9/26/2014 Morning Comments

Good Morning,

 

Outside Markets as of 6:10am: Dollar Index up 0.0620 at 85.2570; Euro down 0.00080 at 1.27470; The Russian Ruble is weaker by 1.10% to 38.6922; S&P’s are up 2.50 at 1964.00; Dow futures are up 30.00 at 16,930.00; 10-yr futures are up 0.04%; The Nikkei closed down 0.88% at 16,229.86; The DAX is up 0.08% at 9,517.47; the IBEX-35 is up 0.61% at 10,848.90; Gold is up $1.90 at $223.80; Copper is up $1.85 at $304.85; Crude Oil is up $0.44 at $92.97; Heating Oil is up $0.0071 at $2.7063; Paris Milling Wheat is down €1.00 at €149.75/MT.

Mixed global equity markets to close the week as investors remain especially nervous about the performance of stocks this week.  More salient in my opinion, however, has been the currency moves this week with the Dollar Index working on its 11th consecutive weekly rise, something not achieved in four decades according to Reuters.  Emerging market currencies joined in the global currency sell off yesterday with the Brazilian Real trading up 1.31% to 2.4254, the highest level since February, while the Russian Ruble trades up 1.10% this morning to 38.6922, just off the weakest level on record.  In addition, the Aussie Dollar, while steady this morning, fell 1.05% against the Dollar to the lowest level since February 4th, with the Canadian Dollar at the weakest levels against the Dollar since March.  The underlying markets which comprise the global economy aren’t giving off the rosiest signals.  The negative effect on commodities is palpable, and until we see a turn in some of the aforementioned, hard to believe the negative money flow towards our markets is going to subside.  Today will see another revision to Q2-GDP which is expected to be bumped to +4.6% from +4.2% previously.

Blank radar over the Midwest again this morning as early harvest efforts roll on.  Dry weather will continue the next 3-days across the Midwest before storms brewing up on the East side of the Rockies finally push into MT/WY/ND/SD/NE over the weekend.  As of this morning’s latest update, the Dakotas and W-NE should be impacted Monday-Tuesday with heaviest totals in SW-ND/NW-SD with up to 1.75” forecast.  Most of the Dakotas could see up to 0.50”.  The storm will expand by the middle of next week to bring rain to IA/KS/OK/MO/WI with a broad 0.50” with heavier localized amounts.  Still looking for a cool down in the extended maps with the 6-10 and 8-14 day below showing much below normal temps over the Rockies, while the ECB receives above normal temps.  The cool down occurs for everyone by the 8-14, and after some above normal precip, dryness takes hold late in the period.

 

Mixed to weaker markets to close out another soft week for Ag markets with corn down 5c on the week, soybeans off 39c and December Chicago wheat off just 2c.  US wheat markets aren’t the only ones under pressure with Paris Milling Wheat off €4.00/MT on the week following back to back €9.00/MT losses.  Paris has actually been dropping faster than US markets, possibly in response to the US winning GASC business earlier this week.  At any rate, the front-month spread between Paris Milling Wheat and Chicago Soft Wheat is now just $16.86/MT, the narrowest spread since October 15th, 2013.  Minneapolis and KC are seeing similar declines.  Even the spread between Paris Corn and US corn has narrowed significantly over the last several weeks with the spread now at $43.30/MT, near the lowest levels since September 2013.  In the US, the focus continues to be on anecdotal yield reports which are blowing the roof off old records, record high freight markets which are crushing the FOB bid to the farmer, and trying to gauge the interest of the end user with the lowest flat prices in four years.

Beginning first with the freight markets, cash traders noted barge freight on several river segments pushing to 1000% yesterday which would be a new all-time record.  Usually, if the demand for freight is that strong, the demand for the product on the freight is that strong, and premiums keep pace with strengthening freight.  This isn’t the case today with soybeans and corn.  In fact, soybean premiums have been getting weaker along with barge freight getting strong, pushing FOB bids down and delivery calculations sharply below gross delivery equivalence.  Using 1000% barge freight and CIF soybean premiums of +120X, Zone 3 is calculating around 46c below gross DVE.  Not bullish.  With 1000% barge freight and CIF corn premiums of +86Z, Zone 3 calculates 64c below gross DVE.  Not bullish.  Based simply on delivery math, interior elevators with current freight and current bids have a 23c incentive to sit on soybeans until FH-November, and a 38c incentive on corn to sit until December.  Obviously with sales on the books, it isn’t feasible to sit on grain that long, especially as the farmer tries to deliver.  This means something is going to have to change, likely in the way of firmer premiums to move grain.

The situation off the PNW isn’t much better, or possibly worse, with secondary BNSF freight now fetching $4500-5000/car.  Corn premiums were unchanged on Thursday at +145/145/140Z for SON, while soybean premiums were firmer to +230/220/205X for SON.  By the time an elevator tacks on $1.15-1.25 in secondary rail costs, on top of flat tariff rates of $1.25-1.50, and a handling margin, the bid to the farmer in the Northern Plains gets awfully crumby.  The railroads can try as they may to keep up with demand, but the back-to-back record crops in the Northern Plains along with all of the Bakken traffic is simply too much to handle, especially when you throw winter weather in.  The situation is not going to get better, and will probably get much worse as harvest progresses.  Attempting to store grain until next spring may be a producers’ best option.

The freight discussion offers a good segue into the LDP/County Loan conversation which was being had in circles yesterday.  With corn down yesterday, several counties in North Dakota actually saw their posted cash bids on corn drop below the County Loan rate for the first time in close to a decade.  In one spot in particular, Minot, the cash corn bid yesterday at one point was $1.81/bu while the County Loan Rate for 2014 sits at $1.90.  There are a lot of wrinkles and facets to this discussion, so treat this as the first in a line of many, but with the county loan option available, farmers aren’t likely to sell grain at current prices when they can meet short-term cash needs via Government loan while waiting to see if prices get better over the next 9-months.  Storing the crop while waiting becomes an issue, but aside from ethanol, feed and export, we need to remember there is a fourth demand center when prices get this low: LDP and MAL.  For a lot of people, myself included, we’ve never had to go through these exercises, but it’s time to get brushed up as this fall could see the area affected expand from ND to SD and MN.

 

Bottom Line:  Don’t expect too much out of grains today as trade inside recent ranges looks likely to finish out the week.  Today’s COT data should show funds adding to shorts in soybeans while possibly adding to length in corn now that prices have slipped inside the $3.25 envelope.  Wheat is picking up demand, but will need more than 1-2 boats headed to the Med Basin to clean up a 40% stocks/use.  Currencies will continue to affect our markets, and when equities are down 1.4% and the CRB-Index is also down 0.40% like yesterday it really speaks to the weak underlying fundamentals.  We haven’t had this well supplied of a grain and energy market at the same time since the 1980’s.  It’s time to readjust the goal posts.

 

Good Luck Today.

 

CPC 6-10 9-26 CPC 8-14 9-26

 

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.

 

9/25/2014 Morning Comments

Good Morning,

 

Outside Markets as of 6:00am: Dollar Index up 0.3370 at 85.3730; Euro down 0.00560 at 1.27310; Aussie Dollar down 0.68% at 0.87640; S&P’s are down 0.50 at 1990.50; Dow futures are up 2.00 at 17,141.00; 10-yr futures are up 0.09%; The Nikkei closed up 1.28% at 16,374.14; The DAX is up 0.46% at 9,706.62; Gold is down $9.60 at $1209.90; Copper is down $2.20 at $303.15; Crude Oil is down $0.01 at $92.79; Heating Oil is down $0.0059 at $2.6871; Paris Milling Wheat is up €1.50 at €154.25/MT.

Global equities are still feeling the positive vibes from yesterday’s new home sales in the US which showed the fastest pace since May of 2008.  In August, new home sales jumped 18% to an annual rate of 504,000 units, beating the 430,000 expected by economists.  In the US today we will see unemployment claims which are expected to jump 16,000 to 296,000 from last week’s big drop of 36,000 to 280,000.  Durable goods orders, also out later this morning, are expected to show a decline of -18.0%, reversing most of July’s surge of 22.6% due to aircraft orders.  The Dollar Index is breaking out to fresh highs for the move, and also trading at the highest level since June 28th, 2010.  The Index strength is coming once again at the expense of commodity currency weakness.  This morning, AUD and CAD are down -0.70% and -0.42%, respectively.  China?

Wide open radar across the Midwest this morning which will let early harvest progress continue.  The Midwest will continue dry the next 72-hours before shower activity picks up in MT/WY/ND/SD on Sunday with widespread totals of 0.50-1.00” being indicated for the area.  The rain will also push down into W-NE where as much as 1.50” is being touted.  The same system will push East at the beginning of next week to bring rai to E-NE and IA.  All told, the WCB should see a nice rain that shouldn’t impact harvest activity as not much is actually occurring in the states shown below.  Late small grain harvest could be impacted, however.  Extended maps from NOAA continue to suggest above normal precip for the WCB, and a slow cooling pattern to below normal by late in the 6-10.  The above normal precip is centered right over SD.  Cool and wet is not what the doctor ordered for FH-Oct.

 

Row crops are working on their second day in a row of gains, while the wheat market sputters at the opportunity of trading higher.  There isn’t a great deal of fresh news out there, which is probably why Ags are slowing the downside onslaught as recycled early yield reports can only shove us so low while still in September.  The next fundamental input will be the September 30th stocks report which Reuters released average trade estimates for yesterday.  Analysts are looking for stocks as of Sept. 1, 2014 on wheat of 1.880bbu, corn of 1.185bbu and soybeans of 126mbu.  These would compare with a year ago at 1.870bbu for wheat, 821mbu for corn and 141mbu for soybeans.  Our markets aren’t likely to spend a great deal of time dwelling on the stocks numbers with the prospects for such large crops in the fields.  They will have an impact on expectations for final production, however.  It is worth pointing out that over the last seven years, corn stocks have come in above the average analyst estimate five times, while beans have exceeded the average estimate six times in the last seven years.  The surprise, in corn at least, would be larger than expected stocks which might be the death blow, or help put the low in.

While old news now, worth noting the sharp drop off in weekly ethanol production yesterday which saw output fall to 889,000bbls/day, the lowest since March.  Weekly stocks fell by 213,000bbls to 18.592 million barrels, but remain the second highest since March.  Ethanol production at 889,000bbls/day is below the average pace needed by about 1.5%, so no alarm bells should be going off after one week.  Gross margins have been under pressure as of late, however, as estimated spot margins dropped to $1.13/gln in the latest week vs. $1.24 last week and $1.37 the week before.  Margins have also slipped below a year ago with spot margins at this time last year estimated around $1.22/gln.  DDGs prices have stabilized, but spot ethanol prices have plunged from $2.29/gln 2-weeks ago to $1.96/gln this week and vs. $2.72/gln a year ago.  The entire energy sector has been under pressure as of late.

Firmer HRW basis yesterday by 2-7c with 12.0% worth +137/147Z and 13.0% now +137/147Z.  14.0% was unchanged.  MGEX proteins were mostly unchanged with only slight changes.  14.0% indicated at +200/220Z with 15.0% at +600/610Z.

Export sales later this morning with what seen at 330-600TMT, corn at 400-1,000TMT, soybeans at 1,200-4,000TMT, soymeal at 150-250TMT and soy oil at 0-30TMT.

 

Bottom Line: Markets don’t posses a clear sense of direction today, but left to their own devices we might try and be higher as short covering takes place ahead of the weekend and the end of the month reports.  US wheat is competitive in global markets, but that doesn’t mean it deserves a big rally to take itself out of the running again.  Corn does feel closer to a bottom than either of the other two markets, but we have 90% of the harvest left to bring in.

 

Good Luck Today.

 

HPC 9-25

 

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.

 

 

 

9/24/2014 Morning Comments

Good Morning,

 

Outside Markets as of 5:35am: Dollar Index up 0.0370 at 84.6960; Euro down 0.00130 at 1.28520; AUD up 0.43% at 0.88260; S&P’s up 6.25 at 1978.50; Dow futures are up 47.00 at 17,010.00; 10-yr futures are down 0.08%; The Nikkei closed down 0.24% at 16,167.45; The DAX is down 0.11% at 9,584.59; Gold is up $2.70 at $1224.70; Copper is up $0.05 at $303.55; Crude Oil is down $0.09 at $91.47; Heating Oil is down $0.0115 at $2.6771; Paris Milling Wheat is down €0.25 at €150.00/MT.

The global economic picture is becoming as fractured as ever with an improving Chinese economy while the European economy continues to muddle along or get weaker.  Chinese manufacturing surveys continue to suggest an improving sector there, while German business confidence dropped to 104.7 from 106.3 in August, and vs. analyst expectations of 105.8.  The index of business confidence is at its lowest since April 2013.  In the US today we will see August new home sales data which is expected to show an increase of 4.4% to 430,000 units, more than reversing the -2.4% decline to 412,000 in July.  The median price of a new home hit a record high of $268,600 in May before backing off by 7% in July to $269,800.  The US Dollar Index continues to consolidate near four-year highs, which without a breakout to new highs could prompt a momentum failure, which would be commodity-positive.

More showers moving across the WCB and Southern Plains this morning with S-MN/IA/KE receiving rain.  Week-to-date rainfall hasn’t been all that impressive with NE seeing several locations with 1.0”+ rains, as well as a smattering of KS locations in the 0.50-1.00”, but otherwise a mostly dry Midwest.  The forecasted 7-day precip maps this morning are putting rainfall towards the middle of next week for ND-NE with 0.50-0.75” being indicated at current.  Everywhere East of the Midwest will be dry the next 7-days which will result in heavy harvest activity.  Extended maps still look warm and wet for the majority of the Midwest with the above normal precip concentrated over the Northern Plains in the 6-10 but shifting to the ECB and Midsouth region by the 8-14.  Cooler temperatures and some frost risk is indicated around the first week of October which will need to be monitored.

 

A slight bounce in our markets this morning, led by wheat which finds itself up 1.1-1.3% across the three exchanges.  Wheat has been fighting it’s grain room brethren this week in trying to bounce modestly now that US prices have begun working into MENA destinations at levels cheaper than competing stem from the Black Sea and France.  This is a tall order, however, as corn and soybeans continue to plunge to new contract lows on a daily basis amid anecdotal yield reports which are blowing history out of the water… so far.  Still, wheat is probably entitled to a bounce given the improved value of US wheat, the large managed fund short position and the need for some semblance of premium as the HRW crop gets seeded.  Calendar spreads in wheat have been trending firmer for the last several days which certainly appears to be a leading indicator so far.  Funds might not be the only ones buying.

Fresh opinion indices were released by www.sentimentrader.com last evening, and although no fresh lows were recorded in the grains, soybean and wheat remain near the lowest levels on record.  At just 21%, soybeans sit near the lowest sentiment readings since 2004/05.  Combined with such a massive commercial long and non-commercial short, it would appear the current trajectory in soybeans is unsustainable.  Nonetheless, sentiment, in and of itself, is not a reason to turn bullish.  The CRB-Index, a basket of commodities, hit 32% for an opinion reading, the lowest since June 4th, 2012’s 32% which are the lowest since 12/8/2008 when the index hit 28%. Prior to 2008, one would have to go all the way back to 2001 to find a time when sentiment towards commodities was more negative.  Correspondingly, the sentiment score of the Dollar Index hit a new record going back to 1999 of 87%.  As has been mentioned in this space numerous times over the last several weeks, these points have not been lost on the managed funds.  The question is whether they will start to matter to index funds which remain big longs of the commodity sector, and the Ag space specifically.

Not much change to PNW and rail destination basis yesterday with corn trains going west worth +145/145/140Z for SON vs. +145/140/130Z a week ago.  HETX rail is bid +130/130/120Z for SON vs. +130/130/130Z a week ago.  The thing that has changed has been rail freight which is pushing up to records witnessed last year, and making elevator FOB basis, as well as levels paid to the farmer, much weaker.  Whispers in the market suggest spot or October BNSF cars are now commanding $4500-5000/car.  At this time last year, spot equipment was changing hands around $500-1000/car.  To put this in perspective, the difference between the two prices of rail cars adds $1.06/bu to the farmers cash bid.  Unfortunately, word from cash and freight traders suggest the situation isn’t likely to improve, but only get worse.  This could mean weaker cash basis yet this fall, and needs to be factored into storage decisions.  If these sorts of basis levels persist, I would anticipate the voice from the country getting much, much louder towards the railroads and DC.

The North Dakota Wheat Commission issued its latest weekly report yesterday suggesting overall averages from the harvest suggest a #1 grade with a 13.6% average protein level.  Test weight ranges from 60-61lbs, with damage at 0.5%, up slightly from 0.2% in 2013.  The average falling number is 375 seconds, down from 421 in 2013, with some areas worse yet due to harvest rains.  Vitreous kernels content show the largest divergence with 2014 falling to 56% vs. 73% in 2013 and 80% or higher in a normal year.  The aforementioned data is based on about 65% of the expected samples the Commission usually sees in a year.  High-pro HRS continues to command a large premium on the spot floor with 15.0% protein bid +600/615Z, while 14.0-14.5% pro sits at +210Z.  Volume is still heavy with 338 cars including 5 trains yesterday.  Duluth deliverable stocks jumped by 2.132mbu in the last week to 16.002mbu, in-line with a year ago at 16.280mbu.  The direction of the MWZ/MWH in coming weeks will tell us whether the supplies hitting Duluth are desirable quality or not.

One quick note on soybean open interest, yesterday it rose to 751,535 contracts, the highest level since 8/24/2012 when spot soybeans were trading $17.31/bu.

Ethanol data at 9:30am.

 

Bottom Line: A little “Turnaround Wednesday” as wheat prices feel like they’ve found some demand at these prices, and row crops need a bounce once in a while.  The next fundamental input will be the September 30th stocks report, but more important to the trade will be the onslaught of anecdotal yield reports in the coming 10-days.  Whether the earth-shattering yields continue or trail off will have a lot to do with bears’ ability to keep pressing for new lows.  Harvest lows are usually set in the month with the highest projected carryout.  Have we already seen it?

 

Good Luck Today.

 

CPC 8-14 9-24

 

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.

 

 

9/23/2014 Morning Comments

Good Morning,

 

Outside Markets as of 6:00am: Dollar Index down 0.2930 at 84.4560; Euro up 0.00510 at 1.28940; Aussie up 0.48% at 0.88610; S&P’s are down 4.75 at 1981.75; Dow futures are down 32.00 at 17,067.00; 10-yr futures are up 0.09%; The Nikkei closed down 0.71% at 16,205.90; The DAX is down 1.07% at 9,645.26; Gold is up $7.80 at $1225.70; Copper is up $0.65 at $304.50; Crude Oil is up $0.58 at $91.48; Heating Oil is up $0.28 at $2.7004; Paris Milling Wheat is  down €1.00 at €150.25/MT.

Global equity markets are lower for a host of reasons this morning including the US and several Arab nations going forward with airstrikes on ISIS in Syria, the US Treasury implementing stricter requirements for companies to move assets overseas via inversion and data from Europe showing manufacturing activity in Germany slowing.  The manufacturing PMI for Germany slumped to 50.3, the lowest level since June 2013, and below all analyst estimates.  Chinese manufacturing data fared better overnight with the HSBC flash survey showing a rise to 50.5 from 50.2 in August, beating estimates of a dip to 50.0.  A fairly large reversal in currencies this morning with the Dollar Index off 0.40%, while commodity currencies like the Aussie and Loonie are firmer after the drubbing seen in recent weeks.  The weakness in the commodity currencies speaks to the overall opinion of commodities in general as of late, which has been decidedly negative in the eyes of the investment community.  Slowing global growth, burdensome supplies in grains and energies and the expectation for rising interest rates in 2015 in the US are all combining to push commodities out of favor.  Money flow usually wins.

Decent sized system moving across NE/SE-SD/KE this morning bringing soaking rains to the WCB.  Rains will finish up in the WCB in the next 24-36 hours with totals in the aforementioned areas getting as high as 1.10” in E-KS.  Otherwise, the Midwest will enjoy a fairly open harvest week for farmers which have gotten cutting and picking underway.  W-ND/MT/NW-SD will see some rain activity later in the week which could impact the last few acres of small grain harvest.  The extended maps from NOAA don’t look especially inviting for early fall harvest in the WCB and Northern Plains as precip moves to above normal, while temperatures do hang around above normal.  Many areas of the west of the Mississippi are catching up on needed growing degree days, but a deluge of moisture at this point wouldn’t be favorable.  Southern Plains HRW is being planted in very good soil moisture.

 

Slightly easier prices this morning except for soybeans following fresh contract lows in most commodities yesterday as we continue to field large anecdotal yield reports, and the market begins penciling in higher yields for the October WASDE.  First up, however, will be the September 30th stocks report which will bring into focus the 2013 soybean crop, as well as a final tabulation on this year’s small grain harvest.  The 2014 HRS crop is likely to be revised higher, but this speaks nothing to the quality which is a much higher concern.  Last night’s crop progress report reinforced the need for an extended fall due to the maturity level of our crops with many central corn belt farmers choosing to start harvesting corn at 25-27% moisture.  Index funds remain stubborn holders of Ag commodities, a possible bearish feature, while managed funds continue to press the short side of our space.

Corn conditions on last night’s report were unchanged at 74% vs. 55% last year, an impressive resilience when most years see conditions drop due to the browning of the crop.  The crop is still the highest rated since 1994, although harvest sits at just 7% complete vs. 15% average.  The corn crop is 42% mature vs. 37% last year, but 54% average.  No threatening cold is seen the next 15-days, which is a positive considering just 9% of ND is mature vs. 39% average, MN at 19% vs. 41% average, WI at 19% vs. 35%, MI 24% vs. 39%, OH at 27% vs. 38%, IA at 37% vs. 60% average, and SD at 22% vs. 44% average.  Soybean conditions were down 1pt to 71% G/E vs. 50% last year, but remains the highest rated since 1994.  Soybean harvest was estimated at 3% vs. 8% average, with little to no progress mentioned north of I-80.  There was one field of soybeans being harvested in MN last night I can report.  Soybeans dropping leaves was estimated at 45% nationally vs. 44% last year and 53% average.  Spring wheat harvest was pegged at 86% complete vs. 92% average with ND at 82%, MN at 91% and MT at 81%.  HRW planting is 25% complete vs. 22% average with KS at 15% planted.

The big wheat news over the weekend and this week has been the US grabbing GASC business via one cargo of SRW, undercutting supplies from France and the Black Sea.  Russian exports of wheat have totaled 8.6MMT since July 1st, which are 26% higher than a year ago, but prices are now around $10-12/MT higher than similarly prices French and US stem.  Cash traders have said putting together a bunch of US-SRW which will meet MENA specs may be difficult moving forward given concerns about vomo in this year’s crop, but it certainly warrants revisiting currently employed short positions in wheat when US supplies are cheaper than the low-cost provider of the world.  Couple this with an 81,618 contract short position by the managed money in Chicago wheat and there is plenty of reason to be wary of some price strength.  Worth noting, however, is the fact funds are still long corn, which likely means they are spread wheat against corn.  If funds decide to unwind a rather large wheat spread position against corn, the corresponding order flow would be price negative to corn.  So in this specific case, a rising tide might not lift all boats.

One last note on the Dollar Index strength, earlier this morning the basket of currencies did hit 84.86, which is the highest trade since June 28th, 2010.  This leaves open the door for a run towards the 2010 highs near 87-88.00.  The strength in the US Dollar is leaving commodity currencies such as the Loonie and Aussie, as well as the currencies in importing nations, at multi-year lows as well.  The aggregate effect is price negative towards commodities as a whole, and especially the Ag sector.  If our multi-year highs in grain supplies weren’t enough, we have an incredibly strong dollar which can hurt exports to combat as well.  All of the aforementioned hurts investment demand from managed money, and could eventually be true for index funds as well who still hold sizable longs in the Ags.  The macro influence to our markets can’t be emphasized enough.  For the most part, it’s been a one-way street since 2008.

 

Bottom Line: Big crops still feel as though they’re getting bigger, and harvest weather looks pretty good for the next 7-days at least.  Whether farmers choose to hold or sell grain off the combine will have a lot to do with whether we make harvest lows early or late.  Investment flow is a negative for our space right now, and looking out at the horizon doesn’t appear much better.  Commodities, like all markets, have a cyclical influence.  At current, that influence is decidedly negative.  Consider option strategies as a way to alleviate cash needs and still retain ownership this fall and winter.

 

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.

 

 

 

 

9/19/2014 Morning Comments

Good Morning,

 

Outside Markets as of 6:10am: Dollar Index up 0.2480 at 84.5710; The Euro down 0.00490 at 1.28750; The British Pound is up 0.07% at 1.6374; The Japanese Yen is up 0.08% at 108.7547; S&P’s are up 5.75 at 2018.00; Dow futures are up 68.00 at 17,328.00; 10-yr futures are up 0.03%; The Nikkei closed up 1.58% at 16,321.17; The DAX is up 0.68% at 9,864.32; The FTSE-100 is up 0.68% at 6,865.72; Gold is down $4.40 at $1222.50; Copper is up $0.20 at $309.60; Crude Oil is down $0.15 at $92.92; Heating Oil is up $0.0037 at $2.7160; Paris Milling Wheat is down €3.25 at €155.75/MT.

The “Yes” voters for the Scottish Independence referendum weren’t quite as successful as William Wallace with the “No” vote to remain in the Union with England receiving 55% of the vote.  The challenge to the Union was unprecedented in the 307-year history of the countries, and will surely signal change in representation and economic freedom moving forward.  Currencies traded especially erratic through the night as results were released with the British Pound jumping to 1.6515 on news the “No” votes would carry before easing to 1.6372 this morning.  The Japanese Yen also grabbed attention when It pushed to 109.4600 last evening, the weakest level against the Dollar since September 2008.  Such a weak Yen could hurt purchases of commodities denominated in US Dollars.  The CRB-Index could be breaking out below 2-year support with the weakness this morning.

Showers moving across ND and N-MN, otherwise quiet across the Heartland.  Spotty shower activity the next 5-7 days with best chances for precip in KD/NE/W-IA where heaviest localized totals early next week look to fall in N-KS to the tune of 1.50-2.00”.  Otherwise drier weather ahead, which should aid in early harvest efforts and maturation of the crop in the North.  Temperatures look to remain well above normal the next 15-days for the entire Midwest, but precip potential does begin to pickup late in the 6-10 and early in the 8-14 day slot.  In fact, above normal precip is being indicated for the Northern Plains September 26th-October 2nd as indicated by the map below.  This would aid recently planted HRW, but may impact soybean harvest in some WCB locations.  Nothing threatening just yet.

 

A particularly weak overnight session for wheat and soybeans with all December and November contracts witnessing fresh contract lows while the US farmer slept.  Technical selling pressure has remained a feature, and with a breakout to fresh lows on a daily basis, the move has risk of accelerating.  December corn continues to defend the $3.35 ¾ contract low from earlier in the week, but will have a difficult time doing so if wheat continues to plunge to new lows.  The market seems as though it is pricing in another build in supply, possibly from the Sept. 30th stocks report for wheat and soybeans.  It is widely expected the USDA will increase the 2013 soybean crop, which will put upside pressure on 2014 yields.  Also, the 2014 HRS crop is likely to receive an upward revision according to anecdotal yield reports from across ND.  Hard for demand to step in when supply is still getting larger.

Encouragingly, US corn out of the Gulf is back to the cheapest available stem in the Americas on a FOB basis with spot boats worth $164.66/MT through November.  This would compare with Argy at $166.63/MT and Brazil at $171.74/MT.  PNW stem is indicated around $190.25/MT, but obviously enjoys a  $19.34/MT freight advantage for routes to Asia.  Reuters reported yesterday a tow-boat sank near mile marker 104 to 106 near Chester, Illinois, causing the Coast Guard to restrict traffic on the river.  The tow boat was carrying around 3,500 gallons of diesel fuel and an unknown amount of lube oil aboard.  This should cause barge freight to rise given expanding harvest progress along the river corridor.  While two-days old, the USDA on Tuesday said Lower IL-River barge freight was worth 633% of tariff.

Yesterday, prominent EU cereal forecaster Strategie Grains updated their latest production estimates for the EU, increasing corn and wheat production above the USDA’s latest guess by 9MMT.  If the firm ends up being a pre-cursor to the USDA, US corn demand by way of exports might need to be revised even lower.  The amount of feed wheat, and now corn, available in Europe this year is sharply higher than a year ago and the last several years, reducing the demand for US corn.  The USDA just increased corn exports by 25mbu in the latest WASDE report to help account for the 300mbu increase in supply.  If the USDA is moving in the wrong direction on demand, but supply continues to increase on futures reports as the market seems to be suggesting, carryout could be getting set to balloon well north of 2.0bbu for 2014/15.  The US farmer’s love affair with corn could end up being the source of his heartbreak.

A couple of technical objectives worth pointing out which could offer longer-term support in the soybean market.  With fresh contract lows on a daily basis, one has to pan out on weekly charts for support.  In drawing some Fibonacci progression levels, one prominent area came in around $9.28, which would be the 100% progression of the $16.36-7.76 selloff in 2008 attached to the all-time record high of $17.89.  Essentially, if the selloff in 2008 is any guide, the length of that move from $17.89 lines up around $9.28 which is also a number being thrown around by fundamental and cash traders for harvest lows.  Watch momentum signals around that area for clues.  The analogous level in soymeal would be $297.50.  In looking at weekly Chicago Wheat charts, unfortunately, we continue to slice through long-term support levels like a hot knife through butter.  The only downside objective left between spot and the 4-handle are the June 2010 lows around $4.25.  Granted, that is 60c from current levels, but there just aren’t any support levels of note between here and there.  Wheat charts have done serious technical damage, but fortunately, funds are already short up to their eyeballs.

The latest Cattle on Feed report will be released this afternoon for supplies as of September 1st with placements during August expected to come in at 1.692 million head.  If that number turns out to be accurate, placements would be down 4.5% from a year ago, and be the lowest August placements on record going back to 1996.  Cattle on feed are expected at 98.9% of last year at 9.767 million head, which would be the lowest since 1999, while marketings are seen at 90.7% of a year ago at 1.697 million.  The marketings would also be the lowest since 1996.  All of the above bodes well for keeping cattle at all-time record highs, but bodes especially poor for corn demand.

 

Bottom Line:  Favorable yield reports, favorable harvest weather, end users on the sideline and an undersold US farmer are all contributing to fresh contract lows heading into harvest.  Technicians, like myself, can throw out downside targets, but until the market sees fresh, meaningful demand, prices are going to continue to drift lower.  Storage needs to be maximized to take advantage of any post-harvest rallies, while keeping cash needs close at hand.  Tighten up and keep your head down; the ride is going to be bumpy.

 

Good Luck Today.

 

CPC 8-14 9-19

 

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.

 

9/18/2014 Morning Comments

Good Morning,

 

Outside markets as of 5:50am: Dollar Index up 0.2020 at 84.5470; Euro down 0.00370 at 1.28880; Japanese Yen down 0.59%; S&P’s are up 7.75 at 2009.25; Dow futures are up 53.00 at 17,205.00; 10-yr futures are down 0.21%; The Nikkei closed up 1.13% at 16,067.57; The DAX is up 0.95% at 9,753.67; The FTSE 100 is up 0.48% at 6,813.65; Gold is down $12.00 at $1223.90; Copper is down $1.10 at $313.25; Crude Oil is down $0.12 at $94.30; Heating Oil is down $0.0125 at $2.7326; Paris Milling Wheat is up €0.25 at €161.75/MT.

The Scottish Independence vote today is splashed all over financial media outlets this morning, and for good reason.  Scotland opened polling stations today for a referendum on whether the country will leave its union with England, Wales and Northern Ireland and become an independent state.  The first exit polls will be released after voting closes at 10:00pm local time which will be around 4:00pm central time here in the US.  Polling has suggested a neck and neck race down to the wire.  A yes vote is likely to weigh heavily on the British Pound and English equity markets.  The Federal Reserve kept its “considerable” wording in reference to how much time would elapse before the first interest rate hike in 2015.  They did raise their interest rate guidance for the end of 2015 to 1.38% from 1.13% for their benchmark lending rate.  Global equity markets are reacting positively.

A few systems working across the southern plains this morning, but a quiet Midwest.  The next 7-days will see precip confined to the southern plains, and especially N-TX where totals over the week could be as high as 6.00”. The Midwest will see mainly dry weather which will be welcome for almost all as early harvest efforts expand and slow to mature crops get needed heat units in the Northern Plains.  Frost/freeze damage is still being assessed, but suffices to say the damage was very hit or miss.  Some areas are reporting heavier damage, while others nothing.  By next week, full damage should be noticeable, but lighter crops in the Dakotas and N-MN wouldn’t be a surprise.  Extended maps from NOAA remain favorable with above normal temps and below normal precip through the 6-10, but better moisture creeps into the Northern Plains during the 8-14.

 

Quiet, tight-ranged trade overnight in all of our Ag markets as the consolidation effort ahead of more widespread harvest activity begins.  The next fundamental input to our markets will be yield reports, then the September 30th stocks report, followed by the October WASDE.  Volatility has declined notably, and the slow choppy trade may become the feature until the balance sheets are updated.  As proof of the volatility decline, the CME lowered margin requirements for both spec and hedge accounts last evening for almost all Ag commodities and spreads.  For speculators, margins declined by about 16% with the initial margin now $1375 per contract of corn.  In general, however, commodities are still the whipping boy of the speculative portfolio with equity markets sitting at record highs, the Dollar Index at 14-month highs and the looming interest rate hikes in 2015.

Opinion Indices (Optix) as compiled by www.sentimentrader.com were updated this week, showing soybeans and wheat plunging into fresh lows.  On soybeans, the Optix now reads 20%, the lowest level since September 27th, 2004.  During that month, front-month soybeans were trading around $5.31/bu, a far cry from the $9.80 we currently have.  That fall when sentiment dropped so low in soybeans, a major low was carved out before beans rallied nearly $2.00 during JFM 2005.  Hedgers have the longest soybean position since 1997, and sentiment is at a 10-yr low.  These reasons, in an of themselves, aren’t enough to buy soybeans, but they are cause for watching price very closely.  The wheat Optix dropped to 14.0% this week, tying the low in July 2014.  The 14.0% reading is the second lowest outside of December 2013’s 13.0% since 1999.  The point here is sentiment on wheat is also at historic lows, and the healthy fund short in addition to the tightening FOB spread with Black Sea/French wheat are all reason for pause.  These markets aren’t likely to turn overnight, but the framework is definitely being laid.

Mostly unchanged basis on the MGEX spot floor yesterday with 216 cars including 3 trains.  14.0% were down 15c to +215/250Z while 15.0% were down 5-20c to +580/600Z.  Protein levels continue to sink as harvest works north, and it’s looking more likely ND is going to average around 13.0% protein this year.  Add in color and TW problems, and the spring wheat market is likely to stay volatile, especially when transportation issues are added in.  Comments from durum traders are similar or worse: lack of color, protein variable, lack of hard wheat, unreliable Canadian supplies, etc.  Producers with high protein and good quality in either of these crops will be in the driver’s seat this winter.  Monitor basis and spreads constantly for optimal marketing opportunities, or contact someone who does like Halo Commodities.

PNW corn basis continues to slowly creep higher with spot bids now commanding +145/140/130Z for SON vs. +125/130/120Z a week ago.  HETX rail bids are also firmer with spot +130Z through November vs. +110/115/110Z for SON a week ago.  The CIF market remains much more well supplied given harvest efforts along the river with spot barges quoted +70/76Z and +75/76Z for October vs. +73/74Z and +76/80Z a week ago.  Domestic soybean basis remains incredibly volatile with spot bids moving $1.00-2.00 by the day as crushers in the East such as Claypool, IN reportedly paid 500X, yep $15.00, for stem by the end of the week, before dropping bids to 350X.  Crushers in the West have come down quicker as old crop supplies moved from farm bins.  The real task will be getting the beans in position to meet the huge export commitments we have on the books for OND.  The exporter is short basis and counting on the farmer to turn palms out.  Price says he will sell soybeans and store corn, but only time will tell.

Things continue to get worse for Syngenta AG with Ingredion, a manufacturer of sweeteners and starches made from corn, said they will not buy the new variety of corn produced by Syngenta which is being banned in China.  The GMO strain known as Duracade has been the ire of exporters who have seen cargoes rejected at Chinese ports for containing the strain which hasn’t been approved.  This week, Cargill and one other feedstuffs exporter sued Syngenta for financial damages received due to rejected cargoes.  With Ingredion joining the list of end users who will not accept the Syngenta brand of corn, there might still be hope for US corn and corn by-products working their way back into China.

Export sales on tap at 7:30.

 

Bottom Line:  A low volatility chop looks like the order of the day which could see two-sided trade.  Markets will be anxious to hear more anecdotal yield reports in the coming weeks, and weather looks as though it will cooperate.  Acres and damage from frost will remain hot-button issues, but neither will be any clearer before the October WASDE.  Producers absolutely have to have profit margin targets in place and make disciplined sales when those margins are available.  14/15 will be about survival, not hitting home runs.

 

Good Luck Today.

 

HPC 9-18

 

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.

 

 

9/16/2014 Morning Comments

Good Morning,

 

Outside Markets as of 5:45am: Dollar Index down 0.0570 at 84.2090; Euro up 0.00110 at 1.29550; S&P’s are down 2.75 at 1981.50; Dow futures are down 28.00 at 17,000.00; 10-yr futures are up 0.15%; The Nikkei closed down 0.23% at 15,911.53; The DAX Is down 0.37% at 9,624.13; The IBEX-35 is down 0.50% at 10,786.60; Gold is up $4.10 at $1239.20; Copper is up $1.40 at $309.95; Crude Oil is down $0.19 at $92.72; Heating Oil is down $0.0059 at $2.7337; Paris Milling Wheat is up €2.00 at €163.50/MT.

Easier global equity markets this morning as investors play it safe ahead of the two-day Federal Reserve which begins today.  Again, investors are looking for interest rate guidance from the Fed as to when they may make that first interest rate hike in 2015.  The speculation has lifted the US Dollar Index to 14-month highs, contributing to many commodity indices hitting multi-month or multi-year lows.  Other economic data today will include the August Producer Price Index which is expected to edge higher to +1.8% y/y from +1.7% in July.

Quiet Midwest radar this morning with the Midwest expected to remain dry until the next batch of storms begins at the tail end of the week.  Widespread rains stretching from N-TX to WI are expected to bring totals in the 0.50-1.50” range Friday-Sunday.  The Northern Plains are expected to remain dry the next 15-days which will aide in small grain harvest and HRW planting.  It will also help in pushing crops to maturity which are lacking GDD’s.  An overall warmup is also expected for the Midwest during the 6-10 and 8-14 day period which will keep frost threats low until the end of September.  Below normal precip will accompany the warm up, both a boon for northern plains crops.  Nothing to really argue with on the weather front, although isolated reports of frost/freeze damage are trickling in with more soybeans hurt than originally thought.

 

Solid Turnaround Tuesday bounce occurring across the Ag complex this morning as grains catch a long-awaited relief bounce on a combination of crop progress and FSA certified acreage data.  Beginning with the former first, last night’s crop progress report seemed to suggest the corn and soybean crops in the north are a bit more immature than we thought heading into last week’s frost/freeze event.  The forecasts are turning much more favorable through the end of the month, but the data really hits home how far these crops have to go before getting in the bin.  Both are still rated very high historically, so a drastic reduction in yield shouldn’t be expected, but there is vulnerability in these crops.  This morning also saw the latest release of the FSA certified acreage data, which according to University of Illinois analysis, should mean planted acreage on corn and soybeans is coming down notably.

Corn conditions were unchanged at 74% G/E vs. 53% last year, and still the highest rated for mid-September since 1994.  Dent progress was rated 82% vs. 79% last year and 85% average, which implies this crop is right around average.  However, ND is 59% dented vs. 71% average, WI 59% vs. 69% average and MI 60% vs. 71% average.  Of more concern is the percent mature at 27% nationally vs. 20% last year and 39% average.  In ND, just 2% is mature vs. 24% average, SD 10% vs. 26% average, MN 9% vs. 25% average, WI 8% vs. 20% average, IA 19% vs. 44% average and IL 37% vs. 50% average.  The concern here would be light corn if the frost did impact the corn.  Corn harvest was estimated at 4% nationally vs. 9% average.

Soybean conditions were seen unchanged at 72% G/E vs. 50% average, and still the highest rated since 1994.  In the dropping leaves category, nationally the crop was at 24%, dead on last year’s 24% but behind 32% average.  Northern tier states are lagging here with SD at 28% vs. 56% average ND at 37% vs. 45% average, MN 12% vs. 37% average, IA at 13% vs. 26% average and WI at 11% vs. 22% average.  Any real freeze damage might not be picked up until next week’s crop progress report.

Spring wheat harvest was estimated at 74% complete vs. 58% last week and 86% average.  ND was pegged at 65% vs. 42% last week and 84% average. MN was 74% complete vs. 54% last week and 93% average.  Same story, different week with HRS with big yields being witnessed everywhere, but quality deteriorating as things progress north.  Color and TW seem to be the big areas, but protein continues to slip as combines march north.  MT seems to have an especially large amount of quality issues this year.  Switching over to durum, select states have plenty of progress left to tackle with MT at 38% harvested vs. 60% average.  MT also saw its G/E durum condition rating drop 5pts with the P/VP category rising 6pts.  ND is 34% harvested vs. 68% average, but only has 87% of the crop mature which was surely impacted by the frost.  ND also is just 72% harvested on oats vs. 93% average.  The durum market bears watching as that market can trade on a hair trigger given its size.  The high protein wheat story, between both HRS and durum, could really get interesting when the crop is in the bin later this month.

Switching gears to this morning’s FSA certified acreage data, it would appear on face value the numbers are supportive.  In corn, the latest update put certified acreage at 84.684 million with 1.581 prevent plant acres.  These would compare with 83.322 and 1.54 million in the August update.  Below is a link from the University of Illinois talking about how to interpret the data.  Based on their analysis, it would appear NASS corn planted/harvested acres will be coming down significantly in the October WASDE.  The second link below takes you to the FSA data.  On soybeans, the latest FSA data shows certified acreage at 80.805 million with 841,000 prevent plant vs. 79.249 million and 827,000 in August.  Again, based on current NASS numbers, these would appear to be supportive.  One caveat, there was talk last month that filing deadlines had been extended, which could be affecting completeness.

Quickly, worth pointing out a Chinese trade delegation is in the states this week and signed frame purchase contracts on soybeans totaling 4.8MMT at a ceremony in Wisconsin last night.  These could be reported on the USDA’s daily reporting system and could draw market attention.  These ceremonies happen every year, and usually draw market attention.  However, because they are “frame contracts,” there is likely no basis or futures portion attached, meaning no risk is actually transferred.  Classic ‘dog and pony’ show.

 

Bottom Line:  Hard to argue with a long-awaited bounce in our markets.  Continue to monitor developments related to the FSA data as they are sure to be spun every which way.  If acres are coming down, and yield ideas are going drastically higher, it is conceivable we have seen the largest carryout ideas for the 14/15 balance sheets.  If carryout isn’t going up any further, it will go a long way in helping our markets put in longer term bottoms.  Watch upside technical objectives for momentum.

 

Good Luck Today.

 

http://www.farmdoc.illinois.edu/marketing/weekly/html/091514.html

http://www.fsa.usda.gov/FSA/webapp?area=newsroom&subject=landing&topic=foi-er-fri-cad

 

 

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.

9/15/2014 Morning Comments

Good Morning,

 

Outside markets as of 6:20am: Dollar Index up 0.1140 at 84.3520; Euro down 0.00310 at 1.29270; S&P’s are down 0.25 at 1984.50; Dow futures are unchanged at 16,922.00; 10-yr futures are up 0.08%; The Nikkei closed up 0.25% at 15,948.29; The DAX is up 0.13% at 9,663.55; Gold is up $4.80 at $1236.30; Copper is down $2.45 at $308.20; Crude Oil is down $0.72 at $91.55; Heating Oil is down $0.0002 at $2.7403; Paris Milling Wheat is down €1.00 at €161.75/MT.

The main focus this week for financial markets will be the Tue/Wed FOMC meeting as investors believe some guidance on when the Fed is likely to raise interest rates in 2015.  The US Dollar has obviously been rising on confidence the Fed will in fact raise rates sooner rather than later, so getting some clue as to when will be a highlight of the meeting.  In addition, The House of Representatives is expected to approve a continuing spending resolution to keep the US government funded into 2015, past the November elections.  Some members of Congress are threatening to filibuster the measure, which could thrust government shutdown ideas onto the market.  The US Dollar Index remains right near 14-month highs.

Several systems working across the Midwest and Southern Plains this morning, delaying early harvest efforts in the mid-south.  The frost/freeze event came and went without much fan-fare, although reports are coming in of damage to developing corn and soybean crops.  This analyst saw freeze damaged corn in W-SD with gray leaves aplenty in the Wall, SD area.  Granted, Wall isn’t Des Moines, but isolated damage did occur.  No cold air threats are being seen the next 10-days which will alleviate market concern.  There is the outside chance of some cool temps by the end of September.  Fairly dry in the Midwest the next week with the central belt seeing rain by the end of the week.

 

A new week, and new test of contract lows as harvest rolls on in southern locations with excellent yield reports continuing.  While the market did a fairly good job of pricing in a yield increase on the September USDA report, it feels as though the market is already penciling in a yield bump on the October WASDE, and actively trying to price that in now too.  Since the early 80’s, the USDA has increased the national average corn yield 20 times from August to September.  Of those 20 years, 17 also saw a further increase on the October WASDE.  The difference between those prior years and now is the fact the 4.3bpa increase the USDA made last week was the largest Aug-Sep increase on record, likely taking some of the sting out of future reports.  Nonetheless, the propensity is for a further increase in subsequent reports.  The only fly in the ointment is FSA acreage which some prominent research firms are still calling 1-2 million acres lower on corn and 1 million lower on soybeans.  We will get another update to FSA data tomorrow, which is likely to stir the pot.

While still on corn it is worth taking a look at the demand side of the equation as this may raise just as many concerns.  After last week, the USDA is calling total demand 13.605bbu, up from August at 13.435bbu and just a skosh above 13/14 at 13.600bbu.  So despite significantly lower prices, the USDA doesn’t see demand expanding much above last year’s numbers, which were up 2.5bbu over 12/13, and 550mbu larger than the highest demanding year of the last 5-years.  Expecting demand to slingshot higher in 14/15 looks troubling considering the demand expansion of last year, and the competing supplies found in UKR/BRAZ/ARG.  If yield continues to move higher in future reports, which there is a real tendency to do, demand might not be able to eat up the excess, pushing stocks well in excess of the current 2.002bbu level.  This would certainly call for a test of the $3.00 level in December corn.

Friday’s COT data kept recent trends in place in soybeans with large specs pushing their net short to a fresh record of -81,567 contracts, which accounts for 7.6% of total open interest.  In addition, the gross commercial long bought 24,000 contracts to push his position to 351,399 contracts, also a new record.  Open interest also jumped notable by 24,000 contracts, highlighting the trend followers jumping on as prices pushed below $10.00.  The trend in soybeans of commercials buying hand over fist and specs selling hand over fist isn’t sustainable.  The question is who is going to be right?  Quickly, according to the CBOT Legacy report, the commercial hedger net long of 106,130 contracts is now the highest since September of 1997.  In corn, Gross Commercial Longs bought corn for the first time in 6-weeks, which may be a sign end users are seeing value at current levels?

Lastly on the COT, the Aggregate Spec position across C,S,W,BO,KW,LH,LC,FC,CT,SB,KC,CC now totals -51,981 contracts, which is a bullish sentiment reading of 48.8%.  Both readings are the lowest since August 13th, 2013.  The Dollar’s strength is having an impact on investment demand for commodities.  If the US Dollar Index sees a breakout above 14-month highs, this will likely exacerbate the outflow of investment dollars from commodities into equities.  Equity indices at all-time highs are also pulling dollars away from our space.

Worth touching on wheat basis quickly as the MPLS spot floor continues to impress.  On Friday, 14.0% saw offers move sharply higher with that protein level now indicated at +250/600Z.  This would compare with +295/350Z a week earlier.  15.0% protein was mostly unchanged to close the week at +605/650Z.  Harvest progress should have jumped notably in ND the last week given the weather with harvest progress expected around 70% complete tonight.  Protein levels are dropping as harvest advances, but the bushels are not.  Color is also said to be a major concern.  Also of interest tonight on the crop progress report will be the Durum rating and progress.  The frost/freeze event hit the durum belt especially hard last week, with only around 69% of the crop mature as of 9/7 vs. 96% a year ago.  On Friday, reports indicated durum bids moved higher by $1.00/bu in some cases to around $14.00-15.00/bu.  The durum market is currently forecast to have a carryout of around 22-23% stocks/use.  With both the Canadian and US durum belts being impacted, this market could get squirrely in a big hurry.  Continue monitoring both of these high pro markets in coming weeks for clues about the latter-half of harvest.

 

Bottom Line:  Mixed/weaker markets look like the order of today with fresh contract lows in the sights for all of our markets. CZ is tracking 2004 fairly closely which eventually put in contract lows of $3.24/bu in December of that year.  We’re not all that far away from those levels now.  Big crops tend to get bigger, although the frost/freeze may have impacted things more than anticipated.  Time will tell.  Still plenty of old crop to move before fall harvest.

 

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.

9/11/2014 Morning Comments

Good Morning,

 

Outside Markets as of 6:15am: Dollar Index up 0.0720 at 84.2730; Euro up 0.00140 at 1.29200; CAD down 0.51%; S&P’s are down 6.25 at 1988.75; Dow futures are down 52.00 at 17,006.00; 10-yr futures are up 0.04%; The Nikkei closed up 0.76% at 15,909.20; The DAX is down 0.04% at 9,696.44; The IBEX-35 is down 0.34% at 10,901.00; Gold is down $2.90 at $1242.40; Copper is down $4.15 at $306.90; Crude Oil  is down $1.20 at $90.47; Heating Oil is down $0.0302 at $2.7233; Paris Milling Wheat is down €1.75 at €165.50/MT.

Mixed to easier equity markets this morning, but crude oil is trading sharply lower with the spot month at the lowest level since May 1st, 2013.  On Wednesday, OPEC revised down its growth forecasts for global crude oil demand in their monthly report.  Money flow into crude oil and other commodities has also been siphoned off, and instead diverted into the much better performing equity markets.  President Obama outlined his strategy for dealing with the terrorist group ISIS in front of the nation last night, choosing a targeted approach with airstrikes.  A ground campaign won’t be part of the strategy, the President said.  Russian natural gas deliveries to Poland dropped by 45% on Wednesday, the third day of decreases, heightening concerns Russia is curtailing gas supplies in response to Western sanctions.  Poland gets 60% of its gas needs from Russia.

A band of showers stretching from E-OK to PA this morning bringing finishing rains to the mid-south, while snow falls across WY/W-SD/MT.  The first bout of cold weather moved into the WCB/Northern Plains this morning, although Friday’s lows are the focus for growers in the US.  Temps’ Friday are expected to get into the low-30’s across MT/ND/SD/MN, but how long and how low are uncertain at this point.  Still nobody talking about a crop killing freeze.  After the current rains move out, the next 7-days are going to be fairly quiet in terms of precip which will be an aid to early harvest efforts in MO/IL et al.  The drier tone will stick around the next 15-days with below normal precip expected through September 24th.  Temperatures will stay on the cool side for the Midwest, but temps are above normal out west.

 

Markets are going to be weaker heading into the 11:00am USDA reports, highlighting trader expectations for expanding crop size.  The general tenor of the market seems to be one in which no matter what the USDA gives us today, market participants are going to assume yields and production get bigger on the October WASDE.  It would appear then that this report is more of an inconvenience than anything, but algos and HFT will still have fun at 11:00am.  The focus on the October WASDE is understandable as that’s when updated FSA acreage will be incorporated as well as objective pod and ear weights.  The latter two items are precisely why big crops get bigger as healthy crops with good potential usually get heavier as the year progresses.  Demand items will take a back seat, although corn bears will have a hard time with demand increasing further to account for increasing supply.  Trade estimates below.

There will be plenty of time to analyze every minute detail of the USDA report after the numbers are released, but there is plenty of activity occurring in basis and spreads to keep us occupied until then.  First, there is no slow down taking place in HRS basis with 15.0% protein climbing another 25-45c yesterday to +645/675Z.  Volume has dropped off slightly with only 143 cars including 2 trains, but the demand for high protein hasn’t.  14.0% was unchanged at +275/350Z.  The spread between 14’s and 15’s on the bid side is now 370c vs. 350c a week ago and 90c a month ago.  Harvest should continue strong the next week in ND/MN/MT, so watching protein spreads the next several weeks will provide a lot of clues as to whether the protein premium is here to stay.  Still no change in high pro HRW with 14.0% unchanged at +140/150Z.

PNW corn bids firmed slightly yesterday with spot trains worth +125/130Z for Sep/Oct.  HETX was also firmer with OND pegged at +115/110/110Z.  PNW soybean bids also firmed for Nov-Jan slots, now bid +197/193/185X.  It’s hard not to take notice of the firmness in soybean calendar spreads with X/F pushing to -6.00c yesterday, the highest level since 7/24, while SF/SH pushed to -5.25c, the highest level since 7/28.  The latter spread is also near the highest levels since June 30th.  The aforementioned, combined with the gigantic commercial long position implies commercials are short an awful lot of soybean basis which is going to have to be bought in by Dec/Jan.  Exporters are clearly counting on the US farmer to turn palms out in Oct/Nov, which he still may do.  If he doesn’t, however, soybean spreads and basis could be in for some sustained strength.

Wheat spreads have been showing their own strength as of late with the WZ/WH trading at -16.5c yesterday, the highest level since May 30th.  The strength in WZ/WH tracked well with the WU/WZ, although inverses aren’t likely.  KWZ/KWH two-days ago was trading close to -5.0c which is the highest levels in a month.  CZ/CH jumped to -12.25c overnight, the highest level since 8/21.  While the aforementioned spread strength isn’t enough to become outright bullish, it makes one pause about continuing to beat down the futures.  Commercials appear to be finding value across our markets at these levels, and our long awaited end user pricing might finally be taking place.  Spread direction after the numbers could provide a lot of clues about trade the next 30-days.  Quickly, MWZ/MWH is the lone spread which looks like it is headed for the basement, trading near the lowest levels since mid-July.

While still on wheat, France Agri-Mer released details about this year’s French wheat crop yesterday.  They said protein levels averaged 11.1% this year vs. 11.2% last year, but only 59% of the crop is good to very good for bread making vs. 95% last year.  Only 46% contains a Hagberg falling number over 220, the level desired by millers, compared with 99% last year.  In Germany, 80% of the wheat crop is considered suitable for milling and 20% for feed, in-line with last year.  The French quality problems are really going to rear their head later in the year when the little bit of milling quality wheat becomes exhausted.  US corn imports to the EU are going to drop off sharply this year, but the US grabbing traditional French export business could be something to watch for.

Other headlines included France reporting a record corn crop, while China continues to trim theirs due to drought.  Ethanol production yesterday rebounded slightly while stocks jumped by 348,000 barrels.

 

 

Bottom Line:  Lower prices into the numbers, but provided the USDA doesn’t throw anything to wild at the market, these trends should continue.  Multi-decade highs in condition ratings, strong anecdotal yield reports and an undersold farmer are limiting any rally attempt.  Lower prices are supposed to spur demand, which is what the USDA is counting on in their balance sheets.  We just desperately need end-users to step up and start pricing or risk even lower prices.  Our last risk to this crop is going to pass Saturday with a slow warm-up.  More after the numbers.

 

Good Luck Today.

 

WASDE Estimates 9-11

 

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.

 

 

9/10/2014 Morning Comments

Good Morning,

 

 

Outside Markets as of 6:05am: Dollar Index down 0.1550 at 84.1230; Euro up 0.00320 at 1.29510; AUD down 0.51% at 0.91440; S&P’s are up 1.75 at 1991.50; Dow futures are up 15.00 at 17,050.00; 10-yr futures are down 0.10%; The Nikkei closed up 0.25% at 15,788.78; The DAX is up 0.03% at 9,713.73; The IBEX-35 is down 0.39% at 10,909.00; Gold is up $5.90 at $1254.40; Copper is down $0.35 at $309.85; Crude Oil is down $0.03 at $92.72; Heating Oil is down $0.0091 at $2.7824; Paris Milling Wheat is down €1.50 at €167.75/MT.

Aside from the Dollar Index correcting slightly, global financial markets are fairly muted on this Wednesday.  The headline grabbing news from yesterday was of course the new product into from Apple with the latest version of the iPhone unveiled as well as the new iWatch.  Essentially, the new iPhone’s have larger screens, along with the latest gadgets to make payments at retailers such as Macy’s and McDonald’s.  Apple finished the day off 0.38% at $97.99/share.  Mortgage activity is expected to get a bounce with 30-year mortgage rates near a 15-month low of 4.10%.  That is 48bp below the 3-1/4 year high of 4.58% posted last summer.  Today’s EIA report is expected to show crude oil production moving near a new 27-3/4 year high, hitting levels not seen since November of 1986.

Large systems moving across the central corn belt this morning, impacting IA/MO/IL/MN/WI/MI with more scattered systems across MT and NE.  Rainfall in the last 24 hours has been heaviest in N-MO and the southern half of IA where localized totals hit 5.0-8.0” plus.  SD and MN also saw decent rains of 0.50-1.00” across eastern growing areas.  The impacted areas this morning will see heaviest rainfall over the next 3-days before the system moves east into IN/MI/OH.  Western SD, WY and S-MT are also in for additional moisture through Saturday.  Extended maps seen softening on the much below normal temps during the 8-14, while moisture drops to below normal for the entire Midwest which will probably be welcome with the onslaught of harvest.

 

Wal-Mart trading at work in the Ag sector this morning with better living through lower prices.  Follow through selling is being witnessed in our space in the ramp up to tomorrow’s USDA report, even as most analysts admit the likelihood of the USDA matching the impressive private crop estimates being floated isn’t very good.  Still, carryouts are set to grow on tomorrow’s report, both in the US and world in regards to wheat.  Managed money continues to add to the short side of these markets, the Dollar Index is near 3-year highs, early yield report from IL/MO and the mid-south are nothing short of outstanding, and the US farmer continues to be undersold on both 13/14 and 14/15 crops.  Bagging seems to continue coming up as the storage plan of choice for both farmers and elevators as harvest looms.  These markets need a major catalyst to stem the slide and recover.  At current we don’t have one.

The weekly margin recap put together by www.rjomrt.com showed end user margins flat to better with gross ethanol margins pegged at $1.37/gln vs. $1.40 last week and $0.93 last year.  US Broiler Crush was estimated at 82.65c/lb vs. 79.39c/lb last week and 68.09c/lb last year.  Hog crush jumped solidly to $147.75/hd vs. $134.10 last week and $102.71/hd last year.  Cattle crush remains weak at $86.38/hd vs. $88.46/hd last week and $201.60/hd last year.  Profitability of C-IL soy crushers remains almost unbelievably high at $5.78/bu vs. $3.92/bu last week at $0.95/bu last year.  What’s funny is the fact that $0.95/bu is considered a good margin.  With meal remaining aggressively high at either +160U or +260V, crushers have plenty of margin to play with.  Cattle prices remaining at all-time record highs will keep demand high even if feeding margins are weak.  The squeeze will just travel up the supply chain.

Some decent moves in corn basis yesterday with destination rail bids improving off the PNW to +125Z for OND vs. +115Z a week ago.  HETX basis was firmer as well at +105/110Z for OND vs. +90/92Z a week ago.  Ethanol basis is considered flat. CIF barges have been under pressure, however, with harvest ramping up along the MS-River corridor.  OND boats could be called +81/83Z or $167.41-168.20/MT FOB.  US prices out of the Gulf have finally caught up with aggressive SAM numbers which were reported last night at $165.84-170.96/MT out of Argy for OND, and $172.92/MT out of Brazil for Nov/Dec.  SAM will remain an aggressive competitor this year, but acres are expected to shift more solidly to soybeans given current corn/bean ratios for the 2015 season.  The US isn’t the only place with a corn supply glut.

Still solid volume on the MPLS spot floor with 332 cars including 7 trains.  14.0% treading water at +275/350Z, 15.0% at +600/650Z and 16.0% pro finally getting some definition at +650Z.  Still not a lot of overt quality concerns out of ND in the way of vom and sprout, but color and TW seem to be genuine concerns.  Bushels will be there, but the desired bushels might be tough to come by.  Asian customers are the real sticklers for color, so PNW bids will be worth watching.  At some point, would still think a more concerted push for high pro-HRW comes around given the spreads with high pro spring wheat, but there is a lot of harvest and winter to get through yet.  13.0% pro HRW dropped 5c to +110/120Z and 14.0% pro was unchanged at +140/150Z.

Public Opinion as compiled by www.sentimentrader.com dropped to a fresh low of 23% on soybeans this week, now the lowest public opinion toward the commodity since February 7th, 2005.  As reported yesterday, funds are record short the soybean market and commercials have turned record long, so negative public sentiment is completely understandable.  Unfortunately, bearish sentiment isn’t a reason in and of itself to buy a commodity.  Bearish public opinion simply sets the stage for a major reversal once the trend finally changes.  Until upside technical objectives have been achieved, the trend in soybeans remains down on all scales and could still accelerate.  At the very least, the market would need to prove strength above $10.38, but preferably $10.89 or even $11.17 before traders can do anything more than cover shorts.  Sentiment remains negative towards corn and wheat, but nothing to the degree of soybeans.  Sentiment towards the CRB-Index as a whole is about to slip into pessimistic territory, the first time since June of 2012.  This might be the larger indicator, as it isn’t just grains feeling the negative sentiment.

 

Bottom Line:  Choppy, two-sided trade today as traders square positions ahead of tomorrow’s USDA reports.  The USDA will probably disappoint bears, choosing to wait until more reliable field data is available before confirming the monster yields.  The market is definitely pricing in larger yields than those seen in August, so now it is about demand picking up the slack.  Basis is firming, but end users are still comfortable lying in the weeds.  14/15 is shaping up to be a year of margin survival as opposed to margin maximization.

 

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.