Outside Markets as of 5:50am: Dollar Index down 0.3150 at 94.6720; Euro up 0.00340 at 1.13410; Canadian Dollar is up 0.71% at 0.79580; S&P’s are up 8.00 at 2073.75; Dow futures are up 69.00 at 17,901.00; 10-yr futures are down 0.28%; The Nikkei closed up 1.85% at 17,979.72; The DAX is up 1.61% at 10,925.69; The IBEX-35 is up 1.93% at 10,564.90; Gold is up $4.90 at $1224.50; Copper is up $4.45 at $258.55; Crude Oil is up $1.28 at $50.12; Heating Oil is up $0.0255 at $1.8396; Paris Milling Wheat is unchanged at €185.75/MT.
A ceasefire was agreed to end weeks of intense fighting in eastern Ukraine after all-night talks between leaders from Germany, France, Ukraine and Russia. The accord was struck after 18-hours of non-stop negotiation, putting into place the ceasefire beginning February 15th. The IMF also announced early Thursday, Ukraine will receive a $40 billion bailout package to stave off default. This didn’t seem to help the Ukrainian Hryvnia which jumped another 2.69% today to 26.7000:1 against the US Dollar. The Russian MICEX equity index rallied 2.47% on the ceasefire news.
The weekly EIA energy inventory report did not disappoint this week, seeing crude oil rise by another 4.87 million bbls to 417.93 million, another new record going back to 1982. Inventories are now 15.6% above a year ago, and 16.8% above the 3-yr average. The inventory building isn’t likely to slow anytime soon, considering the EIA showed in their latest drilling productivity report that crude oil production should rise over 66,000bbls/day during the month of March. Crude spreads are certainly confirming the larger inventories and set back in flat price with CLH/CLJ dropping to -0.95c yesterday, the lowest on a closing basis in the contract’s history. Would seem bottom pickers will be fighting an uphill battle for the foreseeable future, and the Congressional Budget Office sees crude oil prices falling well into 2016. This will undoubtedly be a negative undertow for Ag prices in a general sense.
The Brazilian Real fell to a fresh 10-yr low yesterday of 2.9116, and was the lowest on a closing basis since November 2004. Analysts are expecting zero growth for Brazil in 2015, and state-owned oil company Petrobas remains roiled in scandal. The company was valued at $310 billion in 2008, making it the world’s fifth largest company, but now has a valuation of $48 billion thanks to recent corruption scandals.
Extended maps from NOAA last evening suggested the cold temps in the east overtaking the above normal temps in the west as a cooler bias blankets almost the entire country by the middle of next week. Important will be how cold the temps actually get, and what the degree of snow cover is during the cold snap, especially as some of the HRW has broken dormancy with the well above normal temps from last week. According to Commodity Weather Group, the concern area for the cold snap will encompass about 6% of the soft red wheat acreage and 9% of the hard wheat acreage, or around 7% of the national winter wheat crop. An important piece to remember is this is February 12th, not March 12th. Each time we go through a massive temperature swing like this, the wheat seed loses more of its winter hardiness, leaving it susceptible to full winter-kill.
Better markets this AM across the Ag sphere as most of our contracts appear to be trading inside triangle formations, which could be pre-empting a breakout in one direction or the other. Based on the direction of trade before the consolidation period began, it would suggest soybeans are readying for a breakdown while corn and wheat are preparing for another leg higher. Cash soybean trade is supporting the soy complex as the transition to SAM supplies is proving less than smooth, while weekly demand figures for corn continue to suggest strengthening demand. The wheat market is likely gaining some traction on the looming cold snap, and combined with well-known conditions in Russia and Ukraine, is likely enough for bears to give pause. Export sales on tap this morning with corn and wheat sales in focus to prove their updated export figures.
CIF NOLA soybean premiums have been on the move this week, trading especially firm for ETA slots (+95H) as well as for Feb and Mar (+85/80 & +72H, respectively). There seems to be a couple of factors present supporting the firm basis; to wit, cheap ocean freight, and a delayed Brazilian soybean harvest due to slow planting last fall. The aforementioned basis combined with applicable barge freight is putting Zone 3 cash 4.5-18.5c above gross delivery equivalence, which is rallying SH/SK to boot. At the highs yesterday, the SH/SK rallied to -2.25c, the highest trade since June 27th. Normally, strong premiums combined with strong calendar spreads should beget a futures rally. This time, however, it doesn’t feel as though soybeans have an upside function to perform given the calendar constraints before Brazilian soybeans take the reins. Also, the Brazilian Real dropping to a 10-yr low will continue to promote farmer replacement sales, even if the US farmer holds tight to his remaining supplies. It looks as though exporters are taking advantage of freight parity to cram a few extra boats in before the door closes. Any further delays to Brazilian shipping, and well then we can talk.
Weekly ethanol production surprised a bit with a bump in production to 961,000bbls/day, up 13,000bbls/day and above the new “needed” level of 930,000bbls/day. Ethanol stocks rose by 149,000 bbls to 21.135 million bbls, the highest since June 2012. Weekly gasoline demand continued to plummet, however, dropping for the 3rd straight week, and falling below the corresponding week from 2014. Weekly gasoline demand since the beginning of the 14/15 corn marketing year has been averaging 2.3% above a year ago, while ethanol production is averaging 5.7% above a year ago. Ethanol exports are obviously playing a role, with Sept-Dec exports up 16% y/y, but ethanol stocks since the beginning of January are up 17%. Continued ethanol exports will be needed to prevent a glut of ethanol should gasoline demand continue to drop.
Wheat spreads continue to be a focus with front-month calendars rising to the strongest levels in weeks yesterday. The WH/WK jumped to +2.75c yesterday, the firmest trade since April 1st, 2014, while the MWH/MWK firmed to -0.50c, the highest trade since 5/15/14. The MWK/MWN also jumped to the highest level since 12/18. Basis bids could be called steady/better, but nothing alarming. CIF NOLA SRW bids firmed by 4c to +85H, getting back to where they were last week. HRW export bids are unchanged, although the spot floor bids were up by 4-8c yesterday. No real change to HRS or DNS bids to speak of. I want to continue respecting the firm calendar spread trade in regards to flat price, until or unless basis breaks. The quality trade within our wheat markets has been apparent for some time, and could be the impetus for the spread rally. Still, the shift in ownership from the funds over to the commercial end user, without any corresponding sales from the farm gate level, keeps me from betting bearish wheat in the near-term.
Export sales estimates put wheat at 300-650TMT, corn at 600-1,100TMT, soybeans at 300-550TMT, meal at 150-300TMT and soy oil at 10-20TMT.
Bottom line: Our markets are consolidating into rather tight ranges which could be warning of a breakout in the coming sessions. Corn is proving the demand it needs to, the transition to SAM supply has been uneven at best and the wheat market has to deal with another cold snap in the US. Traders are anxious to look ahead to 15/16, and next week with the USDA Outlook Conference, they’ll get that chance. New crop corn supplies aren’t as plentiful as many would think unless we have 90 million acres and a 166bpa+ national yield.
Good Luck Today.
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