6/19/2014 Morning Comments

Good Morning,

 

Outside Markets as of 6:15am: Dollar Index down 0.3560 at 80.2240; Euro up 0.00680 at 1.36310; S&P’s down 0.25 at 1956.75; Dow futures are up 2.00 at 16900.00; 10-yr futures are up 0.29%; The Nikkei closed up 1.62% at 15,361.16; The DAX is up 0.81% at 10,010.49; The IBEX-35 is up 0.95% at 11,218.10; The Russian MICEX is up 0.62% at 1,503.61; Gold is up $9.20 at $1281.90; Copper is up $0.70 at $306.80; Crude Oil is up $0.45 at $106.04; Heating Oil is up $0.0049 at $3.0450; Paris Milling Wheat is up €1.00 at €189.50/MT.

Global equity markets are rallying today after the Fed signaled that US interest rates would remain at record lows until the US economy was seeing a steadily improving job market and modest inflation.  Despite the fact the unemployment rate has moved under the original 6.5% target, and equities continue to hit new record highs, Fed chair Yellen said there was no need to raise short-term rates from record lows anytime soon.  This has put the US Dollar under heavy pressure, hitting the lowest level since May 27th on the news.  Weekly unemployment claims are expected to show a decline of 5,000 to 312,000, reversing last week’s 4,000 claim increase.  The Philadelphia Fed index is expected to show a -1.4 point decline to 14.0, adding to the small -1.2 point decline in May.

Shower activity working across MN/IA/WI/IL as well as OK this morning following another night of severe weather, this time in South Dakota and the town of Wessington Springs.  As many as 20 homes were either severely damaged, destroyed or uninhabitable after last night’s tornado.  Rainfall totals continue to stack up over the water-logged Northern Plains with another 0.25-1.00”, and in some localized areas 3.0”, falling in parts of NE/SD/ND/MN in the last 24 hours.  The map below shows the rainfall since Monday.  Several areas in SD/MN/IA/WI/NE have seen totals between 3.0-10.0” since the beginning of the week.  Pictures of crops standing in water are becoming common, but many crops are benefitting from the current weather pattern.  More rain expected the next 3-days, with heaviest amounts where they don’t need it.  SE-SD/N-IA/S-MN are slated for another 1.0-2.5” through Sunday.  KS/MO/S-IA are expecting rain Sunday-Tuesday with heaviest amounts in E-KS at 2.50”.  No big changes to extended maps with the Northern Plains seen getting a stretch of drier weather in the 6-10 and 8-14 which would be welcome.

 

Green across the screen again this morning led by the wheat market which is tacking on 7-9c as we head into the seven o’clock hour.  The bounce in wheat seems to be largely technical in nature after the nearly month long sell off, but concerns are being raised about winter wheat harvest in both the southern plains and Delta.  Despite the fact progress is behind normal, ripened wheat is now being hit with rain which can degrade quality.  The market’s concern has been expressed through calendar spreads and basis this week with the KWN/KWU pushing to +1.75c yesterday, the highest trade for the contract since May 15th, 2013.  High protein spring wheat basis has been improving as well with 14.0% pro up 30-35c yesterday to +235/275N vs +160/180N a week ago.  Late yesterday it was reported Brazil has also approved another 1MMT of duty-free non-Mercosur wheat imports through August 15th, 2014, which could be supplied by the US.  The aforementioned isn’t enough to reverse the losses sustained in June, but it definitely argues for a near-term bottom which the market seems to be granting.  To really turn the technical buying switch on, however, July Chicago wheat would need to see trade above $6.26-6.29.  Momentum indicators are indicating a bullish divergence and On-Balance-Volume has bottomed and is rising, both positive signals.

The big surprise in yesterday’s session was the 8:00am announcement of 140,000MT of soybeans being sold to an unknown destination for the 13/14 crop year.  This is the kind of business the old crop balance sheet can’t afford to be doing, and many began to think it was a reporting error by the USDA.  Whatever the case, FOB Brazilian soybean basis continues to appreciate, lending credence to the idea of an old crop sale.  As of last night, spot Brazilian soybean basis was quoted at +35N with August at +75Q vs +8N and +63Q yesterday.  A week ago, the spot bid was -25N and August was +42Q.  So in a week’s time the spot soybean bid has rallied 60c, or about as much as the futures board has sold off since last Thursday.  With the basis rally, imports of Brazilian soybeans should all but stop, and it even raises the question of whether the sales to the US on the books will be executed or routed to another destination?  The story in old crop soybeans is far from over.

The second chart below shows the Mississippi River flood forecast for St. Paul.  It was reported yesterday barge loading in Savage, MN on the Minnesota River would come to a halt until July 1st due to high water.  As one can see from the chart below, moderate flood stage is expected to be hit in downtown St. Paul sometime around June 25th.  The current precip forecast will exacerbate the situation, and while Savage, MN isn’t the Illinois River district, it does take available supply off the export market.  This should help CN/CU and export premiums hold firm in the near-term.  Corn basis as a whole seemed to hold steady to even firm a bit yesterday with PNW corn shuttles bouncing back to +107/108N for JJ.

Weekly ethanol production hit a new record for the weekly data series going back to June 2010 yesterday, highlighting the solid margin structure which exists in that industry.  Weekly production of 972,000bbls/day compared with 944,000 the week before and the 899,000 needed to hit the USDA’s current ethanol production forecast.  With the past several weekly production figures, the USDA is likely to raise their ethanol demand for corn forecast on the July WASDE assuming no big surprises on the June 1 stocks report.  Interestingly, stocks also saw a draw despite the big production jump with weekly stocks declining to 17.850 million barrels, down 572,000 on the week.  Weekly gasoline demand also surged higher in the latest week after two weeks of sharp decline, raising the prospect for further stock declines in coming weeks.

Weekly exports sales out later this morning should provide further price guidance for the balance of the week.

 

Bottom Line: Firmer prices again today as grains bounce from their oversold condition.  More and more press being given to the water-logged crops in the north, although many quick to point out for every low spot there are two hillsides.  Too early to understand the full impact, but top end acres could be in for both corn and soybeans.  Cash markets are trying to pry grain loose from farmer hands to no avail as the price and calendar aren’t enticing anyone to sell just yet.  Continue to watch technicals for short-term signals in the ramp up to the June 30th reports.

 

Good Luck Today.

 

RFC 6-19 Miss River St Paul 6-19

 

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.

 

6/18/2014 Morning Comments

Good Morning,

 

Outside Markets as of 5:45am: Dollar Index down 0.0870 at 80.5420; Euro up 0.00250 at 1.35720; S&P’s are up 0.25 at 1941.75; Dow futures are up 5.00 at 16810.00; 10-yr futures are up 0.13%; The Nikkei closed up 0.93% at 15,115.80; The DAX is up 0.24% at 9,943.72; The IBEX-35 is up 0.44% at 11,107.10; The Russian MICEX is up 0.44% at 1,492.94; Gold is down $1.40 at $1270.60; Copper is up $0.20 at $306.00; Crude Oil is up $0.32 at $106.66; Heating Oil is up $0.0046 at $3.0226; Paris Milling Wheat is up €0.75 at €187.50.

More hurry up and wait on the Federal Reserve, who should issue their latest monetary policy decision later this afternoon.  Most investors expect the scale back in stimulus, but many are anxious to see if the Fed hints at all when they may begin raising short term interest rates.  The market is currently anticipating a 25bp rise in the federal funds rate to +0.50% by September 2015, leaving another full year of zero interest rates.  The good folks at Sentiment Trader updated their study discussed last week, which now shows the S&P 500 has gone 42-trading sessions without a 1% move while also rallying 4% over that span.  This has only occurred nine other times since 1928, although results are mixed going forward on market performance.  On average, the next six months tend to show positive returns.

Severe storms moving across the Dakotas and MN this morning bringing heavy wind and rain to localized areas as the string of intense weather in the WCB this week continues.  Severe flooding has occurred this week in portions of SE-SD/NW-IA/S-MN where as much as 5-10” has fallen just this week alone.  Localized flooding of crops has been reported.  The next 3-days sees additional precip to fall in ND/MN/IA/WI/IL/IN/OH with totals varying from 0.50-2.5” with the heaviest totals in IL/IN.  The pattern remains active with additional moisture dropping in the central plains and southern Midwest at the tail end of the week and beginning of next week.  6-10 and 8-14 day maps are beginning to put in some more feature with the Northern Plains seeing above normal temps, but below normal precip. The rest of the Midwest sees generally above normal precip.  The 6-10 temp and precip maps are below.

 

Relief bounce overnight led by wheat which appears to be showing the best case for bottoming of the three major Ag markets.  It’s far too early in the technical set up to suggest a bottom is in, but the combination of waning downside momentum, declining volume, bearish public opinion and a growing managed fund short position could all be conspiring for at least a corrective bounce higher.  Southern Plains wheat harvest looks as though it could become more delayed this week/end with additional precip moving across that region, and quality will also remain a chief concern.  Calendar spreads in the KC futures have also been appreciating with the KWN/KWU pushing back to even money in the overnight session.  This combination of firm basis, firm spreads and waning downside momentum cautions against pressing to the downside at current levels in my opinion.

One notable feature this week has been the basis appreciation in FOB Brazilian soybean premiums, quoted last night at +8N for spot and +63Q for August.  These would compare with -27N for spot and +40Q for August a week ago.  This strength will have to be monitored closely, as if it continues it could run the risk of seeing current Brazilian purchases on the books to the US canceled in favor of other destinations.  US domestic crusher basis has actually weakened this week.  All of the aforementioned seems to be strengthening the argument for an understated 13/14 soybean crop given domestic basis levels vs a year ago.  PNW new crop soybean shuttle basis firmed yesterday with SON worth +168/162/160X vs +163/160/155X a week ago.  Center Gulf premiums are also firmer by 3c vs published values a week ago.

Some decent moves in spreads this week worth noting.  One of the largest movers on a relative basis has been the CU/CZ which touched -5.75c yesterday after trading to +1.75c at the beginning of the month.  This spread has the potential to get ugly in a hurry if things fall into place correctly: early Delta harvest; delayed Argy/Braz corn supplies finally hitting the market in August; large old crop on-farm supplies finally moving to market.  This spread should act as a proxy for early harvest in the south and old crop producer supplies.  There is a lot of corn left on farm which has to make room for what appears to be a growing new crop.  Along the same lines, the “canary in the coal mine” for new crop, the CN15/CZ15, continues to trade weakly.  Yesterday the spread hit +5.50c after printing +17.50c at the beginning of June.  No hint of concern as of yet for the 2014/15 corn crop.  Lastly, worth noting the huge outside reversal in the MWU/MWZ yesterday, going from -10.50c at the open to -12.50c during the session.  Day-to-day moves can be attributed to many things, but this spread has been trending lower since mid-May and reports suggest solid HRS prospects in the Northern Plains this year.

Weekly domestic margins as complied by www.rjomrt.com continue to suggest healthy demand for US corn.  Ethanol margins continued sliding last week with gross margins now sitting at $1.13/gln vs $1.27/gln the week before but still well above the $0.78/gln from last week.  DDGs prices dropped $25/ton last week while ethanol and corn prices offset.  Poultry margins also eased, but remain just off record levels at 89.78c/lb.  The continuous hog crush improved to $139.34/hd from $138.66/hd and compares with $80.37/hd last year, although off from the highs of $170.00/hd a few weeks ago.  Cattle crush remains abysmal at $84.23/hd vs $211.14/hd at this time last year.  Feeder cattle prices at $207/cwt don’t crush into $150/cwt fats all that well.  Vertically integrated vs those which aren’t.  C-IL soybean crush margins remain strong at $1.04/bu vs $1.11/bu last week and $0.69/bu last year.

Weekly ethanol production will be released at 9:30am today and traders will be watching closely for any signs of production slowdowns given the apparent backing up of US-DDGs exports onto the domestic market.  Whether the recent string of production levels over 920,000bbls/day can be sustained the next couple of months will have a lot to say about not only current balance sheet projections, but fair market value for corn.

 

Bottom Line: Markets appear as though they want to be higher heading into the seven o’clock hour, but that hasn’t mattered much for where prices will close at 1:15.  Most of our markets are reaching depressed levels from which a technical short-covering bounce can/should occur.  Conditions are strong, weather forecasts are non-threatening and grains aren’t in short-supply here or abroad.  US producers have grain to move before the next harvest, and how orderly that comes to town will have a big impact on cash going forward.  Even a dead cat will bounce.

 

Good Luck Today.

 

6-10 Temp 6-18 6-10 Precip 6-18

 

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.

6/17/2014 Morning Comments

Good Morning,

 

Outside Markets as of 5:45am: Dollar Index up 0.0240 at 80.4940; Euro unchanged at 1.35720; S&P’s are up 0.50 at 1937.00; Dow futures are up 9.00 at 16,783.00; 10-yr futures are unchanged; The Nikkei closed up 0.29% at 14,975.97; The DAX is up 0.14% at 9,898.29; The IBEX-35 is up 0.20% at 11,030.50; The Russian MICEX is down 0.63% at 1,484.46; Gold is down $8.80 at $126.50; Copper is up $1.40 at $305.80; Crude Oil is down $0.62 at $106.28; Heating Oil is down $0.0095 at $2.9884; Paris Milling Wheat is down €0.50 at €187.25/MT.

Very quiet global equity markets overnight as investors await the Federal Reserve’s FOMC decision later this week.  Economic data in the US today will include the May CPI which is expected to be up +2.0% y/y and unchanged from April.  Inflation statistics are on the upswing, which supports the Fed’s decision to taper.  However, the PCE deflator, the Fed’s preferred inflation measure is still well below the Fed’s 2.0% target down at +1.6%.  May housing starts out today are expected to show a decline of -3.9% to 1.030 million following the 13.2% surge to 1.072 million in April.  Building permits are expected to be down -0.9% to 1.050 million following the +5.9% rise to 1.059 million in April.

Systems moving across IA and the Great Lakes this morning, adding to the nice rainfall totals the past 24 hours in E-SD/S-MN/E-NE/IA/S-WI.  Severe weather moved through parts of NE and SE-SD yesterday evening with multiple tornadoes being reported.  There continue to be reports of damaged crops in NE by severe weather the past 2-weeks.  Another round of storms move through the WCB and N-Plains tomorrow into Thursday and should bring heavy rains to the same areas with localized totals in ND reaching 2.2”.  5 and 7-day forecasted totals keep things wet through the weekend for the majority of the corn belt and southern plains.  Major changes for the 6-10 and 8-14 day maps include a drier bias for the WCB and Northern Plains which would be the first in several months  Temperatures are expected to remain normal to below, while the ECB keeps above normal precip in place.

 

Mostly weaker overnight markets led by the soy complex as conditions remain near the best of the last 30-years, despite the fact all old crop demand signals point towards tighter carry-outs.  Grain markets are following suit as corn conditions are also near the best in a couple decades, while wheat markets grapple with expanding harvest but concerns over harvest delays and quality downgrades.  US wheat remains expensive compared with other exporting nations, and wheat/corn spreads still prevent any sort of wheat feeding program to take place.  With the US corn crop developing as well as it is, one only needs to look back to the last record yielding corn crop in 2009/10 to see the impact on wheat demand.  This year, all-wheat demand is pegged at 2.121bbu, the lowest since 2009/10 and the third lowest of the last 15-years.  Exports in 09/10 were just 879mbu vs the expected 925mbu this year.  Production is definitely down from a year ago, but in a couple of months the North American wheat supply will be known and the overpriced status of US wheat will still be impacting our competitiveness.

Crop conditions bounced back higher last night with the corn conditions improving 1pt to 76% G/E, and would be the 2nd highest of the last 23 years behind only 2010. NE, NC and ND all saw sizable declines in G/E ratings, presumably due to excessive water the past week.  Conditions improving in MO/TX/KS helped offset.  Soybean conditions eased 1pt to 73% G/E vs 64% last year, and would be the 2nd highest of the last 30-years behind 2010. Declines were witnessed in nearly every state except KS/IN/OH/LA which makes it interesting the national rating was only down 1pt.  I found it interesting when looking at this year’s condition ratings vs the 5-yr average how much lower the ECB 5-yr averages are compared with the WCB.  For instance, the 5-yr average on corn for IL/IN/OH are 60%/60%/66%, respectively vs IA/NE/SD at 83%/75%/84%.  The 2012 drought year was obviously more severe in the east, but the same condition spread exists for soybeans as well.  Comments about crop conditions out of IL/IN continue to be nothing but excellent, highlighting how good the start is for those in the ECB.  National soybean planting progress was pegged at 92% vs 87% last week and 90% average.

Spring wheat conditions improved 1pt to 72% G/E and would compare with 75% for the 5-yr average.  Conditions in the main HRS growing belt of SD/ND/MN/MT remain pretty solid, but WA continues to drag the national prospects down with just 24% rated G/E vs the 5-yr average of 65%.  Drought has been in place since last fall in WA, and crop prospects are suffering accordingly.  Winter wheat conditions were unchanged at 30% G/E, while harvest was reported at 16% vs 20% average.  KS/CO has yet to really even register progress while TX/OK are close to the halfway point.  Early reports continue to suggest lighter test weight and higher protein so far with Plains Grains, Inc. reporting that of the 40 samples tested so far test weight averaged 59.6lbs/bu vs 59.9 in 2013.  Average protein content so far was 14.3% vs the 2013 average of 13.4%.

Yesterday’s NOPA crush proved stronger than pre-report estimates with NOPA members crushing 128.8mbu of soybeans in May vs estimates of 127.0mbu and vs. 122.6mbu in 2013.  Crush has been up an average of 8% over the last four months, despite the USDA marketing year forecast calling for an increase of just 0.6%.  Based on NOPA data to date, and adjusting for total US census crush, the June-Aug period needs to see crush down 8-9% from a year ago if the USDA’s 1.700bbu target isn’t to be exceeded.  This will prove a tall task given crush margins still sitting where they are.  If crush isn’t slowed down, it will raise the prospects the 2013 soybean crop was understated, which would be in-keeping with the lower basis levels y/y.  The June 1 stocks report will give us a solid clue as to the ‘13 crop size via the residual demand category.  A larger 2013 supply might be the only way to get to September 1st.

Further easing in destination rail basis on corn yesterday with the PNW/HETX/CGO all softer than Friday values.  The CN/CU certainly looks as though it is coiling for a decent move one direction or the other with overnight trade unchanged at +4.25c.  The river is still trading above gross delivery equivalence, which makes owning July futures as a supply source valuable.  The US farmer is in no hurry to sell his remaining old crop corn supplies given current prices and the development stage of his crop.  Widespread pollination isn’t expected to commence until mid to late July, so the next 30-days could get long for end users of corn.  Armed with healthy margins, cash basis should hold steady to firm, and the CN/CU will be a good proxy of that.  The SN/SX continues to dance on top of +200.00c, with overnight trade at +201.50c.  Demand continues to chug, but there are more and more skeptics emerging about the size of the 2013 crop.

 

Bottom Line:  Better living through lower prices today with superior growing conditions trumping any sort of old crop demand story the bulls want to drum up.  The spring love-affair the funds had with commodities seems to slowly be eroding, aside from crude and meats, while weather remains as ideal as one could hope for on June 17th.  Without a reason to get the managed money involved on the long side, and without a fresh physical demand impetus, we will be locked in our downward trending ranges.  We have to have a fresh bullish input and today we don’t have it.

 

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.

6/16/2014 Morning Comments

Good Morning,

 

Outside Markets as of 5:35am: Dollar Index up 0.0770 at 80.6530; Euro up 0.00080 at 1.35440; S&P’s down 4.75 at 1931.00; Dow futures are down 36.00 at 16,7333.00; 10-yr futures are up 0.13%; The Nikkei closed down 1.09% at 14,933.29; The DAX is down 0.22% at 9,891.26; The IBEX-35 is down 0.75% at 11,030.90; The Russian MICEX is down 0.37% at 1,495.64; Gold is up $6.30 at $1280.40; Copper is up $2.80 at $305.05; Crude Oil is up $0.11 at $107.02; Heating Oil is up $0.0060 at $2.9936; Paris Milling Wheat is up €1.25 at €188.50/MT.

Tension in Iraq remained elevated over the weekend with crude oil prices continuing to add risk premium on possible supply disruptions.  Reports say Iraq has entered a full blown sectarian conflict which has pushed crude to a high of $107.54/bbl, the highest trade since September 19th.  Iraq accounts for 11% of OPEC’s production, producing 3.300 million bdp in May.  The concern is Saudi Arabia cannot ramp up production quick enough to offset a big drop in Iraqi supply.  Investors are also preparing for this week’s FOMC meeting where the Fed is unanimously expected to leave its funds rate target unchanged and cut QE3 by another $10 billion to $35 billion per month.  The report calendar is also fairly heavy this week with tomorrow’s May CPI (+2.0% y/y), May housing starts (-3.9%) and Thursday’s unemployment claims (-4,000).

Very quiet radar returns this morning, although additional precip is expected later today in S-MN/N-IA/WI.  This week will be a fairly active one in terms of precip for the central/west corn belt.  The 5-day forecasted precip map below shows the expected moisture with heaviest totals forecast in MN/WI/N-IA where as much as 4.5” is expected in total.  Seems to be little in the way of weather threats for developing crops in the extended maps with the 6-10 showing gradually warming temperatures to above normal by June 21st, and precip is expected to be mostly normal for the Midwest.  8-14 has a similar blush, although the southern plains return to below normal precip which will be welcome for expanding wheat harvest.

 

Firmer prices across the board this morning as commodities find a bid on Middle East tensions, but in general grains seem to be finding a bit of support after last week’s losses.  Last week, July Chicago wheat lost 32c, July corn was down 12c and July soybeans lost 31c.  There are some minor concerns about the delays to wheat harvest in parts of the Delta and eastern HRW areas, and corresponding quality issues from excessive moisture.  This week should see a bit better harvest weather for SRW areas as well as western HRW territory.  HRW protein scales firmed on the week with 12.0% protein closing the week at +110/120N vs +85/95N on Monday.  Updated USDA data last week also put HRW abandonment at 22.5%, which follows last year’s 25%.  According to the data, this marks the first time with back to back abandonment over 22% since 2001/02.  The chart below shows abandonment going back to 1909.  The aforementioned no doubt having a positive influence on HRW spreads with the KWN/KWU pushing to -2.00c overnight vs a low of -8.00c Thursday.  Firming basis and spreads seem like clues to either crop size or quality, but which remains to be seen.

Friday’s Commitments of Traders confirmed heavy selling by managed funds during the reporting week with a combined 67,000 contract selling between corn, soybeans and Chicago wheat.  Within corn, funds sold 30,505 contracts taking their net position down to 85,661 contracts, the smallest net long since February 25th.  Gross Commercial longs have witnessed five straight weeks of buying, so end users are extending paper length even if physical length isn’t being sold by the farmer.  In soybeans, funds sold 20,407 contracts to take their net long to 40,507, the smallest position since August 13th.  Unfortunately, both commercial longs and funds are selling in soybeans, which provides even more support for the short-term downtrend.  The aggregate position across the three wheat exchanges witnessed sizable buying by commercials and selling by funds, so no change in trends there.  Across all Ag commodities, including grains, livestock and softs, managed funds have their finger firmly on the sell button.  Their net position is now down to 396,036, the smallest since February 18th, and bullish sentiment is down to 59% from 73% on April 1st.  New highs in equities isn’t being lost on commodity bears.

Rail corn basis was actually a bit softer to close the week last week with PNW corn shuttles down to +110/112N for JJ vs +118/117N to begin the week.  HETX basis also eased with closing bids at +90/92N vs +95N on Monday.  Changes in destination rail basis seem to be as much about rail performance as anything demand related with many describing RR performance declining markedly the past couple of weeks.  Doesn’t leave country shippers feeling very confident about the looming small grains harvest, and especially another bumper fall harvest provided weather remains benign.  CIF corn basis remained firm on the week with closing bids seen at +65/75N for June vs +65/67N last Monday.  CIF SRW offers appreciated noticeably on the week going from +38N last week to +53N on Friday.  Again seems to be harvest related given our premium to other world offers in the GASC tender.

Updated Iowa DDGs prices Friday showed continued price deterioration with the DDGs to corn ratio down to 1.09 from a high of 1.50 in late-Mar/early-Apr.  Outright prices have dropped from near $250/ton to close to $160/ton Friday.  Against soymeal, DDGs prices are now down to 35% of the price of soymeal which is around the lowest since mid-2010.  Generally, DDGs substitute for energy feeds like corn, although can be used as a protein substitute for soymeal.  Given that most rations are probably locked in through July for even the shortest term poultry rations, widespread substitution might not be evident until the August NOPA report released mid-month.

On a small tangent, worth noting feature retail prices at the grocery store and their price change over a year ago.  As of Friday, average retail price of a pound of beef was $4.94/lb, up 23.8%, pork at $3.59/lb, up 28.2% and chicken at $2.20/lb, up 11.1% over 2013.  Solid profitability for all end users of corn except cattle as $200 feeder cattle negate all benefit from cheaper corn and record fat prices.

 

Bottom Line:  Expect a bit of a short-covering bounce today with eyes on the crop condition reports later this afternoon.  Traders will be interested in how delayed wheat harvest is, as well as how good the corn and soybean crops are progressing relative to the last several years.  Great potential exists this year for record fall crops, although the key developmental weather lies in front of the market.  Funds are in sell mode right now on Ag commodities, even if crude is finding a bid.  Weather remains the largest fundamental driver at current.

 

Good Luck Today.

 

HPC 6-16 HRW Abandonment 6-14

 

Tregg Cronin

Market Analyst

Tregg.Cronin@halocommodities.com

www.halocommodities.com

@5thWave_tcronin

 

 

COMMODITY TRADING INVOLVES RISK AND MAY NOT BE SUITABLE FOR ALL RECEIPIENTS OF THIS EMAIL. Neither the information presented, nor any opinions expressed, constitutes a solicitation for the purchase or sale of any commodities. The thoughts expressed in this email and basic data from which they are derived are believed to be reliable, but cannot be guaranteed due to uncertainty about future events and complexities surrounding commodity markets. Those acting on the information are responsible for their own actions.

 

 

 

6/12/2014 Morning Comments

Good Morning,

 

Outside Markets as of 5:50am: Dollar Index down 0.00090 at 80.7790; Euro down 0.00040 at 1.35240; S&P’s are up 0.25 at 1944.50; Dow futures are up 5.00 at 16,860.00; 10-yr futures are down 0.09%; The Nikkei closed down 0.64% at 14,973.53; The DAX is down 0.3% at 9,947.10; The IBEX-35 is up 0.17% at 11,093.40; The Russian MICEX is up 0.56% at 1,499.11; Gold is up $2.70 at $1263.90; Copper is up $0.35 at $304.40; Crude Oil is up $1.52 at $105.95; Heating Oil is up $0.0499 at $2.9542; Paris Milling Wheat is unchanged at €189.25/MT.

Crude oil is grabbing headlines this morning as it traded over $106/bbls for the first time since September as an insurgency in Iraq raised the risk of disruption to supplies after OPEC vowed to keep output unchanged.  Al-Qaida inspired groups, which have captured two key cities in Iraq earlier this week, vowed Thursday to march on to Baghdad.  One of the two cities, Mosul, lies in an area that is a major gateway for Iraqi oil.  Yesterday’s EIA report also showed a larger than expected drop in US stockpiles of crude, down 2.6 million barrels in the week ended June 6th.  Weekly unemployment claims out later this morning are expected to drop 2,000 to 310,000, while continuing claims are seen increasing 2,000 to 2.605 million.  Retail sales out today are expected to increase +0.6% and +0.4% ex-autos for the month of May.

Systems are moving across OK/TX/KS this morning, adding to moisture which has already fallen the last 48-hours.  Since Tuesday, nearly the entire state of KS has received 0.25-3.0” of rain.  The plains states will be active the next 3-days with various systems bringing moderate to heavy rainfall, with concentrated totals in E-TX/SE-NE/SW-MN.  The central corn belt will also see rain early next week, ensuring the entire corn belt continues to see adequate rainfall.  6-10 and 8-14 day maps also look accommodative with below normal temps for the entire Midwest as well as precip in the normal to above category during the extended time frame.  Based on offer prices of wheat and USDA projections yesterday, it would also seem as though the Black Sea region isn’t as dry as originally advertised.

 

Mostly better trade this morning following the post-WASDE bloodletting yesterday.  While the data itself could mostly be called a non-event, it’s hard to dismiss a nearly 3.0% move in wheat futures as a non-event.  Updates to corn and soybean balance sheets were about as expected, and will be covered below.  The real surprise was the increase in world wheat production and carryout thanks to unexpected jumps by various exporting countries.  The report hit home the fact that while KS/OK/TX HRW production is going to be down this year, the US is really the only place in the world with a crop production problem.  Without any fundamental data points for the bulls to really sink their teeth into, we revert to trading weather which at the current time period is bearish for grain prices.  The next big price driver will be the June 30th acreage and stocks report later this month.

The big changes in the world wheat balance sheet included Russian production up 1MMT to 53MMT, Kazakhstan was unchanged at 14.5MMT, Ukraine unchanged at 20.0MMT, India up 1.85MMT to 95.85MMT, China up 1MMT to 124MMT and EU-27 up 1.37MMT to 146.25MMT.  While not all of the before mentioned countries saw increases, the fact that some didn’t see expected decreases caught the market of guard.  To wit, Russian production up 1MMT, Kazakh production unchanged and the EU-27 up 1.37MMT were all headline grabbers.  In the USDA’s lockup briefing slide package, they had several slides detailing the favorable weather to date in the European Union, and frankly, it’s difficult to argue with the largest production in six-years.  Above normal rainfall coupled with above normal temps, but not searing heat, equal solid production.  Looking at Paris Milling Wheat and it’s price spread with US prices, it would appear MATIF has more downside room than upside and should compete heavily with Black Sea supplies in 14/15.  Global exporters and Chinese supplies are on the rise.  Not good for rallying wheat prices.

On the US side, the report was actually fairly favorable with larger than expected cuts in US wheat production.  All winter wheat production came in at 1.381bbu vs estimates of 1.394bbu.  HRW was pegged at 720.5mbu with KS at 243.6mbu vs 260.4mbu on the May WASDE.  Many thought the recent rains in KS and the southern plains would lead to a stabilization or even increase in production, but it would appear the rains came a bit too late.  Feed demand was reduced for next year with no arguments given the wheat/corn spread throughout the 14/15 curve.  Only other thing worth noting on wheat that hasn’t been discussed already it the drop in the July put/call ratio for Chicago Wheat.  At the close yesterday the ratio was at 116.6% vs 139.10% 2-weeks ago and 151.6% a month ago.  As prices have been dropping, the options pit has gotten less and less bearish, possibly signaling the early stages of a bottom.

Really not much to discuss on corn and soybeans either with no changes made to either the 13/14 or 14/15 corn balance sheet, and just a 5mbu increase in 13/14 soybean crush to drop the carryout by a like amount.  125mbu seems like the line in the sand for the USDA, and they didn’t seem in too big of a hurry to increase their already record soybean imports after April census data showed lower than expected imports.  If conditions do continue to hold, however, new crop soybeans at $12.25 definitely seem as though they have the most downside vulnerability.  With current projections, US carryout stands to more than double in 14/15 to 325mbu, and world stocks will increase 15MMT (550mbu).  Unless Chinese demand jumps even further next year, we will have the largest soybean supplies since 06/07 when prices traded under $7.00.  Review that $12.00 handle often.

Looking forward to the June 30th stocks report, a few observations are worth noting, especially for the bulls.  On the acreage report, corn acres over the last 10 years have increased from the May report to the June report nine times.  This is a mixed bag this year given acreage switches in the north, but probably additional acres in the corn belt.  Either way, real tendency to come in above the March figures.  Soybean acres have increased from March to June in 4 of the last 5 years, but have been down 6 of the last 10 years.  On the stocks report, corn stocks have come in above the average trade guess in 6 of the last 8 years, while soybean stocks have been above the average trade guess in 5 of the last 7 years.  The real notable figure is wheat stocks which have been above the consensus estimate in 7 of the last 8 years and 12 of the last 14 years.  Point of the aforementioned is despite the current downtrend, and mostly negative news flow, the tendency for the end of the month reports is to come in bearish vs the average trade guess.  Hoping for some sort of Waterloo moment on June 30th might not be the best marketing strategy, regardless of how far prices have fallen.

Weekly ethanol production out yesterday before the report was bullish with weekly production jumping to 944,000bbls/day vs 938,000bbls/day the week before and the 899,000bbls/day needed weekly to hit the USDA’s marketing year estimate.  Stocks continue to surge too, however, with supplies up another 172,000bbls to 18.422 million, the largest stocks levels since March of 2013.  This is due in large part to declining gasoline demand which has plunged over the last two weeks from over 9.25 million barrels to 8.65 million, down near the lowest levels in the last 5-years for this time frame.  The combination of lower gasoline demand, and declining DDGs prices could have a real negative effect on production margins and therefore production run rates in coming weeks.  This isn’t something corn demand needs to deal with right now.

Without going through the entire rundown, it suffices to say corn basis was again firmer on yesterday’s sell off with CIF NOLA barges pushing the river well above gross delivery equivalence.  Unfortunately, the stronger cash basis and mostly firmer spreads haven’t been enough to pick the futures board up on its own.  Still has to be monitored for clues the selloff is running its course.

Export sales out this morning with corn seen at 350-650TMT of old crop, 80-120TMT new.  Wheat at 100-450TMT, soybeans at -125/+100TMT old crop and 250-700TMT new crop.  Product sales are seen at 0-135TMT old crop meal and 0-20TMT old crop soy oil.

 

Bottom Line:  The June WASDE is now behind us, and the focus shifts back to almost exclusively on weather.  Conditions are favorable for developing crops both in the US and abroad outside of the southern plains.  As long as weather remains ideal, balance sheets for all of the major commodities will grow in 14/15.  We can’t count on a surge in demand at this stage of the marketing year to help clear supplies.  It will take adverse weather between now and August to alter the current price trajectory.

 

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.

6/11/2014 Morning Comments

Good Morning,

 

Outside Markets as of 5:45am: Dollar Index down 0.0310 at 80.7890; Euro is down 0.00150 at 1.35320; S&P’s are down 7.75 at 1942.75; Dow futures are down 57.00 at 16,885.00; 10-yr futures are down 0.04%; The Nikkei closed up 0.50% at 15,069.48; The DAX is down 0.78% at 9,950.98; The IBEX-35 is down 0.71% at 11,074.70; The Russian MICEX up 0.19% at 1,493.57; Gold is up $2.90 at $1263.00; Copper is down $0.45 at $304.85; Crude Oil is up $0.16 at $104.51; Heating Oil is up $0.0101 at $2.8942; Paris Milling Wheat is up €0.25 at €190.50/MT.

European shares are under modest pressure this morning after the World Bank cut its 2014 growth forecast to 2.8% from 3.2%, citing a bitter American winter and the political crisis in Ukraine.  Yet the upturn in economic data in the US, Japan and China as well as the additional monetary stimulus in Europe tempered further cuts.  The euro is trading down to four-month lows this morning in anticipation of further economic stimulus from the ECB.  A market research firm called Sentiment Trader pointed out in their evening market comment last night the S&P 500 has gone 37 straight sessions without a 1% move from the previous day’s close.  This is the second longest steak (2007) in the last 15-years, and highlights the sense of complacency in the equity market.  Volatility always follows a lack of volatility.

Rains moved across the Northern Plains last night and early this morning bringing 0.10-0.50” across much of W-SD and SW-ND with rains falling in E-ND/E-SD this morning.  A separate system is moving across the Great Lakes this morning bringing sizable totals. Weather services are talking about severe weather impacting portions of E-SD later this afternoon with a possible supercell thunderstorm impacting the James River Valley.  Additional rainfall is expected in the northern plains the next 3-days with heaviest amounts in N-MN (2.50”).  KS/OK/E-TX will also be receiving rains as harvest progresses there.  More rain in the forecast for the weekend and early next week for most of the central and WCB.  6-10 and 8-14 day maps keep above normal precip over the ECB and Great Lakes while a dividing line running from MT to LA keeps above normal east and below normal west during June 16-20th.  Temps to remain normal to below normal.  Still no sign of adverse weather in the extended maps which will keep the row crops developing normally.

 

Firmer grain markets and a bit easier soy complex to start our Wednesday with the June WASDE on tap later this morning.  The first table below is the average analyst estimates as compiled by Reuters for today’s ending stocks figures.  As one can see from the average trade estimates below, analysts are looking for a small cut in the corn and soybean stocks, and a slight build in the wheat stocks.  It appears as though most aren’t looking for many changes to production or demand in the 14/15 balance sheets.  Changes should be small for both crop years, with ethanol production possibly being bumped higher due to the solid production data the last several weeks.  We will get another ethanol update before the WASDE is out at 11:00am.  How the USDA reconciles the ever-tightening US soybean balance sheet will also be of focus.  Most looking for a small cut in US winter wheat production as well.  All-in-all, shouldn’t be too many surprises in today’s data with the much larger report coming on June 30th when acreage ideas are updated as well as June 1st stocks data.  An uptick in volatility right at report time should be met with a return to ranges post numbers provided nothing is too out of the ordinary.

Aside from the USDA numbers, there are a few other topics worth addressing.  First is the collapse in DDGs values the last 2-months, but especially since China decided not to renew any import licenses of US-DDGs due to the presence of the MIR-162 trait.  The second chart below shows Iowa Weekly DDGS prices vs Corn price as a ratio, while the last chart shows outright Iowa DDGs values.  As one can see, DDGs values have been dropping much faster than corn, falling from a peak of 1.50 back in late March/early April to 1.15 late last week.  Prices at the Gulf have fallen further this week, which will have consequences for soymeal demand.  With DDGs not being a storable product, prices are declining to the point of pushing out soymeal in some poultry and hog margins.  This could help accelerate the soybean rationing process that needs to take place anyway.  China is the largest destination of US-DDGs, and if they bring imports to a complete halt, we will have to find domestic homes for the product which will put heavy pressure on competing feed grains.

That provides a good segue into corn end user margins which remain robust for ¾’s of the domestic crowd.  Ethanol production margins this week were calculated at $1.26/gln vs $1.37 last week and $0.87/gln last year.  A $20.00/ton drop in DDGs prices provided the $0.11/gln contraction w/w.  Margins are still strong, but this trend needs to be monitored closely.  Poultry prices finally eased from record levels, but production margins are still near record territory at 91.49c/lb vs 95.96c last week and 85.25c last year.  Hog crush margins improved last week to $151.19/hd vs $146.26 the week before and $78.28/hd a year ago.  Cattle remain the incredibly weak link at $77.46/hd vs $96.97/hd last week and $209.91/hd a year ago.   Feeder prices climbing to $205.00/cwt are negating any and all benefit of falling corn prices and record fat prices.  Margins are sharply negative for any feed lot which isn’t vertically integrated with the packing and retail sides of the equation.  Soy crush margins in C-IL improved last week to $1.15/bu vs $0.96 last week and $0.79 a year ago.  All prices and figures are compiled by www.rjomrt.com

Some basis moves yesterday worth mentioning here.  CIF-SRW premiums remain under heavy pressure with expanding Delta harvest.  Spot barges were down 8-9c yesterday alone to +38N vs +45N a week ago. HRW premiums at the Gulf are showing no response to harvest with bids steady at +145N, unchanged on the week.  CIF corn premiums are largely unchanged on the week at +71N, but domestic premiums and PNW premiums continued their march higher yesterday.  PNW corn shuttles for June are now trading at +120N, up 10c from a week ago, with offers now around +125/130N.  Cedar Rapids, IA firmed posted bids with round lots said to be fetching +22/25N.  Ingredion in Chicago remains inverted to July by 4c with spot at +15N.  Corn movement is dead with farmers disinterested in the price and the crop not far enough along to feel confident in turning palms in.

The farmer clearly isn’t ready to sell corn, but the market is penciling in a growing crop as evidenced by spreads.  The CZ/CH spread hit -10.50c yesterday, the lowest trade since January 9th.  This represents about 70% of full carry, depending on the interest rate being used, so some commercial entities are taking a hard look at rolling a portion of their hedged corn length they plan on carrying to March here, and scaling out to -12.50c. The ‘canary in the coalmine’ has also been under heavy pressure with the CN5/CZ5 trading down to +10.25c yesterday, the lowest trade since February 18th.  Try and watch spreads for the market’s true perception of the crop as opposed to getting lost in the analyst chatter.  The market composition is pricing in the ideal weather.

Other tidbits included Reuters reporting China saying their winter wheat harvest has now reached 60% complete with 14 million hectares reaped.  Last year, China produced 120MMT of wheat, one fifth of the world’s total.  Most weather forecasters are now expecting Ukraine’s bumper crop to make up for any shortfall in portions of Russian and Kazakhstan, so a repeat of 2010’s searing drought looks unlikely as of June 11th. The spread between Paris Corn and US corn hit $65/MT during yesterday’s session, the largest premium since April 16th.  That value is above the 50/100/200-day moving averages.  London feed wheat is at new contract lows, and Paris wheat is slowly putting more premium over US prices with Paris now $36/MT above SRW, and even with MPLS.  KC is still commanding a $9/MT premium over Paris wheat.

 

 

Bottom Line:  Expect a choppy session ahead of the USDA data, and even after the data is out prices should remain in recent trends unless the USDA flips us a game changer.  There is old crop tightness in corn and soybeans, but the former is due to a lack of movement by the farmer, not a lack of actual supply.  That supply needs to move before Sept 1, so the clock is ticking.  Crop development weather remains ideal, and the US looks to be the only country with a wheat production shortfall.  Until the script changes, our markets will remain heavy.

 

Good Luck Today.

 

Reuters 6-11 Iowa DDGs 6-10

 

Tregg Cronin

Market Analyst

Tregg.Cronin@halocommodities.com

www.halocommodities.com

@5thWave_tcronin

 

 

COMMODITY TRADING INVOLVES RISK AND MAY NOT BE SUITABLE FOR ALL RECIPIENTS 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.

 

6/10/2014 Morning Comments

Good Morning,

 

Outside Markets as of 5:35am: Dollar Index up 0.1570 at 80.8140; Euro is down 0.00490 at 1.35400; S&P’s are down 3.75 at 1946.50; Dow futures are down 21.00 at 16915.00; 10-yr futures are down 0.05%; The Nikkei closed down 0.85% at 14,994.80; The DAX is up 0.15% at 10,023.82; The IBEX-35 is unchanged at 11,164.60; The Russian MICEX is down 0.21% at 1,482.22; Gold is down $.40 at $1253.50; Copper is down $1.45 at $302.90; Crude Oil is up $0.40 at $104.81; Heating Oil is up $0.0041 at $2.8950; Paris Milling Wheat is up €1.00 at €191.75.

The trend in global equity markets remains decidedly up following the positive economic data received around the globe.  Europe is adding additional monetary stimulus, Japan’s first quarter growth was stronger than expected, China saw an improvement in exports and the US produced a stronger than expected jobs report.  Overnight, China’s May CPI report rose sharply, +2.5% y/y from +1.8% in April but still remained below the Chinese government’s inflation target of +3.5%.  On Wednesday, the market is unanimously expecting OPEC to leave its production target unchanged at 30 million barrels per day.  Oil inventories in the industrialized world in April fell to the lowest level for that time of year since 2008.  Saudi Arabia has kept its production steady at 9.5-10.0 million bpd for the past year, but rumblings think it could be increased to 11.0 million to increase global inventories.

Rain moving across the central corn belt and Dixieland this morning, adding to the nice rain totals received in the WCB and southern plains yesterday.  The 7-day observed precip map really hits home the favorable growing weather Midwest crops have been growing in.  The next 7-days will continue to bring rain to US growing regions with heavy totals in many areas of the Midwest.  Over the next 3-days, rain will impact ND/N-MN as well as separate systems in KS/OK and more in the ECB with localized totals pushing near 2.0”.  Follow up rains for the Northern Plains will be seen this weekend, concentrated mainly in ND/W-MN/E-SD. 6-10 maps from NOAA keep above normal precip in place for the Northern Plains, and normal to below temperatures, so no threats as of yet.  8-14 has a similar look to it.

Yesterday, many in the trade were bringing up a high pressure heat ridge in the forecast for the period June 18-25.  The presence of the ridge suppresses rainfall and brings warm to hot conditions into the plains and western corn belt.  The ridge line being discussed by forecasters reaches into southern South Dakota, southern Minnesota and southern Wisconsin during peak intensity.  Some ridge building is expected, but most don’t believe it will be a long-lasting feature, or very threatening.  The discussed ridge is beyond the 8-14 day map from NOAA, so confirmation can’t yet be verified by the government.  A ways off to have a lot of confidence in, but be aware the trade is discussing the possibility.

 

Mixed trade inside recent ranges for most, although corn continues to knock on new lows for the move in many of its contracts.  Aside from the very early discussion of the aforementioned ridge, there just doesn’t appear to be a problem anywhere in the US.  With ideal weather, the market will assume crop potential is increasing, not decreasing.  In addition to the weather, yesterday corn was dealt another blow by China as it announced it wasn’t approving any additional import permits for US-DDGs due to the presence of the unapproved GMO trait MIR-162.  These actions pretty much guarantee the 12mbu of corn export sales still on the books to China will be canceled, and a large portion of the 142mbu in the unknown category are susceptible as well.  In addition, trade publications report China still has plans to auction off another 2.5MMT of corn from strategic reserves.  China’s actions certainly suggest they have plenty of corn for the time being, but their market price and the import parity still suggest there is more than meets the eye.

Crop progress reports out yesterday with a good deal of data to be digested.  The corn condition rating unexpectedly fell 1pt to 75% G/E, but remains the 3rd best in the last 15 years behind 2007 and 2010.  Conditions fell 6% in NE which is probably due to the severe storms which rolled through last week.  The first soybean condition report put 74% of the nation’s crop in the Good/Excellent category which would be the second highest of the last 30-years, behind only 2010.  Planting progress is now 87% complete, ahead of 81% average and northern states are now at or ahead of averages.  The national spring wheat condition rating came in at 71% G/E vs 61% at this time last year.  All states are ahead of last year except for WA which is at 31% G/E vs 72% a year ago.  The spring wheat rating is just below the 5 and 10-yr average.  Winter wheat conditions were unchanged, and national harvest is at 9% complete.  OK is 26% complete vs 37% a year ago, while KS and TX did not report.  The heavy rains in the southern plains as harvest advances is about the only concern in the US right now from a weather standpoint.  A big slug of HRW which doesn’t meet milling specs would be good for the spring wheat farmer.

The next big fundamental market driver will be Wednesday’s June WASDE report which expects old crop corn and wheat inventories to rise, while soybeans are expected to ease slightly.  With feed demand likely to remain steady until after the June stocks report at the end of the month, exports and ethanol demand have been running strong enough to hold steady if not bump slightly higher.  I wouldn’t expect big changes out of old crop corn stocks levels, but if anything a slightly decrease could be seen, so I am going against the average estimate of 1.164bbu vs 1.146bbu last month.  Shouldn’t see much for changes in wheat or soybeans, although both crush and exports on soybeans are still running stronger than the USDA implied levels, so an increase there wouldn’t be unwarranted.  Their problem lies in adding in supply after already penciling in record soybean imports.

Interesting to see strength in many N/U calendar spreads when looking down the list of contracts, despite the still ongoing index fund roll.  The CN/CU has firmed overnight by 0.75c to +4.25c, and continues to reflect strong cash markets.  PNW corn shuttles are now bid +118N for June trains, vs +100N 10-days ago.  Similar strength has been seen in HETX, Chicago and St. Louis.  KC spreads remain decidedly up, but there still hasn’t been any strength in basis to support it.  Still a bit early to be rallying on harvest delays, although keeping an eye on quality sentiment will prove worthwhile.  KC has also been gaining on Chicago and MPLS, putting in new contract highs against Chicago in the July and September contracts.  This makes sense as the SRW crop appears to be getting larger while the HRW crop battles rain.

A quick aside on technicals: this analyst doesn’t put a great deal of stock into moving averages other than keeping track of where they’re at as the managed fund crowd places a great deal of importance on them.  As support and resistance candidates, they usually prove unreliable, but as a trend indicator they’re helpful.  Corn, soybeans and wheat are all trading at or below their 50-day moving averages collectively for the first time since November. This is not lost on Wall Street.

 

Bottom Line:  Some early morning strength is being witnessed in the row crops, and one can’t really argue with a bounce day-to-day.  Crop development is favorable, news flow is mostly negative and funds have more interest in selling than buying right now.  Wednesday’s report may shift the focus back to old crop momentarily, but the overall trend in our markets is down for the time being.  The marketing year is young, but balance sheets need to be stressed tested against lower prices.

 

Good Luck Today.

 

RFC 6-10

 

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.

6/9/2014 Morning Comments

Good Morning,

 

Outside Markets as of 6:00am: Dollar Index up 0.0960 at 80.5080; Euro is down 0.00240 at 1.36230; S&P’s are down 1.75 at 1947.50; Dow futures are down 8.00 at 16924.00; 10-yr futures are off 0.16%; The Nikkei closed up 0.31% at 15,124.00; The DAX is up 0.07% at 9,993.98; The Russian MICEX is up 0.34% at 1,490.05; Gold is up $3.40 at $1255.90; Copper is down $2.15 at $302.95; Crude Oil is up $0.57 at $103.22; Heating Oil is up $0.0016 at $2.8728; Paris Milling Wheat is unchanged at €193.00/MT.

Quietly mixed global equity markets after solid job growth figures Friday in the US and last evening in Japan.  Japan’s government reported the economy grew at an annualized rate of 6.7% in the Jan-Mar quarter, up from earlier estimates of 5.9%.  Friday, the May employment report showed employers adding 217,000 jobs and the unemployment rate eased to 6.3%, bolstering ideas of an expanding US economy.  Based on futures trade this morning, the S&P 500 could trade to new record highs again this morning.

Two separate bands of moisture this morning with one moving across NE/S-SD and another working across TX/OK/AR.  3-day rainfall totals over the weekend shows heaviest amounts in W-NE where as much as 6.0-8.0” fell locally.  Otherwise nice rains fell across N-TX/OK/W-KS and several central corn belt states.  Not sure whether the moisture is adding benefit to TX/OK where combines are trying to roll, but it is definitely helping recharge soils which is the chief concern.  Fair amount of rain around the next 5-days with KS to see widespread rainfall as well as E-TX/MO/IL/IN/MN/ND.  Crop progress reports this afternoon will clue us in about remaining acreage, but at this point I think most of the areas will welcome the moisture.  Nothing overly threatening in the 6-10 or 8-14 day forecasts.

 

Mostly weaker overnight trade as major growing regions received healthy rainfall over the weekend, and more is forecast the coming 7-days.  Crops which are planted are developing in nearly ideal conditions, and crop progress reports this evening should reflect the same.  Each passing day marks one day closer to what looks like robust corn and soybean crops, provided weather remains non-threatening.  That’s a big if, which is why new crop prices can’t head for “0” straightaway.  Farmer selling has been very muted as the board prices aren’t enticing, and the calendar doesn’t say July 9th or August 9th.  Unfortunately, however, the managed money funds have been leaving our space in healthy numbers, and that money flow is enough to keep prices under pressure without a catalyst.

Friday’s Commitments of Traders Report showed the largest sell pressure in soybeans in which funds dumped 23,508 contracts to bring their net long to 60,914, the smallest since November 5th.  Their selling has actually slowed down in corn in which they only sold 2,799 contracts to put their net long at 116,166 contracts, still the smallest since March.  An interesting tidbit in soybeans, the small spec has now amassed a net short of -68,934 contracts, the largest on record going back to 1/2/2007.  The small spec in corn is net short -173,597 contracts which would be the largest net short since July 2010.

A couple spreads worth watching this week will be the SN/SX, the CN/CU and the KC spreads  The SN/SX is getting perilously close to violating some chart support, and even though I think there is fundamental merit in owning this spread during the month of June, the weakness during the fund roll is taking its toll.  The GSCI index roll will continue through Thursday, but this weakness could be a buying opportunity as a play for continued tightness in soybeans.  The CN/CU has also been pressured thanks to the various index product rolling length forward.  Given the strength in basis and the continued lack of farmer movement, another run towards the high single digits wouldn’t be surprising.  The KC spreads have been showing a lot of strength lately despite the index roll and expanding harvest in the southern plains.  Haven’t seen anything untoward on basis to prompt the move, so watching closely to see the impetus.  This strength in the wheat spreads could be signaling a near-term bottom in futures, but more confirmation is going to be needed.

 

Bottom Line: expect a weaker open on ideal growing conditions, but futures have shaved off a lot of premium in a short amount of time and some consolidation wouldn’t be unwarranted.  We are still a ways from key pollination weather, let alone putting a crop in the bin.  Yet, prices can still drift sideways to lower.  This week will see an updated WASDE report which could put some of the focus back on old crop and provide some stabilization.  We need a production problem somewhere in the world, and right now we’re still searching for it.

 

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.

6/6/2014 Morning Comments

Good Morning,

 

Outside Markets as of 5:40am: Dollar Index up 0.0950 at 80.4660; Euro is down 0.00280 at 1.36300; S&P’s are up 2.00 at 1940.50; Dow futures are up 31.00 at 16,849.00; 10-yr futures are up 0.14%; The Nikkei closed down 0.01% at 15,077.24; The DAX is up 0.18% at 9,965.45; The IBEX-35 is up 0.92% at 10,976.30; The Russian MICEX is down 0.53% at 1,462.84; Gold is down $0.20 at $1253.10; Copper is down $3.25 at $305.80; Crude Oil is up $0.24 at $102.72; Heating Oil is up $0.0090 at $2.8887; Paris Milling Wheat is up €1.25 at €192.25.

The European Central Bank didn’t disappoint yesterday, announcing a wide range of monetary easing measures, although they stopped short of promising it would engage in a full-scale quantitative easing program like the US Federal Reserve.  The ECB announced four measures, the focus of which included cutting its refinancing rate by 10bp to 0.15%, cutting the marginal lending facility by 35bp to 0.40% and cutting the deposit rate by -10bp to -0.10%.  At the end of the day, the ECB’s moves should be successful in bringing down short-term money market rates and providing more liquidity.  After the announcement, the Euro dropped to 1.35020, the lowest since February before recovering.  The focus of this morning will be the employment situation report which is expected to show 215,000 jobs added in May, and the unemployment rate increasing 0.1 to 6.4%.

Showers moving across W-SD, OK and N-TX this morning, adding to the nice totals witnessed this week.  The weekend is expected to produce moderate to heavy rainfall from one end of the plains to the other with heaviest totals occurring in OK/N-TX where as much as 5.25” is forecast in W-OK/N-TX.  Still, the majority of KS should see 0.50-2.00” with similar totals in NE, while SD is slated for the southern edge of this storm and totals in the southern part of the state near 0.75”.  The central to southern Midwest should also see decent precip this weekend, keeping in place the favorable growing conditions throughout the heartland.  Temperatures are expected to remain mild the next 15-days, keeping any sort of weather threat out of sight until June 20th.  While the rain can’t fix the HRW crop, falls crops are going to benefit greatly from the upturn in moisture down south.

 

Mixed to better overnight markets this morning following the sell off yesterday.  It has seemed that every day this week one could have made money by selling an unchanged to higher market in the morning as prices have given way to heavy selling pressure as the day wears on.  All three major market charts are now taking on a technically weak tone, fundamental support from old crop demand isn’t enough to combat ideas of large new crop production and after an impressive start to 2014 for agriculture commodities, most have pared gains substantially.  YTD, corn is still up 6.5%, soybeans 11.4%, wheat 0.7%, oats 0.5%, soymeal 12.4% and bean oil 0.3%.  Over the last month, however, corn is down -13.1%, wheat -17.6%, bean oil -9.1%, oats -0.9%, soybeans +0.2% and soymeal up 3.0%.  If you don’t think index and managed money funds have taken notice of this slow down and turn, think again.  Regardless of what old crop fundamentals we throw at corn and soybeans, if the flow of money remains out thanks to technicals and weather, there won’t be a reason to turn these entities into buyers.  Sentiment has turned bearish and that will keep the trend steady to lower in the near-term.

Yesterday, Bloomberg released a survey showing a poll of analysts pegging the EU wheat crop at 145.9MMT vs. the EU’s latest official guess of 144.98MMT.  If proven correct, this would be the largest wheat crop in 6-years, and adds to a plentiful global supply.  Couple that with the euro trading to a four-month low yesterday, and the competitiveness of the European wheat market becomes readily apparent.  Fortunately for the US, the historic levels at which Paris/KC and Paris/CHI were trading at have narrowed substantially.  As of this morning, the front-month Paris/KC spread was trading at -$2.11/MT, near the highest levels since April, but still below the 50/100/200-day MA.  Paris/CHI is trading at $38.33/MT.  On a FOB basis, French wheat was quoted last night at $247.19/MT FOB vs US-SRW at $239.48/MT and US-HRW at $315.63/MT FOB US-GX.  Still a lot of work to do in order to steal any business away.

Soybeans seem like they’re the only bright spot in our markets as of late, and it was interesting to note the July board crush relative to years past during yesterday’s session.  As of this morning, the July soybean board crush was trading at 47.0c/bu vs 1.3c/bu at this time in 2013.  In 2012, we were trading at 67.0c/bu.  What’s interesting is the difference in both crush demand and total demand between these years.  For 13/14, the USDA sees crush at 1.695bbu vs 1.689bbu last year and 1.703bbu in 11/12.  Total demand this year is pegged at 3.390bbu vs 3.098bbu last year and 3.155bbu in 11/12.  The record export program of 13/14 is seen using 1.600bbu, the vast majority of which has already left the country.  That means a smaller percentage is left to feed crush, yet the actual crush margin is still running well ahead of last year and not enticing crushers to slow grind to any serious degree.  The tightness hasn’t been solved.

Almost seems a waste to write about every day, but corn basis continues to firm each and every day while the board sinks.  The difference with yesterday’s session, however, is the reversal in corn spreads witnessed as the index roll really ramps up today.  The CN/CU traded to a high of +6.00c yesterday before closing at +4.75c.  The GSCI index roll begins today and continues the next 5-days.  There has undoubtedly been front-running, and probably a fair amount of the index itself being rolled, so substantial pressure here forward given the basis moves seems less likely.  PNW corn shuttles firmed to +115N vs +112N a day before. HETX and Chicago were also firmer.  Not a great deal of change in KCBT protein scales while MGEX has generally appreciated for 14.0% protein.  Chicago wheat calendar spread have been hitting contract lows this week as production ideas on SRW increase.  Basis flat to better.

Next week will see the release of the June WASDE report, and one of the focal points will be the US corn production forecast.  Given the weather-to-date, an increase in production is expected, acre depending.  A Bloomberg survey shows the US corn crop at 13.939bbu, an all-time record, and compared with the previous government forecast of 13.935bbu.  Many are still questioning the USDA’s current yield estimate of 165.3bpa, but hard to argue for or against on June 6th.  A lot of grass between the ball and the hole, germination and pollination.

 

Bottom Line:  Markets appear as though they want to be firmer out of the gate this morning, although that’s been a losing bet nearly every day this week.  A short-covering pop to close the week might be appropriate, but much work is needed to flip even the shortest term trend upwards.  Wheat production ideas have bottomed and are probably getting larger, and the row crop potential is as good as it can be on June 6th.  It’s hard to argue with ideal weather and fund selling, even if we are nowhere near harvesting new crop.  Keep watching basis and spreads for signs of a near-term bottom, and review marketing targets against a range of yield assumptions often.  Still plenty of opportunities and we’re just writing the initial chapter in the 14/15 book.

 

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.

6/5/2014 Morning Comments

Good Morning,

 

Outside Markets as of 5:50am: Dollar Index down 0.0850 at 80.5790; Euro up 0.00090 at 1.36080; S&P’s are down 0.75 at 1925.00; Dow futures are up 4.00 at 16,722.00; 10-yr futures are up 0.15%; The Nikkei closed up 0.08% at 15,079.37; The DAX is down 0.05% at 9,921.51; The IBEX-35 is up 0.23% at 10,780.60; The Russian MICEX is down 0.41% at 1,469.73; Gold is unchanged at $1244.30; Copper is down $0.20 at $309.10; Crude Oil is down $0.30 at $102.34; Heating Oil is up $0.0064 at $2.8545; Paris Milling Wheat up €0.75 at €192.00/MT.

Very quiet financial markets this morning ahead of the European Central Bank policy decision later this morning.  Most analysts think the bank will provide a variety of growth measures to stimulate growth after a string of disappointing economic data which suggests the EU is slowing more than anticipated.  Sentiment in the US ahead of tomorrow’s nonfarm payroll data has also soured slightly following yesterday’s release of the ADP private payroll data which showed employers adding 179,000 workers to their payrolls, well short of the 210,000 expected and the weakest hiring in four months.  The consensus estimate for tomorrow’s nonfarm report is 215,000 jobs added.  Today will see weekly unemployment claims released which are expected to show a 10,000 increase to 310,000.  Continuing claims are seen at 2.625 million, down 7,000 claims.

Heavy showers rolling across S-NE and KS this morning with additional precip falling in the Red River Valley of the Northern Plains.  Rains moved through most of W-SD last night bringing light totals to most locations, while a sizable system finished up in the ECB as well.  When one stops and looks at the past 7-day accumulated precip, the constant talk of “ideal weather” becomes clear.  As the map below shows, almost every area which grows corn in the corn belt has received 1.00”+ in the last week with several in the heart of the corn belt receiving upwards of 3.0”.  Additional precip is expected over the weekend with the heaviest rains to fall in the southern Midwest and southern Plains.  Most of KS is slated for 1.00-5.00” of rain.  The Northern Plains will also see additional precip in the 0.50-1.00” range.  6-10 and 8-14 remains ideal with below normal temps and above normal precip forecast.

 

Mixed, choppy trade overnight with most contracts seeing two-sided trade.  Hard to know exactly what to make of yesterday’s session in which healthy early-day gains were given up in favor of lower closes in corn, and marginal gains in wheat.  Corn continues to struggle with the dichotomy of strong old crop demand and cash basis, yet ideal growing conditions for the new crop.  Each day the board drifts lower, cash corn basis firms further.  The apparent exodus of managed money longs out of corn is making the task of securing physical corn supplies by end users rather difficult.  As happens occasionally in our markets, there is plenty of paper selling, but a real dearth of physical selling.  The former doesn’t crush well into ethanol or bacon strips.  Weekly ethanol data and monthly April import data released yesterday were both supportive influences to row crop prices.

Cash corn markets firmed further yesterday with PNW corn shuttle premiums inching up another 2c to +112N for JJ and +115U for Aug, and compares with +100N a week ago.  FOB UP Grp-3 basis firmed to +3N vs -3N a week ago, and HETX held at +90N vs +81N a week ago.  Destination ethanol basis is also sharply better than a week ago with Cedar Rapids posting +3N vs -3N a week ago, and ADM-Marshall around a nickel better over the last week.  Ingredion corn basis is up 5c w/w to +15N for shipment by June 15th.  CIF bids are actually steady vs a week ago.  The aforementioned, while battling the index fund roll, is having a positive effect on spreads with the CN/CU firm overnight o +5.75c, up 1.75c, while the CN/CZ is up 2.75c overnight o +5.50c.  The new crop size proxy of the CN15/CZ15 does continue to weaken, suggesting the market is cognizant of the good growing weather.  That spread is trading +12.75c overnight, off from its high-water mark of +28.75c on May 7th and off from +17.50c on June 2nd.

Weekly ethanol production continues to roll along, posting the 2nd highest weekly production of 2014.  935,000bbls/day were averaged last week, up from 927,000bbls/day the week before and well better than the 896,000bbls/day needed to reach the USDA’s ethanol demand for corn estimate.  Stocks have been on the rise, however, with last week showing a 761,000bbls build to 18.25 million bbls, the highest stocks level since March of 2013.  While margins remain excellent, this build up in stocks may temper production ideas, and could possibly keep the USDA from increasing their marketing year corn-for-ethanol estimate of 5.050bbu.  With gasoline demand continuing to run near the higher end of the 5-yr range, however, it is plausible these stocks levels will begin to draw down in coming weeks.

April census import data was released yesterday during the session, and while old news, was viewed as supportive for the soybean market.  During the month of April, the US imported 7.1mbu of soybeans, well below ideas of 10-12mbu.  This places increased importance on imports rising May-Aug in order to justify the USDA’s record soybean import level of 90mbu during the 13/14 marketing year.  In order to hit the 90mbu target, imports will have to average 14.88mbu/mo May-Aug vs the highest month on record of 12mbu in July of 2013.  It seems as though each time we think the US soybean balance sheet has the right to take a breather, we throw additional bullish data at the market.  Without record imports, our balance sheet doesn’t work to get us to September 1st. Crush margins remain strong relative to a year ago, and beans continue leaving the country on a weekly basis.

The wheat market can’t seem to catch a break with news from Reuters yesterday Egypt had relaxed a tough rule on wheat imports which could promote more sales from France.  In January, Egypt imposed a moisture content specification which excluded French wheat from GASC’s tenders, but the grain buyer said that specification has been eased so Egypt can take advantage of the plummeting wheat price.  The moisture spec was dropped to 13.0% in January, while the average moisture content of the 2013 French wheat crop was 13.5%.

Reuters also carried an article this morning talking about Argentine farmer hoarding, and the possibility of increased soy sales in June/July to repay farm loans.  Government figures show growers have sold 33% of the current soybean crop vs 36% in 2013 and 48% on average over the last four years.  Argentine farmers are also battling a low-protein crop this year which is making hitting soymeal specifications difficult.  Argentina is the world’s largest exporter of soymeal.

As discussed on wheat yesterday, corn is really without solid technical support until the January lows around $4.20 basis July and $4.35 basis December.  On-Balance-Volume continues to head deeper into negative territory, a sign volume is firmly on the side of the bears, and open interest has been rising on the most recent leg lower from May 22nd.  A lower close this week will mark the fourth straight week of lower prices, and July corn would need to mount a rally over $4.82 in order to flip trends back up and give any confidence about a near-term bottom being in.  Friday’s Commitments of Traders data should show continued paring of managed money longs, but until they see a weather threat it will be difficult to turn them into buyers again.  The old crop demand story, however real, isn’t tangible enough to fund managers the way weather forecasts are.  Trends remain down.

Export sales estimates to be released this morning are expected at -100/+150TMT on old crop wheat, 200-650TMT new crop.  Corn is seen at 300-650TMT old, 50-240TMT new.  Soybeans are seen at -125/+100TMT old, 500-1,050TMT new.  Meal at 0-215TMT old, 25-220TMT new.  Oil at 0-25TMT old, and 0-10TMT new crop.  Some of the ranges on these estimates are so ridiculous I’m not sure why they’re even reported some weeks.

 

Bottom line:  A broken record we have, but until the tune changes it’s what the market wants to sing.  Ideal growing conditions, expanding southern plains wheat harvest, large global wheat crops, still healthy fund longs and terrible chart action.  The supportive influences of strong cash markets, solid end user margins and a lack of soybean rationing just aren’t enough to turn the tide just yet.  We need a weather threat, and today we don’t have it.  Still a long way to pollination, but it’s going to feel like it if this board action continues.

 

Good Luck Today.

 

RFC 6-5

 

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.