/14 balance sheet gets a whole lot less burdensome with even a yield of 44.0bpa, which would still tie the previous record in 2009/10. Forecasts will be the main driver in coming sessions.
The other main driver yesterday was the Reuters piece discussing China’s demands that US-DDS’s carry a certificate which states they do not contain the MIR-162 strain after it had halted the issuance of import licenses for US-DDGs. From January-May, US-DDGs exports to China totaled 2.31MMT out of the entire 4.996MMT which were shipped abroad. This would be a blow to ethanol by-product demand, and eventually margins as domestic prices drop. What’s so difficult to ascertain is the motive behind China’s actions. Their domestic corn prices remain at record levels, yet they are on tap for record corn production and are in the process of selling outdated inventories into the domestic market. Part of this is due to poor government price controls which artificially prop up the market to provide income to farmers. China’s infrastructure is also awful, making the expense of moving corn from North China to South China prohibitive. If the aforementioned actions stick, then many demand tables regarding Chinese corn imports the next 10-years need to be re-drafted as the world corn balance sheet is counting on China becoming a major importer. US corn carryout was counting on it too…
The Wheat Quality Council concluded their tour of this year’s hard red spring wheat crop yesterday, finding a projected yield of 48.6bpa, the highest yield estimate in the 22-years’ worth of records. This yield would compare with 2013’s 44.9bpa and the five-year average of 44.7bpa. The tour’s assessments were based on 373 field stops, and if realized would add 54mbu to the supply side of the HRS balance sheet. Assuming unchanged demand assumptions, which isn’t fair, 14/15 HRS carryout would balloon to 238mbu which would be right around the level witnessed in 2009/10. The WCQ tour has a pretty good track record of coming in close to USDA’s yield assessment, and this market needs to be prepared for the current 44.0bpa guess to be increased. Last year, WQC tour pegged the yield at 44.9bpa vs the final HRS yield of 45.8bpa.
Only other thing worth noting has been the strength in SRW and HRS calendar spreads, but the weakness in HRW time spreads. The MWU/MWZ traded to -7.50c yesterday, the highest level since May 16th despite expectations for this crop getting bigger. It would seem the market is keeping open the prospect this crop will be late, and possibly lower protein given spot floor trades as of late. Minneapolis could really benefit from an October contract instead of a September contract as it seems one out of three years renders the September contract a useless new crop hedging tool. Still, if this crop is everything it is being billed as, we should start to see MWZ/MWH weakness instead of strength as we’ve seen the last 10-sessions. HRW/HRS inter-market spreads have the potential to hit new record this year based on current fundamental assumptions.
Bottom Line: Easier markets today as traders react to the moisture moving across the central belt and allow soybeans to consolidate recent gains. The soybean market has the demand, and is simply waiting on the supply for further direction. Until forecasts put moisture in the WCB, I’m not comfortable penciling in a record yield. Corn and wheat are looking for demand as the corn and HRS crop becoming one day closer to being in the bin. Sunday night forecasts will be very key.
Good Luck Today.
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