7/25/2014 Morning Comments

Good Morning,

 

 

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.

 

 

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.

7/24/2014 Morning Comments

Good Morning,

 

Outside Markets as of 5:55am: Dollar Index down 0.0360 at 80.7870; Euro up 0.00160 at 1.34750; S&P’s are up 3.25 at 1984.00; Dow futures are up 26.00 at 17,051.00; 10-yr futures are down 0.14%; The Nikkei closed down 0.29% at 15,284.42; The DAX is up 0.47% at 9,799.33; The IBEX-35 is up 1.43% at 10,812.00; The Russian MICEX is up 0.03% at 1,407.03; Gold is down 0.36% at 1,301.80; Copper is up $4.15 at $324.85; Crude Oil is down $0.32 at $102.79; Heating Oil is up $0.0024 at $2.8881; Paris Milling Wheat is up €2.75/MT at €182.25/MT.

Despite the proposal by the European Union for more sanctions on Russia, world equities seem to be holding together fairly well.  While not implemented yet, the EU is weighing sanctions which include a proposal to ban all Europeans from purchasing any new debt or stock issued by Russia’s largest banks, as well as barring Russian banks from listing new issues on European exchanges, preventing them from using London or other EU stock markets to raise funds.  These seem as though they would have bite.  Last night, China’s HSBC manufacturing PMI came in at a new 1-1/2 year high of 52.0, up 1.3pts and strong than expectations for 51.0.  Unemployment claims are expected to show a small increase of 5,000 to 307,000 today, and June new home sales are expected to fall -5.8% to 475,000 units, reversing the 18.6% surge seen in May.

A couple systems moving across the Dakotas this morning, but otherwise quiet in the Midwest.  Rainfall the next 3-days will be relegated to IA/IL/IN/OH, although heaviest totals could get up to 3.50”.  Things should stay garden-like in the ECB.  Trends in the 6-10 and 8-14 continue with sharply below normal temperatures and below normal precip.  I guess if it’s going to be dry, and least it is going to be cool, so water usage should remain low.  The 6-10 and 8-14 day temperature maps are shown below.  Those sorts of maps last winter meant 20-30 degrees below zero.  Glad it’s still July, but it will undoubtedly get the bulls talking about frost dates if these sort of maps continue to roll into August.

 

Firmer markets across the Ag space as grains attempt to string together a two-day win streak amidst waning downside momentum.  Crop tours are beginning to kick off in parts of the central corn belt, while the big ProFarmer crop tour doesn’t begin until August 18th.  The Wheat Quality Council tour of the hard red spring wheat crop is also making its way across North Dakota this week.  Of the tours which have begun, participants are finding about what everyone expected: good crops with tons of potential.  Each calendar day which ticks by is another day closer to realizing the large supplies the USDA is already penciling into balance sheets.  The inability for price to bottom and bounce is the market’s realization and reaction to the supply in the field vs. expected demand in 14/15.  Seasonality tells us corn and soybeans both usually don’t hit lows until gutslot harvest, which is still months away.

Rail basis continues to be a focus for corn and soybeans, and in the case of the latter, strength has been witnessed almost every day this week.  Looking first at PNW bids, going home last night, new crop soybean bids were shown at +210/205/200X for SON, while the Gulf was posted at +130/120/120X for SON.  This compares with +205/202/195X a week ago for the PNW and +122/118/115X for the Gulf.  Rail freight continues to move higher, forcing destination bids to move higher to keep FOB bids at least steady.  With elevation capacity already 90% booked in the Gulf for Sep/Oct, 67% Nov and 30% for Dec according to cash sources, and 90% for SON off the PNW, the grain has to get to its destination.  To ensure timely delivery, freight will carry a premium or stiff penalty for non-performance.  This all impacts the cash price received by the farmer.

Corn basis has been more mixed as of late with PNW premiums going home bid +140U for Jul/Aug vs +150/140U a week ago.  Call HETX unchanged on the week, while over Chicago is up 3c to +23U.  FOB Group 3 bids are 10c firmer vs a week ago to -10U.  Brazilian and Argentine corn remains uncompetitive with the US at $187.98/MT and $191.92/MT FOB, respectively vs $182.08/MT out of the US for spot shipment.  This hasn’t been lost on world importers with the US’s new crop book expanding in the last week, but without a program of any kind out of China, it will be difficult to see exports expand much higher than the USDA’s 1.700bbu projection.  China has taken around 2.5MMT of US corn this year, about on par with a year ago, but short of the 4-5MMT from two years ago.  That’s 100-200mbu worth of lost demand the market has been counting on being there and expanding the next several years.

Speaking of export sales, soymeal sales on this morning’s report will be watched closely or both the current marketing year and next.  For the current marketing year, sales commitments as of last week had reached 94% of the marketing year projection, needing to hit a weekly total of 65,500MT through September to hit the objective.  The real crowd pleaser has been next year’s sales, however, as commitments through last Thursday totaled 2.608MMT vs just 919,900MT at this time a year ago.  These don’t include the 135,000MT of soybean meal and cake reported Monday, or the 405,000MT reported Tuesday.  The soybean meal export sales for next year should ensure a healthy domestic crush program, which will keep carryout estimates from ballooning too much.  The poor Indian monsoon and the reliability of the world’s largest soymeal exporter, Argentina, are behind the bump in exports.

While prices are bouncing this morning, worth pointing out the collapse in the forward curve of HRW over the last 30-days.  A month ago, the KWU/KWZ was trading around -4.00c, but as of this morning, the same spread is trading around -11.0c.  The entire curve out to May has also gone from relatively flat, to a steep carry as prices have continued to fall.  Had this been all about speculators punishing wheat, the forward curve should have remained flat to even inverted as commercials bought the spread.  The opposite has happened, however, which is either a hint at the supply of the crop, or a tip of the hand to demand which is turning off poorer than expected.  Either way, a growing carrying charge is not bullish to the wheat market and doesn’t portend bottoming action in the days and weeks ahead.  Similar action has been witnessed in Chicago, but not so much in Minneapolis.

 

Bottom Line:  Markets are entitled to a bounce, but nothing in the charts just yet to suggest this more than a couple day event.  Soybeans are the strength leaders as they have yet to go through the critical development stages, the demand component remains much more robust than grains and the speculators are wielding a record net short position while commercials are buying hand over fist.  Soybeans should support grains on a relative basis, but this is the soy complex’s party and it will cry if it wants to.  Review storage and logistic scenarios for harvest daily.

 

Good Luck Today.

 

NOAA 6-10 7-24 NOAA 8-14 7-24

 

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.

7/23/2014 Morning Comments

Good Morning,

 

Outside Markets as of 5:50am: Dollar Index down 0.0350 at 80.7460; Euro up 0.00030 at 1.34710; S&P’s are up 3.50 at 1978.50; Dow futures are up 28.00 at 17,061.00; 10-yr futures are up 0.01%; The Nikkei closed down 0.10% at 15,328.56; The DAX is up 0.65% at 9,797.80; The IBEX-35 is up 0.31% at 10,682.00; Gold is up $2.30 at $1310.30; Copper is down $0.40 at $320.40; Crude Oil is up $0.01 at $102.40; Heating Oil is up $0.0111 at $2.8747; Paris Milling Wheat is unchanged at €178.00/MT.

Tech earnings released after the bell yesterday is helping bolster world bourses this morning as Apple reported a 12% increase in quarterly profit, exceeding analyst estimates.  The company said its iPhone shipments rose 13% over a year ago.  Ecomoic data out yesterday included US home resale numbers which rose 2.6% in June, the third straight monthly gain and the highest level in eight months.  The Dollar Index and the S&P 500 have been rising in tandem in recent weeks as equities knock on the door of new record highs, while the Dollar Index pushed to 80.8370 yesterday, the highest since June 11th.  The combination of the two is a double barreled blow for commodities as equities continue to drain excess investor money while the Dollar Index makes US dollar denominated commodities more expensive.

A couple systems on the radar this morning with SW-SD and NE seeing rain while the ECB catches additional precip.  The map yesterday showed the expanding dryness in the WCB and Northern Plains with moisture deficits deepening just as corn is about to begin tasseling and pollinating, and just in front of soybean pod-set.  The 7-day forecasted precip map does suggest some chances of moisture for the dry areas discussed above, but the majority of the precip will stay east of the Mississippi.  Little for follow up moisture, however, as 6-10 and 8-14 day maps continue to suggest below normal precip for the Northern Plains and WCB.  Fortunately, temperatures are supposed to stay well below normal, but moisture will still be needed.  Small grains harvest should accelerate quickly in the NP with the aforementioned forecast.

 

Mixed markets to begin hump day, but given the performance of grains lately, there seems to be little enthusiasm behind higher prices.  Even days which have shown early morning strength have been relegated to late session losses.  At the end of the day, condition ratings remain near the highest in decades, forecasts aren’t threatening enough over a large enough area to entice panic and end users continue to lay in the weeds for lower prices.  In addition, farmers and funds remain long the corn market, even if the latter group has amassed a record net short position in soybeans.  With the amount of physical bushels which will need to be moved this fall looming large, farmers are already being faced with some of the worst cash basis levels in years with no end in sight.  Bulls are running out of time for weather to put a hurt on these crops, so demand expansion might be a necessity.

Updated sentiment scores from sentimentrader.com were released for grains last evening with the sharpest decline belonging to soybeans which now stand at 29.0%.  This is the lowest reading since September 2006, which saw soybean price trading around $6.60/bushel that fall.  We’re quite a ways from those sorts of levels, but many commentators have made mention in recent weeks about the burgeoning supplies of soybeans held by global exporters.  The combined stocks/use ratio of global exporters will swell to 50% from 37% by the end of 14/15 compared with wheat at 26% and corn at 18%.  A map from Thomson-Reuters illustrating these levels is shown below.  Wheat and corn sentiment readings are near January lows.  The CRB-Index is at 44.0%, steady on the week, but the lowest since January as commodities seem to be falling back out of favor with investors.

Much discussion this week about European milling quality wheat, the quantity of feed wheat and its impact on corn demand inside the EU-28.  Premiums for milling wheat have been jumping, and thought it worth the time to look at futures spreads in Europe between milling and feed wheat as well as Paris corn.  The Paris Milling Wheat/UK London feed wheat spread, adjusted into $/MT, is trading at $23.86/MT this morning, which is just below early July highs near $24/MT and the highest since May of 2013.  The oft-cited year of poor quality in 2007 saw the spread between the two jump to $60/MT, so we’re not seeing anything historic just yet.  UK London feed wheat minus Paris corn is trading around $4.10/MT after declining to -$6.69/MT on July 7th.  The currency influence and the lighter volume can make these spreads volatile, but the Paris Wheat/UK wheat spread is worth paying attention to.

The Minneapolis/KC inter-market spread has been discussed a lot here lately thanks to the strength of Minneapolis right as seasonality predicted.  We are now entering spring wheat harvest, and appropriately, Minneapolis usually weakens relative to KC from the end of July through August.  Given Minneapolis trading near par with KC, despite what looks to be solid HRS prospects, uncertain protein, high quality HRW and much tighter HRW supplies, KWZ/MWZ and KWH/MWH look attractive at these levels.  In fact, it wouldn’t be unreasonable to expect a retest of late-April/early-May type levels if the ND spring wheat crop turns out to be everything it’s being billed as.  As suggested before, if anyone was doing inter-market hedging of HRS in KC, now would be an opportune time to bank profit.

Not worth going through all end-user margins of corn as it suffices to say those in the black are still well in the black.  Cattle feeders have seen margins improve notably in recent weeks, however, with the most recent calculation showing $134.14/hd vs $98.44/hd the week before, but still below the $179.08/hd last year.  This type of margin is still below the 5-yr average up around $180/hd, and probably still negative thanks to record feeder cattle prices, but is worth monitoring in coming weeks.

 

Bottom Line: steady/better prices as we await the latest ethanol production data which is likely to suggest strong output thanks to strong margins.  To this observer, the amount of supply still on farm in the form of corn as we watch growing supplies in the field, combined with unreliable rail service remain the biggest challenges in the weeks/months ahead.  Regardless of futures action, if cash basis continues to sink because of the inability to move grain at the elevator level, profitability is going to remain fleeting.  Review storage options for harvest frequently.

 

Good Luck Today.

 

TR Stocks 7-23

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.

 

7/22/2014 Morning Comments

Good Morning,

 

Outside Markets as of 5:40am: Dollar Index up 0.1650 at 80.7250; Euro down 0.00400 at 1.34850; S&P’s are up 5.75 at 1972.00; Dow futures are up 52.00 at 17,033.00; 10-yr futures are down 0.07%; The Nikkei closed up 0.84% at 15,343.28; The DAX is up 0.88% at 9,696.45; The IBEX-35 is up 1.05% at 10,591.00; Copper is up $1.40 at $321.30; Gold is down $6.90 at $1308.60; Crude Oil is up $0.28 at $103.14; Heating Oil is up $0.0150 at $2.8738; Paris Milling Wheat is up €0.75 at €177.00/MT.

Firm global equity markets as Ukraine plane crash tensions ease slightly with pro-Russian separatists released a train packed full of bodies and handed over the aircraft’s black boxes.  It seems every time the Russian stock indices reach multi-month lows as they have this week, conciliatory measures aren’t far around the corner.  In the US today we’ll have the June CPI which is expected to be unchanged from May but up +2.1% y/y.  June existing home sales which are also out today are expected to show a 2.0% gain to 4.99 million units.  Meanwhile the May FHFA house price index is expected to show a small +0.2% increase following April’s unchanged report.  The index hit a 6-1/2 year high in Mar/Apr of 211.4 from the 10-1/2 yr low in March 2011 of 180.5.  Lots of press about dwindling aluminum stocks this morning with front-month spreads shrinking to their lowest levels in years.

Scattered precip across the Midwest this morning, but no concentrated systems to really speak of.  In the last 24 hours, heavy rains did fall along the ND/MN and Canadian borders with a general 0.50-1.00” across a large portion of HRS country while localized amounts were as high as 3.0”.  Additional chances will be seen the next 3-days in S-MN and IA while E-SD will have a much needed chance at 0.25-0.75” by Thursday/Friday.  The ECB has good chances of rain by the weekend/early next week.  NOAA extended forecasts really drop the temperature back during the 6-10 and 8-14 with much below normal temps seen as we peak into August.  Precip patterns stay mostly favorable outside of the Northern Plains which have been showing the largest moisture deficits during July and don’t look to improve a lot through the end of the month.  Moisture will be needed here before pod-set.

The map below shows the 30-day percent of normal precip, and while not extreme when compared to CA, moisture deficits are growing across the Northern Plains.  Sub-soil moisture remains very well supplied, but additional precip will be needed in these areas as corn pollination completes and pod-set begins over the next 2-4 weeks.  The weather to date has been pretty favorable for HRS maturation in HRS, although areas in N-ND would probably like to see more precip.  Since the beginning of the month, the 7 reporting stations in ND are running between 6-57% of normal July precip.  MT is between 9-63%.  No alarm bells, but the Northern Plains and WCB haven’t seen the follow up to the soggy June.

 

Relief bounce being witnessed across the Ag’s this morning led by August soybeans which find themselves up over 1.0% as of 6:00am.  There are still signs of old-crop soybean tightness via basis levels at the Gulf and domestically, and the margins of crush plants haven’t exactly suggested widespread plant downtime is in the offing.  In addition, South American premiums continue to push export business back to the US for late-summer slots which isn’t something the balance sheet was necessarily counting on.  However, the “ridge of wrath” didn’t exactly set up in the Midwest for very long, and temperature patterns into August look pretty favorable for continued development.  At the very least, our markets seem to be losing downside momentum for the time being, awaiting the commencement of crop tours next month and more objective data on the size of the row crops.

No real surprises in last night’s crop progress reports with the corn crop rated 76% G/E, unchanged from last week and the best since 2004.  56% of the crop is silking vs 55% average.  Soybean conditions were up 1pt to 73% G/E and stand at the highest since 1994 and the second highest on record.  60% of the crop is blooming vs 56% average while 19% of the crop is setting pods vs 17% last week.  The next 2-weeks’ worth of weather will be very important for the potential of this soybean crop.  Spring wheat conditions were unchanged at 70% G/E and remain right at the 5-yr average, but above the 10-yr.  HRW harvest was pegged at 75% complete vs 75% average as harvest picks up in SD and MT.  So far, quality being reported in SD is very favorable with 12.0% protein and solid test weights.  Yield reports south and west of Pierre have been at or above 60bpa.

The most pressing fundamental issue in this analyst’s mind continues to be the structure of the soybean market, despite the fact it is receiving precious little press.  Based on Friday’s Commitments of Traders data, the non-commercial (large spec) group was wielding a -57,341 contract net short position, the largest on record going back to 1/2/2007.  This is impressive in its own right, but the commercial net position pushed to a net long of 13,302 contracts, the largest on record and the only net long position commercial traders have ever held in the last 7-years.  Commercials are in the business of using soybeans, whether as end users or commercial elevators, or what have you.  A lot of the time, they are taking the opposite position of the trend-following large spec trader.  When these two groups reach extreme opposite positions as they have now, usually it begs watching the commercial traders as they’re the group which have the best handle on the supply and demand characteristics of these markets.  Given what we think we know about the supply of the soybean crop, it would seem odd commercials are net long at record length while speculators are amassing a record net short position.  In addition, the Gross Commercial Long (end user) is long 274,838 contracts, a new record outright and % of total open interest.  The smart money is buying soybeans hand over fist while the speculators are selling them.  It is very difficult for this analyst to get incredibly beared up while this is taking place, especially when export activity out of the US has increased, key developmental weather remains in front of the market and the USDA has consistently underestimated demand projections early in the marketing year the last 5-years.  Stay tuned.

Much press has been given to the poor export program out of the US so far this year and the bleak picture looking out into 14/15.  A large part of this has been due to competing export nations having sizable harvests, namely the European Union.  Reuters reported yesterday, however, premiums for milling quality wheat have jumped in France due to heavy rains during harvest which have diminished quality.  The news outlet reported the spread between animal-feed wheat and milling wheat had pushed to €30/MT, the widest since the poor quality harvest in 2007.  Cash premiums between physical wheat and benchmark Paris wheat were between 0 and €8/MT, up €4/MT since Friday.  Given the higher quality wheat from the drought stressed southern plains harvest, in addition to the favorable reports so far out of SD, the US could still have a quality play during the 14/15 crop year.  Paris Milling wheat is currently carrying a $42/MT premium to US-SRW and a $6/MT premium to US-HRW.  The spread between Paris Milling Wheat and UK London Feed Wheat is now at $21.18/MT, well above 50/100/200-day moving averages.  This story will bear some watching.

One other topic worth touching on, and which will be revisited many times the next several months, is the logistical problems in the Northern Plains with the looming harvest.  Over the weekend, Informa Economics released a piece breaking down production by region, isolating the Northern Plains as having an all-crop harvest in 14/15 of 132.1MMT, or roughly 5bbu.  This projection is up 7MMT from 13/14, or up roughly 250-275mbu.  All players remember the price of trains and the aggravation of loading them during 13/14 while in competition with the oil fields.  If Informa’s analysis is correct on production, the Northern Plains is going to require another 560 shuttle trains during the next marketing year to move the crop.  Now granted, not all of the grain will move by train, nor will it all move period, but thinking about the increased supply in terms of shuttle trains helps put into perspective the massive logistical strain another large crop is going to put on the system.  What this should tell Northern Plains producers is be prepared for poor cash basis levels, full elevators and having to deal with quality problems on farm due to the inability to move grain.  Strap in folks.

 

Bottom Line: Expect a bit of a bounce today as markets lose some of the downside momentum awaiting crop tours and a better peak into August weather.  The trend in the soybean market of commercials vs speculators is cause for vigilance, and corn seems to be attracting export interest at these levels.  Some pause on the bear train might be warranted while we digest the recent move.

 

Good Luck Today.

 

AHPS 7-22

 

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.

 

 

7/17/2014 Morning Comments

Good Morning,

 

Outside Markets as of 5:45am: Dollar Index down 0.0440 at 80.5150; Euro up 0.00050 at 1.35310; S&P’s are down 12.00 at 1962.75; Dow futures are down 62.00 at 16,995.00; 10-yr futures are up 0.20%; The Nikkei closed down 0.06% at 15,370.26; The DAX closed down 0.46% at 9,813.96; The IBEX-35 is down 0.83% at 10,579.40; Gold up $4.20 at $1304.00; Copper is unchanged at $321.45; Crude Oil is up $1.14 at $102.35; Heating Oil is up $0.0074 at $2.8652; Paris Milling Wheat is unchanged at €179.00/MT.

Global equity markets took a step back this morning after the US announced another round of fresh sanctions against Russian companies.  Specifically, the Russian state-controlled oil giant 0A0 Rosneft as well as other top firms.  The sanctions come in response to US threats for weeks that Russian companies would face repercussions unless it helped defuse the crisis in eastern Ukraine.  The ruble fell 1.0% against the dollar to trade at 34.91, the weakest level in 6-weeks.  In the US today, weekly unemployment claims are expected to show an increase of 6,000 claims to 310,000, while continuing claims are seen at 2.580 million, down 4,000.  We will also see June housing starts which are expected to show an increase of 1.9% to 1.020 million, reversing part of May’s -6.5% decline.  Homebuilder confidence has risen sharply the last 2-weeks to a 6-month high of 53.

More rain across the southern plains this morning following the last 3-days and more expected to finish off the week. Since Monday, portions of N-TX and most of OK have seen widespread 0.50-1.50” totals with another 0.20-2.00” by Sunday.  Localized areas are expected to see up to 5.00” along the OK/TX border.  Despite the uptick in precip, most areas had been running deficits in the southern plains over the last 15-30 days, so these rains should catch them back up to average.  Still expected to be mainly dry in the Midwest the next week with best precip chances in the southern plains and far northern plains of N-MN/ND.  Follow up rains will be needed in the WCB after the warming temperatures this week.  The 6-10 keeps heat in for the WCB and Northern Plains, but moisture remains on the light side.  These forecasts will need to be monitored closely.

 

Markets are setting back a bit today after yesterday’s nice bounce as grains try their best attempt at consolidating the recent declines.  The news drivers in this corn market haven’t changed with favorable corn pollination weather, solid end user margins, poor rail road performance and the difficulty moving the remaining old crop corn supply.  On soybeans, more analysts are starting to pay attention to the heat developing in the 6-10 and 8-14 day forecast as soybeans haven’t yet hit pod-set, and can still be adversely affected.  Call it a minor concern as most areas remain well watered, but one being watched nonetheless.  In addition, forecasters are calling for a pickup in rains for the Indian monsoon season although much is needed as oilseed planting remains 80% behind average as farmers wait for better soil conditions.  Some have been comparing this year’s El-Nino induced dryness to 2009, which was the worst monsoon season in 40-years.  Current moisture deficits have been averaging 43% of normal, but should hold at those levels.  Soymeal export sales should be monitored for confidence in the forecasts or satisfaction with the rain which actually falls.

Wheat has been somewhat sleepy as of late as harvest clears the 2/3’s complete hurdle and awaits development of the Northern Plains and Canadian Spring wheat crops.  I think it is worth taking a look at the wheat balance sheet since the July WASDE, however, as some interesting tidbits stand out.  First, Total usage of wheat for 14/15 is forecast at 2.114bbu, the lowest since 2009/10, and the fourth lowest since 1985/86.  Within demand, exports are pegged at 900mbu, also the smallest since 2009/10, but the second smallest of the last decade.  This will be the one to monitor as spreads with other exporting nations have been coming in with FOB prices for spot US-SRW at $218.99/MT vs Russian Milling Wheat at $221.50/MT and French soft wheat at $233.93/MT.  Compare those with 2-weeks ago prices of $234.61/MT FOB for US-SRW and $240.76/MT for French.  The US still has to overcome the freight disadvantage, which will be difficult into Egypt, but export projections sitting at nearly decade lows leaves opportunity for upside.  Feed demand is pegged at 145mbu for the 14/15 campaign which would be the lowest since 2010/11 thanks to the massive corn crop coming at us.  Wheat/corn spreads are sitting near long-term averages, but wheat is definitely not being priced to feed and shouldn’t.  At $1.45 premium to corn for SRW and $2.60 premium to corn for HRW, wheat will head for storage.  It will be difficult to mount a sustained rally with the fundamental perception of growing supply (northern plains), and weak demand.  The US will need to keep tightening its spread with other exporting nations as it has been doing, as the domestic picture doesn’t look as though it has the ability to support this year’s wheat balance sheet.

Within wheat, the MW/KW spreads have been rallying rather sharply the past several weeks up until yesterday with most contracts sitting around -10.00c this morning.  These spreads stuck to seasonal tendencies rather well, arguing for MW strength during KW harvest.  Now that we are on the cusp of spring wheat harvest in the Northern Plains, these spreads are about to head the other way with MW showing weakness into September.  Given favorable crop conditions to date for HRS in the US, odds are good this crop is getting larger as opposed to smaller at this point.  Given the better handle on the HRW crop, the higher protein content of the southern plains wheat, uncertainty about Northern Plains protein and ideas of growing supply, it wouldn’t be unreasonable for these spreads to revisit their April lows around -40.00c.  Any inter-market hedge gains should probably be banked until more is known about the Northern Plains.  Never a bad thing to pocket 10-30c.

Weekly ethanol production released yesterday showed an average of 943,000bbls/day last week, up 16,000 from the week before and continuing to run above the USDA’s latest ethanol projection.  Stocks declined by 341,000 barrels to 17.945 million barrels, but remain quite comfortable.  Gasoline demand ticked higher and is near the high end of the 5-year range.  Sustaining reliable ethanol export markets remains a key for continued ethanol production in 14/15.  Margins remain stout, but the EPA’s dragging of their feet on the blending requirement and the slow adaptation of E-15 and E-85 will hamstring production if left up solely to the US market.

A couple quickies to close: CWG came out yesterday with their first subjective yield guess of the season with a 171bpa corn yield, which is the highest I’ve seen in print.  That kind of yield will add another 400mbu to supply.  Argentina/Brazil corn exports remain uncompetitive with the US through December as do Brazilian soybean supplies as evidenced by the firm US basis and export sales of late.  Keep an eye on the daily reporting system today for more announcements.

 

Bottom Line: Not looking for anything too out of the ordinary today with eyes on export sales at 7:30am.  Still waiting to see how weather pans out the next 2-4 weeks before markets can really make another leg higher or lower.  Corn price seems as though it has priced in a larger yield than the USDA is currently using, but will want confirmation by crop tours next week.  Wheat looks to maintain a follower roll until the focus shifts to HRS next 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.

 

7/16/2014 Morning Comments

Good Morning,

 

Outside Markets as of 6:00am: Dollar Index up 0.1320 at 80.5220; Euro down 0.00350 at 1.35360; S&P’s are up 6.50 at 1974.50; Dow futures are up 56.00 at 17,045.00; 10-yr futures are up 0.01%; The Nikkei closed down 0.10% at 15,379.30; The DAX is up 1.29% at 9,845.21; The IBEX-35 is up 1.39% at 10,621.60; Gold is up $1.30 at $1298.40; Copper is down $0.05 at $324.90; Crude Oil is up $0.82 at $100.76; Heating Oil is up $0.0021 at $2.8576; Paris Milling Wheat is up €2.00 at €179.00/MT.

Global equity markets are mostly firmer this morning after a continuation of dovish comments from Fed Chair Janet Yellen in her testimony to Congress, and positive growth data from China.  Yellen stuck to the script yesterday when testifying before Congress, saying she intends to keep providing significant support to the US economy to boost growth and improve the labor market.  Chinese growth in the second quarter picked up to 7.5% y/y vs. 7.4% growth in the first quarter, suggesting the PRC government’s ‘mini-stimulus’ had helped offset concerns over a housing slowdown.  Today will see the June PPI which is expected to ease slightly to 1.9% y/y vs. 2.0% in May.  Industrial production for June is also out today and is expected to rise +0.3% m/m which would be a slowdown from May’s report which showed growth of +0.6%.

Scattered precip over the central and southern plains this morning, but quiet across corn and soybean country and that should remain the case the next 3-days.  Heavy rainfall totals will occur in the southern plains with totals as high as 5.3” along the OK/TX border by Saturday.  This will help recharge soils before the winter wheat planting campaign begins in 60-70 days.  The Midwest will remain dry into the weekend before a bit better chances at moisture show up mid-week next week.  The Northern Plains will be dry the next week which will help push along wheat maturation.  By the end of next week, most soils will need a drink to help ensure favorable conditions for row crops.  NOAA extended maps show above normal temperatures showing up in the Dakotas and MN by July 21st, which could impact late headed spring wheat.  Moisture looks favorable in the ECB.

 

Firmer grain markets to begin this Wednesday, with wheat and soybeans stringing together their first multi-session gains in about a week.  Soybeans are being supported by the structure of the market which has funds pushing to a new record short position, while the commercials are sitting on the smallest net short on record.  In addition, the depressed board prices have halted the movement of soybeans which has supported CIF NOLA soybean basis.  Brazilian soybean basis has rallied sharply since the beginning of the month and export business is being pushed back to the US for both old crop and new crop slots.  The basis would suggest the negative residual demand the USDA gave us on the July WASDE is going to be used up in short order.  Wheat and corn seem to be bouncing from short-covering and bargain buying, although little technically makes these markets look as though a low is in.

Weekly domestic end user margins as compiled by www.rjomrt.com continue to show excellent profitability among users of corn with MN spot gross ethanol margins improving to $1.26/gln vs. $1.17/gln last week and $0.84/gln last year.  Continued growth in ethanol exports will be key to ethanol demand for corn growing in 14/15.  India is set to vote on raising the required ethanol blending rate to 10% from the current 5% which was implemented in November 2012.  However, just an average of 1.4% of blending is being achieved. Poultry margins improved to 92.22c/lb from 89.93c/lb last week and 79.81c/lb last year.  Hog crush remains strong at $161.38/hd vs $158.89/hd last week and $86.76/hd last year.  Cattle crush improved slightly to $98.44/hd from $91.53/hd but remains well under the $204.65/hd last year.  C-IL soy crush margins sit at $1.17/bu vs $0.94/bu last year.  Value added margins remain quite strong, but it still hasn’t resulted in end users stepping up to the plate and covering needs, and they probably won’t until the perception is the crop isn’t getting any larger.

NOPA released their June member crush statistics yesterday during the session, pegging June crush at 118.7mbu vs the average estimate of 119.5mbu and down slightly from 2013 at 119.1mbu.  June crush activity was right in line with the last two years, but importantly was right where it needed to be to hit the USDA’s updated crush forecast.  There remain 232 million bushels left to crush in July and August when adjusting for total US crush, which could/should easily be achieved.  Soy oil stocks came in at 1.847 billion pounds vs the average trade guess of 1.895 billion, while production was seen at 1.401 billion pounds and oil yield was at 11.80lbs/bu.  June soymeal exports among members were 388,000 short tons, down from 465,000 in May and the lowest monthly total since September 2013.

Updated public opinion data from www.sentimentrader.com continues to show what we already know: depressed public support for grain prices.  Corn public opinion slipped to 19.0% which is the lowest since October, 18th, 2004.  Yet, despite awful public opinion numbers, farmers and funds remain long the corn market which argues against a major bottom being formed, despite bearish sentiment.  Soy public opinion was shown at 39.0%, the lowest since November 15th, 2011.  Wheat on the other hand hit the lowest public opinion figure ever at just 13.0% with data going back to 1990.  Funds are definitely short the wheat market, and of the three probably has the best support for forming a bottom, but trends are still firmly down.  The basket of commodities known as the CRB-Index had public opinion of 45.0%, the lowest since February 4th as crude oil also slipped below $100/bbl yesterday/

One of the big features showing back up in the cash markets is increased rail costs as RR performance slips heading into small grains harvest in the Northern Plains.  Cost of cars has rallied back to $2600/car with bids for fall harvest heading near $3500/car.  This has caused destination rail corn and soybean basis to rally sharply the last week with PNW corn premiums now shown bid at +145U.  New crop soybean basis is also firmer to +190X for September trains.  The growing reality is cash basis due to rail road performance is going to get much, much worse for elevators dependent upon rail roads to clear grain.  In addition, ethanol plants won’t be able to save the day as trucks pound processor markets, so it would appear we are headed for some historically bad corn and soybean basis levels this fall unless something drastically changes between now and September.  Most cash bids for new crop corn in the Northern Plains already have a “2” in front, and it wouldn’t surprise this analyst to see a “1” if board prices don’t bottom between now and new crop.

In a follow up to yesterday’s corn seasonal chart showing 2004 and 2009’s record corn yields and futures prices, I put together a chart showing November soybeans in 2005 and 2009.  As one can see from the chart, November soybeans hit their seasonal lows in those two years very close to each other with 2005 coming on September 28th and 2009 coming on October 2nd.  Still, with it being only July 16th today, it obviously argues for lower November soybean prices moving forward provided developmental weather in August remains favorable.  Of the two, soybeans definitely have more time to impact yield than does corn at this point.  So far, we seem to be tracking 2009 a bit better.

 

Bottom Line: End users of corn continue printing black ink, weather remains mostly ideal for both corn and soybeans, winter wheat harvest is over 2/3’s complete and public support for commodities is waning.  Today looks like a small blip in the larger degree downtrend as funds appear invested to the downside and big crops look like they’re getting bigger.  Ethanol numbers at 9:30am.  Make sure there is a contingency plan for much worse cash basis at harvest if crops continue getting larger.

 

Good Luck Today.

 

Nov Soybean Seasonal 7-15

 

 

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.

 

7/15/2014 Morning Comments

Good Morning,

 

Outside Markets as of 5:55am: Dollar Index up 0.0340 at 80.2210; Euro down 0.00130 at 1.36090; S&P’s down 2.50 at 1968.50; Dow futures are down 8.00 at 16,970.00; 10-yr futures are up 0.09%; The Nikkei closed up 0.64% at 15,395.16; The DAX is down 0.52% at 9,732.39; The IBEX-35 is down 1.28% at 10,471.00; Gold is up $5.70 at $1312.40; Copper is down $0.70 at $324.20; Crude Oil is down $0.65 at $100.25; Heating Oil is down $0.0107 at $2.8622; Paris Milling Wheat is up €0.25 at €179.00/MT.

Market focus today will be on Fed Chain Janet Yellen’s semi-annual testimony before the Senate Banking Committee as she delivers the Fed’s semiannual monetary policy report to Congress.  Investors doubt she will offer much more today than the official Fed meetings from June 17-18, and she is undoubtedly going to keep her dovish tone.  Economic data out today includes June retail sales which are expected to show an increase of +0.6% and +0.5% ex-autos, improving from May. Today will also see the July Empire Manufacturing Index (-2.28 to 17.00), and May business inventories (+0.6%).  Investors will also be looking forward to Q2-GDP data from China out Wednesday as skepticism remains a cloud over the globe’s second largest economy.

Relatively open Midwest this morning in terms of moisture, and should remain so the next 3-days.  The southern plains will see rains fire up through Friday with heavy totals expected in OK/NE-TX/AR/LA, but again the Midwest should remain dry for almost the entire week aside from intermittent shower activity.  The feature this week will obviously be the cooler than average temperatures as some of the Midwest corn crop begins to shoot tassels.  The 6-10 and 8-14 day outlook from NOAA does see things begin to warm back up with above normal temps for the Northern Plains, while moisture will be split along the Mississippi with below normal west and above normal east.  The warm dry weather should be good for finishing the spring wheat crop in portions of the Dakotas.  Still no major weather threats to stall market declines.

 

Turnaround Tuesday in the wrong direction for grain bulls following yesterday’s relief rally which felt like the first gains in months.  Friday’s USDA reports confirmed what the market had been anticipating since the June 30th reports: without threatening weather, supply is going to rise more than demand can support during the 14/15 marketing year.  Analysts continue to raise corn yield estimates, despite the USDA standing pat at 165.3bpa.  It would seem the majority of the trade is between 167-170bpa based on current forecasts, and with that type of yield carryout is going to have a difficult time remaining below 2.0bbu on September 1st, 2015.  Demand will expand, but there are limitations outside of feed/residual.  Unfortunately for the corn bulls, there also remains two big longs in the market which continue to weigh on price: farmers and funds.  The average US farmer has ample old crop stocks remaining in the bin, and he is woefully undersold on new crop.  COT data confirmed funds adding to longs.  Both will make forming a major bottom difficult.  The yield and demand components will remain wildcards a bit longer on soybeans as the key developmental weather is still several weeks out.

Crop progress reports out last night confirmed an improving corn crop as conditions increased 1pt to 76% G/E vs 66% last year, and remain the highest since 1999.  MO is leading the pack with 84% of its crop rated G/E, followed by SD at 82% and IL at 81%.  34% of the crop is silking vs 15% last year and 33% average, so the sluggish start to planting looks to have been overcome in some of the Midwest.  Soybean conditions held steady despite expectations for an increase at 72% G/E vs 65% last year, and remain the highest since 1999.  41% of the crop is blooming vs 37% average.  Spring wheat conditions were unchanged at 70% with SD still 20pts above last year and ND 8pts above last year.  MN and MT are 12 and 11pts below a year ago.  Winter wheat harvest was pegged at 69% vs 68% average with KS now 90% complete with harvest efforts.  OK and TX are essentially done.

The University of Illinois published an interesting article yesterday talking about corn supply and demand, but the real interesting tidbit was their take on whether prices have discounted a 165.3bpa corn yield, or possibly even larger? The U of IL is projecting the stocks/use ratio at 15.4%, which would be the largest since 2005-06 when stocks pushed to 17.5% stocks/use.  The average corn price during 2005-06 was roughly $2.00/bu, but the average from 1973-74 to 2005-06 was $2.40, making the $2.00 about 83% of the average.  Yet the University argues that since corn prices have entered the “new era” price echelon in 2006-07, the average price of corn from 06/07-09/10 is actually $4.60/bu.  If we take 83% of the new era average, we come up with $3.81/bu.  Their thinking therefore is the market is already pricing in a yield higher than the USDA’s current 165.3bpa, and ending stocks above the USDA’s current 1.801bbu and 13.5% stocks/use.  I will admit their methodology is more art than science, but there is logic there and $3.50-3.80/corn lines up very well with old technical support on long-term monthly charts.  Will be interesting to see how close this analysis comes to pegging a low.

http://www.farmdoc.illinois.edu/marketing/weekly/html/071414.html

Along the same lines, I thought it would also be worthwhile to take a look at the seasonality of other record yielding years to see when price tended to find its major low.  The chart at the bottom shows 2014 December corn in black, with 2009 in blue and 2004 in red.  As one can see from the chart, 2009 didn’t hit its major seasonal low until September 4th, while 2004 proceeded to move lower right up to delivery and bottom on December 1st.  One will also notice that once 2009 hit its low it tacked on over $1.00/bu rally as we entered harvest.  This was obviously due to delayed harvest and wet conditions which went on to haunt the market well into the summer of 2010 via poor quality.  Still, the point here is to say in other record yielding years, the market continued to press price lower until the maximum supply was realized, which didn’t come until at least a month and half after the current date.

As mentioned above, the most recent COT data showed funds adding 10,319 contracts to their net long position in corn last week to bump their net long back up to 36,418 contracts.  This is by no means an egregious position, but it doesn’t imply bottoming action either.  The Gross Commercial Long (end user) finally bought corn for the first time in 4-weeks, adding roughly 19,000 contracts which is a positive sign.  There isn’t anything to extreme from either a commercial or fund perspective which makes the public opinion data showing corn at extreme pessimistic levels more difficult to trust.  Sentiment doesn’t seem to be arguing for a major bottom yet.  Soybeans on the other hand do have some extremes developing as the commercial net short position now sits at just -11,234 contracts, the smallest net short on record going back to 1/2/2007.  In addition, funds are now net short -43,142 contracts, the largest net short on record.  These two groups moving to extreme positions are major warning signals, and obviously it is usually preferred to be on the side of the commercials who look like they are about to go net long the soybean market.  It makes one wonder whether the funds piling into the short side of the market ahead of pod-setting isn’t going to end with some capitulation.  End users continue to buy soybeans on the way down, toting the largest gross commercial long (242,363 contracts) since October 22nd, 2013.  Keep watchful eyes on this market.

A few quickies to close: Russian wheat prices have begun to drop again as harvest expands; Indian’s monsoon season is looking for better rains beginning July 22nd which will be imperative after the poor June and bad start to July.  The USDA made mention many times in Friday’s WASDE report of the sub-par monsoon season to date; Brazil soybean basis strength continues unabated and will keep US demand firm; Rail freight costs continue to climb without hesitation making for poor basis levels in the Northern Plains and causing anxiety ahead of small grains harvest; Chicago wheat is sitting on 9-yr trendline support; Wheat O/I is up 30,395 contracts since the June 30th report as funds sell and harvest expands.

 

Bottom Line:  Crops aren’t done getting smaller today, and weather the next week looks beneficial.  Traders seem more willing to press corn than soybeans given the crop calendar, but corn is nearing some long-term support candidates.  Farmers remain undersold on old and new crop which will remain an albatross around the neck of the market.  No reason for funds to switch to buyers today.  Better living through lower prices.

 

Good Luck Today.

 

Dec Corn Seasonal 7-14

 

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.

 

 

 

7/11/2014 Morning Comments

Good Morning,

 

Outside Markets as of 5:55am: Dollar Index down 0.0280 at 80.1020; Euro unchanged at 1.36070; S&P’s are up 1.75 at 1959.50; Dow futures are up 19.00 at 16,861.00; 10-yr futures are up 0.05%; The Nikkei closed down 0.34% at 15,164.04; The DAX is up 0.14% at 9,672.78; The IBEX-35 is up 1.24% at 10,664.60; Gold is down $0.30 at $1338.90; Copper is down $0.90 at $325.80; Crude Oil is down $0.40 at $102.53; Heating Oil is down $0.0014 at $2.8919; Paris Milling Wheat is up €0.50 at €182.25/MT.

Global equities are rebounding from yesterday’s selloff, especially European shares which was the onus of the selling.  Yesterday’s price action looked and felt as though investors were being especially cautious about slipping back into another European financial crisis after one of Portugal’s banks, Espirito Santo International, missed a debt payment and was cited for accounting irregularities.  In response, Portugal’s 10-yr bond yield jumped 21bp to 3.97%, up 66bp from the post-crisis low of 3.31% in mid-June.  Fortunately, and probably the reason markets are shrugging the lone bank’s woes off today, is Portuguese bank assets account for only 1.6% of the region’s total, and it looks as though this is more of a one off event than one which could shove things back into contagion.

 

Quiet overnight with prices chopping ahead of the USDA’s July WASDE at 11:00am.  It’s obvious what markets are expecting given price action and weather since the June 30th stocks reports.  The real question comes down to how aggressive the USDA wants to be on production ideas, and conversely, how much they’re willing to increase 14/15 demand to account for the excess supply.  In looking at demand line items for both corn and soybeans, it is going to be difficult for the demand hole to get a great deal wider and deeper in the ensuing marketing year given the constraints of livestock numbers, the ethanol blend wall and slowing Chinese soy and corn demand.  If the supply is there on both corn and soybeans, it remains difficult to see how price can mount any sort of sustained recovery.  Back to back record, or near record, crops are finally fixing what the short crops of 2011 and 2012 broke.

Fortunately, export demand does continue to click along for new crop with additional daily sales announcements yesterday including 118,000MT of soybeans sold to China during the 14/15 marketing year, and 126,000MT of soybeans sold to unknown and split between 13/14 and 14/15.  These follow multiple corn sales announced via the daily reporting system, and should ensure decent export sales next week.  Also worth mentioning as it hasn’t garnered a ton of press, new crop soymeal sales are off to a record campaign this year with 2.519MMT already on the books vs 881.9TMT at this point last year.  In fact, the 2.519MMT is the largest on record for this point in the marketing year, and is over double the previous record of 1.183MMT.  The major buyers have been unknown destinations at 1.3MMT, and the Philippines at 664,000MT.  Chatter amongst the trade suggests soymeal importers are opting to buy US soymeal as a hedge against an Indian soybean production shortfall related to El Nino and below average rainfall.  India is having a poor monsoon season so far, and it looks as though soymeal exports could slip by 3-4MMT.  This will keep 14/15 US crush ideas supported.

Corn spreads continue to flesh out with the CH/CK pushing out to -8.00c during yesterday’s session, representing 70% of full financial carry.  CK/CN and CN/CU are also sitting at fresh contract lows.  The CZ/CH spread continues to trade at -11.00c which is around 64% of full financial carry (2.23%), and based on the last several years would be a good spot to start moving hedges further out the curve.  However, given prospects for the kind of supply we’re talking about this year, spreads should continue to find pressure and work closer to full carry.  It would seem being patient for values around -13.00c would be prudent based on what we know today.  -13.00c would constitute 75% of full financial carry, and when combined with the likely cash carry, producers could be looking at 20-30c to sit on corn until February/March.  The only way to earn that carry, however, is to sell it.

The only delivery activity continues to be in KC with another 47 KWN delivered at ADM Hutchinson.  That brings the month total to 141.

 

Bottom Line:  Not really worth discussing much else until the USDA numbers are released and the data can be crunched.  There isn’t much precedent for raising soybean yields on the July WASDE, but the USDA has been known to raise corn yields in times of excellent conditions like this year.  The trade is anticipating a 1.0bpa increase in yield, and the market is certainly pricing that in.  Price will continue to fall until we have the largest estimate of the crop possible, and on July 11th, is doesn’t feel like this crop is done getting larger.

 

Good Luck Today.

 

U.S. 2013-14 end stocks U.S. 2014-15 end stocks

Corn  Soybeans      Wheat    Corn  Soybeans

Average trade estimate   1.232     0.128      0.591   1.774     0.418

Highest trade estimate   1.350     0.156      0.723   2.309     0.489

Lowest trade estimate    1.146     0.111      0.522   1.535     0.320

USDA June                1.146     0.125      0.574   1.726     0.325

 

ADM Investor Services        1.221     0.125      0.635   1.785     0.435

AgriVisor                    1.221     0.125      0.640   1.725     0.436

Allendale Inc                1.206     0.119      0.550   1.810     0.386

CHS Hedging                  1.221     0.125      0.593   1.693     0.435

CitiGroup                    1.146     0.131      0.566   1.723     0.325

Doane Advisory Services      1.231     0.145        N/A   1.735     0.425

ED&F Man Capital             1.246     0.125      0.574   1.809     0.425

Farm Futures Magazine        1.263     0.125      0.550   1.725     0.360

Futures International        1.196     0.111      0.580   1.775     0.406

Global Commodity Analytics   1.350     0.133      0.561   1.812     0.469

Hightower Report             1.275     0.125      0.585   1.974     0.489

Jefferies Bache              1.196     0.135      0.586   1.700     0.450

Sid Love Consulting          1.196     0.130      0.600   1.693     0.442

Macquarie Securities         1.280     0.128      0.723   2.309     0.437

McKeany-Flavell              1.175     0.120      0.589   1.771     0.400

Newedge                      1.226     0.135      0.522   1.750     0.450

Rice Dairy LLC               1.221     0.125      0.602   1.535     0.450

R.J. O’Brien                 1.263     0.124      0.601   1.700     0.373

U.S. Commodities             1.271     0.125      0.655   1.841     0.398

Walsh Trading                1.150     0.120      0.568   1.715     0.320

Water Street Solutions       1.263     0.156      0.570   1.707     0.461

Zaner Ag Hedge               1.296     0.131      0.565   1.751     0.421

 

 

 

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.

 

 

7/10/2014 Morning Comments

Good Morning,

 

Outside Markets as of 5:45am: Dollar Index up 0.0700 at 80.0630; Euro is down 0.0028 at 1.36220; S&P’s are down 17.50 at 1950.00; Dow futures are down 145.00 at 16,768.00; 10-yr futures are up 0.35%; The Nikkei closed down 0.56% at 15,216.47; The DAX is down 1.48% at 9,663.38; The IBEX-35 is down 2.20% at 10,510.60; Gold is up $18.40 at $1342.70; Copper is down $1.05 at $323.75; Crude Oil is down $0.58 at $101.71; Heating Oil is down $0.0011 at $2.8700; Paris Milling Wheat is up €0.75 at €182.50/MT.

European equities are leading the way lower this morning with several major indices off by more than 1.0% as investors weigh the highest stock valuation since 2009 against a tepid economic recovery across the bloc.  Bank shares were down the most, 2.2%, of all industry sectors as Espirito Santa International SA is considering making a request for protection from creditors in Luxembourg if it can’t reach a debt renegotiation agreement.  Also adding to the bearish sentiment is the planned exit of the Federal Reserve’s bond buying program in October as that is when the last $15 billion of asset purchases will cease, and the focus will be on interest rates rising.  Investors are clearly concerned about markets standing on their own without Federal assistance.  Unemployment claims today are expected to rise by 2,000 to 315,000 claims.

Moisture moving across the southern plains again this morning with KS/N-OK seeing additional precip.  The rest of the Midwest is quiet.  Shower activity will pick up tonight through Saturday across the WCB and Northern Plains with heaviest amounts the next 3-days falling in IA/S-WI/E-NE/N-IL/MI to the tune of 3.40”, although a widespread 0.50-0.75” in total looks likely.  Most areas, aside from the still flooded ones, will welcome a shot of rain as pollination lurks right around the corner north of I-80.  Things will then quiet down to start next week and for most of next week in the Midwest.  6-10 and 8-14 days maps still look mostly favorable with much below normal temps the next 15-days, while precip will trend towards the drier side for the WCB and Northern Plains.  Still nothing overtly threatening towards either row crop at the moment.

 

A little relief rally is taking place in the grains this morning as traders take note of the 6c loss in corn and the 20c loss in soybeans on the week heading into the July WASDE.  New crop Nov soybeans are closing in on a major area of support in the January lows, and bearish data by the USDA could arrange a retest of that level sooner rather than later.  At the same time, the $11.00 handle area could be the lower-range constraint soybeans have been looking for as support before this crop even enters the key developmental stages in August.  Still, the July WASDE isn’t likely to have too much for bulls to sink their teeth into for either corn or soybeans given the expectations for increasing production, rising old crop stocks and the USDA being armed with the highest condition ratings for both crops since at least 1999.  Still, markets being able to stabilize and rally on bearish data could be the signs of a near-term bottom.

Reuters poll of analyst estimates for Friday’s WASDE report peg corn carryout for 13/14 at 1.232bbu vs 1.146bbu in June, soybeans at 128mbu vs 125mbu in June and wheat at 591mbu vs 574mbu in June (14/15).  14/15 carryout for corn is estimated at 1.774bbu vs 1.726bbu in June and soybeans are seen at 418mbu vs 325mbu in June, although the high end estimate for soybeans jumps all the way to 489mbu.  When one pushes soybean acreage to 84.8 million acres to square with June 30th data, and doesn’t increase demand markedly, soybean stocks balloon quickly and $11.00 SX looks way overpriced.  Demand will be a focus as it has the last 5-years, but assuming demand will increase to clear excess supply might be a tough argument given the USDA already penciling record exports of 1.625bbu and crush at a 5-year high of 1.715bbu.  The x-factor remains yield, and as mentioned above the key developmental weather remains in front of the market, not behind it.  If the national average yield comes in near current expectations, the US will be swimming in soybeans and lower prices will be required to clear excess supply.

There seems to be a lot more ambiguity in the corn market given wide-ranging yield assumptions, and also the much wider possibilities on demand.  If yield is closer to 170bpa than 160bpa like many analysts are starting to suggest, then the USDA is light on their total production by about 300-400mbu.  If demand assumptions are left unchanged, ending stocks for 14/15 jump over 2.0bbu rather quickly and stocks/use ratios climb to their highest level since 2005.  In 2005, corn prices were trading much lower than even the “depressed” levels we find ourselves at now.  With more supply, demand should increase, but again, looking at the demand line items, ethanol production will be capped around ~5.100bbu given the ethanol blend wall.  Feed demand shouldn’t see a drastic increase in 14/15 given lower than expected hog supplies related to PEDv, and cattle on feed are just now in the rebuilding process.  Poultry might be the lone increase so feed/residual much higher than 5.300bbu seems a stretch.  That leaves exports at 1.700bbu vs 1.900bbu this year, but China isn’t likely to be a big source of corn imports this year given their actions to date and the shunning of US-DDGs.  In addition, SAM and Ukrainian corn crops will continue to offer competition in 14/15.  SAM political issues might offer some upside, but that should be temporary.  So much like soybeans, if the yield is there, the supply should be too and lower prices look more than likely.  Weather is still the price driver.

Basis changes of note yesterday included PNW corn premiums continue to firm with July/Aug shuttles worth +125U, while new crop also edged higher to +125Z for OND.  New crop soybean shuttles off the PNW and barges out of the Gulf have been firmer with the down board this week as well, as new crop export business is likely taking place.  Both new crop corn and soybean sales commitments could use a boost with corn sales as of last week totaling 152.5mbu vs 205.7mbu at this point last year.  Soybeans for new crop are 411.4mbu vs 452.0mbu at this point last year.  To prevent a further increase in supply, we need a big new crop export program.  Brazilian soybean premiums continue to escalate with August bracketed at +135/145Q yesterday.  Those sorts of numbers should push importers back to the US if supply was reliable for August/September out of the Gulf.

Old news now, but Egypt’s GASC bought 240,000MT of Romanian wheat yesterday at $260/265/MT C&F.  There was no US-SRW offered with quality specs said to be causing issues in the Delta.  Jul-Aug US-SRW is offered out of the Gulf at $223.86-224.60/MT FOB as of last night.

Export sales estimates for this morning’s report put corn sales at 225-450TMT old crop, 400-650TMT new crop.  Wheat is seen at 350-650TMT.  Soybeans at -100/+100TMT old crop and 350-550TMT new crop.  Meal is estimated at 25-160TMT old, 0-150TMT new, and soy oil is seen at 0-20TMT old and 0-20TMT new.

 

Bottom Line: Sharply lower equity markets and the need for a short-covering bounce heading into tomorrow’s numbers looks good enough to prop us up today, although all market participants realize what’s in store if weather remains ideal the next 2-4 weeks.  Yield assumptions are on the rise, and analysts are tripping over themselves to come out with the highest estimate to date.  There remains a lot of growing weather left between now and harvest, but waiting for a problem to bail out lax marketing plans won’t end well.  Charts are losing downside momentum.

 

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.

7/9/2014 Morning Comments

Good Morning,

 

Outside Markets as of 5:45am: Dollar Index unchanged at 80.1700; Euro up 0.00020 at 1.36160; S&P’s are down 0.25 at 1960.25; Dow futures are down 9.00 at 16851.00; 10-yr futures are unchanged; The Nikkei closed down 0.08% at 15,302.65; The DAX is up 0.12% at 9,784.53; The IBEX-35 is up 0.39% at 10,730.80; Gold is up $8.10 at $1324.60; Copper is up $1.20 at $326.90; Crude Oil is down $0.06 at $103.34; Heating Oil is down $0.0034 at $2.8702; Paris Milling Wheat is down €0.50 at €182.75/MT.

The Dow Jones Industrial Average topped 17,000 and the S&P 500 is within 18 points of its all-time record high as we head into Q2 earnings season, but the overall investor sentiment seems to be one of caution at these valuations.  Alcoa reported better than expected earnings for the second quarter with earnings of $138 million, or 12 cents a share, which topped earnings expectations by 50%.  This reverses the company’s $148 million loss during the same quarter a year ago.  Of focus today will be the release of the FOMC’s June minutes as traders look for any hint at timing of the Fed’s first rate hike.  The market is still anticipating a 25bp hike to 0.50% by September 2015, although the median forecast by FOMC members is for a rate hike by spring 2015.  EIA data out later this morning is expected to show US oil production near the 27-1/2 yr high of 8.477 million bpd posted the week of June 13th.

One system working across OK this morning, otherwise the Midwest will enjoy a mostly drier day before storms start back up later tonight in the central/southern plains.  Shower activity will gradually increase in the WCB and Northern Plains with the 3-day forecasted total posted in the map below.  As more corn moves into pollination, additional water requirements will be needed and while subsoil moisture is adequate to surplus in most areas, few farmers would swear away a rain the next couple weeks.  The real feature to the weather, however, is the evolving temperature forecast the next 2-weeks with much below normal temps forecast for the entire Midwest.  The 6-10 temp map is below and mimics the “Polar Vortex” type temperature maps we were used to seeing in January.  This forecast will ensure non-threatening heat out through July 22nd when a large portion of the crop will be pollinating.  Precip looks to stay on the normal side except for the Northern Plains which will see slightly drier weather as harvest gets rolling on winter wheat.  India’s monsoon season remains in the headlines with most still forecasting a monsoon season at 85% of normal rainfall.

 

Corn and soybeans are finding themselves lower for the seventh and eighth session, respectively as corn sees itself in a bear market for 2014.  Traders are now sharpening their pencils in anticipation of growing carryouts for all three major commodities on this Friday’s WASDE report.  Looking at Reuters average analyst estimates for production, the trade has corn production increasing to 13.945bbu from 13.935bbu last month with an average yield of 166.104bpa, a new record.  Soybean production is seen at 3.774bbu, up from 3.635bbu with an average yield of 45.138bpa.  13/14 corn carryout should increase to the tune of 100-150mbu thanks to lower than expected implied feed/residual demand during Q2 as evidenced on the June 30th stocks report.  Ethanol demand should be increased by 25-50mbu to help offset this in part, and exports should remain unchanged.  Soybean carryout will be the other focus as traders wait anxiously to see how the USDA deals with the larger than expected June 1 stocks, but the insatiable crush and export demand which will readily eat up at least part of the surplus.  Traders are also cognizant of the lower than expected May soybean imports and the growing doubt of the USDA’s marketing year soybean import forecast.  Cash markets have been signaling Brazilian soybean imports have slowed and do not pencil into the US any longer.  Again, how the USDA deals with all of the aforementioned could either stem or accelerate the recent price decline.

A quick look at end user margins as compiled by www.rjomrt.com confirms what most already believed: plummeting corn prices have increased end user margins.  Ethanol margins expanded to $1.17/gln last week vs $1.07 the week previous and $0.78/gln last year.  Poultry margins are fat at 89.93c/lb vs 77.95c/lb last year.  Hog crush is solid at $158.89/hd vs $152.34/hd last week and $82.46/hd last year.  Cattle crush remains weak at $91.53/hd vs $210.61/hd last year.  C-IL soybean crush margins remain robust at $1.37/bu vs $1.17/bu last week and $0.93/bu last year.  Demand for corn should be increasing at these price levels and these margin levels for all sectors except cattle.  The question is whether demand can rise enough to offset the increased supply, and it seems the pulse of the market is erring on the side of supply rising faster than demand at current.

Updated Public Opinion data from www.sentimentrader.com also confirmed the sentiment in the market on our beloved Ag’s with wheat public opinion hitting 14.00%, the lowest on record going back to 1990.  Corn is sitting at 21.0%, the lowest since October 3rd, 2005, and soybeans are at 41.00%, the lowest since November 29th, 2011.  Conversely, cattle sit at an all-time record of 82.0%, the highest since 1990.  None of these should surprise, but to see record lows in public opinion makes one cautious about pushing price to the downside.  Taking a look at updated COT data from last Friday shows some interesting changes.  Funds in corn have cut their net long to 26,099 contracts, the smallest since their net short in February.  Concerning to this analyst is the fact the gross commercial long (end user), has been selling corn, not buying it, suggesting they see further downside in price.  Since April 29th, the gross commercial long has sold 166,406 contracts, or 19.7% of their position off.  This is not a heart-warming statistic.  In soybeans, funds are now short -28,438 contracts, the largest net short since 6/8/2010, and is the fourth largest net short on record.  The commercial net position in soybeans of -37,274 contracts is the smallest net short on record going back to 2007.  Fortunately, the gross commercial long in soybean has been buying, upping their long position by 22,000 contracts last week alone.  They do see value here.

Along the same lines as end user margins and public opinion, also interesting to look at price relationships once again with the crude oil/corn ratio hitting 25.644 this week, the highest since September 18th, 2006.  RBOB Gasoline/Corn ratio is now at 0.73552, the highest since August 28th, 2006.  The feeder cattle/corn, hog/corn and live cattle/corn ratios are all at the highest levels since 2006 as well.  When we take all of this in aggregate: profitable end user margins, bearish investor sentiment, growing short positions by the managed money and 8-year lows in price relationships, it definitely throws off some warning flags.  Yet, none of these reasons are enough to stand in front of a falling market as we could just continue to set multi-year lows/highs in all of these indicators.  The point is to be watchful for a turn in sentiment, or a turn in the fundamental news flow.

There were 33 HRW receipts canceled in Salina, KS last night but a fresh 89 registered in Hutchinson, KS with ADM house putting out all 89.  Some think poor rail performance could be the culprit given generally strong basis levels both domestically and at the export gate.  Speaking of rail costs, it is interesting to note the increased rail costs and the impact it is having on cash basis to the farmer in the Northern Plains.  One cash market participant noted yesterday with current PNW corn premiums against current October rail costs, cash basis to the farmer in some extreme locations of North Dakota are around -120Z to -140Z.  This would equate to $2.60-2.80 cash against $4.00 December corn futures.  If that isn’t sobering, nothing will be.

Ethanol production at 9:30am.

 

Bottom Line:  Nothing in the weather forecasts to change the downtrend so far with what looks to be favorable moisture and temperatures as the corn crop moves into its most important developmental phase.  The corn crop is rated higher for the analogous week than both 2009 and 2004, the other two record breaking yield years.  Lots of time to go before harvest, but this is the sentiment in the market at current.  Strong ethanol production could stem today’s decline, but eyes are on the growing carryouts slated for Friday.

 

Good Luck Today.

 

HPC 7-9 NOAA 6-10 7-9.

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.