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.
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